“It is one thing to live on investors’ money, and another one – to build sustainable business, rapidly expanding on a conservative market”
You are quite rapidly growing. This year in one of the interviews you told that the number of employees increased by 10% monthly. What is the number of your employees in different sectors now?
120 employees are involved in production. R&D Department consists of about 55 employees. In August last year three employees worked for Marketing Department. Now there are seven employees. Previously we had one or two employees who dealt with sales, now it is a full department: Director of Sales, four employees are responsible for the western markets and another two employees – for the Ukrainian market.
For the time being we have a strong partner in Ukraine, who has well-developed sales channels. We also were looking for distribution partners on other markets, using the same model. However, the next stage in developing the operational activities – to build strike teams on the markets. Their goal is to entice away the distributors’ clients in order that they could use our product. The team should obtain enough information, education and support in certain projects. Development of such business development presales model will make it possible better to understand the market needs. We are testing such an approach on the Ukrainian market, where we employed two business development managers and a brand manager. This team will continue to grow.
Do they use b2b model while working with security companies?
Yes, b2b models are used in cooperation with security companies, integrators, installers and retail networks. If we are talking about security companies, last year a few private firms purchased our equipment for their security surveillance systems. Now we cooperate with 67 such companies. Finally, State Security Police has also joined us.
How long does the cycle of sales in Ukraine take place in general?
In Ukraine we have a few stages. The first one – agreement with a security company that they accept our equipment for monitoring. Such negotiations can continue for the period of up to three months. Then we hold negotiations with the company to use the equipment as their standard equipment. These negotiations take longer time – half- year or a year.
How strong are your competitors? Which way do you persuade the security companies to switch to your system?
Speaking of Ukraine, a common growth trend is observed in the area of home security. Earlier most of security companies provided services to commercial objects, where they installed alarm system at repair stage. Now Ajax Systems is mostly approached by house management bodies, which prefer not to lay wires and have their own suggestions. Moreover, the users are attracted by the model, where the system is operated through smartphone. That’s why the end users install wireless or hybrid solution where the central part is wired and wireless sensors are connected to it via special integration modules
Our hybrid solution, where our sensors are connected to the popular local central units Ajax uartBridge and Ajax ocBridge integration modules, are the most popular on the Ukrainian market. If users need wireless solution, Ajax also has weak competition in this segment. Concerning very cheap solutions, these solutions are nonprofessional and security companies do not accept it for their security surveillance systems. We have one Ukrainian manufacturer who offers cheaper models than hours, but their quality is questionable. If we take western analogues, it is much more expensive.
What about foreign competitors? Do you already sell in 45 countries?
We sell in 67 countries. These are the countries, which have the partners, who regularly make bulk purchases. All of them are operating in a professional niche – they sell systems to security companies and integrators. In foreign countries we are focused on home segment – buildings and apartments, small offices. Now this sector is growing steadily.
In Western Europe they do not have a strong tradition to deal with surveillance systems of security companies. People here are more used to self-monitoring. It means that a user hires an installer in order to install the system, and all alert messages are sent to his/her cell phone. A user calls the police himself/herself or asks his/her neighbor to clarify the situation. This model works because most of residential property is insured.
In order to meet the requirements of insurance companies we obtained the European certificates of the highest level for wireless systems. This allows us to compete with huge manufacturers. Our solutions are very convenient for installers, because the process of installation and set-up is very easy, and, consequently, a demand for such devices is rising.
In the countries, which are accustomed to use security surveillance systems (post-Soviet territory, the Balkans, Central Asia), adaptation of our solution can be longer than in Europe. It happens by the reason that many surveillance systems and companies, cooperating with these countries, have different standards and adjustment of the product can take a certain time.
Some markets have interesting models of cooperation, where telecom operators try to sell auxiliary services, including in the security sphere. In the nearest future we are going to launch a project in the Central Europe jointly with one of the famous telecom operators, who use our equipment in combination with their service for monitoring and insurance.
