The Evolution Solution
Reinvention is the key to staying alive
Mike Cherrington, CHERRINGTON COMMUNICATIONS
- Location: Phoenix, Ariz.
- Years in business: 9
- Number of employees: 2
- Annual sales: $330,000
We used to get a lot of calls from people off the street, taxi companies and locksmiths and the like. That has dropped off quite a bit because the normal consumer has fallen into the cellular category, particularly Nextel. They want to have one electronic item hanging off their belt, and they no longer want to buy and maintain their own systems. They’d rather tap into the commercial wireless carriers because it saves them a lot of infrastructure costs.
The exception is the government-type people, who are always going to need two-way radios. Police and fire departments, for instance, aren’t willing to cede control of their communications systems. If they’re using Nextel and something goes wrong, they have to sit around by the phone and wait for a call telling them that the network is back up and running.
In contrast, if they own their own system, they’re in control of it, they have their own technicians, and if they lose a mountaintop, they know their guy is on his way up there. I don’t think they’re willing to give up that control, which presents opportunities for mobile radio dealers.
But government also has scared off a lot of dealers, primarily because of the contracts and the bid process, which drives profit margin down. In the early days, we’d be able to sell them radios at retail prices, and there would be a 30% to 40% profit margin. Today, as soon as you start talking government, that 30% margin drops down to about 6%.
The repair business is still a good business for radio dealers. Word of mouth has really made us successful, and a lot of that has come from people bringing us their radios and us doing a good job of fixing them. People remember us and come back to us when it’s time to buy a new radio. Plus, I tend to come off as a technician, not as a salesman, which ironically helps me when I’m trying to make a sale. I’m able to build up a trust with our customers because they know that I know what’s going on inside the radio. I feel, and I think they feel, that I’m in a better position to tell them they need a certain type of radio.
I’ve also had to tell them at times why their radio isn’t worth fixing. They have to trust that I’m not lying to them because I’m trying to sell them a radio. This is particularly true when dealing with government customers, who typically aren’t eager to throw anything away.
A lot of dealers, however, shy away from the repair business because there’s a lot more money in sales. We charge $65 an hour when we repair a radio, but there are only eight hours in a day. Contrast that with landing a sale for a couple of hundred radios. If we’re selling to a government agency, we can command a price of about $1500 for a Project 25 radio, and some radios cost as much as $3000 per unit. It’s easy to understand why dealers say, “Let’s not screw with the service end of things, let’s just sell radios.” We had the same thought. When we first started, we were strictly repair. But one day, a customer came in, and I had to tell him I couldn’t fix his radio. He asked me how much it would cost to replace it. That’s when the light bulb went on.
We reinvented ourselves at that moment, and to stay alive in this business you have to constantly reinvent yourself. We do it primarily by letting the customer give us direction. For example, our customers are migrating from analog to digital, and we’re migrating with them. But there are categories that bear watching. Battery technology, for instance, is going to be huge because battery life is the biggest drawback to every handheld device. If somebody could come up with the technology to get the same amount of power out of a smaller package, that would have a profound effect on the two-way business. Once that happens, it will create a sales boon because everyone will want to toss away their old stuff.
The wild card concerning reinvention is the FCC, which has a tendency to abruptly change direction. You can be moving your business in one direction, and then the FCC swoops in and decides everyone needs to move in exactly the opposite direction. I can’t afford to waste money for six months and then spend more money to go in another direction. That worries me.
However, homeland security excites me. That’s the big one. There are a number of entities that previously haven’t had their own communications systems but which are going to need them now. For example, there are two national parks in Arizona on the Mexico border. No one paid much attention to them before, but now they’re going to have to patrol that border, and they’re going to have to talk on a regular basis with the U.S. border patrol and the local sheriff’s office. A lot of new customers like that are going to start popping up.
A lot of people are getting out of the two-way business because they think it’s a dying breed, that pretty much everyone will have a cell phone with push-to-talk capability, and that will be it. But I honestly don’t believe that because when someone pushes the button on a land mobile radio, they know they’ll be able to talk with someone at their company and they don’t have to rely on anyone else. It comes back to the control issue. They just don’t want to put critical communications in someone else’s hands.
— As told to Glenn Bischoff
The future is rosy — just ask my son
Sal Dragotta, VIKING LAND MOBILE COMMUNICATIONS
Location: Milwaukee, Wis.
