Insights into the forces shaping our industry.

by Ted Konnerth

I returned from the SSL Summit conference this week where I heard a presentation on the Energy Policy Act of 2005. EPACT, as it is commonly called has been around 5 years. It offers rebates; CASH rebates to companies, business owners, lighting designers, engineering firms and installers. In addition to EPACT, a project can also earn IRS credits on top of the rebates, PLUS state rebates on top of the EPACT rebates and tax credits.

Funny thing about our industry, we’re so inbred we refuse to listen to new ideas. The entry of those damn new companies: LED, Wind, Solar, Environmental controls, etc. just confuse the way things have always been. I imagine every electrical manufacturer and distributor and design firm read the same annoying ‘trends’: non-residential construction is predicted to be down in 2011, therefore we need to adjust our budget to reflect a modest increase in revenues. The recent TED Mag supplement that contained the summary of a roundtable of industry leaders spewed the same pabulum we’ve heard for years: residential is down but will come back a little, non-resi is down, industrial may see some growth, exports are up a little, metals prices may be a contributor to top line, etc…

The market for remodel (which includes energy remodeling) is estimated at 10 times the market potential for new construction. TEN TIMES the market potential. There is 71 BILLION square feet of privately held office/industrial space and nearly that same size in governmental space. So, who can figure out how to sell to that amount of potential? Let me give two quick examples: a company that has never been in commercial lighting just landed the contract to replace the majority of the light bulbs in Macy’s (we used to call them lamps, remember?). How big is that? Macy’s has 2,000,000 sockets. One of my clients just landed a $30,000,000 order to relight a large client of theirs. $30,000,000! Neither of these companies were reading about the ‘soft non-residential construction market’ or ‘depressed housing market’. They didn’t know they couldn’t write this amount of business in these ‘tough economic times’. They simply presented a solid, professional, cogent ROI model to the owner of those properties and walked away with multi-million dollar orders. In neither example, did the current value-stream (sic) channel work. In both examples, NO OTHER traditional channel member ever approached them about the opportunity to help them modernize their buildings AND make money in the process.

EPACT represents an opportunity to sell any equipment that reduces energy, to any existing building and earn up to $1.80/sq ft rebate, paid in cash from the US government. The State of GA will pay up to 45c/sq ft in rebates on top of that same rebate. The IRS will allow that same building owner to recover the non-depreciated value of the equipment being removed as an expense deduction AND possibly allow the new equipment to receive a fast depreciation schedule of less than 7 years. This is money that literally can cover most of the cost of the actual remodel project; for FREE. Banks will actually lend against this financial structure and discount the loan based upon the size of the rebates; if you’ll agree to share some of that incentive with them. How many construction projects actually bother to apply for these credits? 3%.

Want to help your kids’ schools modernize their building? EPACT will send the CASH rebate to the installer and/or design firm that generates the project to reduce energy. Why? Because school districts can’t receive tax rebates, so the money goes to the people who create that demand. Private schools can receive the money. But it starts with someone actually saying; here’s a good idea, let’s CREATE demand rather than wait for our contractor to land a bid, at ridiculously low margins.

In an economy where writing business is at a premium, there are opportunities to create new business that are simply ignored. Call it arrogance, call it ignorance, but it’s literally ignored. Our current channel strategy is breaking down; new companies are seeing opportunities where existing companies refuse to look. The game isn’t the same; the ability to sell now requires the ability to ‘sell’! How many distributor or rep or manufacturer organizations have the financial selling skills to present a professional ROI proposal to an end-user CFO or CEO to prove to that company they could remodel their building and be cash-positive from Day One? Not many. Why? Because we train our salespeople to not lose orders. We train our salespeople to maintain the business they have; our sales organizations are mired in the history of how we’ve always done it before.

It isn’t the same. Change or become irrelevant, it’s your choice.