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Web Exclusive: The Technology Benchmark: Prosperity during recession.

January 5, 2009
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We may look back at this economic downturn and recognize it as the worst since the Great Depression. With any luck, it won’t be even more severe.



As individuals, we can only do so much. But there are steps we can take to ensure we are handling the business aspects that are within our reach in the best possible way. Having weathered three recessions in my career, I have noticed areas of vulnerability in many businesses that may be beneficial to review at this critical economic turning point. I offer the following tips and questions for discussion.

Marketing

Have you evaluated your marketing processes lately? Do you have a marketing department? Consider that the job of the marketing department is to maintain a certain dollar level of bids in your pipeline, thereby statistically guaranteeing a percentage of wins per year. Have you converted every employee into a marketing person? Teach them what to say, and let them know when and how to turn over leads to the marketing department. Everywhere your staff goes can be a marketing opportunity for new business.

Is your marketing literature and Web site up to date? Does your Web site portray a compelling and visual testimony to the technological prowess of your company? Have you researched your Web statistics? Have you modified your Web site to cater to areas of particular interest to browsers? Have you established areas for key accounts where they can review their project status online? (An increasingly popular interface for this capability is the “dashboard”; visit http://dashboard.virginiadot.org for an example.)

Have you offered articles, white papers or lectures to industry conferences and trade magazines for the upcoming year? These opportunities can be a valuable way to highlight your firm’s experience and capabilities. As an added benefit, many industry events and conferences will waive the registration fee for speakers.

Accounting

Is your accounting and bookkeeping system well managed and up to date? How old is your accounting software? Do you use an accounting system geared directly toward your business? Does your software provide reports that help you determine which project types are more profitable than others? Does it offer indicators that can help you assess employee effectiveness or productivity?

Are your aged receivables carefully monitored? Do you have procedures that help identify when an invoice is deemed late? If a stop-work order is issued, is it strategically timed? The stop-work order is not meant as a penalty; rather, it is supposed to provide the client with a stronger reason to pay you. If a stop-work is placed after an important task is completed, paying the bill won’t be on the client’s radar until the next crucial deliverable. When the client owes a large amount of past-due billings, decide internally when you will put the pressure on them to pay. Consider how the seasons, weather, staff availability, etc., might affect getting a task done. For instance, aerial photogrammetry can best be done before foliage growth makes it difficult or impossible to see the ground, so a stop-work issued in winter will compress the time available for aerial photogrammetry and increase the priority for payment.

Is your company appropriately capitalized? Can you meet payroll and benefits? Can you pay your operating expenses? Have you made internal changes to trim and manage your situation, or do you plan to limp along in the hope that you will still be in business “when things turn around”? What if the turnaround takes five years?

Mergers

Consider merging with or acquiring other companies during this period. What is your company worth? Have you clearly identified your assets? Remember that these include intellectual property (IP), records, drawings, trademarks, patents, tangible assets, etc. Client relationships are also an important part of a firm’s worth.

If you are considering buying another company, what is your strategy for a buyout? Will you target services that you don’t currently offer, or will you acquire your competition?

Technology

Update your technologies during these slower times to ensure that you are up and running when the turnaround does happen. Smart organizations update their hardware, software, staff training, company standards and policies, libraries, and staff resources during downturns. These goals are difficult to accomplish when numerous clients are waiting in line for deliverables.

Staffing

Many established companies consolidate during recessions; conversely, many small businesses are launched--often by qualified people who are laid off or threatened with a potential layoff by a larger corporation. Sometimes recessions back people into a corner, and they begin to investigate imaginative solutions. Be sure you are upfront with staff members, or you might find yourself competing against them for business in the future.

At the same time, review your human resources department. Are you using the appropriate procedures and documents? If you are considering layoffs, make sure your legal documents supporting a reduction in force (RIF) are rock solid to protect against labor-related lawsuits.

Business Units

Ensure that your business has firmly shored up its core business functions, services and products. If you analyze your business units, you may identify some units that are not pulling their own weight. While underperforming segments can be subsidized by re-investing profits from stronger divisions during a strong, growing economy, this practice may jeopardize the existence of the rest of your firm during a recession. Re-evaluate unprofitable enterprises and reduce them to skeleton-staff level, sell them off or eliminate them until the economy allows this type of re-investment.

