In a recent post, I wrote about the economic impact of hitting and not hitting store level KPIs. It’s imperative that everyone involved in the business process have the same goals in mind - those that govern daily behaviors towards the ultimate reward of profitability. This includes, management, staff and yes, vendors (or as I like to call them, business partners).

Let’s face it, operating a profitable restaurant or retail business is a difficult task. Success lies in the ability to flawlessly execute upon well defined business processes and procedures with little to no variance, every day. The wage level employed in these environments is often ill-equipped to consistently execute due to inexperience or lack of maturity. What one gives up with inconsistency is sales and expense, and that translates directly to decreased profitability.

There are several tactics to ensure the proper beahviors are on display at all times to ensure flawless execution. I personally advocate the following: Training, followed by monitoring, measurement, correction and improvement. This cycle repeats itself indefinately in the spirit of a constantly improving business process.

So how does MVaaS help one achieve KPIs? It’s one of the five steps noted above - monitoring. Leveraging MVaaS in a routine store audit process will ensure that behaviors which compromise the ability to achieve KPIs are eradicated from the business process. I will follow up soon with several specific examples of how this works, the economic impact to the bottom line and ultimately, the Return on Investment.

I was pondering Matt’s recent post about manufacturer’s claims when I came upon this article on Cheerios.  Check out the warning letter from the Food and Drug Administration.  This is not something I would like to find on my desk on a Monday morning.

Caveat emptor, to be sure.

John Honovich has a great post on whether you can believe manufacturers’ claims or not. While I am a service provider and my comments will fall under this same scrutiny, I definitely think the answer to this is generally “not without some proof or evidence”.

Take a couple of recent press releases in the industry as an example. I won’t name names to protect the “innocent”, but if you read the major trade magazines or follow the press releases some of the players in the market issue, you’ll have seen these (or a dozen just like them).

The first announces the acquisition by Company A (a medium sized video provider with decent traction in a specific retail segment) of Company B (a tiny, struggling video provider with a small customer base) and declares the result “a combination that dominates the specific retail segment”. Last time I checked, taking a company with few meaningful customers and adding it to one with decent traction but that is no where near the leader in a space doesn’t yield a dominate anything. Unless a potential prospect knew both of these companies in detail, they would not have a way to judge the validity of the claim.

The second announcement was a partnership announcement between a video provider and a security company. The video provider (whose press release announced the deal) declared that part of the rationale was the provider’s most advanced industry leading point of sale integration capabilities. In this case the industry leading capability apparently comes from a resold text overlay solution that just about everyone in the industry can do.  Again, unless a prospect knew enough about POS integration in general, and what this company offers specifically, they could not effectively evaluate the claim.

Is any of this illegal or unethical or even a little bit wrong? I don’t think so - marketers will spin and position and make statements that create a positive view of a company and its capabilities, even if they are sometimes a little bit ahead of the company’s ability to deliver. Having said that, it makes it very difficult for end-users to understand what a company can really offer and how it differentiates itself from the competition.

It also makes it difficult for service providers to create awareness and educate the market on real advantages, as they have to cut through a lot of the noise that other vendors create with claims that aren’t really substantiated.

The answer to all of this is to look for and demand evidence to support a vendor’s claim (and awards don’t count, as John mentions) If a vendor says it has the most advanced POS integration, have them show you it in production with a major customer and explain why it is different. If a vendor says that they dominate a specific market, have them tell you how many customers they have relative to the competition and give you individual references that you can check. If a vendor says that their solution has a powerful return on investment, have them explain who got it and how it was derived.

It’s easy to sound great when they get to write their own bios - it’s a little more challenging when they have to back it up with facts.

A new report from Retail Systems Research states:

while retailers that use IT strategically have the opportunity to turn technological advantage into real long term market gains, most survey respondents report a growing backlog of demand for IT services driven by lack of governance, tangled obsolete application portfolios, and siloed departments each clamoring for their own solutions. 

MVaaS can help alleviate these issues because it is a managed solution, requiring little more than permission from the IT department to deploy.  With no servers or software to manage on desktops and managed DVR’s, the solution is simple to deploy.  This helps address limited resources and managing of many tangled applications.  When an IT solution is very easy to deploy and requires little involvement from IT, many of details of getting the job done become non-issues.

Recent discussions with current clients and prospects have primarily focused on one simple question - “How do you measure success?” Nearly all companies have a set of Key Performance Indicators (KPIs) that are used as a health check and management incentive. Ultimately, they are created and measured to ensure one thing - profitability.

What is the economic impact if these KPIs are not achieved? What is the economic impact if they are? I do know one thing - hitting them all at the same time in a month/quarter is a very difficult task. When it did occur, it was as if the planet and stars aligned and there was a pot of gold in the bottom line of our P&L. When it didn’t occur, we we’re lucky to break even after an entire month’s effort.

Stay tuned. I will explain how partnering with Envysion’s MVaaS helps retail operators and management achieve KPIs across the entire enterprise.

As part of my on-going responsibilities I meet with investors (both my current and some potential future investors) throughout the year. My current investors, Columbia Capital, High Country Ventures (the Colorado state technology fund that is managed by local private equity firm Tango), and Dan Caruso meet with me monthly during our monthly board calls. I meet with other potential new investors all the time whenever I travel as it is always good to build relationships with potential partners regardless of whether you are actively seeking additional funding. (For the record, we aren’t actively seeking funding having just closed another round with our existing investors last month - although this could change in the next ~18 months as we look to accelerate our growth even further)

In any case, I’ve talked to more than a half dozen investors that I know over the past couple of weeks and came away with a very consistent theme that I’m not sure the rest of the security industry has internalized yet. The takeaway relates to how Venture Capital firms view recurring revenue.