Years in business: 40
Number of employees: 9
Annual sales: $1.2 million
We’re happy with where our business is right now. We’ve seen steady, slow growth over the past few years, despite the impact of outsourcing and downsizing on Milwaukee’s industrial base. We used to add customers every month; now it’s a bit slower than that, but I attribute that to the economy and the fact that many, many jobs in Milwaukee have gone overseas. We had some huge plants that would usually tide us over during the difficult times, but they are now all history. When those plants go, the smaller companies that feed them — like Viking — suffer.
Transportation is our big specialized mobile radio customer. We also do a lot of business with a casino in Milwaukee. The rest of our customers are no longer big customers anymore. While the area’s schools as a group still are a very important customer, each school is independent, and they are smaller users.
We do a lot of licensing of users. There’s quite a market in that. The second thing to hit the garbage after the package is the FCC application. So we spend a lot of time tracking down unlicensed users that end up on one of our channels. While people are afraid of the IRS, they aren’t afraid of the FCC because there are no penalties, no enforcement. A lot of people who are honest, law-abiding citizens in all other aspects of their lives don’t think about filing a license application.
We’re also doing more AVL. Customers like that feature and they also like text messaging. We’re doing a lot of text messaging. We’re trying to get manufacturers to look at other products, but it’s hard. Store-and-forward would be a nice option. A lot of our in-plant, in-building system users are going to trunked systems. Major customers like the casino use a trunked system because it gives them privacy.
We’ve also been installing radiating cable systems into buildings, especially for public safety. We’re doing really well with building-type coverage systems for cell phones and wireless systems. When the architects don’t want to address communications, then someone has to put in a radiating cable system. Some of the new building materials are very unfriendly to RF. That tinted glass not only blocks sunrays but also RF. For example, a four-story underground parking garage in downtown Milwaukee was built, and it doesn’t have cell phone coverage. Ironically, installing RF-friendly materials during construction is relatively inexpensive.
Currently, Viking is strictly a land mobile business and hasn’t ventured into other avenues such as intercoms or closed-circuit television. Our biggest asset is a new 500-foot tower that we use and lease capacity to others. But we’re looking at alternatives for the future. We’re looking at wireless Internet services to leverage our RF expertise. However, Milwaukee businesses have so many other options, led by digital subscriber line and cable offerings. When you get into the metro areas, those services are readily available and considerably less expensive for a start-up. There are a couple of wireless Internet systems in the area that are struggling for several reasons, one of which is that customers have to buy equipment up front.
Nevertheless, I’m optimistic about the coming years. I wouldn’t have had my son come into the operation if I didn’t think the future would be positive. He’s very competent in both RF and computer. The melding of those disciplines will be crucial in the coming years. RF is a strange animal. It doesn’t like to behave according to any rules, so it takes a very knowledgeable person. But when you combine RF and computers, which is happening at an ever-increasing rate, you end up with a very strange animal, and it takes a very talented person to figure it all out.
Our biggest problem is cellular. Right now the commercial wireless carriers are giving away their services. There’s no way we can afford to compete with the advertising power of those entities. But there’s a shakeout coming in the cellular field. And once these people have to turn a profit, land mobile will make a profit again.
— As told to Doug Mohney
Don’t be afraid to take risks, but avoid gambles
Steve Guller, WARNER COMMUNICATIONS
- Location: St. Louis, Mo.
- Years in business: 42
- Number of employees: 25
Though most of our customers today still are in the enterprise sector, which represented the bulk of our business in the early stages, government produces more sales revenue, and not just because of the emphasis on homeland security.
Consequently, government agencies represent a tremendous opportunity for mobile radio dealers, especially those in public safety because they are willing to pay for expertise. They are sensitive to the fact that someone’s life is on the line if the communications aren’t right. They also understand that someone who is experienced can provide them with a more cost-effective communications system over the long term because if you don’t do it right the first time, someone is going to have to go back and fix it, and that costs time and money. However that opportunity could well be tempered by the fact that the biggest challenge mobile radio dealers face today, and will face in the future, is developing young people with good technical skills.
In the early days, when we would look to hire technical people, there were plenty of amateur radio operators, who were very enthusiastic. It was a hobby for them, and they were very interested in making that hobby a vocation. Today, we don’t see young people getting into radio frequency communications. Consequently, as some of the older technicians begin to retire, it is going to be a challenge to replace that brainpower.
