Discover your free Construction Marketing Ideas Email Newsletter

Thursday, October 23, 2008

The other shoes are dropping -- tough choices ahead

Ed Hannan's report in the PSMJ Resources Blog states the disturbingly obvious fact that architects in the U.S. are reporting project delays and cancellations and a sharp decline in new orders.

"With all of the anxiety and uncertainty in the credit market, the conditions are likely to get worse before they get better," said AIA Chief Economist Kermit Baker. "Many architects are reporting that clients are delaying or canceling projects as a result of problems with project financing."

That last statement from Baker is worse than the numbers themselves would indicate. When clients delay or cancel projects, that leaves architecture firms who have allocated resources to a project in the unenviable position of having to find something for their architects and project teams to do. Then it's down to the lesser of two evils: either let them go or risk having them sit around the office with nothing to do. Letting employees go is painful, but necessary to maintain a good balance sheet. Keeping them to look like the "good guy" only sets you up for a bigger fall later if things don't turn around.
Now, if you are an architect, you have an immediate problem. And if you are further downstream in the industry, while you have a little time to consider your situation, you can see the train coming through the tunnel. What should you do?

Here, wisdom coupled with experience teaches us a few lessons, but not all the answers. Simply put, each economic bubble and decline in history doesn't exactly mirror the ones previous -- policy makers and individuals 'learn' from previous experiences, adapt, and then (in an ironic sort of way) make the same mistakes, only differently. Your head may be spinning when you read this. But as you do, ask yourself the question, how could the supply and demand of oil be so out of whack that it goes to $147 a barrel and drops to $67 in a year. Surely supply and demand couldn't explain it all. And how can, realistically, some bad mortgages largely in the southern U.S. plunge the world economy into a crisis? Does this really make sense? Your guess is as good as mine.

Nevertheless, most of us behave rationally, despite the circumstances, and so when we start cutting back and saving, and protecting ourselves, then, bam, we make things worse overall, but if we don't do what we need to do, we are the first to go as things start falling apart.

So, yes, if you are an architect and you have surplus employees, you are going to have to make the hard decision to say goodbye to everyone but the core people you need, I'm afraid. And if you are one of these surplus employees, you will need to make the choice about whether you can find some other career to make your life, or you wish to start up your own practice. (And if you are in the latter category, and that good at rainmaking, business development and marketing, hopefully your current bosses will see that, and keep you, and promote you!)

Contractors, tradespeople and others down the construction cycle have a little more time to prepare things in an orderly manner. If your employees have business development/marketing experience or wish to prove themselves in these areas, give them room, a little time, and let them go to it. (You'll want to keep these employees more than anyone else). But you need to do what you need to do. Being an ostrich won't help.

Next,you may be scratching your head -- if business is being deferred, if projects are being cancelled, exactly where do you do your business development and marketing? I reported in my last blog entry Tim Klabunde's recommendation that you focus on your current clients, which indeed is the wisest advice. (Unfortunately, if your current clients are also cutting back, well, you can see how that advice doesn't help you from cutting back yourself.)

Should you spend more money on leads services and head hunters, marketing consultants and advertising? Yes, if you know what you are doing; no if you are desperately clinging at straws.

For example, if you are a retail-focused contractor and have found certain forms of advertising work in a predictable manner, you can safely increase your budget within your parameters to increase our volumes. If you know through references, experience, and good insights that the marketing consultant or business development employee is talented and capable, then go ahead and hire the person (find the money, somehow). But if you don't have systems to measure, to review, and to know what is right, you may be throwing more good money after bad.

One thing you should not cut -- in fact you should increase -- is your resources allocated to professional or trade group membership. If you are a SMPS member, or belong to your local chapter of your specialized or generalist association, don't cancel your memberships to save money; spend more on programs, activities, and the like. And especially (and this is vital) don't cancel -- but increase -- your marketing resources and budgets for the association members of your client markets. These association memberships -- and relationships -- may save your business (and if you are about to lose your job, help you find another.)

How important is this solution? Last posting, I reported on my near death experience caused by an ill-fated expansion out of market scope. But I can also report about one of my business-saving moves. As things declined, I considered cancelling the company's membership in the Greater Ottawa Home Builders' Association (then known as the Ottawa Carleton Home Builders' Association).

The dues seemed high -- hundreds of dollars a hear -- and these were supplemented by monthly dinner meeting fees. "Surely this is not an essential expense," I thought, then corrected myself. "This is my market."

As the early 1990s recession intensified, out of the blue, someone from the association phoned me. "We are starting a newsletter and would like you to bid the job," he said. "Is there any competition," I asked. "No, you are the only qualified member in the category." The association, indeed, practiced its motto: "Be a member -- do business with a member."

We won the contract to publish The Impact!, pricing the work really low.

We still produce the Impact! six times a year, and with the initiative of Chase and good references from the GOHBA, received a contract to produce a similar publication for the Niagara Home Builders' Association, Structures. Both publications are of real value to the associations and certainly our own business viability. (And rationally, we can look to expand to produce similar publications and other materials for other associations -- this is not wild-goose-chase expansion; it is in areas where we are knowledgeable, competent, and experienced.)

To conclude:
  • Be ready for a rough road ahead -- and do what you need to do. Don't act rashly, but don't hold on to staff in the faint hope of better times.
  • Avoid careless and irresponsible marketing expenses. If you are spending money, know what you are doing. There are few magic bullets out there that you don't already know.
  • If you have talented business development or marketing people, keep them. If you know of good consultants, or have had recent success with advertising or leads services, spend more on them. Just be wary of any 'answer' that comes to you out of the blue, with a price tag.
  • Maintain and expand your association involvement, especially at the client level. This is one thing you should not cut, even if you think it a non-essential expense. You are wrong if you do.

1 comment:

Mark Buckshon said...

After writing the previous post, I heard the inspiring story of a successful local firm, Lee Valley Tools, that has a 'no layoff' policy and won't cut staff even if markets decline. (Of course, the owner Leonard Lee, also said he practiced caution during good times and built up enough retained earnings to weather the storm. And I recall an excavation contractor in the same situation during the early 90s recession -- they had sold a quarry at the height of the boom, so had cash to pay everyone through several lean years.
If you are fortunate enough to be in that position, the "cut when you need to cut" arguments in this blog don't apply -- but remember, you need to have a vision, plan, and clear rules and guidelines for performance and your business expectations.