Lessons From Rep Firm Closing Down

Author: Brian Karas, Published on Aug 12, 2016

2016 has been a tough year for rep firms. Earlier this year CV Reps, which had been Arecont's largest rep, closed down their business, and now another firm, Murphy & Cota announced the end of their operations.

We spoke with one of the principals of Murphy & Cota, Russ Moore, about what led to the business shutting down, and what he learned from running the firm.

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Overview ** *** *****

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Reasons ****** ********

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Loss ** ***** ***** *** *********** ****

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Agreements Are ***** ** *****

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Complications ** * ****

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Solutions ******** ***** **** * ******* ****

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Assets ** * *** ****

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Options *** * *****

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Working *** ************ ******

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Future *** *** *** ********

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Comments (24)

Very informative, and sad, too. Whenever there is major market disruption there is usually jobs lost, while in some case jobs may be created, too. Maybe a follow, special interest article in 6 months or so about where everyone went, how hard was it to find something new... If they went to another rep firm and if not, would they want a job at a rep firm again.

Thanks Brian

You are writing good articles that are interesting to us members

It gives a good perspective of the challenges Rep Firms face to maintain a profitable and valuable business.

Thanks Kris!

As a longtime rep, and knowing Russ Moore as I do, I agree with him that it is very difficult to recover from a major line loss, with very advance little notice.

I still remain enthusiastic about the rep function, however, and the role we play in helping integrators with design assistance and product selection.

My feeling is that the round of changes being made by manufacturers to their sales channels, in many cases away from reps, is a result of the tumultuous times they find themselves in. An example is HIKVision (and others) causing downward price pressures at a very rapid pace. Many manufacturers are not able to quickly react by developing lower cost solutions, and often blame the sales force for the lowering of sales dollars. Ironically, some camera manufacturers are actually selling more cameras, but at lower prices, so their sales numbers are dismal, even though production has actually increased.

The process of moving away from reps has been cyclical, however, and will swing back again, as it always has in the past.

One positive trend for reps is that many manufacturers, from outside the traditional security industry, are bringing exciting new technologies into our industry, and usually find that reps are a very fast way of getting their products and services in front of the significant spec writers and integrators in a timely manner, and at a cost they can afford. True, these opportunities require pioneering, but can grow to be significant business partners, given enough time.

Reps now find themselves downsizing, developing new processes, and learning to be more nimble, in order to meet these new challenges. My hope is that young people won't reject the prospect of exploring a possible career with a rep firm, and look beyond the current trend.

I have often been accused of being too optimistic, but I remain confident that the relationships we have formed, the talents we have developed, and the requirement to act as the interface among manufacturers, spec writers and integrators will see us through this latest pendulum swing.

I think the whole rep model/rep value add discussion can be interesting and complex.

In some ways, good reps act as an integrators integrator, bringing a set of products to their attention that can be used to create a solution so the integrator does not need to do that homework on their own.

At the same time, manufacturers that have end to end solutions like FLIR or Avigilon theoretically have less need for a rep, or in some cases may not want to use reps for fear of other manufacturers products being proposed for certain projects.

Overall I think reps benefit the smaller manufacturers the most in todays market, but the problem with small lines is they don't pay large enough commissions to keep the business viable.

from a 35 year industry participant including 15 the last years as a rep firm, all the blog insights are correct- It has become extremely difficult for many aspects of the supply chain and while some manufacturers are more conducive to factory reps versus independent, all the mergers and acquisitions have a ripple effect.

I would like to believe like minded businesses (those that are independently operated) prefer to support each other. That the relationships are more sincere and appreciated because both need a partner that will look out for their best interest and is not influenced by the ever ongoing manufacturer buyouts. Installing dealers may be star struck by the marquee brands, but some of those same stars and their support fall without warning.

Both firms cited in this blog had great reputations as far I know and others like them (LRG inc included) are at the mercy of loyal partners.

Well said, Chris.

And may your tenure be long and prosperous.

Very insightful article Mr. Karas. It sounds like a wake-up call for Rep Firms.