There are other challenges that dealers are facing. For instance, we place too much emphasis on technology and not enough on finding solutions for our customers. We go to the industry trade shows and we get caught up in all the whiz-bang things that are on display, but the reality is that when you talk technology to a customer, their eyes start to glaze over. All the customer really cares about is, how is this going to help me? This is as much a challenge for our suppliers as it is for us.
That’s not to say technology isn’t important. In fact, it’s very important because it leads you in new directions. You have to be willing to try new things, and you have to be willing to take a financial risk. Believe me, we have taken a financial bath on a few things over the years. The trick is in minimizing the risk, which we do by conducting risk assessments of the products or product categories we’re reviewing. And we have walked away from things because the risk was too high. Dealers should be mindful of the difference between a risk and a gamble: A risk is when the odds are in your favor; a gamble is when they are not.
Dealers also should listen more closely — and more often — to their customers because they too will lead them in new directions. Dealers who refuse to change will fall by the wayside because they won’t be able to adapt to what their customers need. As elementary as it sounds, dealers have to stay in tune with their customers.
We have fallen into the trap of being surprised by our customers at times. When that happens, you’re not doing your job. It’s an easy trap to fall into. It usually happens when you’ve gone three to four months without talking to a customer. Next thing you know, they’re calling you about a competitive product you know absolutely nothing about, and you’re at a huge disadvantage.
Looking to the future, dealers are heading in one of two directions in terms of sales: commodity or value-added. They have to pick one; it’s too difficult to try to do both. You can be quite successful selling only radios, if you can be cost-effective. But the greater opportunity is in value-added sales. More and more organizations are seeking integrated, coordinated communications solutions.
It used to be that departments would maintain their own systems and there wasn’t a great deal of interest in coordinated communications. Today, with the heightened sense of security that pervades both enterprises and government agencies, organizations want top-down systems that enable personnel to communicate across departments or jurisdictions. But that brings us right back to the challenge addressed previously, as the key to selling integrated systems is in having technical expertise.
— As told to Glenn Bischoff
Despite declines, future promises more upside than downside
Matthew Sickman, MOBILETEL RADIO
- Location: Evansville, Ind.
- Years in business: 20
- Number of employees: 3
- Annual sales: $300,000
It’s been a rough couple of years for us, but we’re hanging in there. We used to have 12 employees but now are down to three, as the larger companies we traditionally worked with — such as in the oil and coal industries — have faltered. The decline in business has driven us into other areas of wireless beyond land mobile, including data control, Internet access, security, wireless cameras and digital video recording.
Searching for new solutions, I traveled to Asia and received a warm welcome from overseas manufacturers. We buy directly from Korea and get equipment in here at half the cost. We have such a close relationship with them, when we go to visit with them, it’s like they roll out the red carpet. They call us their best customer, at $100,000 a year, maybe less.
Currently, we have somewhere around 200 customers across a spectrum of medium-sized operations, including hospitals, plastics plants, lumber yards, schools, and churches. Recently we helped three schools get radios installed. Service-oriented businesses are still strong candidates for land mobile radio services. Service people will always want some sort of dispatch capability, so they can contact all their people at one time. That sector isn’t going to go away.
We’re optimistic about the future. We know the two-way industry is not going to disappear. Emergency-management people have found out that using a cell phone doesn’t cut it. You need to have a simplex or a two-way communications system because once the phone lines are cut, you don’t have communications.
One challenge we’re facing, especially with our newer customers, is they always want to get it done for nothing. Communications is the bottom of the barrel. They realize it’s something they need, but they have other priorities. Hospitals are always looking for ways to cut costs, for example. They have no problem buying a dialysis machine for hundreds of thousands of dollars, but they scream when they buy a radio system for $3000.
The industry is definitely moving into security; we already see that. We have a federal agency moving to promote homeland security. People want to drive down the street and be safe. Police and fire departments are looking for the best way to protect people. Consequently, I see a huge demand for security services.
Leasing capacity to municipalities should be another growth area. There is a town in Kentucky that can’t afford to spend big dollars for radio towers, so they look to me to build their system and rent from me. They looked at the rental side vs. building and maintaining their own tower and concluded that rental is more acceptable. Here in the Midwest, we still have radio channels available. Every day, people go out of business, so it opens up opportunities.