If wireless security systems occupy 90% of the European market, you should probably have much higher level of competition here than in Ukraine.
Europe has price competition. Our classic competitors – huge companies, have developed the existing solutions 3-5 years ago. They sell these solutions at old prices. China is also close on their hills, the components become cheaper, etc. Huge companies are quite inert, and the market itself is blocked by costly certifications.
The European certification Grade 2 costed you about $100 000?
Thus, on one hand, such certification is a good protection against low-quality products, on the other hand, some countries use it as punitive collusion. For instance, Germany has its own security system certification for major commercial objects. It has been elaborated by German manufacturers in order to control the market de facto. It costs about 500,000 Euro and is obtained for the period of three years.
At the same time, only about 3% of house management bodies are connected to security systems. However, the demand is increasing and the companies, who provided services to commercial services, start servicing home management segment. Therefore, we also work on this market.
Verisure (Sekuritas Direct) monitoring center can be called our strong competitor in Europe. It is a Swedish brand, represented in 11 European countries. Israeli company develops equipment for this center pay subscriber’s fee for monitoring services. Verisure has about 2 million subscribers. They actively invest in marketing and are focused on house management segment.
Indeed, it is much easier for those who have a recurring revenue (an income model that describes regular payments over time for a service or subscription – editor’s note) to promote a product on the market. They understand that in average a client stays with them for the period of eight years and monthly pays, for instance, 30 Euro. The costs on the customer engagement are quite high, but he/she stays with the company for a long time. We, as solutions manufacturers, continuously have to assiduously strive for new clients. Every month we make our plan from scratch. Therefore, for the next year we plan to develop auxiliary services.
What kind of services can it be?
Recently we conducted a survey of Ukrainian users to find out what kind of services they are ready to pay for on monthly basis. First of all, it is storage of video recording archives in a cloud. Third-party cameras can be integrated in our system and video stream can be viewed using our applications. A user can store such video on his/her own hard drive. Accordingly, the next stage can provide an opportunity to store a video in our cloud.
Another solution is an automated payment for mobile communications. Now a user himself/herself monitors whether the hub SIM card account is topped up. We can charge ourselves with billing. It should be implemented in partnership with mobile phone company.
We also have an idea to offer our users an opportunity to obtain insurance. Such services are available on Ukrainian market, where you can obtain a certificate of insurance even without property listing. We are going to implement it in partnership with local insurance companies.
Our own monitoring center is one more solution that is not quite relevant for Ukraine, but it is very good for Western Europe. Such center will just receive the alarm signal if there is a need to call the required service. It works like this in the USA.
Last August you told that in 2017 you were going to enter markets of the USA and Canada.
We are focused on the European market, where we have significant growth rates. As for the USA and Canada, there we need to support other radio frequencies. De facto it means a development of new product line. Still we have not set any deadline for entering these markets.
In general, the competition is fiercer on these markets. It is very difficult to enter there without a recurring revenue, because the costs on customer engagement are very high. There should also be made a lot of integrations. Europe is interesting for us due to the fact that competition is not so strong here. European companies are much more conservative and are growing more slowly.
If the Internet of things was in our DNA since the beginning, most of European countries tried to add new options to old solutions. For example, opening their application, you need to send one more inquiry to find out system status. Using our application, a user always sees all options online. Such advantages are accumulated, dramatically changing the perception of product.
According to our partners, we are almost the only company-producer, which studies the market and rapidly satisfies the demand.
So, we made opening detector DoorProtect Plus for Italy. It also has shock sensor, accelerometer and it is well-suited for attic windows. The Italians like to open the windows for fresh air. If someone decides to force it in, the inclinations angle will change that will fix the detector and the user will receive the alarm signal. In Norway it was critical to have a system where actuation of one smoke detector would trigger all alarm sensors on the object and we provided them with the required solution. Therefore, it is very interesting for our distribution partners to follow what products we are going to develop as it would also increase their own competitive advantages.
