It’s Time To Stop Thinking Like Rental Guys
If you sat down today to write a business plan for a new audiovisual rental company, would it look like the company you have now or might it take a different path? It doesn’t take much critical thinking to know that buying equipment and re-renting it is a good idea. Your banker will quickly grasp the concept: You buy gear, rent it to someone, then rent it to someone else -- all the while building equity. The primary differentiator of the model is that you have the gear. If you don’t, the business goes somewhere else. If you keep the gear busy for a decent return, the banker will lend you more money. The biggest problem with this model is finding ways to grow the business and make money. The subset of customers that need only what you have to rent is very small. If the customer needs something you don’t have, you risk losing all of their business to a larger company.
This is why most technology rental companies are set up to provide event management services. If you supervise the project for the customer, then you can match their needs to your inventory and minimize what you outsource. As the complexity grows, your differentiator becomes technical expertise. It’s at this point that your rental inventory starts to get in the way. Because you think like a rental guy, you have not been charging for project management or technical expertise. They are value-added services that come with the rental. Projects use less and less of your inventory and the technical expert services become more and more expensive to provide. And along the way the margin on equipment rentals has shrunk to nothing.
The New Competition
Up until this point you have probably been competing with companies that look a lot like yours -- banging discounts and slashing prices. Then one day your customer calls and they are now working with a new professional services company that, for a fixed fee, will design and manage their event by hiring the best suppliers for no markup. You point out that this competitor has no equipment -- and the customer says, “Correct, now I am not tied to one inventory.” They go on to say that it was never about price; it was always about value. Game, set, match to the independent stager.
Of course you know the new competitor personally. It’s either your former employee or one from a traditional competitor. They work from home and engage independent designers, hire your favorite freelancers, and book equipment through wholesale rental suppliers. They have no overhead and even less risk. If the customer wants to add to the scope of the project, the new competitor just adds some fees and makes it happen. And anything you try to do to unseat this “company” looks like sour grapes to the customer. You hope that something goes wrong and that the customer will come running back to you.
Be Open to the Possibilities
In that business plan for a new audiovisual event services company, rental equipment would probably be only one of several revenue streams. In fact, because rental is the last piece of the value chain (and with increasingly lower margins), you might model the company around things that happen long before equipment is needed. Services such as event consulting, project design, and graphics creation could be key revenue center and might never develop into a rental. A client may originally hire you for one aspect of your services, but eventually they will see the value in having you handle more. But this is still one-dimensional thinking. This model lets you do anything that involves creative or technical expertise. Once you have designed a digital signage and registration system for a client’s annual convention, you have most of the expertise needed to put a system into their corporate headquarters. Because you chose to own the computer systems and software, you can re-create the outcome for many customers. I have said more than once that the future of the AV industry is software.
The Road to a Consultative Model
Exploring the consultative selling possibilities, you discover that you are only limited by expertise. The voice in your head right now is saying, “But our salespeople don’t know how to do any of this stuff.” I agree. In general the salespeople in the rental and events industry are not consultants or experts. They are order-takers (sorry guys, I was once an order-taker, too). They probably will not become experts, but what they can be is relationship managers. And instead of just building equipment and labor budgets, their job will be to connect the customer to all the experts at their disposal. This starts with a lot of listening followed by a proposal for professional services with a specific deliverable.
When the end game is not just to rent your inventory, selling takes on a very different personality. It will be easier to build a relationship based on trust -- just like your new competitor did. But unlike the independent stager, you can create economies of scale and capture profit in the services and the rental that he cannot, because hiring employees and owning gear reduces your overall costs while reinforcing your experience.
The elusive piece of the puzzle is coming up with all these specialists. Once again, we need to abandon our rental thinking and seek out strategic alliances that can make us stronger competitors. Alternatively, you can choose to hire your own experts. If your customer base is already primed for consultative relationships, this might be a low-risk proposition. As for the idea that this model competes with a portion of your client base -- event producers -- I concede that it does. Maybe some of them need to be your strategic partner instead of client. (See my article “Redefining Content Production As A Rental Service” in Sept. 2008 R&SS).
Please don’t get me wrong: I love rental and I still believe that owning gear is the right choice. But the competitive landscape has changed, and just being gearheads is not good enough anymore. This is show business, and putting on a successful event takes left-brain and right-brain activity. There is room in the industry for hardware providers, but there is more room for solutions providers.