— As told to Doug Mohney
The cocoon, while safe, is no place to stay
Dave Keller, RADIO ONE
- Location: Atlanta
- Years in business: 7
- Number of employees: 11
- Annual sales: $1.0 million
Without question, operating a mobile radio dealership today is nothing like it was in the old days, when you could make a pretty sizeable margin per radio. With all of the radio shops and dealerships in our area, for example, it’s pretty competitive. There are at least 20 in our selling territory, and it’s probably a lot higher than that because we cover a lot of counties.
For that reason, differentiation is the key to succeeding in the future. If everybody is selling the same things, then no one is going to make any money because we’ll be playing a pricing game and undercutting ourselves to death. The problem with that strategy is that seasoned sales professionals who have been with their dealerships for a long time generally are reluctant to change. But they’re beginning to see that the market is changing — primarily because they aren’t seeing the sales they used to see — and they’re starting to change, too. The bottom line is that they’re going to have to leave the comfort of their cocoon.
Data is one product category all of us should be looking at. Dealers can no longer limit their focus to voice systems, partly because they need to do something that’s different than the guy down the street, but also because the customer more and more is looking for a total solution. They want to leverage their investment. That two-way radio then looks a lot more valuable if it’s part of a comprehensive solution that allows the customer to also transmit a job order or instructions to employees.
Also, we’re seeing higher-priced portables and mobiles being replaced by inexpensive units. We’re even seeing factories and plants going to really inexpensive radios that they’re buying on the Internet. It’s really tough to compete with that. So you have to pour on the service like never before, not only to land the customer, but to keep the customer. You have to pour on the service, because the way things are today, there’s someone right down the street who covets that customer’s business. You also have to learn whatever you can about their business. You can’t just walk through their door and say, “Hey, I’ve got five radios here, you want them?” You have to find out what their problems are, what their wishes are, and what they hate about how their businesses are operating right now. That will give you an idea of where you need to go next.
You also have to pay attention to what’s going on around you. For instance, Nextel and the other push-to-talk vendors are a threat to our future. Nextel has done a great job of moving into our footprint here in Atlanta. One of the reasons we branched out into software development with a dispatching system was to give us an edge against Nextel and the others. It not only gives us a competitive edge, but also enables us to increase system load, which is an important source of monthly recurring revenue. It’s also something we can offer to other operators, which opens up new market opportunities for us.
To be sure, doing something like this isn’t easy and it doesn’t happen overnight. It took us six months just to get a version ready for a beta test. That’s tough, because you still have to pay for the effort in the interim. There were times when we wondered just what we had gotten ourselves into. But once we developed the product, we were very happy we made the effort. If we had been content to let things roll along as they had been and been happy to be just a system operator, then we would have eventually stagnated.
The ability to adapt is crucial. I don’t know how long any dealer who’s not paying attention and making adjustments can last. The market and the technology are changing so rapidly that you have to move pretty quickly. One thing is for sure: We plan on being here five years from now, but we’re going to look different than we do today.
— As told to Glenn Bischoff
Homeland security is a very good thing
Karl Hosterman, CENTRE COMMUNICATIONS
Location: Bellefonte, Penn.
Years in business: 17
Number of employees: 13
Annual sales: $1.0 million plus
Business is booming for us right now. We’re keeping busy with a lot of on-site equipment, portable radios and handheld radios. The public-safety sector has been very good since Sept. 11, 2001. The buzzword of the moment is interoperability. People are upgrading now, since they have more money, thanks in large measure to the increased emphasis on homeland security. We’ve also been getting a lot of work from enterprise customers — we have somewhere between 200 to 300 accounts — including Penn State University, trucking companies and construction firms. Trucking companies, for instance, don’t want to see their drivers with cellular phones in their hands; they’re looking for one-to-many solutions.
We’re still selling radios — particularly portables — though our business in that area has dwindled some. We’re also still operating several 800 MHz and UHF trunk systems. Getting UHF trunking was beneficial for us because we didn’t have to fight with any 800 MHz interference problems.
We used to see a lot of business from very large fleet radio systems, as people would try to stretch their radio coverage as far as they could. With the appearance of Nextel and cell systems, that’s diminished some, but we have had some people try cellular and/or Nextel and come back to us because of the coverage we can provide in rural areas. Being in the middle of the woods sometimes does have its advantages.