Monthly Recurring Revenue (MRR), if you come from telecom or Recurring Monthly Revenue (RMR), which seems to be the term used more frequently in the security space, means on-going revenue that you get each month for an on-going service that you provide to a customer. MRR is the new holy grail in the security space. The appeal of MRR is simple, you get to wake up in the morning knowing that you have revenue already coming in for the month without having to go out and sell another thing. Assuming your churn (the rate at which customers decide to stop using/paying for your service) is low, it is much easier to grow revenue when you are in a recurring revenue business b/c you don’t have to start from zero each month and can build on your previous successes. Security providers see the advantages of having a predictable on-going revenue stream and are looking for ways to build that part of their business. There are segments (alarm monitoring for example) that have been MRR businesses for a long time, so this is not entirely new to the space.

The takeaway on how VCs view MRR is that not all MRR is created equal. A number of providers (systems integrators, DVR manufacturers, etc) are trying to build MRR by financing equipment. They take what used to be an upfront purchase (the sale of a DVR and cameras for a couple thousand dollars) and make it a monthly payment instead (the lease of a DVR and cameras for a couple of hundred dollars per month). There are a number of providers out there that are pushing this model heavily as they see the multiples that financial and strategic buyers pay on recurring revenue and that is very appealing to them.

Problem is this type of recurring revenue is not valued as much as the more classic recurring revenue businesses. Why would this be the case? Because leasing equipment is not at all the same as providing an on-going service and doesn’t have the same financial characteristics as other MRR businesses.

First, the only real difference between buying and leasing hardware is the nature of the payments (get cash now or get cash over time) as the customer gets the gear in either case; it isn’t really a true on-going service that is being provided.

Second, the recurring revenue is only really recurring during the lease period, then it ends (most leases have a buyout clause at the end where customer can keep the gear for a nominal amount like $1). This means that three years after a lease is signed the customer can keep using the gear but stop paying until they decide they want to buy new gear. Contrast this with alarm monitoring where the customer pays in perpetuity as long as they want their alarms monitored or with MVaaS where the customer pays in perpetuity as long as they want to use the service.

Third, the scale economics are not as strong and the working capital requirements are worse for equipment financing models. The more leased equipment you sell, the more upfront capital you need as you have to pay upfront for the gear (which you could also lease yourself). The only real scale benefit you get would come from volume discounts. Compare this to a software service where you have a fixed cost of maintaining and supporting the service, but incremental customers and monthly recurring revenue have almost no variable cost. Once you get to scale to cover your relatively fixed costs, all of your incremental revenue drops straight to the bottom line as cash.

The net of this is that VCs place a much higher valuation on true MRR than they do on equipment financing revenue. If you want to create massive shareholder value, focus on building compelling services that customers will want to pay for over time that you can deliver in a very scalable way to drive material on-going profitability. If you want to be a bank/financing company in one of the worst credit environments in recent history, that works too - just don’t expect to get the same multiples on that revenue as you would with a true service.

Envysion regularly visits our customers, providing training and receiving feedback about how to improve Envysion video.

A new customer of Envysion Insight last week had a great story to share.  An area manager had just explained to his employees the full system capabilities and how they will be used.  One of his stores saw immediate 20% increase in sales next three days and had only 1/3 of the inventory discrepancy vs normal for the week.  This made a store profitable that was never profitable before.

When a customer tells you are bringing them value, it makes you feel good!

In a prior post, I asked for suggestions on what the Unintended Consequences would be when MVaaS is introduced into an environment.  Based on the underwhelming response, one may be tempted to conclude that there aren’t any.  Just upside opportunity, right?

In an attempt to start a dialogue on this, let me share one that I’ve heard.  This is not a direct quote, but the sentiments expressed are genuine:

“I need my store managers to be in the stores.  If they have this type of tool, they may spend more time away from their stores, and they will be less effective.”

Point taken, and I’m in agreement that direct line store managers need to be on the scene to be most effective. 

However, allow me the opportunity for a rebuttal.  Even if they are on-site (as they should be), isn’t it fair to assume that they are missing important events?  Wouldn’t it be useful for them to review significant events during off hours to improve their locations go-forward performance?

And what about the others within the organization - CEO, owner, regional manager, etc?  They obviously can’t be multiple places at once.  Wouldn’t they benefit greatly from seeing how their operations are performing? 

Do you have other examples?

I was reminded today of the number of applications and the massive numbers of downloads of iPhone applications out there.  As of this writing nearly 1 billion downloads of iPhone apps have occurred.  That sure is a lot.  It also reminds me of a great quote from Sci-Fi author Kurt Vonnegut:

“It has been theorized that an infinite number of monkeys banging on an infinite number of typewriters would eventually reproduce the written works of Shakespeare. Thanks to the Internet, we now know this is not true.” ~Kurt Vonnegut

No, I don’t have an iPhone, but there’s a few apps I’d like to have. 

IMS has a new report on RVMaS (Remote Video Monitoring and Surveillance).  IMS defines RVMaS as: “…network camera based solutions that allow the end user to remotely view live or recently recorded video in security and non security related applications.”

MVaaS is certainly a piece of that market which IMS claims is about $158M in annual revenue and they estimate will grow to be 3 times that in 2013.