Podcast
min read
James Dice

🎧 #133: How the building automation supply chain works (and when it doesn't)

January 12, 2023
"We're still stuck dragging the anchor of the old proprietary software. Manufacturers need to listen to what the end-use customers are saying. They want open systems, product flexibility, and access to the data."

—Leroy Walden

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Episode 133 is a conversation and history lesson with Leroy Walden, a veteran of the building automation system integrator ecosystem in Atlanta, Georgia.

Summary

We unpacked how the building automation supply chain functions, including the roles of the manufacturers, distributors, and integrators responsible for controlling HVAC systems in major metropolitan areas. And of course, we talked about the downsides and opportunities of that status quo when it comes to implementing smart building technologies. And as we’ve talked about in the past HVAC controls are one silo in the building that operates similarly to the other silos, so the insights in this conversation are applicable to access control, lighting, electrical products, etc.

One word of warning, if you think this conversation doesn’t concern you, yet you want to use data from the building in smart building applications or control systems better to save energy, please think again.

So without further ado, please enjoy this conversation with Leroy Walden.

☁️ A message from our sponsor, SkySpark ☁️

SkySpark is a comprehensive software platform for connecting, storing, analyzing and visualizing data from smart devices and equipment systems. SkySpark’s automated analytics, KPIs, Energy and GhG Apps, turn your data into actionable intelligence providing improved performance, reduced downtime, and operational savings.

Head over to SkyFoundry.com for insightful white papers, case studies, and blog posts, as well as a link to sign up for a free demo.

Mentions and Links

  1. Highrose Consultants (2:30)
  2. 🎧 #044: John Petze on Tridium's early days, founding SkySpark, and 10 years of Project Haystack (9:04)
  3. Automated Logic (10:22)
  4. Burnt Controller (35:21)

You can find Leroy on LinkedIn.

Enjoy!

Highlights

  • Leroy’s background (2:11)
  • Conversation context (5:05)
  • Evolutionary phases of smart buildings from a BAS perspective (9:48)
  • About the ecosystem: product manufacturers, distributors, system integrators (15:26)
  • The nature of system integrators (34:35)
  • Getting out of the virtuous cycle world (1:04:11)
  • From the old ecosystem to a more accessible and scaleable one  (1:08:56)

️️🏢 A message from our sponsor, Jaros, Baum & Bolles 🏢

Building intelligence engineering allows OT and IT systems to seamlessly and securely integrate with each other and onto common platforms. Creating a successful building intelligence strategy entails translating the owner’s goals to outcomes, use cases, intelligent building technologies, and enhanced MEP systems.

To learn more about what JB&B is calling “MEP 3.0” and the value of building intelligence design, as well as the difference between smart and intelligent buildings, listen to JB&B’s Division Lead’s conversation with the global certification company WiredScore.

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Music credit: Dream Big by Audiobinger—licensed under an Attribution-NonCommercial-ShareAlike License.

Full transcript

Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!

[00:00:33] James Dice: As we impact on one of our most popular episodes ever. Episode 44 with the legendary John petsy sky spark is a comprehensive software platform for connecting, storing, analyzing, and visualizing data from devices and equipment systems, sky sparks, automated analytics, KPIs, energy, and greenhouse gas apps.

Turn your data into actionable intelligence, providing improved performance, reduced downtime and operational [00:01:00] savings. Head over to sky foundry.com for insightful white papers, case studies and blog posts. As well as the link to sign up for a free demo.

[00:01:09] James Dice: This episode is a conversation and history lesson with Leroy Walden, a veteran of the building automation system, integrator ecosystem in Atlanta, Georgia. We unpacked how the building automation supply chain functions, including the roles of the manufacturers, distributors, and integrators that are responsible for controlling HVAC systems.

In all major metropolitan areas. And of course we talked about the downsides and opportunities of that status quo when it comes to implementing smart building technologies. And as we talked about in the past, HVAC controls are just one silo in the building, and that silo operates similarly to the other silos.

So the insights in this conversation are applicable to access control, lighting, electrical products, et cetera. One word of warning. If you think this conversation doesn't concern you yet, you want to use data from the building and smart building applications or control systems better to save energy, please think again, [00:02:00] this does concern you.

So without further ado, please enjoy this conversation with Leroy Walden.

[00:02:05] James Dice: Hello Leroy. Welcome to the Nexus Podcast. So glad to have you on. Can you introduce yourself?

[00:02:10] Leroy Walden: Tha thanks James. Great to be here. Leroy Walden, um, got to know James through through a meeting at RealCom this past year, this past June. And my background is, you know, I've been in the building automation, temperature control industry, started in 1978, back in the day with pneumatics.

And I've come through every iteration of electric, electronic, computer, computer, automated all the way up to the most recent you know, obviously web-based IP based every, every, every different iteration, every different generation. So, so, I've been passionate about the industry since the beginning.

I worked at, in the beginning I worked for manufacturer, worked for Robert Shaw Controls, which got folded up and. Wound up as a part of the Schneider Electric family. Now after that I joined an independent dealer. [00:03:00] Um, and he and I more or less started a temperature control building automation business in the Atlanta marketplace.

Then I had the opportunity to go to work for one of the largest engineering and manu in mechanical contracting firms in Atlanta. And with that, I got a lot of exposure to the majority of the commercial office properties and a lot of the industrial office properties in and around the Atlanta area and Charlotte area.

And during that time, I became very familiar with commercial buildings, commercial office buildings, data centers. We did a lot of entertainment and venue um, entertainment venues colleges, universities and so forth. So I've seen, I've seen a lot, covered a lot hotel motels, um, you know, you name it.

So, but through the, through the years, the technology has been Growing, sometimes growing at a, at a rapid clip, sometimes we are seeing revolutionary change, but for the most part it's been evolutionary. Um, as, as, as time has gone, nothing much has changed about [00:04:00] thermal dynamics. So consequently the, the systems to control heating and cooling, um, haven't, haven't really changed that dramatically over the years.

Concepts are the same. Um, and pretty much the building mechanical systems design has, has remained fairly consistent, you know, through those, through those years. So, so it's been a good, yeah, it's been a, been a good career. It's 1978, retired in 2017 full-time, and then been doing consulting work you know, since that time, working with the RealCom folks, helping them in a couple of the shows that they're doing, a couple of webcasts that they've done.

So it's been pretty good.

[00:04:35] James Dice: I was gonna say, there's no way you can say you're fully retired because you're here talking to us.

[00:04:40] Leroy Walden: Yeah. Yeah.

[00:04:41] James Dice: Semi-retired. All

[00:04:42] Leroy Walden: Yeah, well, well, like I say, you know, it is kinda like, you know, once the passion's in you, you can't turn your back on it. And as I, as, as, as I, as I told you one time in the past, you know, I'm, I'm a little bit selfish about it cuz I got a son that's in the industry now and so I wanna make sure that he stays on and, and gets the [00:05:00] opportunity that I had to, to build a nice career.

[00:05:02] James Dice: Yeah. Well, thanks for, thanks for coming on to share the passion. So let's set you, you, I want to hear you sort of talk about the first time you and I met. So we were talk, we were at RealCom in June of 2020. I was up on the stage and the, what do they call it? The Integrator Summit. Um, so the big four hour session beforehand, I was up on the stage, um, and we were talking about the independent data layer and the horizontal architecture and all the things that we sort of, we sort of unpack on this, this show all the time.

Right. Um, it was me sort of sharing a condensed version of that and then moderating a panel on the independent data layer. And you came up to me afterwards and you said there's a, there's a certain subset of the audience that's maybe rolling their eyes or walking out of the room.

Can you, can you sort of talk about that in a little bit more detail?

What was

your experience during that?

[00:05:57] Leroy Walden: It, kind of caught me off guard James, quite honestly, [00:06:00] because, you know, the, the message that you and the, and the panel that you had assembled, the message that you were bringing was, was very topical. Um, interesting. Captivating and, and, I mean, necessary. The conversation I, I felt was, was, was this is where we're going.

I mean, this is what we've been working to do. You know, this independent data layer. I mean, it's like, yeah, you know, let's get the data freed up. Let's get it so that we can use it and benefit from it, and we can, you know, I, I liken it to a, to a campfire. You know, the, you, you have a, you have a campfire. It warms everyone.

You know, the data, the data creates that campfire that warms everyone. Everyone can use it and benefit from it. So I was, I was really excited, as I could tell, most of the audience was really really, really involved. And so I was really quite shocked when I had a few people that kind of buttonhole me out in the hallway and said, you know, we're not gonna sit up here and hear just nothing about, you know, these venture capital funded, you know, new technology guys all the time.

You know, I was like, . I was, [00:07:00] I was shocked.

[00:07:01] James Dice: blown away. Huh?

[00:07:02] Leroy Walden: I, I was shocked because, you know, I was like, guys, this is the message that we've been trying to get out for all these years, you know, and here it is, here. We've got a, here, here we've got a person that's kind of putting the right people together and having this right conversation and, you know, you're, you're wanting to make a fuss about it, you know, and turn your back on him.

And I, I just didn't understand it. So, so that's the reason why I reached out to you. I wanted to try to say, you know, let me, let me help understand a little bit more why, and I've done some research and I shared that with you as to why some of the, some of the people are feeling the way they are. And so then it's like, well, I want to kind of make it a, a mission at this point to try to help.

let's say, help people more understand that this is not a threatening message. This is the message that we need to unify around. And this is, this is the technology that we really need because this is our industry. You know, this is the, this is the way forward. And having these conversations and inviting everyone that's involved in this, in this industry, inviting [00:08:00] everyone in to participate in the conversation is a key.

[00:08:03] James Dice: Yeah. And I really appreciated you coming up to me afterwards. And I think we, we grabbed a little bite afterwards as well, because I wasn't aware of that. You know, I, I, I feel like, I feel it, I sense it intuitively, but nobody's coming up to me and telling me, you know, you're full of shit.

No one's coming up to me and telling me, you know, you shouldn't be saying this. No one's coming up to me and say, telling me venture capital's not gonna work or anything like that. I'm not hearing any of that. And so, I love that sort of feedback. Um, so we're gonna sort of unpack some of the stuff that you uncovered in your research here today in this conversation, because I feel like there's a little bit of a.

Um, combining of the old and the new that needs to happen

[00:08:44] Leroy Walden: Yeah. Oh, I agree. I, I agree wholly, you know, wholly a hundred percent, you

[00:08:48] James Dice: so let's start with the old, so you, you started with computer science around the seventies and eighties, something like that. Right. Can you talk about kind of, and, and I don't wanna [00:09:00] spend all day on this, we've done this in, in previous podcasts.

The one that comes to mind is John Petsy. We talked about the different phases of the industry, but can you just talk about how, a little bit, how you've experienced it in your career, specifically with, you mentioned how you view Nexus as sort of getting the message out. And I think what you mean is building on a mission.

Systems in the past have been sort of like if you ask a asset manager, a property manager, or the dean of students at a university or the head of a data center, they're not necessarily thinking about. The bs. Right? And so one of the things I've been trying to do is get that message out. Here's the importance of bs.

Here's the importance of BS for decarbonization. Here's the importance of BS for occupant experience. Here's the importance of BS for this, that, and the other thing. Right? And so can you just talk about kind of the, the phases you've seen in the industry and mostly about how you've experienced it from a [00:10:00] BAS is behind the scenes not really getting much, much viewing.

[00:10:03] Leroy Walden: Yeah. Um, you know, I started off with pneumatics, as I say, and, and having been, you know, in computer science, schooling school and the school, you know, we were, I was on the cusp when I entered the industry. We were on the cusp of automated systems. A lot of the people that I went to school with actually went to work with the company that became Automated Logic which was an Atlanta based company.

And so consequently, you know, they were really on the leading edge of a lot of the innovative technology as it related to PC-based user interface and, and you know, communications, communicating systems, so forth. Company I worked for Robert Shaw. We had. A similar type system that kind of evolved.

First off, we had many computer based systems, which those are, I just call those one off, you know, totally like oil and gas holdovers, you know, that was the only technology we had. But it really wasn't until the PCs came out 82, 83, you know, 84 in that, in that era [00:11:00] that the desktop PC really kind of emerged as the tool of the platform to, to be used.

So, you know, believe it or not, a lot of the technology that was developed did come from the oil and gas industry, um, as it relates to the special purpose, single, single purpose microprocessor based controllers, like for pumps or valves or for air handlers or, or that type thing. And the idea of those was to con connect all those up in a network, and the network would then stand alone and only be, the PC would only be used to interrogate and gather.

The data from that. So, so, so, so yeah, that, that was kind of like the first, what I would really call true building automation or true through automation that was available to integrators. Because up to that point, the systems that I, that I talked about, that we were primarily only available through factory offices.

So you had the Johnson Control office, the Honeywell office, the Automated Logic office, the Robertshaw office. Those were the only people [00:12:00] that, that technology was available to. But once it got into the PC realm, then systems, independent dealers, independent integrators, independent DMS contractors kind of came on the scene and each one of those would have, you know, in, in a given marketplace, you may have two or three that are really competent.

You know, in the Atlanta marketplace, we had really three good independent building automation capable, you know, PC based systems capable people. They would really do a good job, you know, outside of the factory offices, the big five or whatever you wanna call 'em, the Barbara Colemans, the Robert Shaws, Siemens, you know, all those folks.

Um, um, so, so, so that's kind of, that, that was kind of the gestation. But, but the truth be told now is that there's been very little change in the way mechanical systems are put together, even from the late eighties up until even the most current generation, and I'm talking in the context primarily spec, spec office buildings, [00:13:00] commercial office buildings, 20,000 square foot, four, four plate 10 floors, 20 floors, 1530 floors, you know, whatever.

Because that's, that was the Atlanta marketplace and has been the Atlanta marketplace for, for quite a while, which is what I grew up.

[00:13:12] James Dice: Mm-hmm. Yeah. And and really what you're saying is the, this ecosystem where you had the manufacturers, distributors of those products usually maybe are separate but not always. And then you had the system integrators. This is where the ecosystem in which technology has been installed in buildings for decades.

[00:13:34] Leroy Walden: Yeah, I mean literally, literally since, since there were independent dealers and that, that really didn't start until the late eighties, early nineties. And, um, you know, independent dealers being able to get access to true communicating, building automation, you know, automated systems that was very rare.

Probably the first people that that started it were, um, the Robert Shaw and Barbara Coleman [00:14:00] channels actually had independent dealers. There was a couple of others control systems, international cs. Andover was another where you could, you know, buy the product, you know, off, off the shelf, if you wanna say that.

Usually they went through a distributor through a wholesaler in some cases, or a direct dis distribution channel, you know, directly from like a second tier distribution channel. Johnson Controls then got into game. They had a, they had kind of a secondary capable system that they sold under the Mesis brand for, for quite a while to independent dealers.

But for the most part it was, you know, and, and usually the, the independent dealer at that time would be three to four maybe engineering type guys and would also project manage and sale work. And then, you know, they would have technicians to do the install, hire electricians to pull wire if they needed to, or and then, you know, sometimes the project management program, the project, and sometimes the field techs would program the project and really depended upon the.[00:15:00]

The volume of business at the independent dealer. And those independent dealers are gonna be anywhere from, I'll say 3 million to $8 million in, in gross revenue per year. So, I mean, they're, they're, they're good solid businesses, but they're not the, you know, they're not the mega integrators that, that we're seeing nowadays.

You know, there's a lot of those guys got rolled up in some of those consolidations, you know, through the years. But but

[00:15:26] James Dice: So what's, I was just gonna ask you with the roll up, can you talk about what, just maybe use Atlanta as a lens. Atlanta is gonna be just like a bunch of other cities in the United States, right? What's the ecosystem look like today? I think we've had, we've seen Niagara has shaken up this marketplace a little bit, and you know, from when you started, and then you're saying, I, I agree.

The roll-ups have seemed like they've shaken up. This industry a little bit as

well. So what's, what's the Atlanta market like?

[00:15:55] Leroy Walden: and, and you know, as an independent, there, there's, [00:16:00] as a young person, a young, a young, independent dealer, this guy's the limit. You know? So, but you roll that, you roll that forward 20 years. Now all of a sudden this guy's thinking about wanting, you know, what do I do? How do I retire?

You know, how do, what's my end game? You know what I mean? Because when you get right down to it, what he's got is a, a, a customer list, and he's got access to a product. He's got an installed base that he can do service, but his business as a, as an entity is not that valuable to, to, to, to how I'm gonna sell my business and, you know, get rich.

You know, basically what he hopes is he can sell this business and retire comfortably. Um, so, so what happened is, is that, you know, as the availability of product became more and more prominent through Niagara, you know, Niagara built a whole ecosystem. Around independent dealers. They had master distributors in areas, and then they, those master distributors would set up three to four tiers of distribution.

They would have the, the light commercial [00:17:00] guys that would do, you know, rooftop warehouse office buildings. And then they would have another group that people that would do some of the K through 12 schools, maybe some light, you know, small university community, college type buildings, things like that.

And then they would have the, the next tier up, which would be the commercial office buildings and the entertainment venue, hotel, motel, you know, those kind of guys. And then we'd also have the master integrators that they would, that they would set up in a, in a certain area. And so, so it was, it was, the ecosystem was, you know, a lot of people at the bottom end and a very small number of people, maybe one or two at, at the very top end, the way those distribution channels were put together over the years.

