It’s time for 2020 vision.
Recessions are historically rough on creative agencies. When money gets tight, clients stop spending money on new campaigns, ideas, collateral, and websites. They try to get by with what they have until the economy turns around.
In September 2001, the creative industry tanked. The terrorist bombings caused financial panic while the economy was still reeling from pop of the dot-com bubble. It took several years for our industry to recover. But did we recover? It didn’t feel like it to me. Business changed. Budgets were smaller. Green lights took longer to secure. Clients who earlier were willing to buy entire campaigns were more likely to spend “as needed”.
Then, just as creative agencies were getting adjusted to the new, tighter way of doing business, the second largest recession in American history hit.
I think the most important lesson to be learned from the recent downturn is that we need a strategy for recession. Here’s what I mean when I say it’s time for 2020 vision. Based on the economic performance of the past fifty years, it is likely that the year 2020 will be similar to 2010. We will probably be recovering from a recession (hopefully not as severe as the one we just exited), and the business atmosphere will have shifted again.
Here’s a quick history lesson. In the history of the United States, our economy was growing about 2/3 of the time. Of course that means that our economy was shrinking (in recession) 1/3 of the time. Fortunately, we have learned a lot over the centuries, particularly after the Great Depression, and our recent history is much better. Over the past 50 years, we have been in recession approximately 1/6 of the time.
We were in a recession in the early 60’s, the early 70’s, the early 80’s, the early 90’s, and the early 00’s. There was one additional recession in the middle of that regular cycle, starting in 1973. Of course, based on this pattern, the recession that just ended came early.
If things go well for the economy, there will be one recession between now and 2020, probably near the end of the 10’s. (If things don’t go so well, there will be two.) That’s right. If things go well, there will be a recession. It’s no good to think that the recession that just ended was the last. It hasn’t worked that way for hundreds of years, and it’s not going to work that way now.
If you accept the idea that recessions are inevitable, you need a plan for coping with them. Here are a couple suggestions to get you started.
“Go after the low hanging fruit” is a bad business strategy.
I have heard this strategy used too many times, mostly by poorly performing companies. Here’s why I don’t like it for creative agencies.
1) When you present your agency to prospects, you look for ways to distinguish yourself from the rest of the competition. That’s how every business gets seen - it’s how they make sales. A problem with only going after the low fruit is that it throws you together with the rest of the bottom-feeders. It doesn’t distinguish you. It makes you look cheap and lazy.
2) By focusing your attention on low fruit, the clients you find will be desperate, looking for a way to get more than they can afford. If they fail completely, they will be gone. If they succeed, they will replace you with someone they respect.
3) If you have the capacity to be efficient and clever, collecting all of the fruit is profitable because you have less competition. In particular, you won’t be competing with the bottom-feeders from point 1) who will undercut you with artificially low pricing. Here’s a success story about a company who built their business around picking up after low-fruit-gatherers. XTO Energy has been, for many years, clever and efficient at extracting natural gas from wells that other companies thought were underproducing. They had little competition in this arena, which allowed them the freedom to grow. Late in 2009, the company sold for $31 billion. I know that’s probably bigger than your firm, but the strategy is sound.
4) Low fruit is plentiful in a healthy economy, not so when the economy gets tight. Let’s look at this business cliché in a literal way - an actual fruit tree. When the tree is well watered, it produces a lot of fruit. During a drought, it produces less. And when it produces less, it doesn’t stop producing fruit in the high branches only. There is less fruit all over, even on the low branches. How does this aspect of the metaphor apply to your business? If you don’t know how to pick fruit from the higher branches, tough times may leave you with little to feed on.
Base hiring decisions on business analysis, not on emotion.
Balancing the size of your staff to your project workload is tricky business. Reducing staff is commonly an easy business decision but a difficult emotional decision. Deciding to add staff after a recession is the opposite. As business picks up, you are emotionally ready to add staff, but getting the timing right is a difficult business decision.
