05 May State of the CHRON Union – Part 1 of 3
Hey, CHRON friends and family, on the heels of doing our Q1 2017 Shareholders Conference Call last week, we’ve gotten some feedback criticizing the lack of detail or substance… For the record, we are not immune to flak – in fact, we encourage mantras within CHRON and Zen such as “complete transparency,” “no room for egos” and “best idea wins.” We always welcome your honest and constructive criticism 24/7.
Candidly, our modus operandi here was not to blow our whole wad on one conference call. We believe that we have made tremendous progress and that our outlook is incredible; however, we would like to strategically release information in a timely fashion. We feel that this will give people time to fully grasp what we are doing; allow time for the street, investors and our shareholders to properly grasp what we are doing before we introduce another piece of the puzzle, so to speak.
In this update, I will still adhere to this strategy and protocol, however, I do now realize that we could have provided more detail about past announcements and developments that have already occurred and/or are already in the work. Lastly, I will break this down into three different blog posts so as to avoid posting one huge write-up wherein your eyes will gloss over on page 6 somewhere…
So, our humble apologies aside, let’s get started!
Topic 1: Residential Business Model, Focus and Shift to Commercial: As you all know, the greater part of 2016 was spent creating a smart home services business model and platform, one that could support customer acquisition across the nation. For the record, we are complete in that regard – the platform is built and we are taking customers on today: www.livewithzen.com. However, at the current time we are not aggressively pursuing residential customer acquisition efforts.
The reason for this is that we built this platform as an ideal solution for a network-marketing company (i.e. Mary Kay, Ambit, Amway). We believe that there are many facets to the Zen Smart Home offering that would fare incredibly well in a network marketing distribution channel. Furthermore, I believe that if and when executed correctly, there is no better substitution for a distribution channel than network marketing. Likewise, I also feel that having a national Smart Home services offering like Zen’s is the best strategy for any services-based network marketing company; it presents huge value proposition for the customer and the representative, creates a great credible income stream and the average lifecycle of a smart home customers is expected to be in the 8 and 9-year range. When compared to lotions and potions (products), there simply is no comparison. Even service offerings like energy still only demonstrate a one-year lifecycle and have an approximate 35 percent annual customer churn rate.
We were originally planning/hoping to have deployed this distribution channel this past January, though obviously, we are still behind in this regard. While I am clearly not happy about this, I can also report to you that this delay has been for reasons entirely beyond our control. We have been in discussions and negotiations with four (4) different network-marketing companies going all the way back to August 2016. These discussions have ranged from and have encompassed the following (i) a simple multi-year marketing agreement between a client and vendor, (ii) joint-ventures wherein we would make a strategic investment into the network marketing company and (iii) even rolling two separate network-marketing companies together into a new company that CHRON would have the controlling interest in.
Let me be very clear, we are not and we have not abandoned this strategy—we are simply delayed because of the various outside factors and the nature of the discussions (M&A). We have offerings on the table today, however we don’t necessarily have everything on the table that we would like to have. I believe that our offering is positioned to become a leading brand in the industry, I also believe that given some of the –isms that come with network marketing it is imperative that we choose wisely who our partners are going to be. There are always risks associated with network marketing distribution channels, one of these the mere optics of the model, which may cheapen the brand or image of Zen.
Another is being perceived as a fly-by-night company because of having weak leadership within the network-marketing company; we are very cognizant of these. At the same time, there are many great and wonderful legacy companies that have changed the lives of thousands of their representatives, such as Amway, Herbalife, Ambit, ACN and, of course, my own alma-mater, Stream/Ignite. I assure you that our intention is that the Zen Smart Home brand not be compromised in any manner whatsoever—and while it has taken us a bit longer than we planned or expected, I still remain 100 percent confident that we will be better off for taking our time.
In closing this topic, let me say again, we have not abandoned our residential strategy—we are merely waiting for the most excellent opportunity and time. In the interim, we decided to focus on our commercial efforts for many reasons, one of which, was that it is low-hanging fruit and secondly, its time for Zen to start putting revenue on the books. Understandably, it appears newly minted because that became the focus during our debut, though I assure you, commercial services have always been a part of our plan from the very beginning.