So, so it um, when it come time for, for those guys, those young guys, maybe they were at the small, it's the first tier or the second tier or whatever they decided to, to sell. Well, these big roll up companies, um, I can't recall the name of 'em right now, would come in and make an offer. And basically what they'd do is they would buy the rolling [00:18:00] stock, their trucks, they would buy the tools, they would, you know, lease their property and, you know, they would pay the guy some kind of a severance package.

And then, you know, he would stay on board for two or three years to make sure the business transitioned profitably to the, to the new owner. And then he would take his payout and, and go out the door, you know, so, so that, that has happened at least once, maybe twice, um, in the Atlanta marketplace especially, and I know that having been involved in a, in a business association of independent dealers across the us you know, in, in the past inside IQ is the name of that group.

Um, and there's still a viable group, still a viable. Group, but a lot of the members there also took those, took those buyouts and, and rolled their businesses up into, into large entities, you know, across the us

[00:18:48] James Dice: Yeah. So each city is gonna have what types of entities now they're gonna have this, one of the offices of one of these big roll-ups, and then offices from the [00:19:00] manufacturers that have field offices. Is that kind of what the ecosystem looks

[00:19:03] Leroy Walden: Yeah. There's still smattering, still smattering, you know, for the most part, the factory offices are non-existent, or if they do exist, they just exist to support the very large accounts. You know, like, like, Atlanta, the, the Atlanta Airport or, or Emory University Hospital or something like that. You know, where, where the, the factory office, the Siemens office or the Honeywell office in some cases, or the Johnson Controls office, which is, I mean, just a shadow of what it used to be as it relates to, to the Atlanta market.

I'm sure a lot of other markets, same way. But the most part though, it's, it's, it's made up of independent dealers. It's independent dealers that are either still totally independent or independent dealers that are a part of this, if you wanna call it a franchise or whatever, you know, these big, these big rollups that have kind of come into fashion these days.

So

[00:19:52] James Dice: Mm-hmm.

[00:19:52] Leroy Walden: that, and that's pretty, that's pretty much what we see and what's still going on in the Atlanta marketplace.

[00:19:58] James Dice: And then what are [00:20:00] their, so all these independent integrators, what are their contracts like with the manufacturers? Like do they have exclusive access? Do they have certain. Special pricing. Like what does that, what does that look like? What

[00:20:15] Leroy Walden: The ideal, ideally you would have a sole source relationship. And in the, in the early days, those were kind of the norm. Like, for instance, if you signed up with CB Environmental Controls, which became Schneider Electric, to sell their, their Barb Coleman product. Well, you would be the only licensed dealer for that product in your marketplace.

And that was really good because as an independent dealer, you could gain a lot of momentum and get a lot of traction around that product. You know, so, so, so, you know, we, we, we work really hard to make sure that proprietary access to that product wasn't our main calling card. You know, we [00:21:00] make sure that that proprietary access to that product meant for our customers.

We could mobilize the entire organization, the manufacturer, the engineering and all to solve one of our customers problems if we needed to. But we didn't say, well, we're the Barbara Coleman guy, so you gotta buy from us, or else, you know, we're going to, we're gonna rip your stuff out, or make it not work, or, you know, or prices or whatever.

So, so, but, but the reality of it is, is that there's, it's necessary. for as an independent dealer to have the confidence that the product that you're representing is fully developed and fully supported. Because when you go out to talk to a customer to sell a system, you're basically laying your integrity out and adjoining and conjoining your integrity and and capabilities to that manufacturer.

And if that manufacturer's giving you junk product, then all of a sudden it's gonna shatter a bad light on you and your team and and so forth. So, so it's a very [00:22:00] difficult process to choose a manufacturer and then hope that you can get the support from that manufacturer, because the last thing you want is, let's say for instance, and, and I'll, I'll, I'll, I'll prevent using names, but there are manufacturers that don't have a problem setting up multiple dealers in the same marketplace and in the same market segment.

So for instance, if I'm an independent dealer serving the commercial office building market, they don't have a problem setting up another independent dealer in the same marketplace with the same market focus because their credo is more feet on the street, means more sales. That's, that's, that's pretty self-serving.

And what it does is, is that it injures the relationship that I would have as an integrator to want to sell their product as a primary product for me. And the reason for that is I don't wanna build a building, be be, in other words, when you, when you're, when you're [00:23:00] bidding for commercial office building properties, first bid is low.

I mean, you're, you're gonna be your rock bottom margin to be low. Cause you gotta beat Siemens, you gotta beat, you know, you gotta beat all these people. So, so you're gonna go in on the low margin base building. The last thing you want to do is to see low margin. You get the low margin, build a base building, and all of a sudden you're across town.

rival comes flying in with his access to the same product and the same technology that you have, take your, what should be your high margin business, which is tinted up fit, ongoing service and maintenance you know, all all that kind of stuff. So, so when, when you're an independent dealer, it's a, it's a really fine dance that you, that you dance with each of these manufacturers because, you know, just getting access to the product is one key, but you've also gotta have some support from those manufacturers to have them recognize that it takes, it takes effort to, to create this marketplace and to maintain that marketplace.

You [00:24:00] know, I've gotta pay people, I've gotta put people in trucks, you know, I gotta insure people, , you know what I mean? And, and I gotta incentivize people and that costs money. And if they disregard how important that is by having another dealer set up across town that may be. , maybe he's got a different cost structure than I got.

Maybe he doesn't provide his guys with, with health insurance. Maybe he doesn't provide his guys with 401k, but you, you see what I mean? So all of a sudden now I'm, I'm put at a competitive disadvantage. So it was always really important to me to have a very clear delineation with all the manufacturer, any manufacturer that I represented to make sure that they were sensitive to what my needs were.

And then I in turn would be sensitive to what their needs were. I would make sure that I only brought their product to the best customers, that I would always bring their product to the customers that would appreciate that we could then work together on and, and develop that customer relationship long term.

[00:24:54] James Dice: so I think this is such an interesting. Perspective that you're sharing for, I think Friday for the [00:25:00] first time in the community on this podcast, a lot of times we have people talking about how there needs to be multiple vendors in each marketplace to create competition and to like avoid a vendor getting locked in because so many people have worked with building owners, myself included, where they buy a certain system, they like the integrator that they work with, and 10 years, 15 years goes by and that relationship sours, that vendor starts to jack the prices up and people are feeling like they're getting sort of, um, I think one of our community members, Terry calls them, calls it Lock and Liam

Right. So can you talk about, kind of, maybe give some perspective on how that feels when people talk about it from that perspective?

[00:25:46] Leroy Walden: Well, well, you know, the majority Yeah, I, I, I agree a hundred percent. And as I said, the thing that I wanted to make sure that I. , the culture that I built within my organization was the fact that [00:26:00] we weren't gonna let proprietary access to product be our main calling garden. You know, we weren't gonna say, Hey, you know, we're the guys, so you gotta deal with me, so get over it.

You know what I mean? We wanted to have customer service and, and what I always wanted to do was to make sure that the product that I brought to the customer was a product that I knew I could support better than anybody else in the marketplace. And that was one of the thing I constantly challenged my team to be better, be better than the competition with, even with the same product.

Because there was that time that, you know, and still, still is current today, that Niagara is the predominant platform when you look at where, you know, how, how all systems are, are communi, how they're connected, you know, how they're integrated and, and Niagara provides the primary ui. And so, so it's, it was very important, vitally important for me, for my team to be more competent with the product.

Than their competition because the competition could get the exact same product. Now, the comfort that I wanted to [00:27:00] always give my client was the fact that if you ever get tired of me, there are other people in this marketplace that can su that can support this product, and I'll be glad to introduce them to you if any point in time in the future that comes to it.

The thing though, and this is a truism and I don't see when it's gonna stop, and that is the field controllers that you provide, whether it be Schneider Electric or whether they be Johnson Controls, or whether they be Distech or whomever in the marketplace, those, those field level controllers are really kind of where the, where the rubber meets the road as it relates to the independent dealer and the relationship that he has with that manufacturer.

In, in a lot of respects, there are a lot of the distributors now are selling through multiple channels, you know, multiple people as we, as we described. So let's say for instance, um, Distech, I know in the Atlanta marketplace there's about three independent Distech dealers. Um, and so what that means is, is that there's [00:28:00] an opportunity for those, those dealers to compete head to head with, you know, with the, with the same customer.

And the way they're able to do that is that the, the configuration tool that you need to configure those field controllers. In other words, basically when you pull the controller out of the box, it thinks it's a toaster. So basically you have to have software that you can tell it. You're not a toaster, you know, you're controlling a terminal unit, you're controlling an air handler, you're controlling a chiller pump, or, you know, whatever.

And, and that, that software tool is a proprietary software tool. You know, even though we have Backnet as the primary technology that is allowing the communication, each manufacturer implements through a proprietary piece of software. and there's, I don't think there's anything insidious about the fact that it's proprietary.

It's just that every manufacturer does it differently, slightly differently. You know, the way they, the way they set their controller up, the, the processor that they use and their controller, [00:29:00] um, those types of things. And so, but it, but it comes down to the

[00:29:03] James Dice: names and all of those.

[00:29:05] Leroy Walden: tool and it's only licensed to their licensed dealers.

So, so if I do want to have it transition to my competition, you know, I'll be open to say, let me introduce them to you. I'll give you the one. I think that would be the best for you. You know, you can choose that one if you want to, but I would have to choose one that also had access to the fuel controllers that I had installed.

Otherwise, otherwise, that next person that came in would have to completely tear out what I put in, which I don't think they have enough money in the vault to do that. Or they would have to be able to implement through open protocol. And, you know, if they needed to replace a controller, if they needed to repair or recommission a controller or whatever.

They would, they would have to come up with a way to do that. So that, that's a, that's a, that's a, that's a fallacy in open systems as they exist today.

[00:29:53] James Dice: Totally.

[00:29:59] James Dice: As [00:30:00] we covered in our recent blog series on the five vital roles, smart buildings require engineers and engineering that allows OT and it systems to seamlessly and securely integrate with each other. And integrate with common platforms. Creating a successful building intelligence strategy entails translating the owner's goals to outcomes, use cases, intelligent building technologies and enhanced MEP systems.

To learn about what JB and B is calling MEP 3.0 and the value of building intelligence design. Check out our friends at JB and B and specifically . Their podcast conversation with Wiredscore at the link in the show notes.

[00:30:37] James Dice: And some of the people listen to this right now, so we're half an hour in, um, are probably sitting here. Like there's no way. That's how buildings are operated today. Right. Um, and what I'd like to iterate, reiterate is like, These systems are being installed and they're gonna be left in place for how many years?

I mean, I've seen 30, 35, [00:31:00] 40 year old building automation systems. So what we're describing right now is the nature of buildings today, even though you're talking about sort of a history. Um, I'd, I'd love to ask you one more question about this sort of relationship between these different, so we're, right now we're talking about product manufacturers, distributors, system integrators, and then the customer.

These are, it's like a ecosystem. It's a symphony of all these people working together that outputs the building automation system. I, I want to zero in on system integrators, but just one more question on. , that ecosystem itself. Where did this strategy of low bid on the first project and then try to make up margin on future stuff, where did that come from?

What you mentioned you need, you need to compete with Siemens or you need to compete with so-and-so, but like everyone that's my age or younger in the industry is kind of like, why is that a [00:32:00] thing? Right? So can you sort of explain where that came from? Because it, it's at the root of a lot of issues,

[00:32:05] Leroy Walden: It, it, well, it is, but I mean, I mean, just, just imagine if you were sitting on top of the Saturn five rocket, you know, in the, in the Apollo and everything below you. This is about to blast you to the moon was built by the low bid contractor. I mean, how confident would you know? How confident would you be?

And, and that's the reality, you know, that that's the reality of. The way buildings are bought. And that's, that didn't just start, that's the way, you know, go down memory lane a little bit. Used to, in Atlanta there was called a bid room and all of the manufacturers at that time, Honeywell Johnson MCC or Landis and Gear Powers, you know, those, those companies, they had to go to a central bedroom to, because in the bedroom they had a teletype machine, like a, like a Western Union teletype machine that they would use to turn their bids in.

You know, because everything was, [00:33:00] it's all open, you know, it's all public open, public open bid and that kind of thing. And I'm not saying that it ever happened, but I can tell you that there have been times that I've heard about the Honeywell guy walked into the, to the to the, to the one guy and said, Johnson guy said, Hey, look, we're really busy right now, so I'm not gonna be low on this job.

I just want you to know that. So this is your job. You know, this . I'm not saying that they did that. I don't know any names, but I, but I, you know, , I have heard that that scenario did happen, Sandra. So, so low bid is what, is what wins, particularly in the commercial, in the commercial marketplace. And, and really any public opening, any college, university, any large, large facility, it's always low bid.

So, you know, particularly on a commercial office building when it's a Corin shale, when you, you may have two or three built out floors. You may have a main lobby, you'd have a central plant, but everything else would just be shelled and it would be built out as, you know, tenants come in, move in, that kind of thing.

Um, it's, it's a foregone [00:34:00] conclusion that when you got the base system, that that tenant work would follow, and that tenant at work is where you're gonna gonna get your reasonable margin, the margin that sustains your business, not the margin that it took, you know, to get the job. You know, you know, I'm just trying to, I'm trying to get the, I'm trying to get the 10 or 15%, you know, gross margin that I need just to break even so I can get that 23 to 28% gross margin.

That sustains my business, you know, going forward. So, so, so that, that's, that's a concept that's been around and is still around. I mean, if you go to any public opening, it's, it's, you know, low bid, low bid wins.

[00:34:35] James Dice: Yep. Yep. All right. Um, that'll be a good history lesson for people, um, that, that little summary. So let's, let's zero in on system integrators. So they're obviously, they have the manufacturers of distributors that are creating and selling the product to them, and they have the building owners that they're selling the product to and installing.

[00:35:00] Four. Um, you sent me a really amazing email that I should probably just publish. Um, and I wanted to sort of unpack that

[00:35:09] Leroy Walden: Okay.

[00:35:10] James Dice: and, and maybe we just go, there's, I think there's seven statements you made here, and I'm gonna walk through each statement and just have you sort of respond. The, the first statement you said is, it came with a picture, you said.

Every smart building contains multiple panels like this one pictured here, and it's this massive panel that we can put in the show notes. Each panel is custom designed, custom fabricated to exactly match the building's, mechanical and electrical equipment. Each

module, module within each panel was selected for its specific mix of inputs and outputs and programmable functions.

Um, can you talk a little bit, little about that piece?

[00:35:47] Leroy Walden: Yeah, sure. Um, you know, and again, still talking about the, the Corn Shell commercial office building or, you know, it could be a, a corporate office building as well. [00:36:00] You know, the, the reality of it is, is that when the mechanical systems are designed, there's some decisions made about, you know, are they gonna have central chiller plant and they're gonna have central air handler that serves each floor, and they're gonna have some kind of an air distribution system.

And the majority of the time you've got some terminal units, some either V A V P I U. Some type of air air throttling device on the duct work that, that provides a heating and air conditioning system. So then from that point, you look at the, the, say for instance, the air handler on the floor.

There's a certain mix of inputs and outputs that are required to make that air handler function. You know, discharge air temperature, static pressure control, variable speed drive maybe a chill water valve you know, maybe some facing bypass damers, maybe an outside air economizer system, so forth.

And it really comes down to the, to the designer, to the, the mechanical designer as far as the way that mechanical put together. Then the building automation systems [00:37:00] engineer has to set down and match point for point input for input, output for output. And so consequently, there's a lot that goes into selecting.

No, the the controller, because every manufacturer will have a, a, a controller with a mix of inputs and outputs that would, you know, the best, the one that best fits the bill for this particular application. So the majority of the time, the air handlers will all be the same in a 15, 20, 30 story office building.

So once you make those decisions, once, then every one of those air handlers will choose this controller with this mix of inputs and outputs, and you'll build that control panel when the control panel basically is nothing. But with the modules mounted inside, you got wireways in the panel you know, you know, or goes out to terminal strip that are then connected up to the, the input or output devices or the variable speed drive or the chill water valve or whatever it is.

Um, but, but that's all in a, in an enclosure, you know, enclosed in the, in the, in the system. [00:38:00] And so there's a lot of decisions that go into that, and it's a mix and match. And as, as I've said in the past, every building's a custom prototype. . So you may have, you may look at it and say, two buildings are identical.

But the reality of it is you look inside and you look inside the systems. The buil, the building engineer or the mechanical engineer that designed it may have had some new technology that he wanted to bring into, into light in the second building that wasn't in the first building. And so that causes a change in nuance in the, in the building automation system.

So, so each one of those, and so then the, the manufacturer has to make sure that he has on his, on his shelf, a controller that has the right mix of inputs and outputs that you need as an integrator. And then also that there's enough capacity, there's enough processing capacity, there's enough memory to, to store the algorithms.

There's enough throughput for communications. They may have [00:39:00] developed some custom programs like uh, area, area control, or, or Something that would coordinate the terminal units that are connected to that air handler. So, so make sure there's enough memory and all make sure there's enough speed, you know, so if you want to get, if you want to draw data out, you know, you want to do some that fall detection diagnostics, make sure that the controller has the capacity to speed that data out at the, at the, at the throughput, at the rate that you want to get it.

