2020 SDM 100 Report: After Peak Performance, What’s Next?

The SDM 100 has been published since 1991. Its primary objective is to measure consumer dollars gained by security companies, in order to present an account of the size of the market captured by the 100 largest providers. SDM 100 companies are ranked by their recurring monthly revenue. RMR is the revenue associated with the contractual agreement between a security company and its subscriber — derived from customer billing for services such as monitoring, contracted service/system maintenance, security-as-a-service and managed/cloud solutions, and leasing of security systems — and is typically the basis for valuation of a security company. RMR is the language of security company executives and is meaningful in comparative analysis among industry peers.

The 2020 SDM 100 ranks U.S. companies that provide electronic security systems and services to both residential and non-residential customers. This ranking is based on information provided to or, in few cases, estimated by SDM. Ranked companies were asked to submit either an audited or reviewed financial statement, or a copy of their income tax return showing total gross receipts for the stated period. The vast majority of the firms ranked are privately held.

The main table, which begins on page 31, ranks 100 companies by their recurring monthly revenue (RMR) of December 31, 2019. The company with the highest RMR is ranked as No. 1, and so on.

SDM 100 companies are then re-ranked by several other criteria, including total annual gross revenue (page 42); residential subscribers (page 44); and non-residential sales revenue (page 46). To find a company by name, use the alphabetical index on page 48. See the report online at www.SDMmag.com/sdm100report for more data than presented here.

Note: An e following the figure indicates it is an SDM estimate.

The annual publishing of the SDM 100 (now in its 30th year) usually presents an opportunity for reflecting on changes and trends in the industry dynamic. The important datapoints provided in this report are helpful in understanding overall growth rates, how various segments are doing, and the structure of the industry. This year, however, is a challenge.

The effects of COVID-19 have created such a high degree of uncertainty that it is questionable whether pre-crises trends are relevant anymore. For example, only months ago, low unemployment rates were constraining the availability of qualified labor and increasing associated costs. Today it is not clear this is or will be an issue.

With views to the future so opaque, a better place to focus is on the underlying industry fundamentals — that is, those features that are likely to continue to support the industry and any individual player, irrespective of current market forces. These fundamentals generally fall into three categories.

1. Value Proposition.

Security systems work and provide a highly valuable service. It is no coincidence that support for their operation is deemed “essential” during this crisis. For operating companies this is a good time to remind your customers that you are protecting them, and to let prospective customers know that you are operational and available. Leverage this distinction to highlight the importance of your services and to inform the market of your capabilities. This is also a good time to check your pricing. While being a responsible enterprise and enhancing your brand may entail some selective forgiveness and discounting, it is important to make sure you are profitable and/or creating value within your capital constraints. Your company benefits no one without viability. Ruthlessly cut costs and remember that virtually all sales activity is discretionary and should be undertaken only with a strong valuation proposition for your customer and for you.

2. Market Opportunity.

Penetration rates in the residential segment, while increasing, are still relatively low with much room for continued growth. Additionally, the range of products and services that can be offered has broadened materially, supported by all the new smart home technology. The commercial segment has a similarly large opportunity, particularly in upgrading existing systems to newer technology and expanding into new applications. For example, it is not hard to imagine a surge in demand for thermal cameras that can read body temperature, and frictionless access control systems that do not require users to touch anything. The market opportunity was, and will continue to be, substantial. Successful companies will stay close to their customers and listen for opportunity. Additionally, most operations should stay extremely focused (as in geographically/vertical market segment/product or service line), as this typically results in better performance. Think closer and measured versus farther and faster.

3. Industry Resilience.

During the Great Recession, this industry did relatively well. While the sale of new systems declined, it was still enough to replace attrition and as a result recurring revenue actually grew. This resilience is a byproduct of the factors discussed above, combined with the structure of the industry, which has a broad diversity of players looking at the opportunity from many different perspectives. This resilience will carry the industry through this challenging time, and it will likely fare much better than many other industries. Successful players will need to enhance their operating resilience. A big helping of recurring revenue will be the foundation for most, combined with the ability to adapt to a highly uncertain sales environment. Strong leadership is a must.

These fundamentals will support the industry and allow it to shine; but there is no doubt it will be a battle. The military teaches a concept called the OODA loop for managing combat. The acronym stands for Observe-Orient-Decide-Act, which is then repeated. The fundamentals above provide a compass to orient towards; and your customers, your employees, and your profits (and/or the avoidance of costs) are your key variables. If an action does not benefit all three, find another one.

Hopefully, next year there will be a clearer view. — Contributed by Michael Barnes, president of Barnes Associates Inc., an advisory and consulting firm that specializes in the security alarm industry. Contact him at mbarnes@barnesassociates.com or 314-616-2700.

The SDM 100 has been published since 1991. Its primary objective is to measure consumer dollars gained by security companies, in order to present an account of the size of the market captured by the 100 largest providers. SDM 100 companies are ranked by their recurring monthly revenue. RMR is the revenue associated with the contractual agreement between a security company and its subscriber — derived from customer billing for services such as monitoring, contracted service/system maintenance, security-as-a-service and managed/cloud solutions, and leasing of security systems — and is typically the basis for valuation of a security company. RMR is the language of security company executives and is meaningful in comparative analysis among industry peers. Of the 100 security dealers ranked, 38 of them earned more than $1 million in RMR in 2018.