2020+ Planning Sessions

We all know that the past ten plus years have been a period of growth for most creative firms. Is this run sustainable? I think we are overdue for a correction.

Unhappy thoughts on a Monday as we begin 2020+ business planning

Among my clients, some have only been in business during this period and have learned to enjoy the growth and evolution of what they do, as new technologies — and clients — have also come to life during this period.

Some clients exist only in the new technologies born during the last ten years, and have modeled their businesses around this technological landscape… expecting nothing but an up and “to the right” growth curve. That is a wonderful place to be!

It is my role as an advisor to add a bit of reality to the planning processes we go through as the year ends. Expansion is not the only type of business reality. Contraction is, by definition, the counter-reality to the last decade-plus for the creative services industry.

There are many business ecosystem factors you do not control directly; if you think you exert any control, it is only as a reaction, these include the:

• Economic landscape
• Variety of increased competitors to your offer
• Environmental changes and their effects on you or your clients
• Regulatory changes brought on by external factors
• Your unmanaged perception in the market
• Technological changes/advancements that may affect trading matters
• Housing and Lease costs
• Increased input costs to your business due to external factors
• Never decreasing costs of employee benefits
• Global movements and their effects on your client base

Bottom-line, you do not control much of the external factors affecting your business, but you can control EVERYTHING you do internally.

If you feel you are doing well, great! But ask yourself: “What would happen if I lost 20% of my top-line overnight, for six months, maybe a year?” Impossible? It is not…it has happened to many great firms including mine, most recently in 2007. What did ATTIK do then? We fought like hell to survive, but luckily, the 2000–2001 recession that hammered ATTIK, had taught us what we needed to do in the years that followed. And while those years with ATTIK are the most memorable and rewarding of my career, that kind of trial by fire is not for everyone.

Briefly, to support the assertion that we are overdue for a recession, the following are the most recent periods of negative GDP growth*;

• 1973 for 1 year and 4 months
• 1980 for 6 months
• 1981 for 1 year and 4 months
• 1990 for 8 months
• 2001 for 8 months
• 2007 for 1 year and 6 months

Please keep in mind the economic factors and government financial engineering that took place during the 2007 recession, which in hindsight were critical and super effective in getting us out of a gnarly path. Perhaps last year’s massive tax cut is a form of financial engineering that has enhanced current reality for most of us? At some point, we all know the massive debt load brought on by the recent corporate tax relief is unsustainable and a correction will follow, right?

So we come back to the discussion of what you can do to prepare. To begin, you need to be motivated to change your outlook a bit and be willing to see the possible correction, or you will not implement the structural changes we discuss below. Areas we can review:

1. Your repeat business percentages year to year — to see what your new business has to conquer per quarter…ideally you will have a 40–60% repeat business so you know you have a solid base upon which your business is built. That repeat business is meant to cover your long term hard-costs, such as Fixed Assets, Leases, or other Capital Expenses you will need to cover over time. Without a solid repeat business %, you are making long-term commitments without offsetting long-term income.
2. Your service offering mix and the profits per each category…you would be surprised how many teams have devoted resources to areas marginally profitable and in a period of decreased revenues per offer, losses can mount quickly.
3. The overall profitability of your operation, once you start analyzing different revenue sources, you will see which ones are supporting other ones, and drawing down your results. There may be good reasons to have less profitable areas, but being aware of the choices you are making is important during adverse environments. In a period of economic vagueness, jettisoning low margin areas may be the difference between getting through the downturn and not.
4. Your project management and pricing. These are often tied together in most growing creative firms — and that is not ideal. New business wants to close business, creatives want to do great work, and producers want to do the work well, on time, and on budget. But if your budgets are ill-defined, how is a profitable positive outcome going to be realized? New business folks should work with producers who understand the project scope, work together on pricing models to execute the program and have an accounting function that can measure against the plan in real-time or as close to it as reasonably possible. You need to align your business objectives and measure success in a rational way, all pointing toward the benefit to your firm. Having cross-purposed incentives can be an easily fixed issue here, and should be a review item as well.
5. Your cash management and making sure you are optimizing your most liquid asset. This involves looking at your financial reports over time and analyzing these by comparing them to normalized standard ratios… I have never seen this consistently done properly. In a contraction, cash rules.

Each of these mission-critical explorations can lead to areas where deep realignment is possible, and you can now plan how to manage each as an ongoing effort to survive the next downturn. Worst case, nothing happens and the expansion continues, but you will have an even more functional and solid business that can offer all the benefits you require for your team and clients.

*https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States