So there's a lot of decisions that go into the manufacturing of those individual little controllers and those individual little controllers. From the manufacturer's perspective, they hope to sell those for around 150, $200 a piece, which

[00:39:38] James Dice: Yeah, the manufacturer was your next, your next statement. So let me read that one out and then I'll, I'll we can go into that. So this is a couple statements I'm combining into one, but you said each module was manufactured and when you say module, you're also talking about the field controllers you

referenced earlier. So each module was manufactured by a specific manufacturer in response to industry demand at what they [00:40:00] hope will be a competitive price point. Each manufacturer must conceive design, prototype, create firmware, alpha test, beta test, and ultimately field test each product before beginning mass production at scale.

The price point for these controllers ranges from a couple hundred dollars, like you said. two as much as a thousand dollars per copy as sold to the integrator, who then marks it up right and sells it to the customer. All the development costs are sunk costs for the manufacturer. Most will not see a new product breaking the profitability for many months after that release, assuming there are no extensive post-release issues that they created once it's re released into the wild

[00:40:37] Leroy Walden: Yeah. We call those undocumented features,

[00:40:40] James Dice: Okay,

[00:40:41] Leroy Walden: they didn't expect. Oh my God. We didn't think of that.

[00:40:44] James Dice: so what you're trying to convey there though, is that these are long product life cycles. There's a lot that goes into them and once they come out, they're kind of fixed entities for a while. And what, what I don't think you said here is a lot of times these are, like you [00:41:00] said, create the firmware alpha beta test.

These are hardware products,

right? They weren't really designed with a specific software layer. They were designed to be a hardware device that has one specific function.

[00:41:12] Leroy Walden: Right, right. Fully, fully programmable. Um, you know, they all have eprom eprom in 'em that you know, once the integrator designs the system in response to the mechanical design, and once he creates the the application, the, you know, the algorithms for temperature control, pressure control, whatever it is, once they're created, then they're saved in eprom on the controller, and then that controller from that point forward, it's fully programmable when you get it.

But now it's become a special purpose, special application specific for that air handle of that set of pumps, the fans or whatever, you know, whatever it is. And so, So, so that's the, that, that's the key. And you're right, I mean it, once it's set in motion. Once it's set in place and once it's commissioned and turned over, you know, from that point you go into the maintenance phase and no one expects that controller to not do [00:42:00] its job.

Everybody expects that controller to just do that one thing all the time and be available to query, be available to diagnose, be, you know, be available all the time, but you know, it's gonna be there for 15, 20, 25 years doing that, doing this one little job. Um, and so, so as, as I say, you know, these manufacturers, and I'm talking about the big guys, the Johnson to Honeywells of Siemens, anybody that makes these products to sell through, through independent, independent distribution, they really have to be up on their game to make that product as robust as.

And that's a hope that I have as an integrator. I want product that's robust. I don't want something that's just really fragile. If you turn the light switch on too much, you know, you get a spark of an EMF and it pops the, you know, the, the processor, you know, you want that, you want, you want things to be able to take a licking and keep on ticking.

And, and so there's a, there's quite a bit of development that has to go into it where they kind of make those things as technician proof or as [00:43:00] foolproof as possible. Interesting. I, I've subscribed to a a group even today on the social media, and one of the guys posted a picture of a controller that a 277 volt leg voltage had brushed down across the terminals on the controller and just popped the whole side off the controller.

But the dog on controller, the output that it hit yet burned that output out every other function in the controller kept on going. , it was amazing. I said, are you kidding me? That thing is still working. He said, oh, yeah, still controlling the air handler and it's just doing fine. I said, wow, . I said, but somebody let the smoke out of it.

[00:43:37] James Dice: Yeah. Yeah. Wow.

[00:43:39] Leroy Walden: so, so, you know that, that's, that was real, that's really important as an integrator, because you want, you don't want, you don't want to have to go back and revisit every controller. I mean, there have been many times when we've had a whole network of, let's say, terminal units, like 25, 30, 40 on a floor that someone accidentally applies 24 volts to the [00:44:00] communications bus.

And that happens more than we want to say. But you put 24 volts on the, on the communications bus. Well, those communications ships don't like 24 volts. They don't like ac, you know, they want, they want signal level. So all of a sudden you've got 25 or 30 terminal unit controllers that are above ceilings, by the way, usually overtops some kind of a high finished desk, you know, or you know, whatever, inaccessible.

Now all of a sudden you gotta go visit each one of 'em because the chip set, that's inside's burned out. So, so, you know, having, having those controllers built so they can be tolerant to that, and they, they exist now. They exist now where you can actually put line voltage on the chip set on the com chip set and it won't blow the thing up, which is really amazing to me that they can do that now.

But I mean, that's just the, that's just the generation of electronics that we have. So, so when I was choosing a manufacturer, I wanted to make sure that they were doing the best that they could do to keep those products as robust and, and at scale, because I wanted to buy sometimes 200, 300, [00:45:00] you know, I wanted to be able to get those within three, four or five days, or 3, 4, 5 weeks at the most, not two months, a year and a half or whatever, you know, so, so when they have to make those things, I mean, they're turning those things out by the hundreds every day.

And so we gotta make sure that what they're giving us is good and long term good, good long term product.

[00:45:20] James Dice: totally. And that's what the distributor comes into play, is being able to handle those local projects, 300 controllers, being able to handle the, you know, the cash flow

[00:45:30] Leroy Walden: key. They're, they're a key element, you know, in that, in that supply chain because even though you have a good relationship with that manufacturer, you're one distributor or you're one integrator across their, their network of integrators across a country, across, you know, a region, um, that, that local guy, the local distributor, he may have 150 or 200 on the shelf that you can go get right now.

And that, that always makes a big, always makes a big impact.

[00:45:56] James Dice: Absolutely. Um, before we move on from the [00:46:00] manufacturer to your next statement, you had two statements left here. Um, one of the things I wanted to ask you about is this concept that we see in our personal lives a lot now with planned obsolescence. So you see this hardware driven product a hardware focused product has software on it, but it's mostly a hardware product.

And at some point that manufacturer stops supporting that device, and now everybody's gotta pay for new, new ones across, you know, like you said, 300, 300 controllers on a job. Where does that come into play and how does that sort of work?

[00:46:33] Leroy Walden: You know, in the, in the building automation industry, fortunately, s the most modern controllers, and I say modern controllers, I'm talking about controllers that were built, um, mid two thousands and on basically, if they ascribe to the backnet, . If they ascribe to the backnet protocol, then usually they've got some they, they, they've got this, the newest technology, they've got high throughput, so you [00:47:00] can get data in and out if you need to.

They're robust from a communications chip set, so they're more tolerant to oops, and missile wires and, you know, those kind of things. Um, so once they're, once they're put in place, I mean, quite honestly, I've seen many times we would do a building automation system upgrade of an old, let's say a Siemens I don't know if you remember the Staa product, but the Staa product, which was eventually combined with the Siemens product.

Staa was a European company, and they had some of the most unique chip sets and communications protocols that I've ever experienced in the marketplace. And some of those controllers were put in, in the, in the, probably early 2000, 2002, 2004. and those, those controllers still work. And those are, I mean, they're very robust and, and you wanna talk about fault trauma.

They're very fault trauma for miswiring or those kind of things. So you don't wanna throw 'em away. I mean, you know, , so, so many times we would [00:48:00] do a building automation system upgrade and not do anything but change the front end, the core technology. You know, where we would do an a Niagara integration, or we'd do an integration to another similar central core platform, new ui, you know, completely address up everything.

But we're still communicating onto those old, those old network of controllers, you know, they're, that are hanging above the sealant, you know, so, so you can, we can talk about planned obsolescence, but the refresh cycle on those kinds of things is not, I mean, it's 15, 20 years and you can reasonably expect you put that controller up there, it's gonna last 15, 20 years at minimum.

Now there have been instances, we did one for a large HomeGoods Manu or HomeGoods, a retailer here in town, and they were just not satisfied with the base product, the core product that was put in their building when it was built. And 15 years later, they paid us to come in and take out every piece of that technology and put in a whole new, you know, a [00:49:00] whole new technology.

That's, that's very unusual and, and very rare that you actually run into that, where you do a complete rip, rip and replace and it's just, it just doesn't happen that often, you know? It's, it's very disruptive. It's very disruptive as you can imagine.

[00:49:14] James Dice: yeah, the reason I wanted to point that out is because that's why you see in a building today, this controller from 1996, because, you know, you, you have the, the manufacturers designing it that way, and then you have, you know, obviously it's very difficult to, to rip and replace. Um, okay. Your next statement was, each integrator must train their.

On the proper application of each new product released by their con contracted manufacturer. Training at scale is a very expensive proposition for an independent integrator who hopes to maintain a profit margin sufficient to sustain a business while absorbing these sunk costs and enduring margin erosion on the first couple of projects where the new and unfamiliar product is applied.

[00:49:55] Leroy Walden: Yeah. I'll give you an example of that. You know, Honeywell developed [00:50:00] their line based controllers, you know, early in the early in the open system phase. And if you've ever worked with Echelon or the Echelon Protocol or line, you know, line. It's very robust, but it's also very, um, it'll punish you if you, if you don't, it's very procedurally oriented.

If you don't do everything in the exact procedure that's prescribed by the manufacturer as far as taking controller from, you know, cold start all the way up through commissioning and final, you know, start to link points and those kind of things. If you don't do everything exactly right, it'll punish you.

So you've got to develop some, some discipline and discipline in your team to know that those steps are necessary to go through and, and get that going. So, so we became my team. We became probably the most accomplished in our market with the lawn protocol and consequently installed quite a number of buildings with the lawn protocol.

Well, [00:51:00] transitioning to the backnet protocol was major. It was a major because. Basically, it got down to the point there was only one or two manufacturers that were continuing support the line protocol because the, the market as a whole was, was, you know, marching stampede style, right toward the backnet, the backnet protocol.

And so obviously the manufacturer that we were representing, they were giving us new controllers that were backnet. And so I had to anticipate that and I had to take my key guys, my key teammates and bring them out of the rotation to get them trained up on the new Backnet product, which meant I had my maybe second tier team keeping up with the, the volume that we had with the old lawn base controllers.

At the same time, I was building a whole new team to support the Backnet protocol. Um, you know, controllers, field controllers. . So I had, you know, two or three people trained, and then we always, we always would send people to the factory [00:52:00] training, but we'd also tell them, you're going, but you're, you know, we trained the trainer so when you come back, we're gonna set up in-house training.

A lot of the manufacturer would support it with sending us product that we could set up, you know, do simulations and, and those kinds of things, you know, learning it. But it was you know, it was about a two year transition where we were installing still the old line stuff, but we were beginning with the Backnet and with that new product, we had to learn all the idiosyncrasies associated, you know, with the line.

It's non-polar sensitive on the con on the com, you know, basically it's just, you know, you hook up two wires and it'll communicate well. The back net is very polarity sensitive, and plus there's a shield, you know, so you have to, you have to know where to ground that shield and how to ground that shield and what happens if you do ground the shield or if you don't ground the shield, or you know, do ground it on which end, you know, whatever.

So those little fine nuances that it takes to. You know, get that system up and running and then doing it so that it can, you know, run reliably for 15, 20 years. You know, 20 years we had, we had to learn that. And [00:53:00] so big expense and, and you know, we had travel cost, you know, obviously for the, the team that went to the, went to the factory for training and then we had, you know, again, you know, sum cost and training the team, you know, internally to get them up to speed.

And then we knew that we weren't gonna make a whole lot of money on the first two or three jobs that we installed. Cause we're just, you know, we're just finding a way kind of walking along in the, you know, stumbling along in the dark. And so, you know, fortunately, you know, we became very competent and accomplished with the back net protocol.

And, and, and, and that same scenario played out across whether we were using the Niagara platform or whether we were going with one of the other manufacturers, you know, proprietary platform as far as the, the UI and, you know, graphics or, because at the same time we, at, at the time I'm talking about we were supporting.

four different manufacturers products as an independent dealer for those four different products. And we were doing it at scale. It wasn't like we had this or that, or [00:54:00] this, or that. We were doing this and that, and this and that. You know, at the same time, because we had different customers, we'd either acquired the business because we had capability with that product that they were looking for an alternate dealer for, or we had actually installed that as a part of a new, you know, from the ground up, new install we had installed.

So, so, you know, maintaining that and that, that plays out many, many times across a lot of the integrators. The fact that they're supporting multiple products simultaneously,

[00:54:29] James Dice: Wow. And then do they feel like they need to, to, in order to compete, like let their building owners choose in order to get access to more building owners, how, how does that

[00:54:38] Leroy Walden: you know, the, the, the business philosophy will differ by the integrator in my particular case. being attached to a large mechanical contractor and engineering firm, we had different, different customers. Let's say for instance, we had one particular customer that loved the Trane ecosystem. They like all train.

And so in order for [00:55:00] us, you know, our billing automation, you know, integration team to support our mechanical team, we had to be very accomplished with the trained, trained platform. Um, similarly, we had some manufacturers that had already bought heavily, let's say, Johnson Controls. And so the next phase of that plant, they, they wanted to keep, you know, keep consistent.

And so we were a Johnson Controls dealer, so we would go in and, you know, implement the Johnson control platform and keep on going. So I say it's, it's unique, it was unique to us just because of the, the, the market that we served and how we were conjoined with our mechanical engineering and contracting team because where they went, we went, you know, and so, so, but, but a lot of times the independent dealers.

don't, don't have that need, don't have that luxury. But the, but the majority of them do still support multiple systems. Like for instance, a lot of the manufacturers have folded the Niagara platform in some way, shape or form into their product mix. It's like, for instance, you can get it from Distech, [00:56:00] you can get it from Honeywell, you can get it from, you know, Schneider Electric, you know, lots of the manufacturers, Aqua Johnson controls.

You can actually get the Niagara platform or some implementation of the Niagara platform. So that's a totally different U ui that's a totally different ecosystem to learn as opposed to whatever that manufacturer's based system is. So, so most integrators are still gonna have to be, let's say, bilingual, multilingual, you know, to be able to support multiple.

[00:56:29] James Dice: And that leads us into our last statement here. You said, each integrator in order to, and this brings us full circle back to the beginning as well too, which is I think is cool. Each integrator, in order to receive the greatest price break must commit to a minimum dollar volume per year to maintain access to that product or products.

As you said, as an integrator, it is imperative to select a manufacturer who can be trusted to provide the most innovative cost effective and reliable products possible because integrators stake the reputations and you said, quote unquote, blood [00:57:00] and treasure on being able to profitably apply those products they represent and to do so better than their competitors.

So that takes us kind of full, full circle a little bit.

[00:57:08] Leroy Walden: Yeah. Yeah. And that, that's a key, you know, a lot of these, a lot of these manufacturers, I mean, they've built their, they built their business model around so many dollars, you know, volume per marketplace. And so when they look at your office and they look at how you shake out compared to Jacksonville, Nashville or, you know, Colorado Springs, you know, whatever.

They look and say, you know, that market should have this many dollars in product coming to me. And so we, a lot of the manufacturers in the early days, when I say the early days, they would look at that and they would give you some leeway. They would know that you're not gonna get every job. You know, they, they would know that while that may be possible in this market, the circumstances around the way your business is structured, the circumstances around the customers that you serve, you may or may not get that high percentage.

And so, so there's, there's there are a [00:58:00] lot of nuances that go into that. But by the same token, in order to maintain the best volume discount, the best pricing for the controllers, and a lot of times there's other incentives that go into it. Like training. You get training credits, you get you know, non communicating products like valve, valve actuators, damper actuators, you know, some of the, some of the hard stuff, you know, you get some, you get some credit for, for volume purchase.

And those kind. Of things. So, so that's a, that's a, that's a nuance, that's really a challenge if you're competing in the same market with a manufacturer, with, with an integrator that's selling the same product that you're selling. You see what I mean? Because they've diluted the market. They've cut the market essentially in half.

So that makes it difficult for you to hit your mark, to get the best volume and the best discount that you can get, um, you know, from that manufacturer. So, so that, that's a, and, and the commitment that we make to the customer that we put it in is that we're gonna give you the best price, we're gonna give you the best service, and we're gonna [00:59:00] have the best trained people, but we're not going to use that as our, as, as our, as our velvet hammer to beat you over the head.

If you don't like us, we'll introduce you to our competitor. They can come in and we'll support you transitioning if that's what you want to do, you know, so, . So it's, but, but I always felt like saying that was one thing, but I always knew that my team was better trained. I knew that my team was better equipped.

That was the goal. You know, the goal was, okay, you can do that if you want to, but let me tell you what's gonna happen, and if it starts to happen, don't worry. We'll get right back in there with you. We'll, hopefully we'll be able to overcome whatever problem may have come up, but, you know,

[00:59:39] James Dice: yeah. So with those volume agreements, if you look at that from the customer's standpoint, are there any downsides that. That, you know, cuz everything, as Charlie Munger says, incentives drive everything, right? Incentives run the world.

Does that incentivize anything that ends up into a poor outcome for, for building [01:00:00] owners?