When the factory principal(s) no longer believes that the Rep model is valid for them then there is usually nothing the Rep Firm principals can do to halt being fired. There are normally signs along the way that such an outcome with a factory is heading in that direction. The other thing that happens is the Rep Firm has become irrelevant to their customers or they were never a factor to begin with. I spent 10 years as an independent rep in another technology industry and it was a great career which I miss at times. Now that I'm in the security dealer/integrator side of things I measure the Rep Firms our company interfaces with against how I worked closely with the dealer channel in my previous industry. So far, I hear from the factory direct sales folks much more than I have the Rep Firms. The factory direct sales folks have been more attentive than the Rep Firms and to me this is most disappointing. I have one Rep Firm I have never seen face to face in 6 months though I've purchased 2 of their manufacturer's camera systems in the past 90 days with potential for more purchases. Maybe things in the Security Rep Firm industry need to be shaken up.

They cannot keep doing things the same way and expect different results. To be successful in this very competitive industry the Rep Firm sales person(s) need to develop closer relationships or relationships to begin with their dealer channel. If they don't, then the manufacturers will replace them and they might select to abandon the Rep Firm model. Hope it doesn't come to that because the Rep Firm model can very effective as the field sales force when it's done right. BP

They cannot keep doing things the same way and expect different results.

However,

They cannot keep doing things the same way and expect the same results either.

As the industry matures, the rep's role and value proposition is under pressure to evolve. So the way for a rep fim to survive today might not be what worked yesterday.

I shut down my rep firm 18 months ago after 15 years in business. The general impression I have had is that the useful knowledge that our dealers and clients had relied on us for no longer had the same value.

As an example, we used to assist dealers in designing systems that met specific security requirements and could be walk-tested to those requirements. The advent of higher resolution cameras and a lot of disingenuous marketing by manufacturers decreased the value of the knowledge we provided.

Times change - I suspect that (and am gambling on) the successful knowledge-based rep firms of the future will be providing more network based knowledge and support.

I also don't see the camera business providing the same opportunities for income that they did when the cost per camera was higher. The financial logistics of supporting dealers isn't there when the system that used to cost $20K is now less than $3K!

Thanks for posting this topic-

Here is a little tip I have given to rep firms I manage and a few others, to date...none have implemented and since then 2 have been replaced and not at my request, but above me.

Obviously your contact database is the"secret sauce" of all rep firms and it should stay confidential for the most part. But the activity shouldn't. So, here is how a manufacturer judges you.

#1 Are you growing the territory above and beyond what they are looking for?
#2 Are you active and seeing all that you could?
#3 Are you calling inside sales / support a lot? (if you are busy, you should be)
#4 Are you complaining a bunch? (this can be good and bad)

Combined, this provides one serious piece of information....

Are you working at all?

Manufacturers get treated by Rep Firms like a used car salesman. OK, I sold you so now you can pay me. I love the guys who call because they think the check was small, only to have to be shown their sales dropped!

My suggestion is to gather up whatever calls, visits, activities you do and put them into some form of monthly marketing piece and send to all of your manufacturers so you look a little more professional, a little more on your game and it allows the middle man (me) to have something to help keep you.

I think Reps provide a great service and I've seen manufacturers cycle through direct teams and back.

I know of one Rep Group so well embedded with a large manufacturer and has provided so much value that they are the ONLY Rep Group this manufacturer has, all others are direct employees. Now that is a success story.

It is unlikely the security industry will move aware from the rep model overall....

How might the rep model change?

Does it become more virtual at a 2-3% commission?

If the virtual firm has strong contacts is that an option?

Does it become more inside-sales focused, using virtual presentations/demos to replace today's face-to-face Reps and travel expenses?

"Does it become more inside-sales focused, using virtual presentations/demos to replace today's face-to-face Reps and travel expenses?"

Probably as likely as replacing business travel, as we were told years ago would happen...that face to face meetings would be replaced by virtual presentations and video conference rooms.

This reminds me of the short bubble around Second Life back in ~2005. I knew someone who was building virtual stores/demo areas for multiple Fortune 500 companies. I think at one point they were trying to organize a virtual trade show as well. That did not work out.

None of these come close to replicating in-person/on-site meetings, especially for things like cameras where a live demo can be very valuable.

I think at one point they were trying to organize a virtual trade show as well.

There was a few years ago and actually I thought it had potential, not to replace face to face sales but as an intermediate information sharing source:

I have not seen anyone in our industry do a 'virtual trade show' in years.

One thing the virtual trade show has got going for it, it eliminates the whole booth model problem. Based on your stated preferences or lack thereof, the shows hosts would take on a personally appropriate reprensentation.

So, at the Intransa booth, one could have a male, female or randomly selected attendant. Who knows you might even get Gumby himself!

Note: Intransa virtually disappeared in 2013.

