Story of a Start-Up
Unlike many who go into the custom home systems business, Jamie Sasser, founder of Digital Home Inc., in Raleigh, N.C., is not an audiophile or home automation fanatic. Nevertheless, he has succeeded where many fanatics fail. In just one year, he has built a thriving custom installation company that employs six (including himself and his wife, Heather) and competes successfully with more established businesses.
A disciplined and methodical entrepreneur with a background in mechanical engineering and economics, Sasser always dreamed of owning his own business. He spent two years researching different types of businesses before settling on custom home systems, which he did for two main reasons:
|Digital Home Inc.|
Jamie Sasser, President
Heather Sasser, Vice President
- He thought he would enjoy the " technical challenge" of integrating products. Note that that gives him a different perspective from, and perhaps a competitive advantage over, people who go into the business strongly favoring one particular system, e.g., security or audiovisual.
- He saw custom home systems as a business " that you could grow to whatever size you're comfortable with." He knew he didn't want to remain a mom-and-pop shop.
His market research - conducted mainly at the local library, on the Internet, and through the local branch of the National Association of Home Builders (NAHB, www.nahb.org) only confirmed his choice. Raleigh, with its high growth rate, abundance of new construction, affluent population (lots of golf course-type communities), and tech-savvy population, is, in many ways, an ideal market for custom home systems. (Raleigh's population is tech-savvy because the town is part of North Carolina's technology corridor, Research Triangle Park.) While there was some entrenched competition, Sasser felt that there was more than enough work to go around.
Deciding a Strategic Direction
Sasser's original plan, when he incorporated DHI on July 1, 1999, was to purchase a Smart House Inc. franchise. As a first-time entrepreneur, that route seemed safest.
His research indicated, however, that Smart House was experiencing financial problems. Moreover, in order to distinguish his company, Sasser decided to emphasize custom service and systems integration. "We decided to use the fact that we were a small, service-oriented company to our advantage, and not become part of a large national group that would offer cookie-cutter solutions."
Sasser spent the summer and early fall of 1999 writing a business plan and researching the technical and operational aspects of the business. He and his wife, Heather, found the educational sessions at the 1999 Expo of the Custom Electronic Design & Installation Association (CEDIA, www.cedia.org) extremely helpful. (Note: CEDIA's next annual meeting will be held in Indianapolis September 6-9. Click here for more information.) Sasser also read several books on small-business planning and management.
The hardest part of putting together the business plan was determining how much to charge. "Your competitors won't tell you, so it's hard to figure out," he says. His pricing model has changed several times in the past year, and he's still refining it. "Initially, the model I came up with was that we would charge $60 to $70 per hour for labor, which is higher than we charge now. Today, we charge $50 per hour for basic installation services, but more for design and programming time."
Once the business plan was done, it was time to convince a bank to give him a loan. He went to a regional bank known for helping entrepreneurs, thinking that his well-researched, well-thought-out business plan would impress the loan officers. In the end, however, he reports, " it came down to the collateral." A junior loan officer was enthusiastic about Sasser's plan, but the senior officer who needed to approve the application barely reviewed it, just asking about collateral. The Sassers put up some rental property they owned, and even still, Sasser reports, "the banker assured me that that only reason he was lending me the money was because I was young and could get a job if the business failed."
Sasser says his loan application was complicated by the fact that much of the money he was asking for would go for salaries rather than inventory. "I thought they would like the fact that we weren't going to carry much inventory, but as it turned out, they were uncomfortable with the lack of fixed assets." This contributed to the larger problem of the bank having no idea how to value such a cutting-edge business.
Shortly after the Sassers received their loan, their bank was acquired by a larger bank. Sasser is convinced that if he had tried to get the loan from the larger bank, he would have failed.
Sasser's bottom-line advice for others seeking to get financing for a start-up custom home systems business:
- Write a realistic business plan.
- Understand the bank's loan criteria.
- Be willing and able to commit more than sweat equity.