[01:00:00] Leroy Walden: As far as as, as far as them pursuing volume,

[01:00:06] James Dice: If I'm an integrator and I have an agreement with a, with a distributor or with a manufacturer to provide a certain volume every year. Um, w are there any things, any ways in which that shows up for the customer that are sort of no good

[01:00:25] Leroy Walden: Yeah, I mean, it, it, it, it, from, from the customer's perspective, they want the best price every time, and they're always gonna compete you against the guy that comes up says, I can do that for $12 and 55 cents. You know what I mean? Okay. So, so the only thing that, that I always wanna make sure when I talk to my customer about is that, you know, I'm buying at a volume that gives me the best buying power, but that buying power is good for me and good for you when we're, when we're doing the job.

But that buying power also speaks to my ability to mobilize, [01:01:00] let's say the engineers, or let's say mobilize the programmers or the customer service team because you're having a problem. Them, you know what I mean? You've got 300 DAV boxes and all of 'em are doing the exact same thing. And we don't know why.

You know, you have my confidence because I buy enough volume from these folks that I've got a big voice that I can call them and say, Hey, I've got, I, you need to fly an engineer down here and we need to walk through this thing together cause my guys are stumped. You see what I mean? Yeah. So, so, so there's a, there's a, there's a, when I say that virtuous, there's a virtuous relationship because, you know, the customer wants the best price, but they also want the highest level of comfort that the product they're getting from you and the service they're getting from you is un unequal and will make sure that their customer, the, the, the occupants of the building are taken care of or are comforted.

And at the same time, the manufacturers are making sure that the dealers that they're dealing through, that they're, the integrators that they're dealing through, are [01:02:00] not gonna waste their time. They're not gonna give them frivolous. Issues to try to work through. They're not gonna waste their time.

They're not gonna, they're not gonna, okay. You go out to the job and call the, call the tech support guy, and when you get out there, call him, he'll walk you through what you gotta do. You know what I mean? That that's expense, that's expense. That field engineering for these guys, they have to support that because that's a part of their customer support philosophy.

But by, at the same token, it's an expense for them that if they know they're dealing with a good and competent dealer, then their value chain and their, their, their margin is protected. You know, because they've made margins selling me the controller, and I'm going to make sure that they get that opportunity to sell more controllers through me.

And at the same token, I'm gonna not waste their time. And then the cust, you see what I mean? So this, that's the virtuous cycle. It's, it's, they make good product, they support product. We install product better than anybody. The customer likes it because the price is good, so he wants more. So who do we buy it from?

We buy it from the, from the guy that they're giving us the good stuff. So,

[01:02:59] James Dice: yeah. [01:03:00] I think some people, it makes perfect sense when you explain to me, I think some people look at those volume agreements and say, well, how does the second or third competitor come into the market and give the owner choice? when they, that that second or third competitor can't get the same price that the established integrator has.

Right. I think some people look at that and they go, well, shit, that's just being protected.

[01:03:24] Leroy Walden: Yeah.

[01:03:25] James Dice: it. That, and furthering lock in for, for some, for some people.

[01:03:29] Leroy Walden: Well, and that's where, that's where trust has to come in. You, you know, you know, hopefully these, these, these in these building owners, building managers have developed a relationship of trust. And if that relationship trust is trust is not there, then everything you said is true. There's no trust.

Then obviously they're saying, well, this guy's coming in telling me he can do it for $50, and you're trying to charge me $200. You know what's going on here? He's got the same product, you know, he's access to the same factory. You know, what's the. . So, so there has to be some level of trust that's, that's cultivated [01:04:00] by the integrator.

Obviously it's not just that, you know, you should trust me because I'm a good guy. It's like, you know, you need to earn that trust. The old, the old bucket of trust fills up a drop at a time and empties a bucket full at a time.

[01:04:11] James Dice: All right, so we've sort of unpacked, you, you called it a virtuous cycle. We've, we've hit that virtuous cycle and sort of explained it for people that aren't in that world and don't understand how that works, which I think that in and of itself will be super valuable to people that are trying to either get data outta that ecosystem, disrupt that ecosystem, buy from that ecosystem, understand why that ecosystem is the way it is.

I think that is like a masterclass in what you've just provided there. So that's like part one of this. Part two for the people that are still around after an an hour here, um, is we, we talked about at the beginning, we have that sort of old way of doing things, that old ecosystem. And then some people call it the, the venture backed startup ecosystem right then.

And those [01:05:00] two things, especially when it comes to controls, Coming together in, in many ways. Um, and I think what I've said in the past is we're talking about mostly HVAC controls here today. These same patterns play out in access control and electrical products and lighting products and all of that. So we're not just talking about hvac, but I think one of the things I wanted to get your view on is what would you say to those people that are coming from the world that you came from that aren't sort of jumping on board with the way that I think the industry needs to go?

You seem to agree on the way the industry needs to go. The Nexus community seems to be bought into where the industry needs to go. What would you say to those people that are sort of coming from this, this virtuous cycle world, as you call it?

[01:05:49] Leroy Walden: Well, the, the, you know, a lot of the manufacturers have become, let's say, disconnected from the actual customer, the end use customer, and, and [01:06:00] so, you know, my, my encouragement to them is to listen to what those end use customers are, are saying, listen to what they're wanting. and know that your, your integrators that are coming to you with these, these questions or these demands are not just something they cooked up in the back room.

It's something that these, these o these owners want, they want open systems, they want, you know, product flexibility. They want, you know, access to the data and, and, and so, you know, it's not that. And so, so what we know is, is the customer will, will, will be tolerant of you for a short time, but after a while, they're gonna, they're gonna look somewhere else.

And, you know, if the, if the marketplace is providing them what seems to be a, a, a viable solution, you know, to the thing that they want, well they're gonna, they're gonna be interested in trying it. And the key to those, the key to those manufacturers is to be, let's say, receptive to what the customer's asking for and evaluate what, what the, what the [01:07:00] situation is.

What, what, what are they looking for? What, what are the, what are the systems and what are the nuances? How is it different from what we sell and how can we implement something similar, or how can we give them comfort that what we have already does that? And, and so, you know, the, the, so, so the end, the manufacturers must be connected to the end user customer.

Now, a lot of times the integrators are a little bit protective of who their customer is. They don't even, don't even want to tell their manufacturers their customer name, the job name or anything, because they don't want that guy telling their competitor across town to come over there because I don't think they're, you know, you see what I mean?

So it's, it's kind of a hush hush thing. But the reality of it is, is that the manufacturers have gotta be connected to what the market's telling them, not just what their integrators are buying. And unfortunately, they look so much at the dollars that their integrators or the distributors are buying as their customer.

But the reality of it is, is that [01:08:00] they're just a, they're just a stepping stone to the real customer. The real customer is the. Person in the building that pays the ultimate tab. So, so a lot of

those manufacturers would do well to listen first and react based upon a more informed position. Because I, you know, as, as I said, the message that you assembled when, when you and I first interacted in that, in that building integrator summit at RealCom in in 22, it, it told me that, you know, you're on the right path as it relates to bringing that customer need and desire to the open, and showing that there are manufacturers that are willing to step forward and try some new new approaches, you know, to those, to those those demands that the customers are making that are not necessarily baked into the tried and true product that's available in the marketplace.

Not that the product in the marketplace is bad, it's just it's time for a little bit of, a little bit of an upgrade, a little bit of a nuance.

[01:08:56] James Dice: Totally, totally. And, and this kind of [01:09:00] parallels with a, a, a lot of what I've said in the past, especially as it relates to, um, opening up the total addressable market for controls to all buildings, not just bigger buildings that are more complex and have bigger budgets. I feel as if that ecosystem that we described, the whole supply chain, I feel that everyone is a little bit colluding with each other around keeping systems very complex and because.

All the reasons you just described. It's, it's sort of no one's deciding, Hey, I want these systems to be really complicated , but everyone is sort of incentivized to say, we don't really need to simplify this because the way we make money is to keep things

complex. Um, and so that, I guess I'm wondering what, what you sort of think about how do we go from here, which is we just took an hour plus to sort of unpack how that the [01:10:00] industry works, right?

How do we go from here to getting something to where it's easier to install systems? It's less expensive, and so therefore we're able to then apply controls everywhere, not just bigger buildings, right? Some research I've done shows that, um, 87% of the buildings, um, below 50,000 square feet don't have any control system whatsoever.

Right. Um, and so therefore, they're not able to take advantage of all the different things that control systems enable. So how do we get to the point where that industry that we've described here gets a little bit more 21st century, a little bit more accessible, a little bit more scalable?

[01:10:43] Leroy Walden: Wow. Um, you know, one of the things that I hoped when we made the move toward more IP connectivity for, for control products was that we would get more, like, for instance, you buy you buy a [01:11:00] Linksys router and you connect it up to, to your home network. You know, you, you hit the IP address of that Linksys router and all of a sudden you got a configuration page and you can go in, you can configure some fairly sophisticated routing techniques and so forth in that little router with that UI that's built into the, into the controller that it serves up to you.

[01:11:23] James Dice: Mm-hmm.

[01:11:23] Leroy Walden: you do is just hit the right IP address, right? So, so I've got that. Now I've got this thing configured. Now, once I exit from that, That thing is programmed and it knows exactly what I want it to do from now on, you know? And so, so I don't have to think about it anymore. So my hope was is that as we've got IP technology at the controller level, when I talk about those air handler controllers, and I'm talking about those terminal unit controllers, small, unitary, you know, 150, $200, same price as a router by the way, you know, you get that with IP technology.

It needs to serve up the [01:12:00] webpage that it needs to configure that control. You know, there needs to be technology built into, and that's not, it's not expensive because obviously if Cisco or Linksys or whomever can do it for a, you know, commercially available router should be able to do it for a, for a temperature controller module.

So, so the industry needs to go there and, and if the industry, if, if the industry is not prompted, you can do it through regulation, you can do it through. You know, mandates or whatever, but you can also do it through demand. If the customers demand, if they know that there's a option to do that, and they know that it would be better, because as I said earlier, every manufacturer that applies to the, to the Backnet protocol has a custom piece of software that's licensed to their dealers.

That's a, that's a, you wanna talk about a proprietary hook. That's a proprietary hook,

[01:12:51] James Dice: Yeah.

[01:12:52] Leroy Walden: because that piece of software, having access to it is the key to the kingdom. If you need to reprogram a, an existing controller or [01:13:00] replace a controller, if that controller, on the other hand was able to serve up the webpage, you'll just like a links route or whatever where you can go in and do your configuration.

Then once you exit that configuration, that controller knows from that point forward everything it's supposed to do. If you ever need to get back to it, you know it's address, so you can go right back to it, go up. I can adjust the pin loop, I can, you know, adjust the timing. I can do whatever I want to adjust.

I can adjust the data throughput. I want you to serve this point to that, you know, IP address. You know, you put the, the, the routing table built right into it and knows exactly where that data point needs to go for F d D or you know, whatever else, and you exit back out. I mean, that, that's the kind of stuff that I'm, I've become impatient.

I've become impatient expecting.

[01:13:46] James Dice: why doesn't that. Happen. I mean, I think the answer is baked into this whole conversation, but what? What is the answer

[01:13:53] Leroy Walden: I, I think that more customers need to be aware that that's a possibility and they need to [01:14:00] demand that of the systems that they support that, that they allow to come into their, to their, to a system. And you, you know, you're, you're a, you're a kind of a collection point of this. Every manufacturer, whether it be access control, lighting, you know, power, power, power, quality, whatever needs to adopt that same philosophy.

We're going to, we're going to the world of, of IP connectivity. , there's no reason for that not to be there. A web server is like 35 cents, you know, it's just ridiculous what they cost to bake into, you know, to, to a controller these days. So it's not as though they're suffering this big, this big, but if they're not prompted to do it, why don't we just keep on doing it the old way?

[01:14:41] James Dice: totally.

[01:14:42] Leroy Walden: You know, we got this old piece of software, we'll just put a little, another little hook in it and it'll talk to this new controller we just created, and it'll still support the old controllers that we got. So it's a win-win for us. You know, doesn't really answer what the customer wants. The customer wants that, that open system.

Open, [01:15:00] open access. You know that, that's the key. Open system. Open access, access to the product is what ultimately the customers want. Now you wanna talk about putting integrators and keeping them on their game. Once every product that they sell and their competitors sell are open access, the integrators better be on their game and better be better.

At configuring systems and more innovative in their approach if they want to keep those same customers, because you wanna talk about opening up the floodgates to allow multiple integrators to work in a system, you know, that that's, that's when it could happen. That that's when it could happen. So, so in me, in, in my, in my big world, you know what I'm thinking about, we've worked so hard to get to high speed IP connectivity at the very finite.

I mean, even the thermostat on the wall, IP connected, you know what I mean? That's, we're at that point now, but we're still stuck, you know, dragging the anchor of the old proprietary software to configure those [01:16:00] things the first time.

[01:16:01] James Dice: Yeah.

[01:16:02] Leroy Walden: I say that, I say there are some exceptions to that, you know what I'm saying?

There are some exceptions. There are some manufacturers that are providing that capability, but for the most part, the, particularly the large manufacturers, disc tech, the. Schneider Electrics, you know, the, the big guys, Siemens, you know, they're still staying with that philosophy. And that is, I've got this tool I need to support my legacy product.

So I need to make sure my guys are trained on this legacy software. And I'll just bolt in a new module that'll talk to these new controllers.

[01:16:29] James Dice: yeah, yeah. That's certainly the power. The keystone of the power and the, and the supply chain there. Um,

[01:16:37] Leroy Walden: yeah.

[01:16:38] James Dice: alright. Leroy, I really appreciate you coming on and given this perspective, hadn't been fully told or told at all. Um,

[01:16:46] Leroy Walden: Well, if, if, if it was probably known but not discussed. Um, and, and the one thing that I will say, James, is that the the approach that you're taking to what you're doing here with Nexus and, and you know, I've, I've [01:17:00] seen you now, I've seen you on a couple of podcasts and actually experiencing one of your sessions, you know, firsthand at RealCom.

It, it's, the industry needs it. The industry needs a kick in the pants, you know, it needs to be, it needs to be jolted and jostled. And, and move forward. And that means people are gonna be uncomfortable. You know,

[01:17:16] James Dice: And I'll, I'll say this to anyone that you're kind of bringing into this conversation. I'm not intentionally trying to kick anyone in the pants.

I'm trying to move things forward. I'm driven by what the outcomes that we need from buildings, and these are the things that are, that I view as holding it back.

I'm not attacking anyone personally. Um, not, not at all.

Um,

[01:17:38] Leroy Walden: I didn't, I didn't, I didn't, I didn't feel that myself personally. And there's a, there are a lot of people in the industry that are like me, that, that do see, but there are some, you know, there are some that maybe, maybe they do feel threatened. I'm, I'm saying to them, don't feel threatened. Don't feel threatened because this is what we've worked for.

You know, this what this I, I've worked for, it's 1978. And as an integrator, if I'm really focused on my [01:18:00] customer and providing them the best experience and the best outcome, but the product that, that I can, I need to be focused on that same thing. So, so don't be fearful. Know that this is not meant to displace or not meant to, you know, run you off or, but it's, but it's jostling and making, increasing our awareness because you know what, the first, the first key to problem solving any problem is being aware there's a problem

[01:18:27] James Dice: totally.

[01:18:27] Leroy Walden: there, there, there's a problem.

You know, we have, we, we need to get our awareness up. And that's what I say is you are, you're bringing that level of awareness up. And the way you're doing it is you're bringing in people with diverse backgrounds and diverse perspectives as it relates to the way they're approaching problems and the way they're proposing to solve problems.

And that's some of it's from outside the industry and what I've described to you about a webpage coming up out of a v controller that's totally outside the industry. You know what I mean? But it needs to be in the industry that needs to be, [01:19:00] that just needs to be the way you should be able to walk up to it, connect to it with a, you know, a wifi on your phone.

Or your tablet, you know, walk it through, do, do, do commission, done, you know, and, and, and go up. What's that one? Okay. Read me the, what's the, what's the address? Duh. You got the Mac address. Do, do you, you know, that that's the way it should be. That that's the way it should be done.

[01:19:21] James Dice: Totally agree. So again, thank you so much. Let's close with some, some carve outs. Um, what, what book podcast, TV show, movie, documentary has had a, has had a big impact on you lately? Doesn't have to be those. It could be just a story as well

[01:19:35] Leroy Walden: well, I a as I say, we're, we're living in some marvelous times right now with revelations of of current event world events. And so, um, you know, a lot of people are feeling maybe overwhelmed. A lot of people may be feeling bewildered. Um, a little unsure, uncertain. I, I'm just gonna say this, I haven't lived as long as everybody, but I've lived a pretty good while and these are the most interesting times [01:20:00] that I've

[01:20:00] James Dice: of your life. Yeah,

[01:20:01] Leroy Walden: Yeah. And, and I'll just say this, you know, that's what we all hope for. We all hope that we can live in interesting times and so, so, so, so my encouragement to everyone is, you know, don't be dissuaded. You know, don't be don't, don't be downtrodden. You know, the best is yet to come. It's just around the corner.

Trust me.

[01:20:18] James Dice: Love it. Love it. All right, thanks again and we'll talk to you soon.

[01:20:22] Leroy Walden: Yeah, James, thanks.

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"We're still stuck dragging the anchor of the old proprietary software. Manufacturers need to listen to what the end-use customers are saying. They want open systems, product flexibility, and access to the data."