...that face to face meetings would be replaced by virtual presentations and video conference rooms.

If you take the boot off the ground, doesn't that create less justification for the rep in the first place?

There is no reliable substitute for face to face relationships. The virtual stuff works from time to time as a good training tool, but it cannot replace pressing flesh. Human to Human interaction is the best. Many times as a Rep my dealers would ask me when was I coming by again. BP

There is no reliable substitute for face to face relationships.

Agreed, yet the question remains, "How might the Rep firm model change?"

With industry prices dropping and the near annual/semi-annual rotation of Rep firms using the current model, there is both less funding available and less "press the flesh" relationships forming. As I see it, that is the reality of where we find ourselves as an industry.

What should a manufacturer in this industry be doing in response?

Rep firms need to add value, not additional lines.

Where the rep firm survives is with helping manufacturers who build a good competitive product, however subsequently do not or cannot provide a complimentary marketing push or dedicated national relationship and needs the firm to stay in the game.

Where a rep firm thrives with good solutions is in conjunction with a manufacturer willing to invest in the proper resources and constantly communicate their value proposition to the marketplace.

Coat tails are there to be ridden in our industry, but a vendor sales force partnership where both sides push towards the same goals can be the most rewarding.

"Where a rep firm thrives with good solutions is in conjunction with a manufacturer willing to invest in the proper resources and constantly communicate their value proposition to the marketplace."

Nice post, Chris. You have underlined what most rep firms must do. We turn down many manufacturers who approach us for just that reason...they do not convince us that they are really "investing" in the market place. Rather, some appear to be approaching the rep model as a "cheap" way to get exposure and "prime the pump" to get some sales started. Very often they want us to be their marketing arm as well, not having committed to funding trade show attendance, membership in industry associations such as SIA, and the vertical organizations in their targeted market.

With sales calls now costing between $400-$500, we don't want to start with a manufacturer who does not have a long term commitment to developing a long term partnership, and one that does not have a plan to truly invest in our industry.

The exciting opportunity today is that, while camera income is not generally sustaining, there are a great many new technologies coming our way that bring innovative solutions to our customers. IoT and cloud-based systems may not have very high equipment costs, but offer a recurring revenue model that is in line with what consumers have become accustomed to in their daily lives. If these emerging companies convince us that they will be long term investment partners, we will more likely look to them as true opportunities.

While I agree that Rep Firms should always be aware of opportunities to enhance their line card and bring value to all the manufacturers they represent, I have to reiterate the idea that "You should dance with the person that brought you".

I'll give a couple of examples of what gives me heartburn as a manufacturer who manages Rep Firms.

As an example I spend around $3,500.00 to $4,000.00 supporting a single distributor event between the cost of the event and arriving to assist. While I set up my table, man it alone and gather leads for my Rep Firm to follow up on, they are busy assembling the 4 other tables for manufacturers that don't show up and are busy working them.

They say "Hey, thanks for being here" and I heard "Sorry we screwed you"

I ask ahead of time (months) for appointments to be set while I am in town.

What I hear back is "Hey, everyone is busy because every other manufacturer is in town that week too". We should come back another week.

What I hear is "Hey, everyone else made appointments before me or I really don't have that good of contacts".

If you are a Rep Firm, remember this general sales rule. It's not what you said, it's what they heard.

All in all, I believe Rep Firms are a great overall value and bring benefit to the industry, the customer and the manufacturer. I believe the model is changing and that the model was different based on the needs of their major manufacturer.

Isn't every industry changing today?

"I have to reiterate the idea that "You should dance with the person that brought you".

That cuts both ways, and I totally agree that appropriate attention needs to be paid to the lines that you have agreed to represent. Unfortunately, while manufacturers value the multi-line representation concept their reps adhere to...a concept that brings them into opportunities based on the relationship reps have maintained because of multi-line selling, too many times that same manufacturer bemoans the time not spend entirely on their product line.

This is the great conundrum...do I hire direct people, at a high fixed cost, not based on what they sell, and hope they can develop the wide range of relationships I need for both my existing products and those I may additionally bring in, as we merge/acquire/grow organically, or do I hire reps who live their entire lives in the territory and have a wide variety of relationships into which they can bring my current and future offerings, and, oh by the way, only pay them for what they sell?

Many manufacturers flip-flop back and forth over the years between reps and direct employees, based on the philosophy that the new sales manager/president brings with him/her. They don't always dance with the person that brought you.

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