If you followed this series of posts (Part I and Part II), you’ve read my opinions on creating better client attachment through a consistent client sales plan and creating a more cost efficient organization. In this post, I want to address how to create new revenue sources from your existing intellectual capital and product mix.
Every day that I am selling to our clients, I see them do the same thing: they take their scarce investment dollars and place them in the projects that create the most immediate impact on their revenue stream or cost reduction strategy. Not the largest impact, not the most systemic impact, but the fastest, most immediate impact. The philosophy seems to be “I need it now because I may not be here next month”. As confirmation, recent discussions with Microsoft sales team members told of large projects getting iced, medium sized placed “under consideration” and smaller are getting done, but it takes more effort. While fishing with some friends earlier late last week, a senior sales rep specializing on monster ERP deals said that he’s back to cold calling and talking to customers “that I wouldn’t have picked up the phone for” this time last year.
What do you need to do to meet this kind of customer demand? Take a look at your core business and client base for new ways to deliver your services or new complementary products that add value quickly to the customer. Some guidelines:
- No New “Bet The Farm” Products Offerings: This isn’t the time to bet the farm on something completely new that has no complementary value to your core business. So, if you are a network security shop, don’t start selling CRM. If you are a CRM shop, don’t suddenly start doing web site and content creation. I know the temptation will be to jump to a new market (“Hey, everyone’s doing MOSS well, we should do that”) but the folks that will survive that new market are the ones already there and already doing the work.
- Make Your Services Bite Sized: If you can’t sell a complete network re-architecture engagement because the client is nervous about committing the funds, how about just focusing on moving them to Exchange 2007 to take advantage of its more robust mobile access functionality and higher performance from its native 64bit design?
- Package Your Services: Rather than creating a scenario where you have to discuss their needs, develop a custom quote, negotiate rate, etc instead use your experience in your customer base and the knowledge you glean from talking (often) with your customers and come up with packaged sets of services that are modestly priced, pre-quoted, and with ready to sign contracts for when they say yes. At my current company, we defined an entry level BI solution (that includes significant internally developed IP coming from our years of experience in CRM and ERP) that we sell as a fixed price project to customers needing better information on their selling and financial activities. Its priced for less than $10K, is delivered in 3 – 5 days, and has a clear, immediate value prop.
- Expand into Complementary Services: This is the time to find better and different ways to serve your customers AND leverage existing organizational knowledge. But, you have to do this incrementally, not by attacking a whole new product segment. So, if you are a .Net dev shop, take a look at MOSS as a workflow automation platform so you can provide such functionality in your existing apps. If you are a CRM or ERP shop, find ways (like BI) to unlock years of accumulated data so your clients can better understand their businesses. If you are a network integration shop, add better remote access systems and lower cost security appliances so hard working and time constrained remote staff can more easily get at corporate data.
You will know much better than I what will work best for your consultancy and your customers. Just make certain that its an incremental move with high-value to your customers and takes maximum advantage of your own intellectual capital.
So, because you recognize my astonishing genius, you’ve taken my advice and developed an effective client management program that increased your revenue pull from existing clients and lowered your cost of sales. However, its still not enough to meet your profitability targets. So what do you do next? As I mentioned in my introductory post to this series, consulting is very simple: if you manage your opex, its either about top line revenue or personnel costs. In this post, we are going to look at the cost issue.
Why look at cutting personnel costs before finding new revenue sources? After all, firing people exposes you to legal risk, emotional angst and long term reputation risk (I’ll discuss these in detail in another post). Three reasons exist for looking at this first:
- Its faster: You can reduce personnel faster than convincing clients to buy new services from you.
- Cost has to be productive: If you are not getting revenue production out of your investment in staff, now is the time to make the hard decisions.
- Earn your salary: You should have a system that measures and evaluates performance as part of running a PSO. If you haven’t shame on you. Get it done now.
So, how do you do this:
- Establish your targets and your plan
- Go after management first
- Communicate clearly and often
Before you do anything, understand (based on your revenue forecast) what your personnel cost has to be to hit your target margins. Assume you have a $1M revenue forecast with target gross margin of 45%. That means, you need personnel costs (don’t forget to load it with taxes, insurance, 401K, non-billable travel, salaries, etc – all the direct costs of having someone working for you) of no more than $550K ($1M *(1-.45)). If current costs are $700K, you need to cut $150,000 in costs. If the average cost of an employee (fully loaded with direct costs) is $125K, you’ll need to layoff at least one, perhaps two people.