—Leroy Walden

Welcome to Nexus, a newsletter and podcast for smart people applying smart building technology—hosted by James Dice. If you’re new to Nexus, you might want to start here.

The Nexus podcast (Apple | Spotify | YouTube | Other apps) is our chance to explore and learn with the brightest in our industry—together. The project is directly funded by listeners like you who have joined the Nexus Pro membership community.

You can join Nexus Pro to get a weekly-ish deep dive, access to the Nexus Vendor Landscape, and invites to exclusive events with a community of smart building nerds.

Episode 133 is a conversation and history lesson with Leroy Walden, a veteran of the building automation system integrator ecosystem in Atlanta, Georgia.

Summary

We unpacked how the building automation supply chain functions, including the roles of the manufacturers, distributors, and integrators responsible for controlling HVAC systems in major metropolitan areas. And of course, we talked about the downsides and opportunities of that status quo when it comes to implementing smart building technologies. And as we’ve talked about in the past HVAC controls are one silo in the building that operates similarly to the other silos, so the insights in this conversation are applicable to access control, lighting, electrical products, etc.

One word of warning, if you think this conversation doesn’t concern you, yet you want to use data from the building in smart building applications or control systems better to save energy, please think again.

So without further ado, please enjoy this conversation with Leroy Walden.

☁️ A message from our sponsor, SkySpark ☁️

SkySpark is a comprehensive software platform for connecting, storing, analyzing and visualizing data from smart devices and equipment systems. SkySpark’s automated analytics, KPIs, Energy and GhG Apps, turn your data into actionable intelligence providing improved performance, reduced downtime, and operational savings.

Head over to SkyFoundry.com for insightful white papers, case studies, and blog posts, as well as a link to sign up for a free demo.

Mentions and Links

  1. Highrose Consultants (2:30)
  2. 🎧 #044: John Petze on Tridium's early days, founding SkySpark, and 10 years of Project Haystack (9:04)
  3. Automated Logic (10:22)
  4. Burnt Controller (35:21)

You can find Leroy on LinkedIn.

Enjoy!

Highlights

  • Leroy’s background (2:11)
  • Conversation context (5:05)
  • Evolutionary phases of smart buildings from a BAS perspective (9:48)
  • About the ecosystem: product manufacturers, distributors, system integrators (15:26)
  • The nature of system integrators (34:35)
  • Getting out of the virtuous cycle world (1:04:11)
  • From the old ecosystem to a more accessible and scaleable one  (1:08:56)

️️🏢 A message from our sponsor, Jaros, Baum & Bolles 🏢

Building intelligence engineering allows OT and IT systems to seamlessly and securely integrate with each other and onto common platforms. Creating a successful building intelligence strategy entails translating the owner’s goals to outcomes, use cases, intelligent building technologies, and enhanced MEP systems.

To learn more about what JB&B is calling “MEP 3.0” and the value of building intelligence design, as well as the difference between smart and intelligent buildings, listen to JB&B’s Division Lead’s conversation with the global certification company WiredScore.

👋 That's all for this week. See you next Thursday!

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Music credit: Dream Big by Audiobinger—licensed under an Attribution-NonCommercial-ShareAlike License.

Full transcript

Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!

[00:00:33] James Dice: As we impact on one of our most popular episodes ever. Episode 44 with the legendary John petsy sky spark is a comprehensive software platform for connecting, storing, analyzing, and visualizing data from devices and equipment systems, sky sparks, automated analytics, KPIs, energy, and greenhouse gas apps.

Turn your data into actionable intelligence, providing improved performance, reduced downtime and operational [00:01:00] savings. Head over to sky foundry.com for insightful white papers, case studies and blog posts. As well as the link to sign up for a free demo.

[00:01:09] James Dice: This episode is a conversation and history lesson with Leroy Walden, a veteran of the building automation system, integrator ecosystem in Atlanta, Georgia. We unpacked how the building automation supply chain functions, including the roles of the manufacturers, distributors, and integrators that are responsible for controlling HVAC systems.

In all major metropolitan areas. And of course we talked about the downsides and opportunities of that status quo when it comes to implementing smart building technologies. And as we talked about in the past, HVAC controls are just one silo in the building, and that silo operates similarly to the other silos.

So the insights in this conversation are applicable to access control, lighting, electrical products, et cetera. One word of warning. If you think this conversation doesn't concern you yet, you want to use data from the building and smart building applications or control systems better to save energy, please think again, [00:02:00] this does concern you.

So without further ado, please enjoy this conversation with Leroy Walden.

[00:02:05] James Dice: Hello Leroy. Welcome to the Nexus Podcast. So glad to have you on. Can you introduce yourself?

[00:02:10] Leroy Walden: Tha thanks James. Great to be here. Leroy Walden, um, got to know James through through a meeting at RealCom this past year, this past June. And my background is, you know, I've been in the building automation, temperature control industry, started in 1978, back in the day with pneumatics.

And I've come through every iteration of electric, electronic, computer, computer, automated all the way up to the most recent you know, obviously web-based IP based every, every, every different iteration, every different generation. So, so, I've been passionate about the industry since the beginning.

I worked at, in the beginning I worked for manufacturer, worked for Robert Shaw Controls, which got folded up and. Wound up as a part of the Schneider Electric family. Now after that I joined an independent dealer. [00:03:00] Um, and he and I more or less started a temperature control building automation business in the Atlanta marketplace.

Then I had the opportunity to go to work for one of the largest engineering and manu in mechanical contracting firms in Atlanta. And with that, I got a lot of exposure to the majority of the commercial office properties and a lot of the industrial office properties in and around the Atlanta area and Charlotte area.

And during that time, I became very familiar with commercial buildings, commercial office buildings, data centers. We did a lot of entertainment and venue um, entertainment venues colleges, universities and so forth. So I've seen, I've seen a lot, covered a lot hotel motels, um, you know, you name it.

So, but through the, through the years, the technology has been Growing, sometimes growing at a, at a rapid clip, sometimes we are seeing revolutionary change, but for the most part it's been evolutionary. Um, as, as, as time has gone, nothing much has changed about [00:04:00] thermal dynamics. So consequently the, the systems to control heating and cooling, um, haven't, haven't really changed that dramatically over the years.

Concepts are the same. Um, and pretty much the building mechanical systems design has, has remained fairly consistent, you know, through those, through those years. So, so it's been a good, yeah, it's been a, been a good career. It's 1978, retired in 2017 full-time, and then been doing consulting work you know, since that time, working with the RealCom folks, helping them in a couple of the shows that they're doing, a couple of webcasts that they've done.

So it's been pretty good.

[00:04:35] James Dice: I was gonna say, there's no way you can say you're fully retired because you're here talking to us.

[00:04:40] Leroy Walden: Yeah. Yeah.

[00:04:41] James Dice: Semi-retired. All

[00:04:42] Leroy Walden: Yeah, well, well, like I say, you know, it is kinda like, you know, once the passion's in you, you can't turn your back on it. And as I, as, as, as I, as I told you one time in the past, you know, I'm, I'm a little bit selfish about it cuz I got a son that's in the industry now and so I wanna make sure that he stays on and, and gets the [00:05:00] opportunity that I had to, to build a nice career.

[00:05:02] James Dice: Yeah. Well, thanks for, thanks for coming on to share the passion. So let's set you, you, I want to hear you sort of talk about the first time you and I met. So we were talk, we were at RealCom in June of 2020. I was up on the stage and the, what do they call it? The Integrator Summit. Um, so the big four hour session beforehand, I was up on the stage, um, and we were talking about the independent data layer and the horizontal architecture and all the things that we sort of, we sort of unpack on this, this show all the time.

Right. Um, it was me sort of sharing a condensed version of that and then moderating a panel on the independent data layer. And you came up to me afterwards and you said there's a, there's a certain subset of the audience that's maybe rolling their eyes or walking out of the room.

Can you, can you sort of talk about that in a little bit more detail?

What was

your experience during that?

[00:05:57] Leroy Walden: It, kind of caught me off guard James, quite honestly, [00:06:00] because, you know, the, the message that you and the, and the panel that you had assembled, the message that you were bringing was, was very topical. Um, interesting. Captivating and, and, I mean, necessary. The conversation I, I felt was, was, was this is where we're going.

I mean, this is what we've been working to do. You know, this independent data layer. I mean, it's like, yeah, you know, let's get the data freed up. Let's get it so that we can use it and benefit from it, and we can, you know, I, I liken it to a, to a campfire. You know, the, you, you have a, you have a campfire. It warms everyone.

You know, the data, the data creates that campfire that warms everyone. Everyone can use it and benefit from it. So I was, I was really excited, as I could tell, most of the audience was really really, really involved. And so I was really quite shocked when I had a few people that kind of buttonhole me out in the hallway and said, you know, we're not gonna sit up here and hear just nothing about, you know, these venture capital funded, you know, new technology guys all the time.

You know, I was like, . I was, [00:07:00] I was shocked.

[00:07:01] James Dice: blown away. Huh?

[00:07:02] Leroy Walden: I, I was shocked because, you know, I was like, guys, this is the message that we've been trying to get out for all these years, you know, and here it is, here. We've got a, here, here we've got a person that's kind of putting the right people together and having this right conversation and, you know, you're, you're wanting to make a fuss about it, you know, and turn your back on him.

And I, I just didn't understand it. So, so that's the reason why I reached out to you. I wanted to try to say, you know, let me, let me help understand a little bit more why, and I've done some research and I shared that with you as to why some of the, some of the people are feeling the way they are. And so then it's like, well, I want to kind of make it a, a mission at this point to try to help.

let's say, help people more understand that this is not a threatening message. This is the message that we need to unify around. And this is, this is the technology that we really need because this is our industry. You know, this is the, this is the way forward. And having these conversations and inviting everyone that's involved in this, in this industry, inviting [00:08:00] everyone in to participate in the conversation is a key.

[00:08:03] James Dice: Yeah. And I really appreciated you coming up to me afterwards. And I think we, we grabbed a little bite afterwards as well, because I wasn't aware of that. You know, I, I, I feel like, I feel it, I sense it intuitively, but nobody's coming up to me and telling me, you know, you're full of shit.

No one's coming up to me and telling me, you know, you shouldn't be saying this. No one's coming up to me and say, telling me venture capital's not gonna work or anything like that. I'm not hearing any of that. And so, I love that sort of feedback. Um, so we're gonna sort of unpack some of the stuff that you uncovered in your research here today in this conversation, because I feel like there's a little bit of a.

Um, combining of the old and the new that needs to happen

[00:08:44] Leroy Walden: Yeah. Oh, I agree. I, I agree wholly, you know, wholly a hundred percent, you

[00:08:48] James Dice: so let's start with the old, so you, you started with computer science around the seventies and eighties, something like that. Right. Can you talk about kind of, and, and I don't wanna [00:09:00] spend all day on this, we've done this in, in previous podcasts.

The one that comes to mind is John Petsy. We talked about the different phases of the industry, but can you just talk about how, a little bit, how you've experienced it in your career, specifically with, you mentioned how you view Nexus as sort of getting the message out. And I think what you mean is building on a mission.

Systems in the past have been sort of like if you ask a asset manager, a property manager, or the dean of students at a university or the head of a data center, they're not necessarily thinking about. The bs. Right? And so one of the things I've been trying to do is get that message out. Here's the importance of bs.

Here's the importance of BS for decarbonization. Here's the importance of BS for occupant experience. Here's the importance of BS for this, that, and the other thing. Right? And so can you just talk about kind of the, the phases you've seen in the industry and mostly about how you've experienced it from a [00:10:00] BAS is behind the scenes not really getting much, much viewing.

[00:10:03] Leroy Walden: Yeah. Um, you know, I started off with pneumatics, as I say, and, and having been, you know, in computer science, schooling school and the school, you know, we were, I was on the cusp when I entered the industry. We were on the cusp of automated systems. A lot of the people that I went to school with actually went to work with the company that became Automated Logic which was an Atlanta based company.

And so consequently, you know, they were really on the leading edge of a lot of the innovative technology as it related to PC-based user interface and, and you know, communications, communicating systems, so forth. Company I worked for Robert Shaw. We had. A similar type system that kind of evolved.

First off, we had many computer based systems, which those are, I just call those one off, you know, totally like oil and gas holdovers, you know, that was the only technology we had. But it really wasn't until the PCs came out 82, 83, you know, 84 in that, in that era [00:11:00] that the desktop PC really kind of emerged as the tool of the platform to, to be used.

So, you know, believe it or not, a lot of the technology that was developed did come from the oil and gas industry, um, as it relates to the special purpose, single, single purpose microprocessor based controllers, like for pumps or valves or for air handlers or, or that type thing. And the idea of those was to con connect all those up in a network, and the network would then stand alone and only be, the PC would only be used to interrogate and gather.

The data from that. So, so, so, so yeah, that, that was kind of like the first, what I would really call true building automation or true through automation that was available to integrators. Because up to that point, the systems that I, that I talked about, that we were primarily only available through factory offices.

So you had the Johnson Control office, the Honeywell office, the Automated Logic office, the Robertshaw office. Those were the only people [00:12:00] that, that technology was available to. But once it got into the PC realm, then systems, independent dealers, independent integrators, independent DMS contractors kind of came on the scene and each one of those would have, you know, in, in a given marketplace, you may have two or three that are really competent.

You know, in the Atlanta marketplace, we had really three good independent building automation capable, you know, PC based systems capable people. They would really do a good job, you know, outside of the factory offices, the big five or whatever you wanna call 'em, the Barbara Colemans, the Robert Shaws, Siemens, you know, all those folks.

Um, um, so, so, so that's kind of, that, that was kind of the gestation. But, but the truth be told now is that there's been very little change in the way mechanical systems are put together, even from the late eighties up until even the most current generation, and I'm talking in the context primarily spec, spec office buildings, [00:13:00] commercial office buildings, 20,000 square foot, four, four plate 10 floors, 20 floors, 1530 floors, you know, whatever.

Because that's, that was the Atlanta marketplace and has been the Atlanta marketplace for, for quite a while, which is what I grew up.

[00:13:12] James Dice: Mm-hmm. Yeah. And and really what you're saying is the, this ecosystem where you had the manufacturers, distributors of those products usually maybe are separate but not always. And then you had the system integrators. This is where the ecosystem in which technology has been installed in buildings for decades.

[00:13:34] Leroy Walden: Yeah, I mean literally, literally since, since there were independent dealers and that, that really didn't start until the late eighties, early nineties. And, um, you know, independent dealers being able to get access to true communicating, building automation, you know, automated systems that was very rare.

Probably the first people that that started it were, um, the Robert Shaw and Barbara Coleman [00:14:00] channels actually had independent dealers. There was a couple of others control systems, international cs. Andover was another where you could, you know, buy the product, you know, off, off the shelf, if you wanna say that.

Usually they went through a distributor through a wholesaler in some cases, or a direct dis distribution channel, you know, directly from like a second tier distribution channel. Johnson Controls then got into game. They had a, they had kind of a secondary capable system that they sold under the Mesis brand for, for quite a while to independent dealers.

But for the most part it was, you know, and, and usually the, the independent dealer at that time would be three to four maybe engineering type guys and would also project manage and sale work. And then, you know, they would have technicians to do the install, hire electricians to pull wire if they needed to, or and then, you know, sometimes the project management program, the project, and sometimes the field techs would program the project and really depended upon the.[00:15:00]

The volume of business at the independent dealer. And those independent dealers are gonna be anywhere from, I'll say 3 million to $8 million in, in gross revenue per year. So, I mean, they're, they're, they're good solid businesses, but they're not the, you know, they're not the mega integrators that, that we're seeing nowadays.

You know, there's a lot of those guys got rolled up in some of those consolidations, you know, through the years. But but

[00:15:26] James Dice: So what's, I was just gonna ask you with the roll up, can you talk about what, just maybe use Atlanta as a lens. Atlanta is gonna be just like a bunch of other cities in the United States, right? What's the ecosystem look like today? I think we've had, we've seen Niagara has shaken up this marketplace a little bit, and you know, from when you started, and then you're saying, I, I agree.

The roll-ups have seemed like they've shaken up. This industry a little bit as

well. So what's, what's the Atlanta market like?

[00:15:55] Leroy Walden: and, and you know, as an independent, there, there's, [00:16:00] as a young person, a young, a young, independent dealer, this guy's the limit. You know? So, but you roll that, you roll that forward 20 years. Now all of a sudden this guy's thinking about wanting, you know, what do I do? How do I retire?

You know, how do, what's my end game? You know what I mean? Because when you get right down to it, what he's got is a, a, a customer list, and he's got access to a product. He's got an installed base that he can do service, but his business as a, as an entity is not that valuable to, to, to, to how I'm gonna sell my business and, you know, get rich.

You know, basically what he hopes is he can sell this business and retire comfortably. Um, so, so what happened is, is that, you know, as the availability of product became more and more prominent through Niagara, you know, Niagara built a whole ecosystem. Around independent dealers. They had master distributors in areas, and then they, those master distributors would set up three to four tiers of distribution.

They would have the, the light commercial [00:17:00] guys that would do, you know, rooftop warehouse office buildings. And then they would have another group that people that would do some of the K through 12 schools, maybe some light, you know, small university community, college type buildings, things like that.