Topic 2: Zen Commercial Efforts + NAUP Brokerage: My intent here is to bring some clarity to our commercial services and to provide an update on two major announcements that we made earlier this year, these are as follows:
March 1, 2017 CHRON’s Affiliate, Zen Technologies, Announces Partnership with Oklahoma Grocers Association – Press Release 1
March 8, 2017 CHRON’s Affiliate, Zen Technologies, Announces Partnership with Major Hospitality Groups – Press Release 2
Before I get into an update on the two press releases, let me give a quick overview on our commercial services. With the recent acquisition announcement of NAUP Brokerage, it is safe to say that Zen Technologies provides three (3) core services to commercial, industrial and municipal end-use customers. These are as follows:
- Smart Controls, which may also be referred to as Building Automation Systems (BAS). Herein, we provide the ability for customers to automate their lights, looks, thermostats and other on-site security related needs.
- Energy (Electricity, Natural Gas & Water Utilities) Conservation, which includes a product offering of various conservation-based technologies such as LED Lighting, Motor Controllers, Load Factor correction, Harmonics, Smart Controls, Water Treatment, HVAC and/or onsite micro-grid technologies.
- Energy Procurement/Brokering & Advisory (not to be confused with our REP services which are coming soon) is made available to us through our NAUP Brokerage relationship and allows us to advise customers on their actual usage of electricity and natural gas, while also affording us the opportunity to broker those respective contracts.
Some of you may be wondering, “Wait a minute, where is the Zero Cost offering?” To be clear, the Zero-Cost Program is nothing more than an innovative financing program. This program allows Zen to market/sell above-items (1) and (2) to customers without the customer having to incur new charges/expenses. While the Zero-Cost Program isn’t technically a product or service, it is definitely our competitive advantage and is what sparked and opened the relationships with the Oklahoma Grocer’s Association and the Major Hospitality Groups mentioned in our press releases.Candidly, we have a very high closing percentage because of the Zero-Cost Program, however, what many don’t know is the process associated with the same. This program is considerable and requires about seven different steps before we can even implement the prescribed technology for the conservation/savings. In broad strokes, the steps are as follows: preliminary qualification analysis, onsite survey, savings analysis, energy audit, sourcing & logistics, deployment and then, settlement. Thus far, this has proven to be a 90-day process from the time that we start a sell to the time that we can get revenue in the door.
Consistent with our crawl, walk and then run model—we have already implemented improvements and changed vendors and policies to shorten this time frame by half. We have also focused on systems that could support the scaling of this operation. I believe that it will take us our official funding (more about that in blog three) and another three months to be able to perfect it. In the meantime, we have at least 20 customers under contract and in the engagement process with us; these 20 contracts represent approximately 100 actual, physical locations. We are already conducting several surveys, audits and we are anywhere between five and 15 business days away from our first implementations, which will then release revenue for Zen/CHRON. Apart from the traditional learning curve, other delays have been tied to third-party vendors, which we have now made those changes.
As it pertains to the Grocer’s Association, the nature of our agreement is one wherein the Association is essentially a business development partner for us wherein we (Zen) are introduced as a cost-reduction solution to their members. While there are thousands of members, our strategy this quarter is to engage with and implement approximately 10 to 15 locations as case study examples that we can then present to all members en-masse via marketing documents and joint communication efforts. As of right now, we have four locations that have started the process with us, with the potential of landing another 12 within the next two weeks. If we are successful, then of course you can connect the rest of the dots. It is our belief that this relationship can create at least two years worth of significant opportunity pipeline for us.
With respect to the Hospitality Groups, this is a very close-knit group of three companies, which collectively represent ownership in more than 300 hotels; their entire network consists of thousands of hotels across the nation. Our desire and intent is to turn all 300 hotels into Zen Zero Cost customers. In the same spirit and strategy above with the Grocer’s Association, we are also taking a “case study” approach. As of right now, there are five locations already deep in the process and another five locations committed to us. Our agreement with these fine people was to identify 10 of their most important locations and then create case study marketing materials and start working the entire sector together in a joint marketing relationship.
As you can tell, this is a moving target for us; we have a tremendous pipeline of business and these efforts have still been in our soft mode. There are announcements coming that will help you have a much greater appreciation for our need to perfect the process so that we can scale it across the nation. I think that we are still about two quarters away from being able to predict/forecast revenue amounts in any meaningful manner. However, I think, or at least I hope, that you can see the various great reasons as to why this is the case.
Okay, CHRON friends, this is the end of blog one – there are two more blogs coming out soon giving more details.