So, you have a demand. Your production is rapidly growing – you almost double production volumes every half a year. In February of 2016 you had 5,000 pcs, in August – 10,000 pcs and in November – about 35,000 pcs.
In December we already had 44,000 pcs. We are not always in time to satisfy the demand. Sometimes our partners lack the product.
Tell us, what facilitates an increase in demand? How do you promote Ajax products?
Ukraine has quite a huge market. However, it was not noticed earlier. Actually, we are the first who began telling the world about it and popularizing security systems among end consumers.
Our global challenge is to create a linkage: “If there is a security system, it should be Ajax system”.
That’s why we have conducted a survey in Ukraine. 80% of people have already said that they started thinking about security system since they found out about Ajax, and not vice versa. Security companies approach us and say that they wish to gain users over and, therefore, they are interested in cooperation with us.
On the West we commence biting off pieces of old-brand market, which are left behind in the competition. One more factor is a total growing demand for wireless solutions: there are not so many certified high-quality wireless solutions.
Distributors themselves are also looking for interesting products, which are rapidly developing and unavailable in their competitors’ portfolios.
For them we are such a cool workhorse, continuously running, releasing new products and updating software.
Installers understand that today they have installed 5 detectors for the client, and tomorrow 3 new ones will be created and can also be offered to the client. In 2-3 months the Clients can themselves buy new sensors to satisfy their additional needs. A possibility of remote updating of the hub is also one more advantage for end consumers and our partners. Such options are not typical of the standard systems of major manufacturers. You have just installed it once and forgot about it.
In the West we still had no active communications with end users. All that we are doing now is supporting our partners’ activities. We collect information on the market, monitor the competitors and decide where we should enter. For the time being, we discuss the strategy for the next year, including generation of consumers’ demand on the target markets. Spain, Italy and Scandinavia are the markets, which are supposed to grow manifold over the next year. We have strong partners there and, on account of demand generation, jointly we can occupy a good market share.
Sometimes demand for your products exceeds production capabilities. At the same time, for a year your sales have increased by 5 times. If you have not enough resources for growth, may be you are going to raise additional funds?
This year we have bought our own SMD-line for assembly of printing plates. This purchase was funded by the European credit funds. In general, we have a financial cushion, and we haven’t even spent previous investments (in June of 2015 Ajax Systems raised $1 million from SMRK fund — editor’s note).
Our business is healthy – we always live on the money, which we earn, and think how to find cheap and sophisticated solution.
Here we can agree on additional deadlines in payments to suppliers for the component parts. We can also use one video for multiple reel options. I am talking about such solutions, which enable rapid growth, but do not require a lot of money.
Do you have an intention to accelerate the growth? Facing a demand, you are not able to satisfy it.
Now we reconceptualize the company’s processes and operating structure. We have integrated every employee into a single management system, put all documents in order and fixed all processes. It is possible to grow only in case, when all processes are scaled.
Currently we are building TOP management team, adding the elements that we lacked, for instance, Chief Financial Officer and Chief Sales Officer. Soon we will be looking for the Chief Operating Officer. Accordingly, further we will be faced with a question – how to manage people on our markets. How to ensure and monitor their KPI? We test different options in Ukraine and examine how it works, what nuances are there and how to scale it. We do not intend to get involved in shock-work construction, but rather pursue the Lean Startup approach.
It is one thing to live on investor’s money, to take on any hype and try to sell something in a short term, and another one is to build sustainable business without operating fuckups and compromises, rapidly expanding on a conservative market.
However, you should, probably, have certain problems due to the rapid growth.
Sometimes we have problems with supplies of the component parts. There can be delays or we can wrongly plan what we actually need. In this case we reallot orders from different countries to satisfy the most urgent needs. Although, it is accompanied with repackaging and reflashing. We also have management failures. Once I forgot that it takes a very long time to obtain visa to visit the Great Britain. We have submitted the documents in two weeks before the exhibition. Despite of the fact that we applied for consideration of the documents under accelerated procedure, we encountered a delay and the visa was issued on the last day of the exhibition.
