Industry Q&A Session with Vital Management CEO Paul Starkey
On Wednesday, Ron Callis had the opportunity to interview Paul Starkey, CEO of Vital Management and Bravas Group, via Facebook Live. Paul Starkey has been in the custom installation business for 24 years, and during that time he has raised venture capital twice, acquired two companies, and started two others. He has extensive knowledge of the CI industry ranging across business operations, sales and marketing.
For those of you who didn’t have the chance to catch it live, we’ve captured the video and transcript of the Q&A session below.
Q: Paul, you started off in the AV industry on the manufacturing side, and your roles have evolved over the years. In your current position, how has your perspective changed in terms of understanding the challenges that integrators go through every day?
A: I think the thing that struck me first was the diversity in how integrators do their accounting. It’s a little bit like amateur golf swings. Everybody has developed their own method without much instruction. It’s evolved, and one shocking revelation I observed was that most companies operate at about 30% of their real potential. That was a real eye-opener coming from the manufacturer to the dealer side.
Q: One challenge we hear a lot about in this industry is the challenge of integrators to grow and scale their businesses due to lack of qualified sales people. Do you see that as a problem for this industry?
Finding great salespeople in any business is a challenge, but I think it’s a bigger one for custom integrators. Most successful sales people are home grown. Many are the owner or principal. There is a huge need for sales development training not so much on product as much as sales process, approach to consultative selling, and there needs to be a fresh training ground for new sales people. Maybe this is my next venture: rainmaking for CI, if you will.
Q: For our viewers’ sake, when I speak about Vital Management and the Bravas Group, perhaps you could explain a little bit about those businesses?
A: Vital Management was formed to be a dealer-owner professional services company to help companies do things consistently the right way. We have a number of products we offer through Vital Management.
We also had a secondary emphasis of creating a cooperative, allowing companies to collaborate in an intimate way, different from anything that has been done in the industry. We formed that cooperative as Bravas Group. There are 24 members today, including full members and associates. They meet virtually every month to discuss best practices. They’re coached by Vital Management, and what’s really interesting about it is that we treat them as if they’re a virtual company. Together, they’re about a $90 million enterprise, even though each one is owned independently.
Q: Next week you’re doing a webinar on this thing called Bi4Ci. What is that and how did that evolve?
A: The acronym is Business Intelligence for Custom Integrators. It’s an industry-specific set of quantifiable metrics. Some people would call them Key Performance Indicators, or KPIs. And this is fundamental to everything that Vital Management does. It’s now an open service for any CI dealer who seeks to do better and could use a standardized way of doing things. It’s based on QuickBooks Desktop Pro Series.
It’s an extraction of key profit and loss and balance sheet data. It renders these awesome, easy to read dashboards that really help to improve daily, weekly, monthly, and quarterly business. We think it’s breakthrough technology for this industry, and we invite people to go investigate it. It does take a little bit of training and setup, but once people are on it, it’s the easiest way for people to understand how to make money.
April 12th, 10:00 PST
Q: I’ve been in the AV industry now 18 years, and many of the business owners that I know: knowing the numbers for their business is not typically their greatest strength. We all aren’t born knowing how to read a balance sheet. From your perspective, what do you see as the need in terms of knowing the numbers?
A: I agree with your observation, Ron. Many times the owner is more technical, more sales-oriented, and when you get into a small business, you get busy. I think the word business came from being busy. We try to get them out of that bog and focused on actions, priorities for their business. There are a lot of day-to-day challenges, and we just use the numbers, the financial data that they have available to them, to direct those priorities and actions.
Numbers without actions are fairly meaningless, so we’ve taken the approach of simplifying this, making it visual. The dashboards and KPIs become important. We have one basic premise: the more an owner knows about how to make money in the CI business, the more money they will make. Of course, it’s not all about making money. There’s a lot about reducing the chaos, increasing opportunities for employees—basically allowing them to fulfill their business mission a lot better when they have the right information and the right intelligence to do it.
Q: In terms of knowing the numbers, are there particular characteristics you can identify for what you might call most successful business owners in this channel?
A: It’s interesting: I think there’s one big one, Ron, and it’s to be a fast follower of good advice. That sounds really simple. There’s a lot of advice out there, but all of it is not good. When you get good advice and solid wisdom, take action on it. We see so many conferences and buying groups sharing great ideas, and yet very little action gets done. I think the difference between people who maximize opportunities are people who take action.
Q: What are the three numbers or ratios that an integrator should be watching?
A: In our Tuesday morning coffee this week, we shared what we consider the three secrets behind being successful financially in the business, and they’re pretty straightforward. One is gross profit—making sure you’re maximizing that. We’re all in a bid situation for the most part. Generally, the downfall is in labor and parts pricing. There’s usually not enough coverage for the parts or labor they use.
