Take heart. It’s not all doom and gloom. Granted, getting new business is not as easy as it was 18 months ago, but let’s face it, back then, as one consultancy chief executive put it, if a monkey were to have set up a design consultancy it would have made money. If the floods of work once gave new business directors a chance to sit back a bit, the challenge now is to get back on track.
But first let’s get a few things straight. All business activity is cyclical, so by its very nature there are peaks and troughs. This is certainly not the same as a recession, a fact that designers tend to forget.
The “R” word is formally defined as three consecutive quarters of falling gross domestic product (in other words, the value of the economy, which usually grows by a few per cent a year, falls for nine months on the trot). The difference between the two is marked and, while it would be irresponsible to say we were immune from collectively hitting the red, we are not there at the moment.
Second, design consultancies undoubtedly benefited from the new economy – many changing their client base, staff, skillsets, and so on. Such flexible working practices can be of benefit again at the moment. New economyrelated work may be much harder to come by, but this is not actually the biggest problem facing design groups across the industry.
Some fundamental business requirements have been ignored for too long. For years now industry accountants like Willott Kingston Smith and industry consultants like David Jebb Associates have warned that the ratio between staff costs and feeincome in the design sector has consistently slipped. Don’t switch off at this point. This factor is arguably the most crucial problem facing the majority of design businesses today.
All the figures show that fast-rising salaries in the design industry have not really been justified by increases in client revenue. There are two simple solutions to the problem: either staff costs need to be reined in, or revenues (per head) need to increase.
On a more general level, there are other things to consider. The basic premise of running any profitable business is very simple, as Dave Allen, head of WPP’s design and branding empire The Brand Union and chief executive, reminds us.
“Managing a business in our industry is pretty straightforward. It is a continuous process of balancing revenue with capacity and at the same time controlling costs. The one thing you know for certain is you can never get it right for very long. As soon as you do someone will give you more work. The more effectively you do this over time the more successful the company is,” he says.
And he should know. As a kingpin of the WPP mothership, Allen has a duty to the group’s shareholders to maintain the network’s magic operating margin of 15 per cent. These margins can be met consistently if the business is managed professionally, he says – and that doesn’t mean squeezing every last drop of profit out of your staff, but it does mean controlling fee-income per head.
“Everyone within Enterprise IG has to add value. In today’s world, you cannot afford to carry passengers. To do so would be unfair to the company and the individuals that do deliver,” he says.
This may be true of Enterprise IG, top of the Design Week Top 100 league tables, but if it is not true of the others, it should be.
Going back to the business cycle, client sectors ebb and flow all the time, independent of each other. So do national markets. Aiming to keep your business flexible enough to adapt to changes in sector and market growth is obviously important. The real trick is not to just “give up” during the business downturns. Blaming everything on external factors is easy. The challenge is to take action.
Experienced business managers know that the spectre of a downturn is a convenient time to restructure, to cut back the less profitable areas of work, to make sure every passenger is contributing. With less investor pressure, many independent design consultancies are often slower to realise that efficiency is not optional; it is essential. This fact is borne out by Willott Kingston Smith’s last annual survey, Financial Performance of Marketing Services Companies 2000.
“Designers are still struggling to control employee costs,” the report reads, explaining that the design sector has consistently operated outside of “the accepted benchmark across the marketing services industry”.
There is clearly much to be done, so use the slow times to plan ahead. Key objectives should be setting cost targets and raising the general level of your consultancy’s productivity, while at the same time explaining things openly to your staff.
This is the time to make your own sales and marketing activity work. Develop relationships with other sectors and new international markets. And stop using the “R” word when you don’t mean it.
And if things do get tough, take the punches. It will be time to come out fighting, not roll over. Spectres do go away.
Don’t wait. Don’t wait. Don’t wait
Take what actions you believe to be right. Act quickly and decisively
Set cost targets
Increase marketing and sales activity
Raise the bar on client service
Make sure all your employees understand what is expected of them in order to succeed in tough times