Do you have overtime production due to the fact that demand exceeds supply?
Our production process consists of one standard shift. We discuss the issue of the second shift that we are going to schedule for the next year. We should know the forecasts of our partners to be able to plan our production process correctly.
It is essential that every employee clearly understands his/her objectives and sees the picture, drawn in the minds of management team. For this purpose we hold quarterly meetings of all Chiefs, where we discuss our achievements, focus for the next quarter and blockers. It is useful to understand the functions of different employees and management decisions inside departments. In general, it’s cool to be proud of your colleagues.
What are the problems that you see in the company now?
It is not expansion of production – here everything is clear, but human resources scaling, that arouses most of the questions. How is it better to build the structure of human resource management, how to motivate everyone in a proper way, how to find new talents and compete with other employers – it is a major challenge.
One more topical issue is information, obtained from different markets. Distributors see the market one way and installers see it otherwise, and we face a problem how to handle all this data in order to understand the needs of users and partners. Now we are developing an approach to such data handling.
In the meantime Ajax line consists of 16 devices (+2 should be released in the nearest time), including 5 devices that were released this year. Last year you told that a total number of devices should be 40 and, in view of product development, you should move towards smart home. Now you have closed all internal security issues, including integration of cameras. What’s next? What will be the remaining 24 devices like?
This year we have spent a lot of time on Hub OS Malevich, but finally system updating was successful. The next focus is a new generation of server architecture.
We scheduled 5 more devices for the next year. All of them will be, first of all, related to street security. In Ukraine we care about inside protection of our home, in Italy the outside security detectors are more popular. Now we are going to launch a transmitter – a module, transforming wired detector into wireless one, which integrates it into our ecosystem. This will enable us to connect popular solutions in this segment to our system.
We are developing and testing street motion detectors. It is a very interesting sector with low number of successful producers as far as this technology is science-intensive and cost-consumable. Japanese Optex is the leader in this sphere. We also plan to develop blind detector, which is installed on outside window and reacts on motion towards the window.
One more sector that we are going to develop is related to commercial objects. We will soon release RangeExtender, which will make it possible to cover large areas.
Concerning the smart house, we already have WallSwitch, which is installed into the Manchester plate and is operated through the application. This device is already capable of simple scenario: when you set the alarm system in or off, this device can connect the power and disconnect it. Further we are going to add a lot of other scenarios. In the first quarter of 2018 we will release full-fledged dry contact relay that will provide more opportunities.
With respect to home security we cover 80% of user cases. Every new device will bring us closer to 100%. Plus we will have a transmitter that will make it possible to connect the detectors that we lack to our system. For instance, it can be gas detector.
We are also interested in personal security sector – alert buttons and trackers for children. We have many requests, related to car alarm system.
In fact, we have an idea to become a human security center, when a person will have an opportunity to monitor the state of the house, car, family on the screen of a smartphone. That sounds great!
You have almost 20 devices and your key focus is home management bodies and small business. Are you going to extend it to the street and huge objects, i.e. to grow extensively and cover more markets? Will it complicate growth rates and market share?
We assess the market of intrusion alarms globally. It has certain segments, but we are interested in occupying the largest share of overall market. It is huge objects like airports or shopping malls, where such corporations as Bosch and Siemens are represented. We are pretty far away from this. To occupy this market we need to release 100 devices instead of 40 ones. Although, in fact, one device has five variations.
We are keen on creating such a product line that will occupy the market owing to convenient installation mechanism and harmonious functioning of the system. If earlier the project development on the market was slow and complicated, now our goal is to simplify this process to the maximum possible extent. Market complexity was due to the crowd mentality. Everyone said what should be done and which way. All universal products were created in such a way. And our approach is to simplify everything. This approach allows being stronger competitors.