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ApxAlarm generates accounts and emotions

ApxAlarm generates accounts and emotions

PROVO, Utah--"Who are these guys?" If you hear that question in a conversation about home security, the guys in question will likely be ApxAlarm. A new player in the market, ApxAlarm is generating a lot of accounts and a lot of attention this year. This summer, ApxAlarm executives say they sold 90,000 accounts, putting them, in terms of annual account generation, right up there with industry stalwarts Brink's, Protection One and ADT. "Assuming ApxAlarm realizes their target of 90 thousand accounts this year, they will clearly be the third largest residential sales and installation force in the United States, trailing only ADT and Brink's," said Michael Barnes, a partner in Barnes Associates, an investment banking and consulting firm that specializes in the security alarm industry. "ApxAlarm has established a capability that is around one-half that of the industry's two largest players." ApxAlarm's business model utilizes a compressed selling cycle. Almost all of the sales are generated in door-to-door sales during the four-month period between May and September. This model works for several reasons, said Keith Nelleson, executive vice president and chief financial officer of ApxAlarm; it allows the company to spend the other eight months of the year recruiting and training a sales force, and it avoids the burnout common in any door-to-door sales job. "Eighty to 85 percent of the sales people who start with us stay for the entire season," said Todd Pederson, chief executive officer and president of the company. ApxAlarm is not the only home security company to use the summer sales model, but they're the most successful. Pinnacle Security, which is headquartered in the same executive business park as Apx, is an ADT dealer using the same model, Nelleson said. He estimated that Pinnacle generated about 35,000 accounts this summer. First Line Security is another Utah-based company with a similar approach. The financial community has taken an interest in ApxAlarm. This summer, the company sold a 50-percent stake to three private equity firms, Goldman Sachs and Jupiter Partners, both of New York, and Peterson Partners of Salt Lake City. Eric Scheuermann, a partner with Jupiter Partners, said, "It's a business model we like with lots of potential to grow and we liked the integrity of the Apx management team." Apx CEO Pedersen noted, "Goldman came out from a lending perspective only; 75 days later they owned 30 percent of the company." Ray Gross, chief executive officer of wholesale monitoring company Security Associates International, works closely with Jack Inbar, ApxAlarms' vice president of operations. He said his company has an excellent relationship with Apx. "They produce very good accounts and we are a major purchaser of their accounts. They've delivered on everything they've said," Gross said. Not all of the attention ApxAlarm has attracted has been positive, however. Protection One, Brink's, and some other major players have complained about unfair or unethical sales tactics by ApxAlarm salespeople. ADT is the exception among the big three home security companies. Spokeswoman Ann Lindstrom said ADT "hasn't experienced complaints about ApxAlarm's sales tactics." On August 25, Brink's filed a complaint in the U.S. District Court for the Southern District of Texas, Houston Division, for $900,000, claiming that ApxAlarm stole 47 accounts. Both Eric Griffen, general counsel for Protection One, and Dave Simon, spokesman for Brink's Home Security, said that ApxAlarm employees are targeting their customers. Griffin said "customers call us in a state of confusion. We have had several come up to customers without any identification. Sometimes they'll say they're with Honeywell ... we've heard reports, that they say, 'We're here to upgrade your equipment.' We've also heard them say they're with Protection One or 'We bought Protection One.'" "It's pretty clear they're either being trained formally or informally at the corporate level or at the street level because the [reported behavior of these salespeople] is too widespread and too geographically dispersed," Griffen said. Simon said Brink's has had more than 40 complaints from customers, but he suspects there are many more instances. He said Apx salespeople are showing up at Brink's customers' doors, representing themselves as being from Brinks. "They're coming unannounced," he said, "representing themselves as technicians and then asking to make these kinds of changes, or recommending they make these kinds of changes [to their security systems]. This is not a situation that's going to "break Brink's," Simon said, "it's an ethics issue." In late September, Protection One was preparing a letter detailing more than 55 complaints it had about ApxAlarm. "It would be our desire to resolve this situation without resorting to litigation, but are prepared to take all appropriate actions to stop these unethical activities," Griffen said. In Provo, the reaction to the lawsuit--and to claims of unfair tactics--was incredulity. Apx CEO Pederson said, "We invite anyone to come out to see how we do our business from start to finish. Everyone who comes here says we have the best