Records

Keeping good records is imperative during a downturn. Clients that are experiencing financing and cash-flow problems might encourage you to bill to their projects instead of billing them directly so that the work will continue while they get a float on the payment schedule. You have no choice but to try to weather the inconvenience, keep on billing and allow for an aged-receivable business model. But as the client’s ability to pay increases, they will tend to question in detail what your billings were during these slower periods. Suddenly you are questioned on issues you would normally take for granted such as: Who authorized the work to progress and when? Were overages incurred? Who authorized them and why? Were all contract provisions met, and if not, who authorized the changes? All of these items can result in completed work going unpaid.

In good times, misunderstandings get swept under the rug. In tough times, savvy clients will go “by the book” and question invoicing. For instance, a survey might have been ordered with a specific scope of data to be collected. It may turn out that not enough data was originally collected, and so you authorized another task for field crews to collect the additional data. You may be questioned about this second excursion if it wasn’t specifically authorized or was authorized during a telephone conversation. All conversations should be logged with the date, time and a recap. An e-mail may be needed to confirm the conversation before directing the additional task orders.

A downturn is also a good time to review your records storage process. Do you have enough physical space for proper retention? Are the records well organized? Are they highly retrievable, safe and secured? These records become valuable assets in a buyout or merger.

Clients

Review your client base and decide whether you want (or can afford) each type of client. Government clients typically provide steady work but only at around 10-percent profit and require longer than the normal 30-day-net payment cycles, particularly if you are a consultant or subcontractor on the project. Can you withstand the delay in getting paid, even though the work is steady?

Private clients are typically large long-term developers offering projects such as 300-acre urban jobs or 1,000-acre residential or multiuse jobs. The profit tends to be higher on these projects, but the client has more flexibility to shop around for better pricing. Additionally, these clients have been hit the hardest by the recession.

Evaluate your existing clientele to determine which are key accounts. Are you treating them as such? What does a key account receive that a normal account does not? For those clients who are not key accounts, are they worth your time and effort?

What clients are out there but haven’t been worth going after until now? Many contractors specialized in $50 million to $100 million jobs when times were good. They may now be well served to take on $2 million to $5 million jobs to ensure that staff remains utilized.

Keep your relationships with your good clients strong. If they are indeed good clients, do everything possible to retain them. It is one thing to lose a bad client during a recession; it is inexcusable to lose a good one. Understand that your clients’ goodwill can be stretched thin during recessions because of friction that doesn’t exist in good times. Have you taken your key clients out to lunch recently and discussed their level of satisfaction? Have you had a review with your clients to discuss how they might be able to better utilize your services to improve their business? Go beyond the call of duty without jeopardizing upcoming task orders. Provide preliminaries that show more than you did in the past. Try to provide more value for the same fee, and offer more in your deliverables now to help ensure that your clients won’t look around for someone cheaper.

New Services

Conceive new services for existing clients. Many firms have clients that can weather a normal recession due to the size and scope of their projects−e.g., multiple-year or decade-long phased build-outs. Now might be a great time to look into whether LEED certification might enhance your clients’ projects. Sustainable design and value engineering are other possible items to investigate. If your client is a big-box retailer and you have done 20 sites for them, you can easily collect information on zoning, traffic counts, population densities, access to the site, access to labor, wealth of local community, etc. Then, using your GIS system, you can plug this info into a query and locate future potential sites for the clients (for a fee, of course). Some of your clients’ contracts may have been in effect for several years with only cursory review during busy times. Now is a good time to update those agreements with new services.

Many managers avoid discussing existing contracts because the developer may expect reductions in fees. But avoiding conversation can only lead to surprises and decisions made without your input. Consider how you can sell your capabilities, turnaround time, approval process for plans--any proficiencies that you believe your key accounts should be aware of.

There is no argument that we are in a serious downturn. Hindsight from past recessions clearly tells us that this is a precarious time for all businesses large and small. Many firms go out of business during recessions for two reasons: inadequate cash flow and lack of billable work. Use this time wisely to strengthen your company so that you can emerge with as many of your goals intact as possible.

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