May 6, 2011

 

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Comment

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Ken,

I have been a reader for years now and have found much value in this newsletter. I noticed, most recently this morning, your comment about dealer programs, and how you are not a fan. You said “That process may give better cash flow, but leaves the dealer without equity.” I am the CFO of a company with a “dealer program model”. Before that, for 5 years I was the CFO of a full service traditional security company, so I feel qualified in saying that we provide more than just a cash flow support system to many entrepreneurs who do not have access to capital. The right program provides services and support to assist business owners in growing their business and further provides repair and monitoring services that not all businesses have the bandwidth to provide (each party focuses on their core competency). We also have amazing technology that assists the “affiliate” as we call our partners, which helps them organize their processes and manage their information. Small companies can’t afford this technology. For us, It is a true partnership. It is not a program for everybody, but we like to think that it works for our affiliates and partners.

Regards,

Ken Wiesenfeld

Chief Financial Officer

Security Networks

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Response

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Dealer programs have their place and there is no doubt that some, if not many, companies can benefit by participating in a program. The programs generally provide structure, advice, some provide marketing, of course capital, and instant name recognition.

However, I have not changed my position on these programs in all the years I have advised alarm companies. At the end of the day [end of your career] you want to own as much RMR as you can. The programs that require or even encourage you to sell your RMR to the program will suck you dry, leaving you with no equity and no retirement package. The cash flow that may be provided is not enough. You'd be better off getting a job as a salesman in an alarm company. At least then there would be no pretence that you're really operating and growing your own company, and you'd be astute enough to bargain for vacation time, health insurance and a 401K retirement package.