controls and systems they've seen." This summer, Apx knocked on one million doors, Pederson said. If the company were telling sales people to target competitors, "they wouldn't get 55 calls complaining about salespeople, they'd get 55,000 calls." Nine regional managers—three in Rexburg, Idaho; one in Edmonton, Canada, and six in Provo and six to 10 sales managers who report to the regional managers—head up the recruiting and training process. Many of the sales reps are returning year after year and most of the new recruits are friends of returning sales reps. The sales reps complete 40 to 60 hours of training over the course of the summer. "We'll stack that up against any of our competitors," said Alex Dunn, vice president of business development. Sales and technical employees must complete a checklist of training topics (product knowledge, basic door knocking, overcoming objections) before they can go out and sell. Pedersen said they have no interest in contractually interfering with competitors, but he said salespeople knock on all doors, regardless of whether there's a competitor's sign or not. Further, the Apx execs passionately believe that their systems, which feature cellular (analog-based for now, but Apx said they intend to go out and switch all accounts to GSM in the future) and two-way voice, are better than the industry standard. Apx salespeople are trained on what they consider to be the numerous benefits of their systems over traditional systems. They point out that fewer than 20 percent of the 90,000 accounts sold this summer were customers who had an existing home security system. They note that in cases where customers decided to switch to Apx, the customers were paying more for Apx than for their previous system. In 99 percent of cases, according to Jack Inbar, vice president of operations, switching customers are paying more. Apx customers pay at least $39 per month, and it's $45 for the most common monitoring package. Pre- and post-installation surveys are what Apx executives point to as their bottom line quality control. When a person signs up to be an Apx customer anywhere in the country, the salesperson calls the data center and the customer answers a series of questions. Beyond the basic personal and credit information and outlining the terms of the monitoring contract, during the pre-install survey the customer is asked if they are aware that Apx is a Honeywell Security Products dealer and is not owned by the Honeywell Corporation. They are asked if there is an existing security system in the home, and if it is monitored. They are also asked if they are "aware that ApxAlarm is not affiliated with your current monitoring company, and you are responsible for your existing monitoring contract?" "We know if there's been a problem from someone through our survey process. We hear from Jack [Inbar] ... If we start to see a trend, you know there's a problem. If we see that trend we go and we take care of it," Nelleson said. All members of the executive team say they believe Brink's is the best in the business, particularly with customer service, and they say they've tried to copy the Brink's model in many ways. Apx executives feel the complaints from its competitors are overblown and the Brink's lawsuit is driven by fear of competition. Sean O'Keefe, an Apx consultant, said new companies have previously changed the way home security has done business. The last time it happened, he said, was when Brink's brought the mass marketing model to the industry. "I opened the third branch that Brink's had and was their first national sales manager. It was 1983. In those days Brink's was a revolution and not a positive revolution for the security industry," O'Keefe said. "Brink's was the first company to come along and drop prices from at least $1,000 to $95 to put a system in." "I had to attend meetings in all the cities where we were opening. I had to attend not to participate, but because if someone from Brink's wasn't there, the entire meeting was just about 'How can we get Brink's out of town? We can't compete with these people.'" Brink's was able to succeed in this venture, O'Keefe said, because "they had deep pockets and were willing to change the way systems were sold." What will the future bring? Barnes predicted, "ApxAlarm will find the integration into providing monitoring and maintenance services challenging. It is not unusual for the difficulties associated with this side of the business to be underestimated. Carefully building this capability while at the same time maintaining full control over their growth on the sales and installation side will require highly skilled management. Assuming this process is managed well, we could very well see ApxAlarm and others like them quickly becoming some of the largest alarm companies in the United States." ApxAlarm executives believe their model will succeed, and they expect plenty of competition. "This is why we challenge ourselves as group to be better--with sales, service, monitoring. We, too, as a company will face similar problems [from a new company] in six months or a year or two years from now. Someone else is going to be knocking at our door, so we want to create customer loyalty unparalled by anyone else," Inbar said.

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