Thinking about new doors opening when things change. Bevagna, Umbria. November 2019.
I recently wrote a posting on another page here for the creative industry leaders I have been advising, near the peak of the eleven-year-old bull market. Arguably, it was written suggesting that a correction was coming, in a “hey there, maybe you should prepare” tone.
In the weeks since the posting, a correction has happened and is happening.
To fix the tone of the previous missive, here are two thoughts I think we can agree on:
· The government is not moving quickly enough and we have to take care of ourselves until they catch up to the facts.
· We need to take care of each other until the government catches up to the facts.
But more importantly, we need to plan for what comes next. As it relates to your business, over-communication internally and externally will be super important. Contact all your staff, vendors, clients, suppliers, and business partners constantly, we are in this together and we will get through it together.
Now is the time to implement some of the structural changes you were avoiding because “things are ok”. Now those extra efforts to solidify your margin will be critical. Yes, implementing cost management and tracking budgets on projects is a hassle, but that extra margin is what will fuel your ability to withstand the length and breadth of this correction.
Most small agencies have some form of accounting program that can be expanded to add job costing….even Quickbooks has a version of this, but it means getting off the Online version and getting an enterprise version going. You may need to change your finance team to PCs, but they will be fine. Please, see a brief description here https://quickbooks.intuit.com/online/move-to-online/ The bottom three elements are the important parts of job costing. Of course, there are other software offerings that will sort you out, I don’t care what you use as long as you are tracking job costs by project, even a shoebox process would do you some good.
Once your team figures out how to implement this budget management process, work to make that key to your bidding process for new projects. The new process leads to new thinking and you will learn how to better your bidding process with actionable data over time. It may take some effort to figure out what to do with this data but start now.
You could learn:
· Each producer has different ways of thinking about how to bid on a project. With data, you will learn who should take on the more intense projects and who should take the simple repetitive ones, until they evolve with experience.
· You should have more hourly rates than a flat one to be more competitive. Suggesting you have a high flat rate per hour only to deeply discount the project price is a good way to lie to yourself and not super productive.
· You may need to have your MD, COO, or CFO review every bid before it goes out to ensure that there is consistency in your bidding process. I cannot stress this enough…..I have seen producers and maybe new business folks be the only arbiters of process and pricing, only to have it blow back for inconsistencies, price creep, vague details, and process, or worse yet, go through only to find out that the price missed elements, or the firm committed to a scope that is so vague the client holds you to a process you will suffer through. Consistency and downside protection are key when the competition is heating up.
We are in a correction. If this is new to you, here are some additional ideas:
Do you have too many start-ups as clients? Can you see their business pivot, or worse, cease up? Will they put you on hold? You should have open and frank discussions with them to get as clear a line of sight to your backlog. They may not know much as they are in the same position you are, but if you have built a strong partnership, they will share that things are in flux, and you should read that in as negative a way as possible….plan to react.
This is not to say that only start-ups will put you on hold….traditional clients will too, but they usually will not pivot their business plans and they usually do hold themselves to contractual agreements more strictly. Though if your agreement is vague as to the completeness of the contract, expect to be put on hold if you are not mission-critical to a larger client business objective. After 9/11, my firm with mostly traditional clients saw a 50% hold pattern, which was tough, but the hold was a matter of a few weeks.
Look at your overhead, and think about what you can live without. This, for most agencies born during this bull market, will feel horrible but bite the bullet early. If you are encouraging your team to work from home to avoid commuting in small underground tubes, great! But you have office space, utilities, back-ups, phones, cable, internet, insurance, etc that you may not use for a while. Also, your work-from-home team will need you to help them get their systems up to snuff. You need to look at ways to limit waste and help your team get comfortable in the new normal.
As of this writing, we have no idea how long this will last. Most schools are in the process of going on Spring Break early and plan to allow a couple of extra weeks after that until the students come back. OK, so that feels like the plan is this will last three weeks? What if it is longer?
This is where you may be getting uncomfortable. Embrace this feeling, it is the right emotion! So, what can you do? Your biggest expenses related to your office are listed above, I suggest you talk to all your suppliers for lower rates during the slowdown. They may all decline the opportunity to do so, but now you know. Not asking for some consideration of the changing reality is silly. What if they do work with you? And if they don’t, maybe look at alternatives and get new suppliers. Talk to your landlord, if you have a good relationship, they may work with you. They will rather keep you than have to find a new tenant….they could be dealing with similar issues for their entire building, and they could be getting some tax benefits that would mitigate their concessions. Again, ASK. The worst thing that could happen is they say “no” and you are in no worse position. But if they work with you, things just got a little bit better.
This is a long way to say, work on your hard costs. Remember, things have recently changed, you entered into these long-term agreements when everything was rosy, milk and honey flowed and $8 burritos cost $14!! Things have changed, you should ask for concessions.
To recap, we have discussed your project management to tease out the best ways of producing profitable work. We discussed your hard costs and asking for concessions from your suppliers, and that has an “ick” quality we all dislike. But we have yet to talk about your variable costs. This is a tough subject as it conflicts with the concept above of taking care of each other.
This is a deeply personal subject for us all, as this is the last thing we want to deal with as each member of our team was hand-picked and is amazing. But if you cannot keep the business afloat because of your unrelenting cost structure, then you may face a 100% failure and that is unacceptable. I won’t be prescriptive here because even if I do discuss how to make this decision, you will ignore it and wait until you have no other options. I hope this never comes, but if it does, know that you did the best you could to take care of your people.
Peralta Consultants 