Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
United Security Services (USS) – Argentina
Prepared by George Foster
United Security Services SA (USS) was founded in 1997 in Buenos Aires, Argentina. USS started life as a security company dedicated exclusively to the installation and monitoring of alarm systems in private residences and business establishments. The unfortunate and deteriorating security environment in the greater Buenos Aires area gave rise to the idea of starting a security company. Greater Buenos Aires has approximately 15 million inhabitants.
In 1998 a Bahamas-based VC fund, Winslow Investments, invested US$ 2 million in USS. In 2000 the VC fund increased its investment to US$ 4.4 million, thereby acquiring control. In 2002, after four years of recession, Argentina entered into the worse crisis in its history resulting in, among other things, a 270% devaluation. This forced USS to change its business strategy to adapt to the new market conditions. By 2003 USS had approximately 3,500 accounts and was a mid-sized security company in a crowded market. At this point, the owners decided to differentiate USS by offering an integrated security service. In the following years, USS entered the following security areas: physical guards (guards in supermarkets, offices, banks, retail stores, airports, etc.); mobile monitoring (vehicles following transported valuables); Automatic Vehicle Location (AVL) GPS vehicle monitoring, and installation and servicing integrated electronic security systems.
Almost by accident USS discovered in 2009 that soliciting clients via Internet search engines was far more efficient and cost effective than the traditional personal approach. This was a major change in an industry that has always been very conservative. As a result USS was awarded several marketing prizes by Honeywell’s dealer programme, which is easily the most important in the worldwide security industry. In 2012, USS established a subsidiary to offer that service beyond Buenos Aires and Argentina. The subsidiary designs and implements online marketing services. Although this is a very new area, the subsidiary already has clients both in and outside the security sector in Peru, Mexico and Argentina, and prospects in several other countries.
Today USS is one of the very few integrated security companies in Argentina. Clients include airlines, the central bank, major supermarkets, single family homes, small businesses, transport companies, gated neighbourhoods and various public sector clients, such as municipalities and the nuclear power stations where USS installs and services security systems.
Francisco Alberton, Chairman of USS and a partner, is a retired officer and ex-commando of the Argentine army. In addition to his role at USS, Alberton is a partner and president of a property development company in Argentina.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Alberton: “The unfortunate and rapidly deteriorating security environment in Argentina in general and more specifically in Buenos Aires gave rise to the idea of starting a security company. For the last 20 years the security industry in Argentina has experienced double-digit growth. It would be very misleading to state that it was an easy task to evolve into a viable growing company. The sector was very crowded and at times disrupted by the entry of the sector’s international giants, such as ADT of the United States, Prosegur of Spain and Securitas of Sweden.”
Perry: “Over time since 1997, the security industry in Argentina has seen substantial consolidation. In 2010 USS itself was the target of a takeover by one of the large international companies. Small security companies that are not fully integrated will continue to be absorbed by larger competition. Today USS is unlikely to be a target of acquisition, mainly because it is fully integrated and perhaps too large.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Alberton: “Unlike most start-ups, USS experienced slow growth in its early years until 2003 when we decided to integrate other security services. By 2003 we realized that most potential clients, particularly public and large private sector clients, would rather have a single provider for all their security needs. By offering almost the full range of security services (we don’t presently offer safe deposit boxes or armoured car transport), USS has been able to approach the more attractive large potential clients since 2003.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Kbal: “I will take each of the areas individually:
- Availability of accessible markets: This has never been a problem as the security situation in Argentina continues to deteriorate.
- Availability of workforce/human capital: This is a very challenging area for us, particularly in the physical guard business as the level of education of these candidates is very limited. We have an intense training programme that we hope adequately makes up for the low level of education. However this training is costly and time consuming as we are not billing for the time it takes to train guards.
- Availability of funding/finance: This is another very challenging area, particularly in the last 18 months. Argentina has a very limited capital market. Start-ups, like USS, are almost always financed entirely by the founders. Outside capital is rarely available. In the past, some venture capital funds invested in Argentina but, most recently, government policies have effectively precluded any possibility of outside finance.
- Availability of mentors and advisers: USS is fortunate to have several retired military officers on its staff who provide the expertise needed. Occasionally we have sought the advice of outside sources.
- Favourable regulatory framework and infrastructure: The regulatory framework in Argentina, sadly, is very business unfriendly; however, conversely the infrastructure, in particular communications, is first class.
- Level of education and training in the region: Argentina has excellent university-level education but very poor and deteriorating public primary and secondary education.
- Major universities nearby: In fact, USS is a case study in what is reputed as the top business school in Argentina.
- Cultural and societal support and respect for entrepreneurship: Out of necessity, Argentina probably has more entrepreneurs relatively than most countries. Entrepreneurship is viewed favourably in society but not necessarily by the government.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Perry: “Unquestionably, the absence of developed capital markets has retarded the growth of USS. This deficiency was met through shareholder finance and self-generated funding.”
Q5: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Perry: “There have been very limited instances where large companies in our sector have assisted USS’ growth. Perhaps the only area would be in contracts with the public sector where USS is viewed as a local company, whereas all the large companies in our sector are foreign owned. Our large competitors on rare occasions have invited us to participate in a public sector bid to lend a ‘local’ element to their offer.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Perry: “The large companies in our industry in Argentina are invariably foreign owned. We are probably the largest domestic company in our sector. The challenge of competing against large multinational companies has been mainly financial as most of our large foreign competitors are well financed. Every division of our company, alarms, guards, mobile guards, GPS and security systems requires investment to grow. We either have to buy a stock of alarms, train guards, buy mobile units and GPS equipment or compete for the installation of security systems, which invariably has a long gestation period. Our advantage versus the large foreign owned competition is the fact that our decision-making process is far more agile as all the decision-makers are in Argentina and concerned, for now at least, only with the Argentina market.”
Q6: Your current revenue growth to date had been predominantly focused on your own domestic market. What are the major reasons for this major revenue focus to date on domestic markets?
Alberton: “The answer to this question is simple. USS barely has enough finance to attend the booming demand in our sector in Argentina.”
Q7: What major role, if any, did key aspects of the ecosystem in the country(countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Kbal: “Other than the lack of finance, there are no real challenges to grow a sizeable revenue presence outside Argentina. In fact, we are presently considering entering other markets in Latin America. For USS the Latin American market is very attractive because we speak the same language, we think in terms of US dollars and we face similar challenges in our sector throughout the region.”
Q8: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Alberton: “Unquestionably, one of our high moments was being selected as a security provider for the Nuclear Energy Administration (CNEA). Our lowest point was the failure − by a government-run company − to meet its financial obligations (payments) with us for over six months, a problem that we are still attempting to resolve. Perhaps an equally low point was the 2002 crisis which forced USS to change its business strategy.”