April 20 (Bloomberg) -- In 1992, Todd Pedersen was passed over for what he considered the perfect summer job: selling pest-control services door-to-door in Sacramento, Calif. Some of his college buddies had pulled in $10,000 doing it the previous summer, while Pedersen was making about half that much hanging sheetrock. Pedersen, then a 23-year-old Brigham Young University student who had spent countless afternoons knocking on strangers’ doors as a missionary for the Mormon Church, ended up earning $82,000 working for a rival pest business that summer. “[The recruiter] didn’t think I had what it took to do it, which is odd because I’m from Idaho and Idahoans can do anything,” he says.
The Idahoan has been fighting unwelcome creatures for more than a decade, frustrating human intruders with a home security outfit he co-founded in 1999 in Provo, Utah. Now Pedersen is embarking on a push to diversify the 5,000-employee company, which had $245 million in revenue last year. To do so, he’s combining aggressive sales techniques with digital technology to automate the home, pushing homeowners to embrace a simple way to control everything from appliances to locks via a smartphone. In February, Pedersen rebranded the company, renaming it Vivint for “intelligent living.” Sam Lucero, a networking technology analyst for ABI Research, calls Vivint “a leading edge company in the sense that they have moved very quickly. They are an early adopter of these kinds of technologies and an early mover into this space.”
Pedersen is betting that home automation technology will increase his company’s customer base of 500,000 homes by 40 percent this year and a similar amount next year. While he expects revenue to increase by at least 25 percent this year and next, Pedersen says Vivint won’t be profitable for a few years because it subsidizes the automation equipment and installation. The starting price for a home automation package is $199, with a minimum 42-month “home monitoring” contract of $69 a month. Pedersen says Vivint doesn’t start making money on the packages until the third year. To pay for operations, the company uses a $690 million revolving credit line from Goldman Sachs, he explains.
GROWTH IN HOME AUTOMATION?
Vivint’s gamble comes as demand for home security has slowed, a result of the Great Recession. Market researcher IBISWorld estimates that revenue in the U.S. security, burglar, and fire alarm industry fell 0.4 percent annually over the last five years, to $16.2 billion, 40 percent of which comes from the residential sector. Over the next five years, it expects a 2.6 percent average annual increase in total revenue. The U.S. home automation market is expected to grow much faster. ABI Research predicts that shipments of controllers -- the systems’ hubs -- will soar to 2.8 million by 2016, from 150,000 units last year.
At its inception, Pedersen’s company (then named APX Alarm Security Solutions) sold and installed security systems, handing off customers to ADT, Protection One, and other home-monitoring providers. In 2006, APX became a provider, which meant it could keep its customers. The bulk of the company’s revenue has always come from door-to-door sales, mostly by college students, many of whom sell full-time during the summer and part-time during the school year. Roughly half of Vivint’s employees are in sales.
Selling door-to-door requires a strong personality, and the company’s salespeople have been accused of being too aggressive. In 2009, the Better Business Bureau of Utah collected 573 complaints from bureaus nationwide; the number decreased to 448 last year, says Jane Driggs, president and chief executive of the accreditation group in Salt Lake City. In Oregon, for example, the company agreed to pay $60,000 last year in a deal it reached with state prosecutors after consumers complained of misleading and aggressive sales tactics that included false offers of free security systems, bogus claims of partnerships with fire or police associations, and refusals to leave homeowners’ property.
AGGRESSION AND COMPLIANCE
Defending his company’s record, Pedersen says the number of complaints is small for a business that has thousands of salespeople knocking on millions of doors a year. “We don’t condone any aggressive-style sales, but there is no such thing as a sales process that doesn’t have some aggressiveness to it. [Otherwise] you’re not going to sell anything,” he says.
In 2008 and 2009, the company paid a total of $65,850 in Arkansas to settle allegations of improper licensing of employees. Police in Kennewick, Wash., cited APX seven times in 2008 and 2009 for having unlicensed workers install alarms. The company paid fines totaling $1,500, according to BBB records. Pedersen says the company had expanded into areas faster than it could keep track of differing state laws and now has procedures in place to ensure compliance.
Having tackled its growing pains, Vivint will have to hone its tactics as it faces a new set of competitors. Technology behemoths such as Microsoft and Cisco Systems and telcos like Verizon Communications have plans to compete in home automation services. Pedersen is adamant that -- as an Idahoan -- he’ll succeed. “We’ll do anything it takes to get a job done,” he says.
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