When times get tough, you have two choices: You can cut expenses and eliminate all investments, or you can double down on making improvements in your business.
If you are driving your car up a long hill, and it starts to slow down, what do you do? Do you let off the gas because it is straining – or do you give it MORE gas to get over the hill?
Entrepreneurship and business ownership of an A/E firm is much the same. When times get tough, you have two choices: You can cut expenses and eliminate all investments, or you can double down on making improvements in your business, increasing marketing expenses and making key hires and investing in things that make you more efficient.
Why do so many people in this business do the former versus the latter? Is it a matter of confidence? Is it a matter of perspective? Is it a matter of fear? I don’t know. But it doesn’t change the facts. The response of “letting off the gas” could be the worst thing for the business as it goes into a tough market. It will slow it down even more.
If you don’t want this to happen to your business and aren’t planning on winding it down, “pouring on the gas” means increasing marketing spending. And please don’t ask me what a “normal” marketing budget should be for a firm like yours. High design firms can spend up to 15 percent of net service revenue on marketing. MEP and structural engineering firms that do most of their work as subconsultants to other firms in this business can spend as little as 3 percent of net service revenue on marketing. Everyone else in this business falls somewhere in between. The significance of these numbers is singular. You need to do more than you did marketing-wise over the last 10 years of boom times. That translates into spending more.
And while I am on this topic of marketing spending, let me say that no one in this business is actually spending what they think they’re spending on marketing. There are so many distortions you will find in the numbers. For example, most firms let nearly anyone in the firm charge their time to “marketing.” My personal experience is that when things slow down, it looks better to charge your time to “marketing” versus uncategorized “non-billable.” So people do that and it looks like the company is spending more than it does.
Another way marketing spending is distorted goes the other direction. When companies have a practice of rolling all marketing and business development costs into a project once they win it, that means their marketing costs from an accounting standpoint only represent marketing costs that did NOT lead to a project. So marketing spending in that case is underreported.
Recruiting and hiring is another way for firms to “pour on the gas.” Again, the typical response of A/E firms to challenges in current or future workload is to cut labor, not increase it. Yet tough times could indicate the firm needs to do the opposite. The market is saying it doesn’t like the firm’s current offerings for whatever reason. What firms should be doing is (quickly) figuring out what the market DOES want from them, and then investing in building that capability as fast as possible. And maybe the firm should decide to go after entirely new markets or add all new services because their current markets are just too hammered. That could mean spending more on recruiting and labor, not less.
And finally, we have the matter of spending on efficiency improvements. Instead of cutting back or spending less on software and systems and training, “pouring on the gas” could mean spending more on these things. Sure it sounds like investing versus expense reduction, because it is! And that spending needs to go up just when you ostensibly can least afford to do so.
So, what are you doing as the hill ahead looms? Are you letting off the throttle so you don’t strain your “engine,” or giving it throttle and burning more fuel so you can get over the hill? Real entrepreneurs will press on the accelerator harder, and pass everyone else who is crawling up that hill!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at firstname.lastname@example.org.Click here to read this week's issue of The Zweig Letter.