And then they would have the, the next tier up, which would be the commercial office buildings and the entertainment venue, hotel, motel, you know, those kind of guys. And then we'd also have the master integrators that they would, that they would set up in a, in a certain area. And so, so it was, it was, the ecosystem was, you know, a lot of people at the bottom end and a very small number of people, maybe one or two at, at the very top end, the way those distribution channels were put together over the years.

So, so it um, when it come time for, for those guys, those young guys, maybe they were at the small, it's the first tier or the second tier or whatever they decided to, to sell. Well, these big roll up companies, um, I can't recall the name of 'em right now, would come in and make an offer. And basically what they'd do is they would buy the rolling [00:18:00] stock, their trucks, they would buy the tools, they would, you know, lease their property and, you know, they would pay the guy some kind of a severance package.

And then, you know, he would stay on board for two or three years to make sure the business transitioned profitably to the, to the new owner. And then he would take his payout and, and go out the door, you know, so, so that, that has happened at least once, maybe twice, um, in the Atlanta marketplace especially, and I know that having been involved in a, in a business association of independent dealers across the us you know, in, in the past inside IQ is the name of that group.

Um, and there's still a viable group, still a viable. Group, but a lot of the members there also took those, took those buyouts and, and rolled their businesses up into, into large entities, you know, across the us

[00:18:48] James Dice: Yeah. So each city is gonna have what types of entities now they're gonna have this, one of the offices of one of these big roll-ups, and then offices from the [00:19:00] manufacturers that have field offices. Is that kind of what the ecosystem looks

[00:19:03] Leroy Walden: Yeah. There's still smattering, still smattering, you know, for the most part, the factory offices are non-existent, or if they do exist, they just exist to support the very large accounts. You know, like, like, Atlanta, the, the Atlanta Airport or, or Emory University Hospital or something like that. You know, where, where the, the factory office, the Siemens office or the Honeywell office in some cases, or the Johnson Controls office, which is, I mean, just a shadow of what it used to be as it relates to, to the Atlanta market.

I'm sure a lot of other markets, same way. But the most part though, it's, it's, it's made up of independent dealers. It's independent dealers that are either still totally independent or independent dealers that are a part of this, if you wanna call it a franchise or whatever, you know, these big, these big rollups that have kind of come into fashion these days.

So

[00:19:52] James Dice: Mm-hmm.

[00:19:52] Leroy Walden: that, and that's pretty, that's pretty much what we see and what's still going on in the Atlanta marketplace.

[00:19:58] James Dice: And then what are [00:20:00] their, so all these independent integrators, what are their contracts like with the manufacturers? Like do they have exclusive access? Do they have certain. Special pricing. Like what does that, what does that look like? What

[00:20:15] Leroy Walden: The ideal, ideally you would have a sole source relationship. And in the, in the early days, those were kind of the norm. Like, for instance, if you signed up with CB Environmental Controls, which became Schneider Electric, to sell their, their Barb Coleman product. Well, you would be the only licensed dealer for that product in your marketplace.

And that was really good because as an independent dealer, you could gain a lot of momentum and get a lot of traction around that product. You know, so, so, so, you know, we, we, we work really hard to make sure that proprietary access to that product wasn't our main calling card. You know, we [00:21:00] make sure that that proprietary access to that product meant for our customers.

We could mobilize the entire organization, the manufacturer, the engineering and all to solve one of our customers problems if we needed to. But we didn't say, well, we're the Barbara Coleman guy, so you gotta buy from us, or else, you know, we're going to, we're gonna rip your stuff out, or make it not work, or, you know, or prices or whatever.

So, so, but, but the reality of it is, is that there's, it's necessary. for as an independent dealer to have the confidence that the product that you're representing is fully developed and fully supported. Because when you go out to talk to a customer to sell a system, you're basically laying your integrity out and adjoining and conjoining your integrity and and capabilities to that manufacturer.

And if that manufacturer's giving you junk product, then all of a sudden it's gonna shatter a bad light on you and your team and and so forth. So, so it's a very [00:22:00] difficult process to choose a manufacturer and then hope that you can get the support from that manufacturer, because the last thing you want is, let's say for instance, and, and I'll, I'll, I'll, I'll prevent using names, but there are manufacturers that don't have a problem setting up multiple dealers in the same marketplace and in the same market segment.

So for instance, if I'm an independent dealer serving the commercial office building market, they don't have a problem setting up another independent dealer in the same marketplace with the same market focus because their credo is more feet on the street, means more sales. That's, that's, that's pretty self-serving.

And what it does is, is that it injures the relationship that I would have as an integrator to want to sell their product as a primary product for me. And the reason for that is I don't wanna build a building, be be, in other words, when you, when you're, when you're [00:23:00] bidding for commercial office building properties, first bid is low.

I mean, you're, you're gonna be your rock bottom margin to be low. Cause you gotta beat Siemens, you gotta beat, you know, you gotta beat all these people. So, so you're gonna go in on the low margin base building. The last thing you want to do is to see low margin. You get the low margin, build a base building, and all of a sudden you're across town.

rival comes flying in with his access to the same product and the same technology that you have, take your, what should be your high margin business, which is tinted up fit, ongoing service and maintenance you know, all all that kind of stuff. So, so when, when you're an independent dealer, it's a, it's a really fine dance that you, that you dance with each of these manufacturers because, you know, just getting access to the product is one key, but you've also gotta have some support from those manufacturers to have them recognize that it takes, it takes effort to, to create this marketplace and to maintain that marketplace.

You [00:24:00] know, I've gotta pay people, I've gotta put people in trucks, you know, I gotta insure people, , you know what I mean? And, and I gotta incentivize people and that costs money. And if they disregard how important that is by having another dealer set up across town that may be. , maybe he's got a different cost structure than I got.

Maybe he doesn't provide his guys with, with health insurance. Maybe he doesn't provide his guys with 401k, but you, you see what I mean? So all of a sudden now I'm, I'm put at a competitive disadvantage. So it was always really important to me to have a very clear delineation with all the manufacturer, any manufacturer that I represented to make sure that they were sensitive to what my needs were.

And then I in turn would be sensitive to what their needs were. I would make sure that I only brought their product to the best customers, that I would always bring their product to the customers that would appreciate that we could then work together on and, and develop that customer relationship long term.

[00:24:54] James Dice: so I think this is such an interesting. Perspective that you're sharing for, I think Friday for the [00:25:00] first time in the community on this podcast, a lot of times we have people talking about how there needs to be multiple vendors in each marketplace to create competition and to like avoid a vendor getting locked in because so many people have worked with building owners, myself included, where they buy a certain system, they like the integrator that they work with, and 10 years, 15 years goes by and that relationship sours, that vendor starts to jack the prices up and people are feeling like they're getting sort of, um, I think one of our community members, Terry calls them, calls it Lock and Liam

Right. So can you talk about, kind of, maybe give some perspective on how that feels when people talk about it from that perspective?

[00:25:46] Leroy Walden: Well, well, you know, the majority Yeah, I, I, I agree a hundred percent. And as I said, the thing that I wanted to make sure that I. , the culture that I built within my organization was the fact that [00:26:00] we weren't gonna let proprietary access to product be our main calling garden. You know, we weren't gonna say, Hey, you know, we're the guys, so you gotta deal with me, so get over it.

You know what I mean? We wanted to have customer service and, and what I always wanted to do was to make sure that the product that I brought to the customer was a product that I knew I could support better than anybody else in the marketplace. And that was one of the thing I constantly challenged my team to be better, be better than the competition with, even with the same product.

Because there was that time that, you know, and still, still is current today, that Niagara is the predominant platform when you look at where, you know, how, how all systems are, are communi, how they're connected, you know, how they're integrated and, and Niagara provides the primary ui. And so, so it's, it was very important, vitally important for me, for my team to be more competent with the product.

Than their competition because the competition could get the exact same product. Now, the comfort that I wanted to [00:27:00] always give my client was the fact that if you ever get tired of me, there are other people in this marketplace that can su that can support this product, and I'll be glad to introduce them to you if any point in time in the future that comes to it.

The thing though, and this is a truism and I don't see when it's gonna stop, and that is the field controllers that you provide, whether it be Schneider Electric or whether they be Johnson Controls, or whether they be Distech or whomever in the marketplace, those, those field level controllers are really kind of where the, where the rubber meets the road as it relates to the independent dealer and the relationship that he has with that manufacturer.

In, in a lot of respects, there are a lot of the distributors now are selling through multiple channels, you know, multiple people as we, as we described. So let's say for instance, um, Distech, I know in the Atlanta marketplace there's about three independent Distech dealers. Um, and so what that means is, is that there's [00:28:00] an opportunity for those, those dealers to compete head to head with, you know, with the, with the same customer.

And the way they're able to do that is that the, the configuration tool that you need to configure those field controllers. In other words, basically when you pull the controller out of the box, it thinks it's a toaster. So basically you have to have software that you can tell it. You're not a toaster, you know, you're controlling a terminal unit, you're controlling an air handler, you're controlling a chiller pump, or, you know, whatever.

And, and that, that software tool is a proprietary software tool. You know, even though we have Backnet as the primary technology that is allowing the communication, each manufacturer implements through a proprietary piece of software. and there's, I don't think there's anything insidious about the fact that it's proprietary.

It's just that every manufacturer does it differently, slightly differently. You know, the way they, the way they set their controller up, the, the processor that they use and their controller, [00:29:00] um, those types of things. And so, but it, but it comes down to the

[00:29:03] James Dice: names and all of those.

[00:29:05] Leroy Walden: tool and it's only licensed to their licensed dealers.

So, so if I do want to have it transition to my competition, you know, I'll be open to say, let me introduce them to you. I'll give you the one. I think that would be the best for you. You know, you can choose that one if you want to, but I would have to choose one that also had access to the fuel controllers that I had installed.

Otherwise, otherwise, that next person that came in would have to completely tear out what I put in, which I don't think they have enough money in the vault to do that. Or they would have to be able to implement through open protocol. And, you know, if they needed to replace a controller, if they needed to repair or recommission a controller or whatever.

They would, they would have to come up with a way to do that. So that, that's a, that's a, that's a, that's a fallacy in open systems as they exist today.

[00:29:53] James Dice: Totally.

[00:29:59] James Dice: As [00:30:00] we covered in our recent blog series on the five vital roles, smart buildings require engineers and engineering that allows OT and it systems to seamlessly and securely integrate with each other. And integrate with common platforms. Creating a successful building intelligence strategy entails translating the owner's goals to outcomes, use cases, intelligent building technologies and enhanced MEP systems.

To learn about what JB and B is calling MEP 3.0 and the value of building intelligence design. Check out our friends at JB and B and specifically . Their podcast conversation with Wiredscore at the link in the show notes.

[00:30:37] James Dice: And some of the people listen to this right now, so we're half an hour in, um, are probably sitting here. Like there's no way. That's how buildings are operated today. Right. Um, and what I'd like to iterate, reiterate is like, These systems are being installed and they're gonna be left in place for how many years?

I mean, I've seen 30, 35, [00:31:00] 40 year old building automation systems. So what we're describing right now is the nature of buildings today, even though you're talking about sort of a history. Um, I'd, I'd love to ask you one more question about this sort of relationship between these different, so we're, right now we're talking about product manufacturers, distributors, system integrators, and then the customer.

These are, it's like a ecosystem. It's a symphony of all these people working together that outputs the building automation system. I, I want to zero in on system integrators, but just one more question on. , that ecosystem itself. Where did this strategy of low bid on the first project and then try to make up margin on future stuff, where did that come from?

What you mentioned you need, you need to compete with Siemens or you need to compete with so-and-so, but like everyone that's my age or younger in the industry is kind of like, why is that a [00:32:00] thing? Right? So can you sort of explain where that came from? Because it, it's at the root of a lot of issues,

[00:32:05] Leroy Walden: It, it, well, it is, but I mean, I mean, just, just imagine if you were sitting on top of the Saturn five rocket, you know, in the, in the Apollo and everything below you. This is about to blast you to the moon was built by the low bid contractor. I mean, how confident would you know? How confident would you be?

And, and that's the reality, you know, that that's the reality of. The way buildings are bought. And that's, that didn't just start, that's the way, you know, go down memory lane a little bit. Used to, in Atlanta there was called a bid room and all of the manufacturers at that time, Honeywell Johnson MCC or Landis and Gear Powers, you know, those, those companies, they had to go to a central bedroom to, because in the bedroom they had a teletype machine, like a, like a Western Union teletype machine that they would use to turn their bids in.

You know, because everything was, [00:33:00] it's all open, you know, it's all public open, public open bid and that kind of thing. And I'm not saying that it ever happened, but I can tell you that there have been times that I've heard about the Honeywell guy walked into the, to the to the, to the one guy and said, Johnson guy said, Hey, look, we're really busy right now, so I'm not gonna be low on this job.

I just want you to know that. So this is your job. You know, this . I'm not saying that they did that. I don't know any names, but I, but I, you know, , I have heard that that scenario did happen, Sandra. So, so low bid is what, is what wins, particularly in the commercial, in the commercial marketplace. And, and really any public opening, any college, university, any large, large facility, it's always low bid.

So, you know, particularly on a commercial office building when it's a Corin shale, when you, you may have two or three built out floors. You may have a main lobby, you'd have a central plant, but everything else would just be shelled and it would be built out as, you know, tenants come in, move in, that kind of thing.

Um, it's, it's a foregone [00:34:00] conclusion that when you got the base system, that that tenant work would follow, and that tenant at work is where you're gonna gonna get your reasonable margin, the margin that sustains your business, not the margin that it took, you know, to get the job. You know, you know, I'm just trying to, I'm trying to get the, I'm trying to get the 10 or 15%, you know, gross margin that I need just to break even so I can get that 23 to 28% gross margin.

That sustains my business, you know, going forward. So, so, so that, that's, that's a concept that's been around and is still around. I mean, if you go to any public opening, it's, it's, you know, low bid, low bid wins.

[00:34:35] James Dice: Yep. Yep. All right. Um, that'll be a good history lesson for people, um, that, that little summary. So let's, let's zero in on system integrators. So they're obviously, they have the manufacturers of distributors that are creating and selling the product to them, and they have the building owners that they're selling the product to and installing.

[00:35:00] Four. Um, you sent me a really amazing email that I should probably just publish. Um, and I wanted to sort of unpack that

[00:35:09] Leroy Walden: Okay.

[00:35:10] James Dice: and, and maybe we just go, there's, I think there's seven statements you made here, and I'm gonna walk through each statement and just have you sort of respond. The, the first statement you said is, it came with a picture, you said.

Every smart building contains multiple panels like this one pictured here, and it's this massive panel that we can put in the show notes. Each panel is custom designed, custom fabricated to exactly match the building's, mechanical and electrical equipment. Each

module, module within each panel was selected for its specific mix of inputs and outputs and programmable functions.

Um, can you talk a little bit, little about that piece?

[00:35:47] Leroy Walden: Yeah, sure. Um, you know, and again, still talking about the, the Corn Shell commercial office building or, you know, it could be a, a corporate office building as well. [00:36:00] You know, the, the reality of it is, is that when the mechanical systems are designed, there's some decisions made about, you know, are they gonna have central chiller plant and they're gonna have central air handler that serves each floor, and they're gonna have some kind of an air distribution system.

And the majority of the time you've got some terminal units, some either V A V P I U. Some type of air air throttling device on the duct work that, that provides a heating and air conditioning system. So then from that point, you look at the, the, say for instance, the air handler on the floor.

There's a certain mix of inputs and outputs that are required to make that air handler function. You know, discharge air temperature, static pressure control, variable speed drive maybe a chill water valve you know, maybe some facing bypass damers, maybe an outside air economizer system, so forth.

And it really comes down to the, to the designer, to the, the mechanical designer as far as the way that mechanical put together. Then the building automation systems [00:37:00] engineer has to set down and match point for point input for input, output for output. And so consequently, there's a lot that goes into selecting.

No, the the controller, because every manufacturer will have a, a, a controller with a mix of inputs and outputs that would, you know, the best, the one that best fits the bill for this particular application. So the majority of the time, the air handlers will all be the same in a 15, 20, 30 story office building.

So once you make those decisions, once, then every one of those air handlers will choose this controller with this mix of inputs and outputs, and you'll build that control panel when the control panel basically is nothing. But with the modules mounted inside, you got wireways in the panel you know, you know, or goes out to terminal strip that are then connected up to the, the input or output devices or the variable speed drive or the chill water valve or whatever it is.

Um, but, but that's all in a, in an enclosure, you know, enclosed in the, in the, in the system. [00:38:00] And so there's a lot of decisions that go into that, and it's a mix and match. And as, as I've said in the past, every building's a custom prototype. . So you may have, you may look at it and say, two buildings are identical.

But the reality of it is you look inside and you look inside the systems. The buil, the building engineer or the mechanical engineer that designed it may have had some new technology that he wanted to bring into, into light in the second building that wasn't in the first building. And so that causes a change in nuance in the, in the building automation system.

So, so each one of those, and so then the, the manufacturer has to make sure that he has on his, on his shelf, a controller that has the right mix of inputs and outputs that you need as an integrator. And then also that there's enough capacity, there's enough processing capacity, there's enough memory to, to store the algorithms.

