Hope for the best, plan for the worst

A little early to be reaching for the gun maybe, but . . .

Bear Sterns was sold yesterday for $230 million. Edelman has fees of $470 million so is worth around $6-700 million at the moment. Odd times indeed. We are planning for our next financial year now (July 08 to June 09) and so I have been thinking about these things. I bear the scars of the 87/88 downturn, the Asia crisis of 98 (when I was made redundant) and the dotcom and financial bubble burst of 2001 so perhaps I am a little glass half empty, but here are some of the things I am taking into consideration for some of our markets (definitely the UK) in our process:

  • Get your business in shape now. PR people are always optimistic that this win or this new project will bring in the revenue that will hide the costs they are carrying and deliver the right profit. Maybe in good times, but easy wins will be harder to find. If you are not making the right profit now, take the hard decisions now because they will be harder the longer you leave them.
  • Don’t assume that the existing revenue you have committed will be there. Discount it by sector (high if its financial services or pharma) and by the quality of your relationship/offer.
  • Scrub the cost base. Don’t accept last year’s costs and then add a percentage. Look at everything and haggle with suppliers and renegotiate.
  • Incentivise your financial team to find cost savings. They will love it and they will find them.
  • Have a biscuit policy. Find something symbolic to cut that is high profile but not really that important to the business and cut it to drive home the message that we are entering different times that require a different attitude (from everyone). At one firm in my past I became unbelievably unpopular for banning biscuits at internal meetings (pathetic I know but you get the point).
  • Big clients that have low margin may be an OK thing because they cover a lot of your fixed costs. Small clients that have low margin are not. Shoot them dead. And then shoot them again to make sure.
  • Credit-rate all your clients and re-set terms with them now that mean, as far as possible, that cash arrives as the hours are spent working on them.
  • Check your debtors levels. Set the dogs loose now on those behind and incentivise your financial teams to reduce your average debtor days.
  • You can’t hire your way out of a downturn so don’t plan revenues around new mystery superstar joiners.
  • Identify the people that really bring in revenue and hold onto clients. They may well be the quiet ones you don’t always notice as the stars.
  • Your biggest asset is your existing client base. Check now the relationship and get it sorted because our clients will be asked to look for savings and you need to be part of the discussion on that rather than get a nasty surprise from a client who feels safe to cut you because they don’t know or rate you.
  • Identify those sectors that will grow . . . . we are placing our bets now on these and investing pretty heavily despite fears for some European markets.
  • Hone the case for PR. If you are in consumer PR now is the time to dust off the case for why advertising just does not cut it and why what we do is so much more cost-effective (through us, the client can do better for less). Remember, the ad boys still account for most of the budget and a 10 per cent shift from them to us will have a big impact.
  • Refresh and re-define the practice areas that will help clients in their downturns; employee engagement, crisis management, CEO communications for example.
  • If you are at a mid manager level in your firm, check that you and your team make as near as you can to three times (at least 2.5 times) your total employee costs in fees. If you are not then develop a plan to get there.
  • For anyone in the business who has assumed that pay rises turn up every year and are always ahead of inflation . . . . those days (in the UK at least) could well be over. But if you can be become a person who brings in fees and manages to a profitable level this could be the time your career really takes off. There are a lot of mediocre companies and a lot of mediocre talent in our industry now and a short, sharp recession will sort the quality from the rubbish.

So much for planning for the worst. As far as hoping for the best is concerned, Peter Chadlington of Huntsworth made some good points a couple of months ago in the FT as did my boss yesterday on his blog. We are a much better run industry these days and our time is now in terms of what clients need and what stakeholders and consumers are demanding. I would hate to work for an advertising agency at the moment though and I am thankful that Edelman is a private company not owned by an ad agency or beholden to short-term City or Wall Street (so-called) thinking. Buckle up.

[tags] Peter Chadlington, Huntsworth, PR [/tags]

David Brain

12 Comments

  1. This is really on the money, even Paulson has come out and admitted the US economy is ‘in decline’. It like the brush fire that burns away a lot of plants and trees but actually facilitates news ones to spring up in their place. Bring it on.

  2. I agree; for Anglo-Saxon and ‘old Europe’ firms there really needs to be head-count reduction ASAP to achieve savings in H2, because fee levels are going to retrench quite quickly (and faster than redundancy costs work through the system, especially in Europe, where labour costs prove sticky because of reducndancy rules).

    For clients, PR remains easier to cut, because even at three months’ notice, that’s way shorter compared to a lot of critical supplier contracts.

    Even in the BRIC markets, most of us are scaling down growth expectations and, in some markets, even predicting flat 2008 outturns; but a double digit cut in total market fees in the USA and UK, for marcoms PR, still seems likely to me.

    And you can always rehire staff etc – and buy more biscuits – if you’ve cut to much; but cutting again and again is messy. Me also went through the last UK agency recession and when we cut we just didn’t do it deep enough, which was a mistake.

    Gordon Brown didn’t un-invent to economic cycle and the next two-three years are going to be tough, globally, if not equally, everywhere.

  3. The daft thing is this is all good business advice and we should be doing these things in the good times as well as the bad. If you haven’t already read it, it’s worth have a browse through ‘Good to Great’ by Jim Collins. Yeah, I know there are loads of business books out there but I really rate this one. It echos some of the points you make and tells a few pragmatic lessons that should help steer a half decent agency through these interesting times.

  4. Paul,

    that is a book I have been meaning to read for while now. Thanks and given your comments, maybe it’s time I did.

  5. I remember you banning the biscuits…and the post-it stickers…it certainly made the point!

  6. David

    thanks for this – it is a brilliant combination of the really insightful and the utterly obvious – both of which are very easy to loose sight of when the the pressure is on – as I expect it will be for all of us in the months to come. This was a really useful post which i shared with lots of colleagues here in the US, all of whom shared my appreciation for the thinking, experience and perspective you provided. Thanks.

    Chris

  7. Have a biscuit policy. Find something symbolic to cut that is high profile but not really that important to the business and cut it…

    This comment really hit home and was something that I told my peers about as I believed it was a great way to get people to think about the economic climate. That was until I just read on the BBC that biscuits are in fact the ‘key’ to clinching business deals.
    According to the survey, the chocolate digestive was deemed to make the best impression followed by shortbread and Hob Nobs. Maybe we should cut out on other things instead like fancy napkins or flavoured water?

  8. Jonny,

    let me guess, this news was brought to you by McVities or even the murky National Biscuit Council! you can’t kid a kidder.

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