The other is more in the compensation field, making sure it’s aligned to those gross profit dollars. We have some specific metrics on labor productivity—how much labor per tech per month—is extremely important.
The third piece is cash. It’s the most little-understood piece of the equation. Many of our integrators are getting pre-payments or deposits on work performed. We work with a net cash number. It’s net of inventory and client deposits, and it gives a real indication of what their cash balance is. While most integrators look at their checkbooks and say “that’s my cash,” many times, 80-100% of that cash is not theirs.
If you manage these three things in your business, you can double or even triple the performance most companies are getting these days.
Q: We’ve looked at the metrics for successful businesses, but I’m assuming along the way, you’ve run across businesses that are never going to break out and should maybe throw in the towel now. What are some characteristics of owners that just aren’t getting it?
Q: The number one indicator of someone who is not cut out for this business is not being able to deliver what you promise. You have to be able to deliver what you promise and finish jobs. If you can’t do that, you should be doing something else. If you can’t sell, you’re not going to be long in this business. So selling and installing—those are the basic requirements. And you have to have some sense of scorekeeping. If you’re going to get better, you’ve got to know where you’re at.
Q: Let’s talk manufacturers. You’ve been on the manufacturing side. From your vantage point, which manufacturers are getting it done and will continue to have staying power in this space?
A: We’re in an industry where there’s one thing you can count on: constant change. We’re constantly seeing new things, new ideas, new innovations, and I think that makes business possible. When you ask about excellence, Lutron comes to mind. I think that’s a company that is dominating their space and continues to do a great job. Sony recently seems to be on a roll with appropriate products and support programs. We see niche companies like Leon and Snap AV who continue to be a major force in the business.
I think the tough space is with the control companies. They could get better at supporting and helping dealers on the business side. I think manufacturers need to take a leadership role on the business side. It’s not just about selling product. I’d like to see more business leadership from all manufacturers. It’s a win-win.
Q: What are some cool new technologies you think are just around the corner for making a big impact in our space:
A: Voice control systems. I think Alexa and Google are really breaking through in that area. Intelligent cameras that can move and function based on elaborate algorithms are really neat stuff. Wallpaper TVs (power cord issue notwithstanding). We may be seeing glass walls in high-end homes that are part TV, part art and décor. I think there are some very cool things that could be happening in that space. Every year, we see a wave of new products and ideas. The future is strong for installing consumer electronics.
Q: The modern consumer is adopting technology quicker than ever. Will that trend continue? Is that something integrators need to be worried about?
A: I think that’s where our industry has lived for almost 30 years now—helping consumers deal with technology. The segment that the custom integrator lives in is a luxury market, not DIY. We tend to want to put this whole continuum together, but there are very few things in life that work that way. The more that people get exposed to technology that they can consume in bite sizes, it doesn’t defeat or distract from high-end projects.
Q: Tell us about your thought process behind developing Bravas.
A: Our industry is made up of a lot of small businesses, and it suffers from a couple of core issues. One is finding a custom integrator. Unless the builder or architect you’re working with has a relationship, you’re going to struggle. It’s difficult to find integrators and discern the elite. Anybody can create a website that makes them look like a 50-person company.
We felt there was an opportunity to keep a decentralized model with local support, but with an international group whereby all of the entities could benefit from working together. That was the concept, and one of the side effects of that would be that when the organization was large enough, to provide an exit strategy for older owners and provide a succession plan for taking over.
We were looking for a couple of things to happen: We felt we could help companies immediately and also put them together to become an entity that could be visible by consumers and attract more high-end luxury customers. Those were the fundamentals. If we never get to the consolidation phase, we will still have done something real special. The thinking was to do the work first and focus on business and financial strength. We focus on creating value.
Q: I hear you’re doing a benefit concert at CEDIA. Talk to us about that.
This is a cause very dear to me and my wife. There are 100,000 of US citizen girls and some boys being sex trafficked in our back yards. And there is no out for these kids. For the 10,000 in just San Diego, there are less than 20 beds to give them shelter and restore them to society. At CEDIA this year, we are hosting with other good sponsors a Creedence Clearwater tribute concert to raise, we hope, $200K for the cause. We will be honoring Women of Influence.
This should be the best event at CEDIA under the stars and moonlight at Humphreys at the bay venue. If you are a manufacturer or service business, please consider sponsoring. If you are attending CEDIA, don’t miss this event. Tickets go on sale May 7th, and they will sell out. There are only 1,000 seats available.
Benefit Concert Website: https://www.queenofhearts.rocks/
Q: We saved the most important question for last: do you think life exists on other planets?
A: I believe that it’s very much possible, yes.