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Growth Beckons in the New Economy - AvNetwork.com

Growth Beckons in the New Economy

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Whether you will share in this growth may have already been decided
By Tom Stimson CTS

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For the average production rental company, approximately 30% of all revenue goes to outside suppliers or workers. Think about it: an average of one-third of your business execution relies on people outside your company. In busy months, this number can skyrocket. Many companies strive to avoid any outside costs such as subrentals and professional freelance labor, but these policies stagnate growth and increase overhead costs in slow months. Such practices also force you to turn down business when there is plenty to be had, and increase your costs when revenue is down. In other words, not outsourcing is the number one reason that some businesses aren’t able to grow or be consistently profitable.

In order to break this cycle, we first have to defuse the thinking that goes behind it. There are three myths to business (at as it applies to live events and rental) that stifle growth in terms of outsourcing.

Our People Are the Best

While I can admire companies that pride themselves on always placing employees in key project positions (or in some cases, ALL positions), it doesn’t make business sense in a highly seasonal industry like ours. In my experience, technical teams are only as good as the support system back at the office. Customers know this. They may smile when you talk about your wonderful people, but they are thinking, “You mean to tell me that in an industry with 11,000 event staging companies, you believe that your eight technicians are the only ones capable of doing a good job?” The sales pitch I have heard too often is that non-staff technicians are unreliable or inconsistent. This doesn’t instill much confidence in your ability to execute complex jobs – if you can’t properly choose and manage quality techs. Your people can only be the best if your entire business is the best.

We Don’t Have Time for Planning

Rental & Staging Business Trends in 2012
At the end of 2011 The Stimson Group surveyed the market for trends to watch out for in 2012. Here’s some selected items and our thoughts on why they matter:

“There is a need to convert legacy five-wire 4:3 switching, distribution and projection systems to EDID compliant and digital video in widescreen and higher definition formats.”

Pro projectors generally aren’t EDID compliant and even if they were, our switching and scaling systems aren’t. By the time that is all sorted out, we may be 2 to 3 standards down the road. The BIG item in the above statement is the trend away from 5-wire cabling. Stagers have huge investments in copper wiring that now seem wasteful, heavy, and outdated. Is this inventory worth more than scrap copper prices? Will someone start a business that will repurpose millions of feet of this old cable?

“The downward pressure on margins will continue as our competition lowers their prices.”

We disagree: This was an often-cited sentiment in the survey. I suspect that as business levels increase (2012 is already seeing record sales for many stagers) that margins will be less problematic. Cut-rate suppliers tend to be the first to run out of capacity. One reason for this is that the pool of available cut-rate freelancers dries up quickly in growing economies. That low-price competitor will soon have to raise prices to stay in business. Smart companies have raised prices already.

“An election year in the U.S. changes everything.”

One thing that election years do affect is that staging businesses can pick up a lot of local and national campaign events. As for real economic changes as a result of an election, both sides will say that a change in leadership will help or hurt the economy depending on their current position. In reality, both sides are wrong. The decisions that affect small businesses often take years to manifest (we still have not seen the pending effects of healthcare reform). Being informed is good, but getting caught up in political panic is probably bad for your business.
Planning is hard, which is why not everyone is good at it. Successful stagers have to figure out how to balance the need to book freelancers far in advance with the inevitable last minute changes that characterize this business. The same applies to equipment. Securing quality subrentals before you dust off the dinosaur inventory is a smart choice. When all the “best” gear and people are slotted into the jobs you have confirmed, start planning on how to execute the “backup” job. Re-allocate some staff and inventory and provisionally subrent that extra PA system, video package, or lighting rig. Be ready for one more job. If you want to grow, these steps are critical.

While you might disagree, clients generally don’t sit around waiting till the last minute to call you. They have projects dumped on them too. If you find that once or twice a year that you have no choice but to say no to handling even one more job, that is probably forgivable. If saying no is part of your business best practices, then you have made an active choice to stay the same size or get even smaller. Growth companies find reasons to say yes and maintain the resources do a good job even when things get busy. Clients want suppliers that can grow with them. If you can handle their last minute needs with grace and quality, why would they ever look anywhere else?

Our costs are lower than growth companies

I know what your emails will say if I don’t acknowledge that increasing capacity this way is costly. As someone that studies financial statements and business processes for a living, I can tell you that companies that build contingency plans and maintain some headroom in their resources have significantly lower variable costs. Good planners also know when not to build in extra headroom. And most of all, because they understand costs better, their pricing models are smarter. Some might say, “Customers won’t pay for my planning and contingency costs!” Actually they will, if planning, flexibility, and resourcefulness are part of your value proposition.

If I have a client that only hires me because I am the cheapest, I can guarantee that when they call at the last minute during busy season that I will have nothing for them. If I don’t plan, I won’t be able to help my best customer either. In other words, you have to figure out how to service good customers in any business climate in order to earn the margins that cover the added costs of being an excellent partner. It is kind of a chicken and the egg thing – you have to start somewhere. An old friend of mine has a saying that captures the futility of not choosing where you want to start: “If we had some bacon, we could have bacon and eggs – if we had some eggs.” Choose to grow.

Tom Stimson, MBA, CTS, is president of The Stimson Group, a Dallas-based management consulting firm providing strategic planning, market research, and profit-through-process services to the Audiovisual Industry. A frequent keynote speaker, Tom is also a Past-President and Adjunct Instructor for InfoComm International. Contact him at tom@trstimson.com

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