Way back in the before times (before the pandemic), I produced four Jumpstart Workshops every year. We focused on fundamental business best practices for Live Events companies, centered on the four major themes of Strategy, Sales & Marketing, Operations, and Management.

Recently, I announced the Jumpstart Management Workshop on Intentional Scalability that will take place in Dallas, TX on November 9, 2023.

Our best practices have evolved, and it is time to apply them to your business before 2024 smacks us in the face.

Whether you can attend or not, I encourage you to read these posts and consider the implications. 

Chapter 1 — Why This Took Me 40 Years to Unwrap

Once upon a time, someone had a great idea: AV Equipment Rental. You buy the equipment, rent it to someone else for a short time period, they give you money, they use the gear — and then they give you the equipment back! The margins were huge. Take the purchase price, divide by 10, and that was the daily rental rate. Some gear paid for itself in a matter of weeks. Most gear kept paying year after year. 

Eventually, those renters needed help using the equipment. They needed labor, and later, expertise. No problem. Buy a delivery truck and teach someone to set up the equipment. No need to make money at labor and delivery when the margins on rental were so huge!

Competition was sparse through the early 1980s. Manufacturer dealer networks limited competition, and some rental dealers enjoyed a near monopoly on key products. All of that came to an end with the advent of equipment leasing, which opened up the markets to newcomers. Soon, the dealer territories fell apart and anyone could buy anything with easy financing available to all.

This had a major impact on the pricing mode, which went from being based on the purchase price to a formula derived from the monthly lease payment. Rental companies would negotiate deals and slash pricing on jobs to cover their lease payments that month. 

At the same time, wholesale rental companies emerged, taking advantage of the loose financing environment and the fast growth economy. There were now effectively no barriers to entry in the production rental industry. As big companies rolled up smaller ones, displaced employees started their own firms.

Rental prices dropped dramatically as the market was flooded with products.

In the meantime, not much changed in labor pricing. It remained a loss-leader through the turn of the century, into the next Recession. Even as the demand for highly skilled technical personnel increased, labor margins were often less than 15%. 

While companies were quick to outsource rental equipment from the wholesalers, most rental companies were loath to hire freelance technicians. To increase margins, dealers hired full-time technicians, believing it would keep their costs lower. Just like lease payments drove rental rates down, the burden of monthly personnel expenses forced labor prices down as companies scrambled to stay ahead of cash flow. 

The end result was that buyers took control of the marketplace, dictated prices, and forced dealers into lower and lower net profit every year.

To put this in perspective, an AV rental company in the 1980s routinely earned 30% or more net profit. By the year 2000, that figure dropped below 20% and kept falling. Before the pandemic in 2019, a rental dealer was grateful to earn 5% net profit, and if they were honest, most years they lost money by buying more equipment than they needed to take advantage of tax incentives.

Oh, and they kept hiring staff to control costs.

By 2020, the U.S. probably had TEN times more capacity in rental gear and full-time technicians than there was demand. Dealers staffed up their companies to meet the needs of their busiest months in a seasonal industry. The average AV rental company enjoyed three to four profitable months and lost money in the rest. 

Where did we go wrong? One word: scalability. 

Scalability in business means that as your revenue grows, your net profit as a percentage of revenue also increases. Sound impossible? 

For most AV Rental companies in the Live Event space, an increase in revenue means an increase in direct costs as internal resources are applied, and more expensive external resources are required to meet demand. On the surface, it’s good that your internal resources are less expensive than your external, but what if you have more internal resources than you really need?

Or, more importantly, what if you inadvertently reduce your selling price by giving away your cost advantage in owning equipment and retaining employees? Most owners will admit to sometimes (okay, often) slashing rates just to create some cash flow. 

The ultimate test of scalability comes in a downturn. What happens when revenue is 50% of what you expected? Or worse?

By the end of 2019, the race to the bottom was nearly complete. Business was booming, but margins were still shrinking. In early 2020, the COVID-19 pandemic began. Live events were effectively shut down, which put rental inventory on the sidelines, along with 90% of the employees of these AV rental companies. 

Our focus at that time was survival. Now we have the benefit of hindsight. Why would we ignore those valuable and expensive lessons?

This is Chapter 1 in my study of the business of Live Events and what I’ve learned over the past four decades. Sadly, the most valuable part of what I know I learned in the past three years.

Over the next couple of weeks, I’ll send you chapters on this saga, but my goal is to help you talk about it more openly. Our collective trauma taught us a very valuable lesson — one I will never stop talking about. 

The key to business is scalability. 

Once you’ve mastered scalability, dips in the economy will become your fuel instead of thwarting your plans and undoing your hard work. 

You’ll stop seeing your business as a series of good months and bad months, hoping there’s enough good to make up for the bad.

Masters of scalability no longer fear the unknown — they expect it. They build their business around the inevitable. 

Scalability doesn’t just promise reliable profit; it guarantees it. More net profit to grow your business, fund your retirement, or simply enjoy your life more now.

Jumpstart Management Workshop on Intentional Scalability

Jumpstart Workshops are networking, sharing, and learning events for managers and owners of Live Event Production companies on the road to Intentional Scalability. They are produced by Tom Stimson, the foremost expert on the business of corporate event technical production.