Equipment - An Investment OR a Liability

What scale of Business do you aspire to ?

I have struggled with this over my career. Before I climbed aboard this wild ride of Entertainment Electronics - I had studied to be a management professional.

Warning - This a Nerdy article. Even if you find it boring - Read. It may change your view of life.

Before I knew about 'Stage Life' I had studied 'Office Life'. Before the college of sleepless nights, missed meals, crappy hotels, no family, early morning smelly flights and most importantly - dealing with grinning, well meaning idiots (most of whom I grew to love), I went to a college of books and professors.

Not knowing that life would shine in a few years time - I was one of those nerds who actually studied.

So I leant about Investment, Risk, Profit Centres. I learned it well enough for it to still stay with me. One of the first things I learnt was how stay profitable. A huge aspect of that was learning how to manage Scale. In short - How Big Do You Get ?

Most Industries or Businesses have an optimum size. Once you reach that spot, you need to re organise from ground up to either grow or diversify in some form.

A struggle between a state of - 'Too Big to manage' and 'Too small to grow'

Most of us lie somewhere in between. I hope, by the end of this article you are in a position to gauge where you are - and shape where you want to go to next.

Management Principal 1. - To Get a good answer / solution that fits - ASK the right question !

Question. What Do I want to Be ?

Option 1. : Technical Professional. (Within a Team or as an individual)

Option 2. : A Rental House. Somebody asks for my equipment - I go out there and install it.

Option 3. : A Turnkey Operator. A Client calls with a Project - I offer an end to end solution.(Design, Install Operate)

I expect the most common answer is - a bit of all three. You will justify this by saying that the market is small and unpredictable - so let me grab what I can when I can. While this may make sense let's examine this in a bit more detail.

All three of the above options call for different skill sets. Perhaps they all distil down to the same point but remember we are a service industry. Our knowledge, expertise and experience count for nothing. Simply because our clients have No clue what we do and have No interest in how we do it. They simply want the job done on their time scale on their budgets.

So pause and consider what goes through their minds before they hire one or the other of us.

Everybody will have their own take on this. In my opinion all of what you will probably say boils down to one concept - Perceived Reliability.

One of the features of our profession is that we cannot model or display even half of what we will deliver on each individual show. We can talk, design, present, demo all we want. In the end its how the client puts all these factors together in his head. How well you manage that will govern whether you win the contract or not.

That will all be based on how REAL your presentation has been. For him to have the confidence that you can bring all the pieces together for him on that date - to stage a successful event.

Those facts are often wildly divergent from the actual skill sets required to execute the project on the day. You are the bridge between His Perception to the Audiences Reality.

Heavy stuff ? It gets easier the less you struggle. Of course you will add refinements.

Know this about your businesses and within this knowledge is the basis on your understanding of the optimal scale of your business. Where your enjoy the maximum benefits of scale without leaking away too many inefficiencies and overheads.

So how do you select the right client or market segment for you to chase.

Let's stick to Just one component of this equation for this issue - Equipment.

What equipment will you need to support your business. Limitless possibilities. Limitless Opportunities. Limitless horizons. Limited Budgets. Limited Time.

That's the gap within which you will find the answer.

Let's look at equipment from a different perspective.

1. The Must Haves. This refers to equipment that is fundamental to your business.

For a Lighting Guy - Dimmer Packs, Power Distros, Basic Lights (Pars, Profiles etc)

We must establish what the costs of purchase and maintenance are per year. How long will they stay in our inventory before they become ineffective. This is the meat and potatoes of your business. If this part of your inventory is not 100% reliable on the ground - your business has to suffer.

Decide how much of your total budget is tied up in this section. I recommend 40 - 50% of your total spend as a benchmark.

2. Support Infrastructure. The hidden everybody costs nobody keeps track off - and most effective drain on your profits. This includes the cabling, the bulbs, the walkie talkies, the batteries.

Ideally this should not account for more than 20% of your total spend. Sadly a general lack of foresight, last minute scrambling, bad maintenance make this the weakest point in our chain. Turn a blind eye here as managing this is both painful and cumbersome - could lead to disastrous results.

Everybody in your company must buy into your companies policies on this.

3. What sets us apart. By definition every company you compete with will have some version of this above you have. Assume nothing really differentiates you (Only equipment wise). You must have some Unique equipment that you can demo your client to keep you ahead of the pack.

I recommend that 60% of all your companies research time is spent on this aspect. To keep abreast of what the market offers, and how to tweak it so that you present it to a client as a 'Must have accessory'.

In investment terms I recommend spending no more than 20% of your budget - but this can vary on how significant and desirable the product is on offer. For God's sake never give this away for free. Remember this Rs 20,000 piece has brought you a Rs 1 lakh contract that is the only reason you can pay off Rs 80,000 of the rest of your companies overheads. Understood ?

4. Vanity Purchases. Ahem! we all know what this is. This is what makes industry tongues wagging - and not much else. The only reason it is necessary is when a large contract is in the balance and the client has demanded it.

It may not fit the rest of your equipment, hard to say how often you will use it - but it gives you bragging rights. And so ideally never allocate more than 10 to max 20% of your budget.

Of course these benchmarks will vary, But I urge you to fix a benchmark for yourself and measure yourself against it every year to see where you stand. Compare this ratio with your profitability of the year and I am sure you will see a consistent and proportionate relationship.

Also measure your return on investment on each section of the investment. Of course the allocations may be arbitrary, but I urge you to do it. See which section gives you maximum financial return and which bit brings you maximum marketing clout. Once you have a few years data - your Investment decisions will be far more informed.

Most importantly your investment will not slide into a liability. When you look upon a huge pile of equipment that you so eagerly purchased a short while ago. Now you scratching your head on how to free up godown space to make room for your next vanity purchase.

Now go out there and sell the hell out of these facts. This is the groundwork on which you build the rest of your business proposition. To target the right clients who can provide you the best return on your investments.