Oct 08, 2001

Friday afternoon finally rolled around. Joe Jetson gathered up everything he needed to work at home over the weekend and tossed it all into his briefcase. This was the worst week Joe could remember in his 21 years in the A/E/P business. It started out with a bleak forecast from Dutch Swanson, their COO, which was quickly followed up by accrual loss and cash flow deficit projections from Christy Donovan, their CFO. On Tuesday evening and Wednesday morning, there were closed-door meetings of the executive committee where every single cost was evaluated. By 2:30 p.m. on Wednesday afternoon, the hit list was finalized. The cuts began on Friday morning and were done by noon. At 3:00 p.m. a meeting was held with those who were left to explain what had gone down, why it had happened, and what the prospects for the future were. Now the deeds were done, and everyone had to get back to the work at hand. If you’ve been in this business 20 years, it’s hard for me to imagine that you haven’t gone through something like this. And if you haven’t, get ready, because my short-term forecast is bleak. That said, what should firms learn from these experiences that they could carry forward so the mistakes that led to them aren’t repeated in the future? Move quickly if things start to go sour or even look like they could go sour. Most firms need to cut right now. I know that, you know that, everyone knows that. Yet most firms will not do it until their lines of credit are maxed, they can’t pay their subconsultants, or their bank forces them to do it. This is the single most important idea you need to understand. Unless you have 20% to 30% more backlog than you need to make the money that your firm should be making, cut. There will be falloff. It will come because people are scared and confidence is shaken. Tax revenues will be down, and that will cut state and local projects. Contributions and conditions in the stock market will hurt endowments, and projects will be stopped. Low profits will force cutbacks in corporations, and capital projects will be held up. In fact, if your backlog only declines by 20% to 30% in the coming six to eight months, you will be lucky. Save some money. In good times, we all get hooked on the seemingly endless spiral of increasing expectations. Rampant materialism takes over. The cars get flashier, the offices get larger, the office furnishings get a little more expensive. We get the extras— extra insurance, extra training, extra technological whistles and bells— and we keep pushing for more. In tough times, those who adjust to the new order of the day the fastest are the winners. And those that don’t even need to adjust are the real winners. They don’t feel any pain because they haven’t gotten hooked on the drug of excess. Who do you want to be? Someone who needs to go on a diet and lose 158 pounds, or someone who needs to drop only five? Put some money away for the rainy day now. That may mean retaining some earnings in your C-corporation and, Heaven forbid, paying taxes on it. Your tax reduction strategies may be in conflict with your survival and growth strategies. Remember that! Be relentless in your efforts to confront the lowest performers and clean them out. They will always be there. The bigger you get and the longer you are in business, the more likely it is that they are there. Notice I said “lowest,” however. This is a key word. I didn’t say “low.” You may not have any low performers. And that can pose a problem if and when cuts are needed. But there will always be “lowest” performers. If this is the way you start looking at things, you will be more willing to pull the trigger than if you don’t feel you have any low performers. But low or lowest, it’s no fun and not easy to make these cuts. It’s your job to maintain profitability, though, if you are the boss. And if cuts need to be made, don’t just do it from the bottom! The big kahunas are the ones who make the biggest impact. Take a hard look at the top layer! Don’t immediately accept unrealistic goals set forth by your managers. Business planning season is upon us. Many of you are probably asking your office, or department, or division managers to prepare their revenue goals and budgets for the coming year right now. That’s great— I certainly think that’s a good way to go. But the problem comes when your managers are overly optimistic. The tendency (in years past, at least) has been to set the goals that they think upper management wants to hear. When we are in boom times, that may be a great approach. Everyone reaches for the stars, and good stuff happens. In a down market, being overly optimistic can really cost you. Staffing occurs too early or cuts happen too late because the rosy forecast is always just about to materialize. Until, that is, the year is half over. Then reality starts to set in, and you spend the second half of the year digging yourself out of the hole that was dug in the first half. No one enjoys that….
I really think it’s going to be rough sailing ahead for the immediate short term, folks. You know I wouldn’t say it if I didn’t believe it.
Originally published 10/08/2001

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