If you own or manage an integration business and you are less than 40 years old, it's unlikely you've had to manage, plan, and make decisions in as uncertain a business climate as we face today. Not since the '70s and early '80s have we faced struggling economic conditions that force owners of low-voltage contracting companies to alter business plans at a moment's notice and puts so much pressure on financial decisions.
Today it's not just about the U.S. economy. Economic influences from markets in Europe, South America, and Asia are putting great pressure on oil prices and food commodities that have contributed to weaken our dollar and threaten our dominant position in world markets. Our own financial markets are a mess, due in no small part to the housing mortgage crisis, resulting in tight or no access to credit. The last two recessions were mild, lasting only eight months each. Could this time be different?
If you've never lived through a major economic slow down or rapid inflation, it would be easy to get complacent expecting that the business conditions of the past 20 years would last forever. It's kind of like the turkey on a farm. Every day he wakes up to a great meal, plenty of food and water. He gets fat and happy and starts to believe this is the way it always was and will be. Then comes Thanksgiving!
Do you know anyone in our industry now that's willing to project sales and business conditions more than six months out? Has Thanksgiving arrived for our economy? It's not like this happened overnight, but it's likely that you assumed it wouldn't get too bad and that, just like the last two recessions, this one would be mild and short. So, you kept doing business as usual. Your backlog has remained pretty good. Many of us have come off our best year ever in business. But, there's some nagging doubt setting in. Maybe this time will be different. There are just too many forces influencing our companies that are out of our control.
What becomes clear as you get older is that business climates run in cycles. What's unclear is the nature of this current downturn. For systems integrators, the extent to which your business will be impacted during the next year or two will depend mostly on the following three factors.
Impact of Outside Influences
Let's face it: there are some things in life that are simply outside of our control. The price of crude oil, government regulations, the strength of the dollar, inflation, and Mother Nature are just a few. If you have a fleet of trucks, your gasoline bill is up at least 50 percent over this time last year. You could park your trucks at the office and make your techs drive to work, but this only shifts the burden to you staff. You can add a gasoline surcharge to your invoices, but risk customer perception that you are nickel and diming them.
You are going to have to raise prices. But, unless you predicted the increases several months ago, it will take six to eight months, if you raise prices now, before you will see the result in your margin. In the meantime you just have to suck it up and watch your margin decrease.
Managing through uncertainty requires a keen awareness of the outside influences. The extent to which you can gather intelligence about future trends and steer your company to counter them will help establish stability in the eyes of your employees and customers. You know those economic forecast luncheons sponsored by your bank that you never attend? Maybe it's time you said yes.
Diversification
If you've read my columns in the past, you know I'm a big believer in diversification as the company grows. Diversification across multiple markets and core disciplines gives your company a better chance of having at least one foot firmly planted on the ground when other markets or core disciplines evaporate. If you are a residential systems integrator who only concentrated on the mass builder market, life is probably really tough right now. But if you diversified to include custom homes and corporate AV, your business slowed down, but hasn't completely evaporated.
If your core market is corporate AV, and you diversified into government or health care, you probably stand a better chance of maintaining a steady flow of new business. Looking forward, the government sector, specifically security and health care, are looking strong. Education will take a big hit next year as funding dries up while the tax base shrinks.