Historically, unemployment recovers 18 months after a recession ends. Why? Because it’s hard to feel confident that this month’s sales will continue next month, if this quarter’s sales will continue next quarter, etc. Another significant issue is debt. If you accumulate debt during a recession, you feel pressure to pay down that debt before increasing your overhead.
If you don’t staff up as your sales increase, how can you get the work done? There are a variety of ways.
1) Push your existing staff to do more. I am astounded by the prevalence of this strategy in the creative industry, particularly because the downsides to this strategy are so obvious.
- Overworked employees quit. It doesn’t matter how long they have worked for you or how good they are or how much they like you or your clients. An employee shows up for work to bring home a paycheck, and “overworked = underpaid” in the mind of your employees. Plus, driving off dedicated and proven employees makes your understaffing problem worse.
- Efficiency and quality suffer in the hands of overworked employees. After staring at a computer monitor for 14 hours, any employee, no matter how good they are, would rather be at home.
- In a service industry, employees are everything. Good employees cause success. If you treat good employees as a valued asset, your employees will stay with you. You will enjoy business consistency critical to overall success. A service company cannot succeed if the employees don’t feel appreciated.
- Finding a good employee is difficult and expensive. If you already have good employees, it is better business to keep them satisfied than to have to replace them. This is particularly true coming out of a recession, because if you had a layoff, your remaining staff is made up of your best employees.
Overtime can be an effective short-term strategy, but it’s a bad medium- or long-term strategy. If you decide to apply this strategy, tell your employees your plan. In particular, promise your employees a deadline for the end of the overtime push, and keep your promise.
2) Pick up the slack with freelancers. For certain projects, utilizing freelancers can be a nimble way to balance the workload. Keep these points in mind:
- Develop a relationship with a freelancer before you have to rely on them. Skill, efficiency, and reliability can vary widely from one freelancer to the next. Don’t hang your success on an untested freelancer.
- Freelancers cost more than staff on an hourly basis, but you never pay them for non-billable time.
- Progress made by a freelancer can be offset by setbacks caused by unusual work schedules, software version differences, file transfer time, etc.
Using a proven freelancer is best suited for work on an individual project or to help you through a quick growth period that ends with the hiring of a permanent employee.
3) Contract labor can be a good medium-term solution. Keep this in mind:
- If you hire someone on contract for a specific period of time, be clear about the terms of the contract, even with your permanent employees. Mistreating a contract employee can cause bad feelings throughout your firm.
- Freelancers aren’t necessarily good contractors. If the contractor will need to go back to making a living as a freelancer at the end of your contract, they will continue to serve their customers during the time they spend with you.
- Don’t dangle the carrot of permanent employment as a negotiating tool to convince someone to sign on as a contractor. Decide if you want to convert a contract position to permanent before you start interviewing, and make your position clear.
4) Outsource work to service providers. The end of a recession is a good time to re-evaluate your business goals. If you decide that certain aspects of your business are outside your core competency or are difficult for you to make profitable, finding a long-term service provider can give you the flexibility to accept projects without the staffing concerns. Some thoughts on outsourcing:
- Offshore outsourcing can be cheap, but quality control is difficult. You may find that the corrections that need to be made take nearly as much time as if you had done all of the work in-house. File transfer technology can also make offshore graphics work impossible.
- Onshore outsourcing service providers can operate like an extension of your company. They can work from estimates, or they can work on an hourly basis.
- Finding a reliable service provider is similar to interviewing job applicants. Make the prospective vendor prove their quality and reliability with work samples and references.
Recovering from a recession is an opportunity to improve your agency.
The recession is over. Let’s move on.
That means getting busy, growing, and adapting. Just like in 2003, the business climate is not the same now as it was before the crash. That’s where adapting comes into play. Take a new look at your agency. The adjustments you make today can prepare you for the next downturn.
Dialogs Professional Services is dedicated to helping creative agencies grow their interactive business. With us on your team, you know you can say yes to any interactive opportunity you find. We can provide the technical expertise you need to expand your service offerings without any risk to your financial security.