Value Added: Security entrepreneur unlocks secrets to profits

March 9, 2013

Washington entrepreneur Alan Kruglak has written four business books that have grossed a cool million with uncool names such as “The Entrepreneur’s Handbook” and “The Battle for Higher Gross Margins.”

But his self-published books, which the resourceful entrepreneur sells for $200 each (more on that later), are stocked with lessons learned from his four decades building companies — and mistakes he hopes to save readers from making.

His career is full of material. He started as a sales clerk in his father’s downtown Washington record store, stumbled through his first security start-up and now operates a $20 million-a-year Germantown commercial-security business.

His 10-year-old company has the unmemorable name of Genesis Security Systems. Kruglak’s firm installs and services alarms, cameras and “proximity” cards that open your office door. It even supplies gadgets that read your eyeball to ensure you are who you say you are.

Clients include the World Bank, SAIC, General Dynamics and the Howard Hughes Medical Institute.

The average customer job size at Genesis is around $40,000, but projects can range from $10,000 to millions. About 80 percent of the business is in the Washington market, but some projects are as far away as Canada and even Poland.

Kruglak said the company’s profitability — which stems mostly from its lucrative service contracts — is due in large part to the lessons he’s learned building other companies.

Lesson 1: Focus on the customer, not the profit.

Kruglak, 58, began his business career in the 1960s selling record albums in his father’s music store at the corner of 12th and G streets NW in Washington.

When he wasn’t manning the cash register and calculating sales tax in his head, he was figuring out why customers buy things.

“We would ask them, ‘If you like this musician, have you looked at Crosby Stills and Nash’s latest acoustic album?’ ” Kruglak said. “It is really basic selling.”

In the security industry, where customers are often inexperienced when it comes to technology, Kruglak said he uses the same sales technique he learned in the record store. Look them in the eye, establish trust, and don’t push anything on them they don’t want or need. They will keep coming back.

When one security customer wanted $200,000 worth of restroom door locks, Kruglak told her it was a waste. She bought it anyway.

After growing up in Chevy Chase as the youngest of four sons of a serial entrepreneur, Kruglak attended the University of Wisconsin and received dual master’s degrees in environmental management and public policy from Duke University.

He went to work at Booz Allen in 1979, spent a year in South Africa working for a security systems company and eventually rejoined the family business in 1980.

By then, the record store had been long shuttered. The family business had migrated to an electronics company called Glen Industrial Communications, named for his oldest brother.

Lesson 2: Understand the numbers.

GIC made modest profits selling cameras to federal government customers such as the FBI and State Department.

The “aha” moment struck when Walter Reed Army Medical Center asked the Kruglaks if they would install the cameras as well as sell them.

A camera could be sold for a small profit because there were so many competitors. But customers would pay much more for good service than they would for a product.

Revenue began to rise, but profits — stubbornly — failed to follow, because of a lack of cost control and poor financial management. By 1987, GIC was $3 million in debt and close to bankruptcy.

Kruglak moved his father aside and took decisive action.

He replaced his chief financial officer with an experienced financial guy, giving him 6 percent of the company as incentive. Now, with good financial advice, Kruglak renegotiated a bank loan. He fired 35 employees in a 135-person company. He cut expenses.

“Anyone considered nonessential was terminated,” Kruglak said. “We were spending $400 a day sending out FedEx packages. We changed the rule to require a manager to sign off on every FedEx package.”

By 1991, they had reduced debt to nothing, and the company went on to earn $1 million in profit on $10 million in revenue. Profits grew to $4 million by 1994, and the Kruglaks sold the company in 1995 for between $10 million and $15 million.

Alan Kruglak owned about a third.

The sale “enabled me to stay at home with my kids to become both a house dad and an author,” said Kruglak, who then launched his writing career from his Maryland home.

The first book, “The Entrepreneur’s Handbook,” took him four months and cost $8 each to print. To sell the books, he gave trade-show speeches in places such as Las Vegas, Florida and Hawaii. His presentation included a slide show with the names of his books, which he happened to have with him.

He has sold 5,000 books, starting with “Entrepreneur.”

“It’s not really that hard,” he said.

Lesson 3: Standardize everything.

After seven years, Kruglak launched Genesis with one of his brothers and two former GIC employees.

They were determined to avoid the mistakes from their previous company. This time around, Genesis standardized its equipment to the point where it sells and installs only one card reader system. Most firms in the industry carry several systems.

“Having one system allows our technicians to work more efficiently by installing and servicing the same thing over and over again,” Kruglak said. Instead of two or three service stops a day, the techs can make four or five, boosting margins.

This time, the numbers were the altar at which they worshiped. The computer system spits out monthly reports, right down to identifying how much they spend on gasoline.

“We always know if we are making money and where we are making it,” Kruglak said.

Sounds basic, but some businesses mistakenly confuse rising revenue with profitability.

Lesson 4: Find good business partners.

The Kruglak brothers (who didn’t take a salary the first year) funded Genesis with savings, while the former employees took out second mortgages on their second homes. “You have to have skin in the game,” Kruglak said. “If they have money in, they just can’t walk away.”

The four partners have different skill sets, with one in charge of production, another in charge of sales and one handling finance. Kruglak floats between sales, marketing and customer service.

Lesson 5: Treat employees with dignity and respect.

A lot of bosses don’t.

Genesis has 48 employees and no debt and is on track to gross $23 million this year. It has 24 service/installation vehicles, a 401(k) match and twice-a-year bonuses for its workers, who can make from $50,000 to six figures with overtime.

Kruglak said he goes out of his way to congratulate employees, some of whom may get out of bed at 2 a.m. on a weekend to fix a card-reader door that is broken. With everyone at Genesis earning bonuses, which puts several thousand dollars in people’s pockets, Kruglak said the turnover rate is virtually nonexistent.

“It’s part of our obligation to give employees a decent living,” Kruglak said.

That approach gives Kruglak a good living as well.

For previous Value Added columns, go to washingtonpost.com/business.

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