Generally, cellular phone systems have nibbled away at our business over the years, but we believe land mobile radio services have held their own, primarily because conventional two-way radio is a very efficient way of communicating inside factories, apartment complexes and the like. Why should a building manager have to go through a tower in order to talk to the maintenance guy in the basement? People are becoming more efficient in their communications.
Our repair business also has eroded as equipment has evolved. We still service radios on site, but far fewer of them. In fact, we don’t see many repairs other than batteries. With extended warranties, it’s easier to send radios back to the manufacturer. Our business also has been negatively affected by the price of radios, which has come down tremendously. Some paging markets have dried up, and high-power base-station equipment doesn’t seem as prevalent as it used to be.
Looking to the future, we’re anticipating a migration to IP-based systems. Most radio systems or communications systems will basically be an IP addressable-type system at some point. It’s coming, but it might be a while before it gets to us. It wasn’t until 1989 that we got cellular phone service here, so we’re usually eight or nine years behind the curve. We’re going to put the time to good use. We’ve already been experimenting with unlicensed bands and Internet access because we have to make it work for ourselves first before we can go out and sell it to others.
In an IP-based world, computer technicians will become more important, but the basic fundamentals of RF are going to be there and RF technicians are going to be there. The big question is, in what numbers? The number of people who understand the basics of RF has been shrinking over the past few years. The people that made radio work are dying off; the radio engineers of the ’20s and ’30s are going or gone. Somebody is going to have to learn it all over again. The future depends on it.
— As told to Doug Mohney
Rumors of our demise are greatly exaggerated
Bob Samo, SILVERADO AVIONICS
- Location: Napa, Calif.
- Years in business: 40
Like many mobile radio dealers, we have evolved over the years. As we evolved, we went from trying to do everything for everybody to doing a few things extremely well for a smaller segment. The bottom line was the motivating factor. We found it difficult to make a decent living when we were spreading things so thin across all of those market segments. We learned you couldn’t be all things to all people. We also found we can serve our customers much better when we concentrate on a few specific segments.
Serving the customer is the key. I like to describe it as the Toyota principle. In the early stages of their television ads, the message was, “You asked for it, you got it.” You have to keep your ear very close to the market you feel most comfortable in because it’s the only way to learn what the customers in that market are looking for, or at least figure out what will make their operations more efficient. Then you have to make sure they get it, in one form or the other. It sounds like a cliche, but I don’t think every dealer is doing it.
The future of the land mobile radio dealer doesn’t only rest with technology or an alliance with a specific manufacturer, but rather with the dealer’s ability to find a market, or if one can’t be found, to create one.
Here in the Napa Valley region of California, there are all kinds of things a dealer can get involved in. There’s telemetry for water irrigation systems. There are hundreds of wine caves that need radio coverage inside the caves and hundreds of buildings that need in-building coverage.
There are all kinds of technologies out there, and dealers need to find the ones that make the most sense for them, and then be passionate about them. Do that and customers will beat down your door. Waiting for the phone to ring or for a customer to walk through the door won’t get the job done. You have to go after the business, regardless of market segment.
While we are sales driven, we believe that maintaining strong repair support is imperative. You could send the radio back to the manufacturer, but that doesn’t generate the best public relations. If possible, dealers should repair the equipment on site and return it to the customer in the least amount of time possible. Of course, there are only so many hours in the day, and finding a balance between sales and the repair aspect can be difficult. One of the more challenging aspects of a strong sales capability is to avoid the trap of taking on more business than you can support. But, it is difficult to walk away from dollars that are sitting there.
We’ve read all kinds of doom-and-gloom articles about the future of the conventional land mobile radio dealer. I don’t believe dealers are doomed. The public-safety sector, with all of the interest in homeland security, looks particularly rosy. Wireless broadband also represents a tremendous amount of potential.
Also, we’ve been hearing a lot of complaints about the cost of Nextel’s service, and we think a lot of business and industrial users are going to come back to the smaller private sector dealers over the next few years, because of the expense of the commercial services.
Of course, the advent of new competitors in the push-to-talk sector such as Verizon Wireless and Sprint could drive prices down and mitigate the opportunity, but the point is that dealers need to look for opportunities that make sense for their geographic area. Also, dealers should look to compete in places where others aren’t doing a good job and broaden their perspectives, things that don’t always come easily or naturally, because we dealers tend to be quite conservative. But for those who do, this won’t be a dead profession.
— As told to Glenn Bischoff
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