Custom Installers are facing a reality check that has been bought about because of the falling price of devices. Many are currently re evaluating their business options in light of changing market conditions. In some cases as was the case with David Beauchamp's business Switched On Living it was a case of simply call it quits and moving on. The fact is that when you're down and out, there's nowhere to go but up. If you're at your peak, however, the next step may require you to branch out.

Such is the case for many custom installation companies that have mastered their core competency. For many, this involves the design and integration of audio, video, and home entertainment systems. Once they reach their sales plateau, it's time to start investigating other potential profit centres while handling the problem of falling margins on devices that hang off the network.

This doesn't just mean adding new product lines, which is a natural evolution in any business. To grow, many companies need to diversify, which is similar to starting an entirely new business. To do this and make money, business owners must plan carefully.

Larry Dashiell CEDIA member and CEO of HomeTech Systems, a custom installation firm which has direct experience with diversification. In 1990, he launched HomeTech after operating his family's electrical contracting business, which still exists today. The most important factor in establishing a new venture, Dashiell preaches, is a sound business plan.

"You need to understand the market before you jump into it. Do some research and spend a little time to understand what you are doing so that you can make an educated decision," he said. "It's still an educated guess like an estimate is, but at least you are educated about it and you understand what you are getting into."

Eric Bodley of consulting firm Bodley and Associates instructs companies to ensure that they are running efficiently before starting anything new. Before launching a diversification initiative, Bodley says, "You've got to have your day-to-day operational issues solved. It becomes easier to layer on new income sources if your accounting is in place, your warehousing is structured, and you have the ability to create proposals that accurately reflect what the customer is buying and what it will take in terms of time, resources, and product to fulfil the order. If you are shooting from the hip, it's going to make it very difficult to track your real costs and opportunities. You may see revenue coming in, but it may be costing you more money to be in that business than what you are actually receiving in true net income."

While some companies may be given the opportunity to diversify through a client request, this isn't always an effective approach. "In many cases, companies will try this on one job—a very large job—and they haven't done lighting control or some other aspect of low voltage, and they decide to try it out on this job without understanding all of the implications," Bodley observed. If problems arise, this can result in lost revenue and an unhappy client.

One of the main challenges that custom installation companies face is that their markets can be limited; there are only so many homeowners that are capable of purchasing high-end systems, Bodley notes. As a CEDIA past president, guest lecturer, and consultant, he advises