There's enough throughput for communications. They may have [00:39:00] developed some custom programs like uh, area, area control, or, or Something that would coordinate the terminal units that are connected to that air handler. So, so make sure there's enough memory and all make sure there's enough speed, you know, so if you want to get, if you want to draw data out, you know, you want to do some that fall detection diagnostics, make sure that the controller has the capacity to speed that data out at the, at the, at the throughput, at the rate that you want to get it.

So there's a lot of decisions that go into the manufacturing of those individual little controllers and those individual little controllers. From the manufacturer's perspective, they hope to sell those for around 150, $200 a piece, which

[00:39:38] James Dice: Yeah, the manufacturer was your next, your next statement. So let me read that one out and then I'll, I'll we can go into that. So this is a couple statements I'm combining into one, but you said each module was manufactured and when you say module, you're also talking about the field controllers you

referenced earlier. So each module was manufactured by a specific manufacturer in response to industry demand at what they [00:40:00] hope will be a competitive price point. Each manufacturer must conceive design, prototype, create firmware, alpha test, beta test, and ultimately field test each product before beginning mass production at scale.

The price point for these controllers ranges from a couple hundred dollars, like you said. two as much as a thousand dollars per copy as sold to the integrator, who then marks it up right and sells it to the customer. All the development costs are sunk costs for the manufacturer. Most will not see a new product breaking the profitability for many months after that release, assuming there are no extensive post-release issues that they created once it's re released into the wild

[00:40:37] Leroy Walden: Yeah. We call those undocumented features,

[00:40:40] James Dice: Okay,

[00:40:41] Leroy Walden: they didn't expect. Oh my God. We didn't think of that.

[00:40:44] James Dice: so what you're trying to convey there though, is that these are long product life cycles. There's a lot that goes into them and once they come out, they're kind of fixed entities for a while. And what, what I don't think you said here is a lot of times these are, like you [00:41:00] said, create the firmware alpha beta test.

These are hardware products,

right? They weren't really designed with a specific software layer. They were designed to be a hardware device that has one specific function.

[00:41:12] Leroy Walden: Right, right. Fully, fully programmable. Um, you know, they all have eprom eprom in 'em that you know, once the integrator designs the system in response to the mechanical design, and once he creates the the application, the, you know, the algorithms for temperature control, pressure control, whatever it is, once they're created, then they're saved in eprom on the controller, and then that controller from that point forward, it's fully programmable when you get it.

But now it's become a special purpose, special application specific for that air handle of that set of pumps, the fans or whatever, you know, whatever it is. And so, So, so that's the, that, that's the key. And you're right, I mean it, once it's set in motion. Once it's set in place and once it's commissioned and turned over, you know, from that point you go into the maintenance phase and no one expects that controller to not do [00:42:00] its job.

Everybody expects that controller to just do that one thing all the time and be available to query, be available to diagnose, be, you know, be available all the time, but you know, it's gonna be there for 15, 20, 25 years doing that, doing this one little job. Um, and so, so as, as I say, you know, these manufacturers, and I'm talking about the big guys, the Johnson to Honeywells of Siemens, anybody that makes these products to sell through, through independent, independent distribution, they really have to be up on their game to make that product as robust as.

And that's a hope that I have as an integrator. I want product that's robust. I don't want something that's just really fragile. If you turn the light switch on too much, you know, you get a spark of an EMF and it pops the, you know, the, the processor, you know, you want that, you want, you want things to be able to take a licking and keep on ticking.

And, and so there's a, there's quite a bit of development that has to go into it where they kind of make those things as technician proof or as [00:43:00] foolproof as possible. Interesting. I, I've subscribed to a a group even today on the social media, and one of the guys posted a picture of a controller that a 277 volt leg voltage had brushed down across the terminals on the controller and just popped the whole side off the controller.

But the dog on controller, the output that it hit yet burned that output out every other function in the controller kept on going. , it was amazing. I said, are you kidding me? That thing is still working. He said, oh, yeah, still controlling the air handler and it's just doing fine. I said, wow, . I said, but somebody let the smoke out of it.

[00:43:37] James Dice: Yeah. Yeah. Wow.

[00:43:39] Leroy Walden: so, so, you know that, that's, that was real, that's really important as an integrator, because you want, you don't want, you don't want to have to go back and revisit every controller. I mean, there have been many times when we've had a whole network of, let's say, terminal units, like 25, 30, 40 on a floor that someone accidentally applies 24 volts to the [00:44:00] communications bus.

And that happens more than we want to say. But you put 24 volts on the, on the communications bus. Well, those communications ships don't like 24 volts. They don't like ac, you know, they want, they want signal level. So all of a sudden you've got 25 or 30 terminal unit controllers that are above ceilings, by the way, usually overtops some kind of a high finished desk, you know, or you know, whatever, inaccessible.

Now all of a sudden you gotta go visit each one of 'em because the chip set, that's inside's burned out. So, so, you know, having, having those controllers built so they can be tolerant to that, and they, they exist now. They exist now where you can actually put line voltage on the chip set on the com chip set and it won't blow the thing up, which is really amazing to me that they can do that now.

But I mean, that's just the, that's just the generation of electronics that we have. So, so when I was choosing a manufacturer, I wanted to make sure that they were doing the best that they could do to keep those products as robust and, and at scale, because I wanted to buy sometimes 200, 300, [00:45:00] you know, I wanted to be able to get those within three, four or five days, or 3, 4, 5 weeks at the most, not two months, a year and a half or whatever, you know, so, so when they have to make those things, I mean, they're turning those things out by the hundreds every day.

And so we gotta make sure that what they're giving us is good and long term good, good long term product.

[00:45:20] James Dice: totally. And that's what the distributor comes into play, is being able to handle those local projects, 300 controllers, being able to handle the, you know, the cash flow

[00:45:30] Leroy Walden: key. They're, they're a key element, you know, in that, in that supply chain because even though you have a good relationship with that manufacturer, you're one distributor or you're one integrator across their, their network of integrators across a country, across, you know, a region, um, that, that local guy, the local distributor, he may have 150 or 200 on the shelf that you can go get right now.

And that, that always makes a big, always makes a big impact.

[00:45:56] James Dice: Absolutely. Um, before we move on from the [00:46:00] manufacturer to your next statement, you had two statements left here. Um, one of the things I wanted to ask you about is this concept that we see in our personal lives a lot now with planned obsolescence. So you see this hardware driven product a hardware focused product has software on it, but it's mostly a hardware product.

And at some point that manufacturer stops supporting that device, and now everybody's gotta pay for new, new ones across, you know, like you said, 300, 300 controllers on a job. Where does that come into play and how does that sort of work?

[00:46:33] Leroy Walden: You know, in the, in the building automation industry, fortunately, s the most modern controllers, and I say modern controllers, I'm talking about controllers that were built, um, mid two thousands and on basically, if they ascribe to the backnet, . If they ascribe to the backnet protocol, then usually they've got some they, they, they've got this, the newest technology, they've got high throughput, so you [00:47:00] can get data in and out if you need to.

They're robust from a communications chip set, so they're more tolerant to oops, and missile wires and, you know, those kind of things. Um, so once they're, once they're put in place, I mean, quite honestly, I've seen many times we would do a building automation system upgrade of an old, let's say a Siemens I don't know if you remember the Staa product, but the Staa product, which was eventually combined with the Siemens product.

Staa was a European company, and they had some of the most unique chip sets and communications protocols that I've ever experienced in the marketplace. And some of those controllers were put in, in the, in the, probably early 2000, 2002, 2004. and those, those controllers still work. And those are, I mean, they're very robust and, and you wanna talk about fault trauma.

They're very fault trauma for miswiring or those kind of things. So you don't wanna throw 'em away. I mean, you know, , so, so many times we would [00:48:00] do a building automation system upgrade and not do anything but change the front end, the core technology. You know, where we would do an a Niagara integration, or we'd do an integration to another similar central core platform, new ui, you know, completely address up everything.

But we're still communicating onto those old, those old network of controllers, you know, they're, that are hanging above the sealant, you know, so, so you can, we can talk about planned obsolescence, but the refresh cycle on those kinds of things is not, I mean, it's 15, 20 years and you can reasonably expect you put that controller up there, it's gonna last 15, 20 years at minimum.

Now there have been instances, we did one for a large HomeGoods Manu or HomeGoods, a retailer here in town, and they were just not satisfied with the base product, the core product that was put in their building when it was built. And 15 years later, they paid us to come in and take out every piece of that technology and put in a whole new, you know, a [00:49:00] whole new technology.

That's, that's very unusual and, and very rare that you actually run into that, where you do a complete rip, rip and replace and it's just, it just doesn't happen that often, you know? It's, it's very disruptive. It's very disruptive as you can imagine.

[00:49:14] James Dice: yeah, the reason I wanted to point that out is because that's why you see in a building today, this controller from 1996, because, you know, you, you have the, the manufacturers designing it that way, and then you have, you know, obviously it's very difficult to, to rip and replace. Um, okay. Your next statement was, each integrator must train their.

On the proper application of each new product released by their con contracted manufacturer. Training at scale is a very expensive proposition for an independent integrator who hopes to maintain a profit margin sufficient to sustain a business while absorbing these sunk costs and enduring margin erosion on the first couple of projects where the new and unfamiliar product is applied.

[00:49:55] Leroy Walden: Yeah. I'll give you an example of that. You know, Honeywell developed [00:50:00] their line based controllers, you know, early in the early in the open system phase. And if you've ever worked with Echelon or the Echelon Protocol or line, you know, line. It's very robust, but it's also very, um, it'll punish you if you, if you don't, it's very procedurally oriented.

If you don't do everything in the exact procedure that's prescribed by the manufacturer as far as taking controller from, you know, cold start all the way up through commissioning and final, you know, start to link points and those kind of things. If you don't do everything exactly right, it'll punish you.

So you've got to develop some, some discipline and discipline in your team to know that those steps are necessary to go through and, and get that going. So, so we became my team. We became probably the most accomplished in our market with the lawn protocol and consequently installed quite a number of buildings with the lawn protocol.

Well, [00:51:00] transitioning to the backnet protocol was major. It was a major because. Basically, it got down to the point there was only one or two manufacturers that were continuing support the line protocol because the, the market as a whole was, was, you know, marching stampede style, right toward the backnet, the backnet protocol.

And so obviously the manufacturer that we were representing, they were giving us new controllers that were backnet. And so I had to anticipate that and I had to take my key guys, my key teammates and bring them out of the rotation to get them trained up on the new Backnet product, which meant I had my maybe second tier team keeping up with the, the volume that we had with the old lawn base controllers.

At the same time, I was building a whole new team to support the Backnet protocol. Um, you know, controllers, field controllers. . So I had, you know, two or three people trained, and then we always, we always would send people to the factory [00:52:00] training, but we'd also tell them, you're going, but you're, you know, we trained the trainer so when you come back, we're gonna set up in-house training.

A lot of the manufacturer would support it with sending us product that we could set up, you know, do simulations and, and those kinds of things, you know, learning it. But it was you know, it was about a two year transition where we were installing still the old line stuff, but we were beginning with the Backnet and with that new product, we had to learn all the idiosyncrasies associated, you know, with the line.

It's non-polar sensitive on the con on the com, you know, basically it's just, you know, you hook up two wires and it'll communicate well. The back net is very polarity sensitive, and plus there's a shield, you know, so you have to, you have to know where to ground that shield and how to ground that shield and what happens if you do ground the shield or if you don't ground the shield, or you know, do ground it on which end, you know, whatever.

So those little fine nuances that it takes to. You know, get that system up and running and then doing it so that it can, you know, run reliably for 15, 20 years. You know, 20 years we had, we had to learn that. And [00:53:00] so big expense and, and you know, we had travel cost, you know, obviously for the, the team that went to the, went to the factory for training and then we had, you know, again, you know, sum cost and training the team, you know, internally to get them up to speed.

And then we knew that we weren't gonna make a whole lot of money on the first two or three jobs that we installed. Cause we're just, you know, we're just finding a way kind of walking along in the, you know, stumbling along in the dark. And so, you know, fortunately, you know, we became very competent and accomplished with the back net protocol.

And, and, and, and that same scenario played out across whether we were using the Niagara platform or whether we were going with one of the other manufacturers, you know, proprietary platform as far as the, the UI and, you know, graphics or, because at the same time we, at, at the time I'm talking about we were supporting.

four different manufacturers products as an independent dealer for those four different products. And we were doing it at scale. It wasn't like we had this or that, or [00:54:00] this, or that. We were doing this and that, and this and that. You know, at the same time, because we had different customers, we'd either acquired the business because we had capability with that product that they were looking for an alternate dealer for, or we had actually installed that as a part of a new, you know, from the ground up, new install we had installed.

So, so, you know, maintaining that and that, that plays out many, many times across a lot of the integrators. The fact that they're supporting multiple products simultaneously,

[00:54:29] James Dice: Wow. And then do they feel like they need to, to, in order to compete, like let their building owners choose in order to get access to more building owners, how, how does that

[00:54:38] Leroy Walden: you know, the, the, the business philosophy will differ by the integrator in my particular case. being attached to a large mechanical contractor and engineering firm, we had different, different customers. Let's say for instance, we had one particular customer that loved the Trane ecosystem. They like all train.

And so in order for [00:55:00] us, you know, our billing automation, you know, integration team to support our mechanical team, we had to be very accomplished with the trained, trained platform. Um, similarly, we had some manufacturers that had already bought heavily, let's say, Johnson Controls. And so the next phase of that plant, they, they wanted to keep, you know, keep consistent.

And so we were a Johnson Controls dealer, so we would go in and, you know, implement the Johnson control platform and keep on going. So I say it's, it's unique, it was unique to us just because of the, the, the market that we served and how we were conjoined with our mechanical engineering and contracting team because where they went, we went, you know, and so, so, but, but a lot of times the independent dealers.

don't, don't have that need, don't have that luxury. But the, but the majority of them do still support multiple systems. Like for instance, a lot of the manufacturers have folded the Niagara platform in some way, shape or form into their product mix. It's like, for instance, you can get it from Distech, [00:56:00] you can get it from Honeywell, you can get it from, you know, Schneider Electric, you know, lots of the manufacturers, Aqua Johnson controls.

You can actually get the Niagara platform or some implementation of the Niagara platform. So that's a totally different U ui that's a totally different ecosystem to learn as opposed to whatever that manufacturer's based system is. So, so most integrators are still gonna have to be, let's say, bilingual, multilingual, you know, to be able to support multiple.

[00:56:29] James Dice: And that leads us into our last statement here. You said, each integrator in order to, and this brings us full circle back to the beginning as well too, which is I think is cool. Each integrator, in order to receive the greatest price break must commit to a minimum dollar volume per year to maintain access to that product or products.

As you said, as an integrator, it is imperative to select a manufacturer who can be trusted to provide the most innovative cost effective and reliable products possible because integrators stake the reputations and you said, quote unquote, blood [00:57:00] and treasure on being able to profitably apply those products they represent and to do so better than their competitors.

So that takes us kind of full, full circle a little bit.

[00:57:08] Leroy Walden: Yeah. Yeah. And that, that's a key, you know, a lot of these, a lot of these manufacturers, I mean, they've built their, they built their business model around so many dollars, you know, volume per marketplace. And so when they look at your office and they look at how you shake out compared to Jacksonville, Nashville or, you know, Colorado Springs, you know, whatever.

They look and say, you know, that market should have this many dollars in product coming to me. And so we, a lot of the manufacturers in the early days, when I say the early days, they would look at that and they would give you some leeway. They would know that you're not gonna get every job. You know, they, they would know that while that may be possible in this market, the circumstances around the way your business is structured, the circumstances around the customers that you serve, you may or may not get that high percentage.

And so, so there's, there's there are a [00:58:00] lot of nuances that go into that. But by the same token, in order to maintain the best volume discount, the best pricing for the controllers, and a lot of times there's other incentives that go into it. Like training. You get training credits, you get you know, non communicating products like valve, valve actuators, damper actuators, you know, some of the, some of the hard stuff, you know, you get some, you get some credit for, for volume purchase.

And those kind. Of things. So, so that's a, that's a, that's a nuance, that's really a challenge if you're competing in the same market with a manufacturer, with, with an integrator that's selling the same product that you're selling. You see what I mean? Because they've diluted the market. They've cut the market essentially in half.

So that makes it difficult for you to hit your mark, to get the best volume and the best discount that you can get, um, you know, from that manufacturer. So, so that, that's a, and, and the commitment that we make to the customer that we put it in is that we're gonna give you the best price, we're gonna give you the best service, and we're gonna [00:59:00] have the best trained people, but we're not going to use that as our, as, as our, as our velvet hammer to beat you over the head.

If you don't like us, we'll introduce you to our competitor. They can come in and we'll support you transitioning if that's what you want to do, you know, so, . So it's, but, but I always felt like saying that was one thing, but I always knew that my team was better trained. I knew that my team was better equipped.

That was the goal. You know, the goal was, okay, you can do that if you want to, but let me tell you what's gonna happen, and if it starts to happen, don't worry. We'll get right back in there with you. We'll, hopefully we'll be able to overcome whatever problem may have come up, but, you know,

[00:59:39] James Dice: yeah. So with those volume agreements, if you look at that from the customer's standpoint, are there any downsides that. That, you know, cuz everything, as Charlie Munger says, incentives drive everything, right? Incentives run the world.

Does that incentivize anything that ends up into a poor outcome for, for building [01:00:00] owners?