- Be able to hear " no" and move on to another bank or loan source.
- Be prepared with alternatives when you don't get all the money you ask for.
- Plan on establishing a long-term relationship with the bank.
Refining the Business Model
After securing the start-up loan in September 1999 and attending the CEDIA meeting that same month, Sasser finally took the plunge and quit his job. "It was hard to do," he recalls, especially since Heather wasn't working at the time.
From October through December 1999, Sasser settled on his " custom" business model and also began creating a marketing message for his business. He felt that a quality presentation would help give his fledgling business credibility, so he invested in quality stationery, marketing collateral, and a Web site. He also had his service van nicely decaled with the DHI logo and ordered "nice knit shirts" with the logo for all installers.
Sales were slow for the first couple of months, but they eventually began to pick up.
Hiring also turned out to be challenging, especially at the beginning, before DHI had enough work to keep an installer busy. Sasser looked for his first full-time technician by placing ads in local newspapers, but, "it was hard to find someone well versed in many disciplines." The first person they hired was released after about six months in favor of someone more skilled and versatile.
Their second hire, who was coaxed over from a competitor, was easier. "One of our suppliers was raving about a technician from a security business, and so we called him up and made him an offer," says Sasser. " We offered him comparable salary and benefits, but mostly what attracted him was the promise of manufacturer training and an opportunity to work with advanced systems and programming."
Hiring has subsequently become easier, according to Sasser, in part because "techs know other techs and bring them along."
A major milestone for DHI was moving into its first office suite in February 2000. It was 1,300 square feet in a new building and included a showroom.
Having a showroom, which displays more than $20,000 worth of product, has made a huge difference, according to Sasser. First, it allowed him and his salespeople to " show, not just tell" what DHI could do for homeowners. The showroom even impressed out-of-town customers who didn't come in to see it. " The fact that we have a showroom makes them feel more comfortable and trusting of our services," Sasser notes.
The showroom also impressed two other important groups of people: potential employees and suppliers. It made it easier to attract new staff, and it impressed the vendor sales reps who came to call. "It lets them know that we will show their products in a good light," says Sasser.
In this way, the showroom also helped DHI meet yet another major, and somewhat unanticipated, challenge: signing on with manufacturers. "It was difficult to get manufacturers, especially the AV manufacturers, to accept us as resellers. They're very careful about who they sell their products to. Their first question is always, 'What other lines do you carry?' If your answer is 'none,' they're not too interested."
Sasser eventually worked past that barrier by signing on as a dealer for products that lacked a local dealer. Their product line includes:
- Structured Wiring - FutureSmart Networks
- Integration/Automation - HAI, Smart Systems Technology, Crestron Electronics
- Audio/Video - PSB Speakers, Parasound, Dream Vision, and Stewart Filmscreen
Plans for the Future
DHI now employs six people, including one full-time salesperson, two full-time installers, and one part-time installer. Jamie Sasser works primarily on system design and project management, while Heather Sasser handles marketing, public relations, and some sales.
Sasser's plans are for continued growth. " In the next two months, we'll hire another salesperson. That will be great, because then we can assign each salesperson a geographic territory." He feels that the timing is right because he is " just starting to break through" in terms of name recognition among local builders and receive customer referrals.
His other emphasis will be on research and development. " We would like to continue doing challenging work. We don't want to be stagnant." Over the next few months, he will be investigating lighting products and signing on with a lighting control company such as LiteTouch or Vantage. "Lighting hasn't been done very well in this area, and we would like to be known for it."
A major, short-term challenge will be going back to the bank to restructure the debt, and perhaps secure additional financing. Also, Sasser says he needs to upgrade his business operations. " We're having growing pains, now that we have steady work. We've also just landed our first six-figure contract and need to make sure our operating systems are in place to handle it profitably." He's planning to hire an operations manager and is also implementing processes to ensure better coordination and communications between his salespeople and his installers.
Considering all the progress the Sassers have made in just a year, it's exciting to imagine where they'll be this time next year!
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