The impact of the recession has brought a drive from clients to reduce costs, and cut and defer spending. This means that any growth will be at the expense of others by seizing market share. New and recurring business will continue to be harder to predict and pipelines will be much shorter.
Employees and clients will need more attention just at the time when the board wants to shut itself away and have a think about what to do. Competition will increase with existing businesses increasing their level of activity, and with consultancies that previously weren’t competitors widening their business focus and low-cost start-ups springing up to undercut prices.
How consultancies respond to this could well shape the future of the design market. If design becomes cheap, the price won’t go back up after the recession.
The Brand Union’s UK chief executive Simon Bailey’s article in Design Week’s 2009 Top 100 supplement is spot on. If consultancies can sort out their value proposition and how to deliver it efficiently, then the answer to these pressures isn’t cheaper prices and smaller profit. To survive and thrive, consultancies should consider ten key actions:
1 – The first rule of business is always to make a profit The second rule of business is never forget the first rule. If consultancies are considering a new initiative then the planned and actual costs must not exceed the profit of the existing business. If income levels fall, the business needs to be restructured to deliver a profit in that world. If new people join the consultancy the business should be able to generate the additional to pay for them, which is about double their cost.
2 – Just do it Hope springs eternal in the heart, but is rarely justified by the economic outturn, so take action to become profitable now while you can afford to and can do so from a position of strength.
3 – Consider a non-executive director Research Kingston Smith W1 carried out in and after the last recession showed that many businesses which thrived had a nonexecutive director. Non-executives help keep an eye on the big picture and keep management focused on the overall plan, as well as their day-to-day activities. They can also be a useful sounding board for both management and staff. This latter is especially important in a time where everyone feels uncertain.
4 – Plan Again, our research showed that consultancies that had a plan for the business and focused on delivering that plan survived at the expense of others. It doesn’t have to be a full-blown business plan – in essence, it means writing down what the business needs to do, what that will look like and how you will achieve it. Interestingly, the more clarity with which business managers describe their goals, the more likely they are to achieve them. There should be two to three versions: the one you think is realistic, an optimistic one and a pessimistic one. In all three you should consider what action you would need to take so that you can be fleet of foot in whatever set of circumstances transpires. It helps to include key measures and ratios, such as income per head and employment costs as a percentage of revenue and profit margin.
5 – Supermodels starve first in a famine Consultancies with solid balance sheets will be stepping over the husks of businesses that were too thinly capitalised. Build up your balance sheet if possible and certainly stop it being eroded. Net current assets should cover at least three, and ideally six months’ overheads.
6 – Cash is king It’s a time-honoured saying because it is true. Cash is the oil that allows the business engine to work. Profits don’t mean cash, so cash-generation is a key measure on which to focus.
7 – Measure What gets measured gets managed. This includes financial performance, but also things like client satisfaction, over-servicing, pipeline and conversion, and debt collection.
8 – No prizes for effort Win ugly, however you can. It’s a mindset and you and your team should be prepared to do whatever it takes to deliver the plan, as long it is well thought out and reasonable.
9 – Take advice In a recession leaders tend to go left brain and become ruthlessly analytical when what is required is right brain – intuitive response to clients and how they perceive value and creative ways to deliver that value efficiently. Now is a time you really need to get it right: the offer, position, people, processes, structure, funding. If you are concerned about the financial viability of the business it is absolutely crucial to take early advice to protect your personal position.
10 – Smile Confidence is a powerful weapon both in and outside the business. Clients and staff are looking for reassurance too, so celebrate success and increase how much you communicate across the board.
Amanda Merron is a partner at accountant Kingston Smith W1