[01:00:00] Leroy Walden: As far as as, as far as them pursuing volume,

[01:00:06] James Dice: If I'm an integrator and I have an agreement with a, with a distributor or with a manufacturer to provide a certain volume every year. Um, w are there any things, any ways in which that shows up for the customer that are sort of no good

[01:00:25] Leroy Walden: Yeah, I mean, it, it, it, it, from, from the customer's perspective, they want the best price every time, and they're always gonna compete you against the guy that comes up says, I can do that for $12 and 55 cents. You know what I mean? Okay. So, so the only thing that, that I always wanna make sure when I talk to my customer about is that, you know, I'm buying at a volume that gives me the best buying power, but that buying power is good for me and good for you when we're, when we're doing the job.

But that buying power also speaks to my ability to mobilize, [01:01:00] let's say the engineers, or let's say mobilize the programmers or the customer service team because you're having a problem. Them, you know what I mean? You've got 300 DAV boxes and all of 'em are doing the exact same thing. And we don't know why.

You know, you have my confidence because I buy enough volume from these folks that I've got a big voice that I can call them and say, Hey, I've got, I, you need to fly an engineer down here and we need to walk through this thing together cause my guys are stumped. You see what I mean? Yeah. So, so, so there's a, there's a, there's a, when I say that virtuous, there's a virtuous relationship because, you know, the customer wants the best price, but they also want the highest level of comfort that the product they're getting from you and the service they're getting from you is un unequal and will make sure that their customer, the, the, the occupants of the building are taken care of or are comforted.

And at the same time, the manufacturers are making sure that the dealers that they're dealing through, that they're, the integrators that they're dealing through, are [01:02:00] not gonna waste their time. They're not gonna give them frivolous. Issues to try to work through. They're not gonna waste their time.

They're not gonna, they're not gonna, okay. You go out to the job and call the, call the tech support guy, and when you get out there, call him, he'll walk you through what you gotta do. You know what I mean? That that's expense, that's expense. That field engineering for these guys, they have to support that because that's a part of their customer support philosophy.

But by, at the same token, it's an expense for them that if they know they're dealing with a good and competent dealer, then their value chain and their, their, their margin is protected. You know, because they've made margins selling me the controller, and I'm going to make sure that they get that opportunity to sell more controllers through me.

And at the same token, I'm gonna not waste their time. And then the cust, you see what I mean? So this, that's the virtuous cycle. It's, it's, they make good product, they support product. We install product better than anybody. The customer likes it because the price is good, so he wants more. So who do we buy it from?

We buy it from the, from the guy that they're giving us the good stuff. So,

[01:02:59] James Dice: yeah. [01:03:00] I think some people, it makes perfect sense when you explain to me, I think some people look at those volume agreements and say, well, how does the second or third competitor come into the market and give the owner choice? when they, that that second or third competitor can't get the same price that the established integrator has.

Right. I think some people look at that and they go, well, shit, that's just being protected.

[01:03:24] Leroy Walden: Yeah.

[01:03:25] James Dice: it. That, and furthering lock in for, for some, for some people.

[01:03:29] Leroy Walden: Well, and that's where, that's where trust has to come in. You, you know, you know, hopefully these, these, these in these building owners, building managers have developed a relationship of trust. And if that relationship trust is trust is not there, then everything you said is true. There's no trust.

Then obviously they're saying, well, this guy's coming in telling me he can do it for $50, and you're trying to charge me $200. You know what's going on here? He's got the same product, you know, he's access to the same factory. You know, what's the. . So, so there has to be some level of trust that's, that's cultivated [01:04:00] by the integrator.

Obviously it's not just that, you know, you should trust me because I'm a good guy. It's like, you know, you need to earn that trust. The old, the old bucket of trust fills up a drop at a time and empties a bucket full at a time.

[01:04:11] James Dice: All right, so we've sort of unpacked, you, you called it a virtuous cycle. We've, we've hit that virtuous cycle and sort of explained it for people that aren't in that world and don't understand how that works, which I think that in and of itself will be super valuable to people that are trying to either get data outta that ecosystem, disrupt that ecosystem, buy from that ecosystem, understand why that ecosystem is the way it is.

I think that is like a masterclass in what you've just provided there. So that's like part one of this. Part two for the people that are still around after an an hour here, um, is we, we talked about at the beginning, we have that sort of old way of doing things, that old ecosystem. And then some people call it the, the venture backed startup ecosystem right then.

And those [01:05:00] two things, especially when it comes to controls, Coming together in, in many ways. Um, and I think what I've said in the past is we're talking about mostly HVAC controls here today. These same patterns play out in access control and electrical products and lighting products and all of that. So we're not just talking about hvac, but I think one of the things I wanted to get your view on is what would you say to those people that are coming from the world that you came from that aren't sort of jumping on board with the way that I think the industry needs to go?

You seem to agree on the way the industry needs to go. The Nexus community seems to be bought into where the industry needs to go. What would you say to those people that are sort of coming from this, this virtuous cycle world, as you call it?

[01:05:49] Leroy Walden: Well, the, the, you know, a lot of the manufacturers have become, let's say, disconnected from the actual customer, the end use customer, and, and [01:06:00] so, you know, my, my encouragement to them is to listen to what those end use customers are, are saying, listen to what they're wanting. and know that your, your integrators that are coming to you with these, these questions or these demands are not just something they cooked up in the back room.

It's something that these, these o these owners want, they want open systems, they want, you know, product flexibility. They want, you know, access to the data and, and, and so, you know, it's not that. And so, so what we know is, is the customer will, will, will be tolerant of you for a short time, but after a while, they're gonna, they're gonna look somewhere else.

And, you know, if the, if the marketplace is providing them what seems to be a, a, a viable solution, you know, to the thing that they want, well they're gonna, they're gonna be interested in trying it. And the key to those, the key to those manufacturers is to be, let's say, receptive to what the customer's asking for and evaluate what, what the, what the [01:07:00] situation is.

What, what, what are they looking for? What, what are the, what are the systems and what are the nuances? How is it different from what we sell and how can we implement something similar, or how can we give them comfort that what we have already does that? And, and so, you know, the, the, so, so the end, the manufacturers must be connected to the end user customer.

Now, a lot of times the integrators are a little bit protective of who their customer is. They don't even, don't even want to tell their manufacturers their customer name, the job name or anything, because they don't want that guy telling their competitor across town to come over there because I don't think they're, you know, you see what I mean?

So it's, it's kind of a hush hush thing. But the reality of it is, is that the manufacturers have gotta be connected to what the market's telling them, not just what their integrators are buying. And unfortunately, they look so much at the dollars that their integrators or the distributors are buying as their customer.

But the reality of it is, is that [01:08:00] they're just a, they're just a stepping stone to the real customer. The real customer is the. Person in the building that pays the ultimate tab. So, so a lot of

those manufacturers would do well to listen first and react based upon a more informed position. Because I, you know, as, as I said, the message that you assembled when, when you and I first interacted in that, in that building integrator summit at RealCom in in 22, it, it told me that, you know, you're on the right path as it relates to bringing that customer need and desire to the open, and showing that there are manufacturers that are willing to step forward and try some new new approaches, you know, to those, to those those demands that the customers are making that are not necessarily baked into the tried and true product that's available in the marketplace.

Not that the product in the marketplace is bad, it's just it's time for a little bit of, a little bit of an upgrade, a little bit of a nuance.

[01:08:56] James Dice: Totally, totally. And, and this kind of [01:09:00] parallels with a, a, a lot of what I've said in the past, especially as it relates to, um, opening up the total addressable market for controls to all buildings, not just bigger buildings that are more complex and have bigger budgets. I feel as if that ecosystem that we described, the whole supply chain, I feel that everyone is a little bit colluding with each other around keeping systems very complex and because.

All the reasons you just described. It's, it's sort of no one's deciding, Hey, I want these systems to be really complicated , but everyone is sort of incentivized to say, we don't really need to simplify this because the way we make money is to keep things

complex. Um, and so that, I guess I'm wondering what, what you sort of think about how do we go from here, which is we just took an hour plus to sort of unpack how that the [01:10:00] industry works, right?

How do we go from here to getting something to where it's easier to install systems? It's less expensive, and so therefore we're able to then apply controls everywhere, not just bigger buildings, right? Some research I've done shows that, um, 87% of the buildings, um, below 50,000 square feet don't have any control system whatsoever.

Right. Um, and so therefore, they're not able to take advantage of all the different things that control systems enable. So how do we get to the point where that industry that we've described here gets a little bit more 21st century, a little bit more accessible, a little bit more scalable?

[01:10:43] Leroy Walden: Wow. Um, you know, one of the things that I hoped when we made the move toward more IP connectivity for, for control products was that we would get more, like, for instance, you buy you buy a [01:11:00] Linksys router and you connect it up to, to your home network. You know, you, you hit the IP address of that Linksys router and all of a sudden you got a configuration page and you can go in, you can configure some fairly sophisticated routing techniques and so forth in that little router with that UI that's built into the, into the controller that it serves up to you.

[01:11:23] James Dice: Mm-hmm.

[01:11:23] Leroy Walden: you do is just hit the right IP address, right? So, so I've got that. Now I've got this thing configured. Now, once I exit from that, That thing is programmed and it knows exactly what I want it to do from now on, you know? And so, so I don't have to think about it anymore. So my hope was is that as we've got IP technology at the controller level, when I talk about those air handler controllers, and I'm talking about those terminal unit controllers, small, unitary, you know, 150, $200, same price as a router by the way, you know, you get that with IP technology.

It needs to serve up the [01:12:00] webpage that it needs to configure that control. You know, there needs to be technology built into, and that's not, it's not expensive because obviously if Cisco or Linksys or whomever can do it for a, you know, commercially available router should be able to do it for a, for a temperature controller module.

So, so the industry needs to go there and, and if the industry, if, if the industry is not prompted, you can do it through regulation, you can do it through. You know, mandates or whatever, but you can also do it through demand. If the customers demand, if they know that there's a option to do that, and they know that it would be better, because as I said earlier, every manufacturer that applies to the, to the Backnet protocol has a custom piece of software that's licensed to their dealers.

That's a, that's a, you wanna talk about a proprietary hook. That's a proprietary hook,

[01:12:51] James Dice: Yeah.

[01:12:52] Leroy Walden: because that piece of software, having access to it is the key to the kingdom. If you need to reprogram a, an existing controller or [01:13:00] replace a controller, if that controller, on the other hand was able to serve up the webpage, you'll just like a links route or whatever where you can go in and do your configuration.

Then once you exit that configuration, that controller knows from that point forward everything it's supposed to do. If you ever need to get back to it, you know it's address, so you can go right back to it, go up. I can adjust the pin loop, I can, you know, adjust the timing. I can do whatever I want to adjust.

I can adjust the data throughput. I want you to serve this point to that, you know, IP address. You know, you put the, the, the routing table built right into it and knows exactly where that data point needs to go for F d D or you know, whatever else, and you exit back out. I mean, that, that's the kind of stuff that I'm, I've become impatient.

I've become impatient expecting.

[01:13:46] James Dice: why doesn't that. Happen. I mean, I think the answer is baked into this whole conversation, but what? What is the answer

[01:13:53] Leroy Walden: I, I think that more customers need to be aware that that's a possibility and they need to [01:14:00] demand that of the systems that they support that, that they allow to come into their, to their, to a system. And you, you know, you're, you're a, you're a kind of a collection point of this. Every manufacturer, whether it be access control, lighting, you know, power, power, power, quality, whatever needs to adopt that same philosophy.

We're going to, we're going to the world of, of IP connectivity. , there's no reason for that not to be there. A web server is like 35 cents, you know, it's just ridiculous what they cost to bake into, you know, to, to a controller these days. So it's not as though they're suffering this big, this big, but if they're not prompted to do it, why don't we just keep on doing it the old way?

[01:14:41] James Dice: totally.

[01:14:42] Leroy Walden: You know, we got this old piece of software, we'll just put a little, another little hook in it and it'll talk to this new controller we just created, and it'll still support the old controllers that we got. So it's a win-win for us. You know, doesn't really answer what the customer wants. The customer wants that, that open system.

Open, [01:15:00] open access. You know that, that's the key. Open system. Open access, access to the product is what ultimately the customers want. Now you wanna talk about putting integrators and keeping them on their game. Once every product that they sell and their competitors sell are open access, the integrators better be on their game and better be better.

At configuring systems and more innovative in their approach if they want to keep those same customers, because you wanna talk about opening up the floodgates to allow multiple integrators to work in a system, you know, that that's, that's when it could happen. That that's when it could happen. So, so in me, in, in my, in my big world, you know what I'm thinking about, we've worked so hard to get to high speed IP connectivity at the very finite.

I mean, even the thermostat on the wall, IP connected, you know what I mean? That's, we're at that point now, but we're still stuck, you know, dragging the anchor of the old proprietary software to configure those [01:16:00] things the first time.

[01:16:01] James Dice: Yeah.

[01:16:02] Leroy Walden: I say that, I say there are some exceptions to that, you know what I'm saying?

There are some exceptions. There are some manufacturers that are providing that capability, but for the most part, the, particularly the large manufacturers, disc tech, the. Schneider Electrics, you know, the, the big guys, Siemens, you know, they're still staying with that philosophy. And that is, I've got this tool I need to support my legacy product.

So I need to make sure my guys are trained on this legacy software. And I'll just bolt in a new module that'll talk to these new controllers.

[01:16:29] James Dice: yeah, yeah. That's certainly the power. The keystone of the power and the, and the supply chain there. Um,

[01:16:37] Leroy Walden: yeah.

[01:16:38] James Dice: alright. Leroy, I really appreciate you coming on and given this perspective, hadn't been fully told or told at all. Um,

[01:16:46] Leroy Walden: Well, if, if, if it was probably known but not discussed. Um, and, and the one thing that I will say, James, is that the the approach that you're taking to what you're doing here with Nexus and, and you know, I've, I've [01:17:00] seen you now, I've seen you on a couple of podcasts and actually experiencing one of your sessions, you know, firsthand at RealCom.

It, it's, the industry needs it. The industry needs a kick in the pants, you know, it needs to be, it needs to be jolted and jostled. And, and move forward. And that means people are gonna be uncomfortable. You know,

[01:17:16] James Dice: And I'll, I'll say this to anyone that you're kind of bringing into this conversation. I'm not intentionally trying to kick anyone in the pants.

I'm trying to move things forward. I'm driven by what the outcomes that we need from buildings, and these are the things that are, that I view as holding it back.

I'm not attacking anyone personally. Um, not, not at all.

Um,

[01:17:38] Leroy Walden: I didn't, I didn't, I didn't, I didn't feel that myself personally. And there's a, there are a lot of people in the industry that are like me, that, that do see, but there are some, you know, there are some that maybe, maybe they do feel threatened. I'm, I'm saying to them, don't feel threatened. Don't feel threatened because this is what we've worked for.

You know, this what this I, I've worked for, it's 1978. And as an integrator, if I'm really focused on my [01:18:00] customer and providing them the best experience and the best outcome, but the product that, that I can, I need to be focused on that same thing. So, so don't be fearful. Know that this is not meant to displace or not meant to, you know, run you off or, but it's, but it's jostling and making, increasing our awareness because you know what, the first, the first key to problem solving any problem is being aware there's a problem

[01:18:27] James Dice: totally.

[01:18:27] Leroy Walden: there, there, there's a problem.

You know, we have, we, we need to get our awareness up. And that's what I say is you are, you're bringing that level of awareness up. And the way you're doing it is you're bringing in people with diverse backgrounds and diverse perspectives as it relates to the way they're approaching problems and the way they're proposing to solve problems.

And that's some of it's from outside the industry and what I've described to you about a webpage coming up out of a v controller that's totally outside the industry. You know what I mean? But it needs to be in the industry that needs to be, [01:19:00] that just needs to be the way you should be able to walk up to it, connect to it with a, you know, a wifi on your phone.

Or your tablet, you know, walk it through, do, do, do commission, done, you know, and, and, and go up. What's that one? Okay. Read me the, what's the, what's the address? Duh. You got the Mac address. Do, do you, you know, that that's the way it should be. That that's the way it should be done.

[01:19:21] James Dice: Totally agree. So again, thank you so much. Let's close with some, some carve outs. Um, what, what book podcast, TV show, movie, documentary has had a, has had a big impact on you lately? Doesn't have to be those. It could be just a story as well

[01:19:35] Leroy Walden: well, I a as I say, we're, we're living in some marvelous times right now with revelations of of current event world events. And so, um, you know, a lot of people are feeling maybe overwhelmed. A lot of people may be feeling bewildered. Um, a little unsure, uncertain. I, I'm just gonna say this, I haven't lived as long as everybody, but I've lived a pretty good while and these are the most interesting times [01:20:00] that I've

[01:20:00] James Dice: of your life. Yeah,

[01:20:01] Leroy Walden: Yeah. And, and I'll just say this, you know, that's what we all hope for. We all hope that we can live in interesting times and so, so, so, so my encouragement to everyone is, you know, don't be dissuaded. You know, don't be don't, don't be downtrodden. You know, the best is yet to come. It's just around the corner.

Trust me.

[01:20:18] James Dice: Love it. Love it. All right, thanks again and we'll talk to you soon.

[01:20:22] Leroy Walden: Yeah, James, thanks.

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