However, before you consider layoffs, think about some other ideas. Is your team sufficiently tight knit that everyone would consider reducing the variable comp to save the $125K rather than seeing someone leave? Could you get savings from canceling non-bill travel activities? Can you reduce salaries but still keep everyone together? This subject was pretty well covered in a New York Times article so I won’t cover the same ground.
Once letting someone go is the option, what to do next?
Go After Management First
I’m in management, so don’t take this as a call for proletariat revolt. My rational is pretty straightforward:
- Management runs the company and gets a premium for doing so. If they weren’t able to position the company correctly, they should be penalized by losing their jobs first.
- Management jobs cost you more. You can get bigger economic gains from getting rid of fewer managers.
- Consulting staff has the knowledge of your products and customers. They will lead you out of the downturn because they’ll be there to do the work as clients need it done. They can survive without a manager; you can’t survive without them.
Any reduction in staff is painful, so how to you keep everyone positive?
Act Fast/Communicate Clearly, Early and Often
Once a decision is made to layoff staff (regardless of level), make the decision, then execute. Don’t wait days or weeks – do it quickly. The longer you wait, the more likely everyone will begin to find out. Don’t delay because someone is key to a sales cycle or project – if they really are key, you shouldn’t be letting them go. Just get it done. This subject (how to conduct a layoff) is covered in a bunch of different forums. One I liked recently can be found here.
Once you execute, give the remaining team lots of well targeted information as early, and as often, as possible including how you made the layoff decision and who got let go. Good communication is especially important in troubled economic times as, in the absence of clear information, people will make up their own stories (always negative) of what’s really going on.
With respect communicating to staff, I have two ways I like to see this covered:
- When times are clearly worsening, do a comprehensive meeting, email, etc that discusses:
- Current company financial state: Cover the good and bad. Be clear about your forecasts and the conditions on which they are based
- Discuss the alternatives you are considering
- Talk about what you’ve already done
- Talk about the timeline for the next set of changes
Update this periodically in a similarly comprehensive fashion by comparing what was predicted, what you promised you’d do and what you actually did.
Then, periodically, send updates on:
- Sales pipe
- Staff performance (UTE, Realization, Goal) at the individual, group and corporate level. Include sales team progress against quota.
- Progress against overall goals
Remember: you can’t over communicate. Use email, blogs, text or whatever technology works best for you to get the message out frequently. If you can, do company-wide meetings or phone calls as often as is feasible. Also, don’t forget that a couple of lunch meetings a month with staff, where you connect personally, goes a long way to helping the message you want take hold in the way you want it to.
In my next post, we’ll take a look at finding new revenue sources to vector revenue up rather than down in a bad economy.
This year, we’ve had 9 straight months of increasing unemployment claims topping out in November at 6.7%; a major crisis in the credit markets; the failure of a significant number of supposedly untouchable financial and quasi-governmental institutions; a significant challenge to the financial health of our northern European banking brethren; a looming crisis in our primary, remaining manufacturing sector (the auto industry); and the typical politically charged rhetoric from Washington. Fear, uncertainty and doubt are being sown in the market place and even ebullient (although I’d describe him as manic) personalities like Jim Cramer are making incredibly negative comments about the domestic and worldwide economic forecast. In short, everyone says things are going to suck.
In our space, I think its fair to say that new client acquisition is going to slow and, therefore, become more expensive on a per-capita basis. I’ve talked with friends in each of the regional sales teams for MS and all confirmed that deal flow is slowing, becoming harder to manage, and, in many cases, the customers are just not making a decision to buy. Therefore, the consultancy business models that depend on high margin MS software (think Dynamics) are, possibly, going to feel the biggest immediate impact as new, large deals become more scarce.
As consulting managers, what can we do? Consulting is a very, very simple business model. Revenue comes from a narrow array of sources and our only real expense (assuming we manage opex competently) is salaries. So, we either have to cut salaries to align expenses to revenue, increase revenue or do both. In this next series of three posts, I want to take a closer look at:
- Increasing revenue through better attachment to existing clients
- Cutting expenses through effective staff turnover
- Finding new sources of revenue from our existing clients