Hard times, strategic blunders, and actions you can take

Feb 16, 2009

As the economy gets worse, and panic sets in amongst the management of too many A/E/P and environmental firms, mistakes will be made that are difficult to recover from. I’m referring to decisions such as cuts that are too deep and affect billing capacity in areas that still have demand, demotivational policy changes such as across the board pay cuts that systematically run off the best people (those who have other employment options), and marketing cutbacks at the precise time marketing is needed most. I’m also talking about getting out of business lines that are less profitable than others, closing offices that make money but are “too small,” and pitting everyone against each other in the name of creating accountability. Now, more than ever, you probably need every incremental revenue source (they help cover overhead!), as well as require greater cooperation across groups to deal with rapidly changing workloads. Bad decisions— the long-term effects of which could destroy the fragile success formula you’ve taken years to establish. Proceed with caution! Follow your instincts! Don’t throw out the baby with the bath water! That said, now IS a good time to take a hard look at your business. Here are some things you should be working on: Keeping morale up. Without good morale you’re going to go down. People need to be kept informed of what’s happening and have some confidence management has some ideas and plans that will turn things around. They need to see action. They need to feel certain that they are somehow not viewed as expendable pawns to be hired and fired at will. Protecting your balance sheet. Maybe now is a good time to sell some stock to all those who have been wanting it in previous years. Perhaps your rules about who gets to buy and when should now change. Look at it this way— the people who want to invest their money in the company now, instead of just in good times, must really be committed. Getting all the credit you can get. The banks like our kinds of businesses— cash flow based businesses— and they’ll be glad to take care of you if your numbers aren’t bad. Get it (credit) while you don’t need it! Shoring up client relationships. Is your CEO making phone calls to check up and see how happy your current clients are? He or she should be. Also, are you still thinking that there are certain types or sizes of projects that you could do but don’t want to do because they aren’t as profitable or are inconvenient for you to handle? Get over that idea! You need to take care of ALL of your clients’ needs— and well— if you want to keep them clients. You cannot afford to lose a single client in this market. Looking for new revenue sources. Did you notice I didn’t say “profitable revenue sources?” It’s not that you can afford to lose money right now on new things that you didn’t need to get into. But by the same token you have to look at profitability differently when you talk about incremental revenue sources (new revenue added to what you already have). This is a greatly misunderstood concept. If you can add $300K in revenue and I have only $200K in new variable costs (overhead hasn’t changed) then you should probably do it. This could be a 1.5 revenue factor (revenue to total raw labor)— less than your break-even of 1.7 or 1.8— and yet still be good (and profitable) for you to do. Keep yourselves action-oriented in these bad times but don’t make stupid mistakes that can ruin the company. You can survive and even prosper— but it will take a lot more work than ever to get the same results. Originally published 2/16/2009

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Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.