Economic downturns happen. Some are worse than others. Is your practice prepared for the next one? Many experts predict the next downturn to be unprecedented.
Built environment design practices can be quite unique regarding their place in a down economy. Even small projects are big expense items that pan-out over many months, even years.
Unless they are for a critical need, building projects can be viewed by clients during a downturn as a luxury. As a result, they tend to be the first thing to be put on hold at the start of a downturn, and often the last to pick up when the economy improves.
A practice can be at a disadvantage in a downturn if it relies solely on providing a traditional design service. To hedge against this, the practitioner should consider developing income-producing alternatives, alongside their traditional design service. This, of course, takes time and needs to be started before any downturn starts.
Income-producing alternatives can take many forms; it’s up to the imagination of the practitioner. Here are some examples:
- Developing products or services in another field that the practitioner knows well (these may or may not relate to the practitioner’s primary service),
- Offering alternative forms of consultancy, such as building maintenance, or building specialty advice (such as educational buildings), or how clients can do low-cost but big-impact improvements to their existing facilities.
- Merging with another business or doing joint ventures with other businesses (more staff can create a rich diversity of ideas and skillsets),
- Investing in income generating assets such as another business in an essential services field, property, commodities, equities, or intellectual property.
Whatever alternatives may be employed, business marketing cannot stop. Continued marketing will generate leads that act as a lifeline during a downturn, then catapult the business into increased market share when things pick up.
Excessive debt can cause big problems when income drops, especially if the debt is of a non-income-producing kind, such as a personal loan or a mortgage. Business debt used in an actionable plan to create immediate income is the best, and the costs of that debt can also reduce tax burden. A good accountant is an ally in this regard.
Cost-cutting is something that needs to be acted on but not so much as to starve the business of funds. Systemization is a great way to cut costs while building an efficient infrastructure around the business. A thing that can help systemization is the business occupying one or several niche markets then developing a systemized product or service for an individual niche.
The opposite of occupying a niche market is having a broad-based market approach, trying to win over random clients that come along. While this can seem like an attractive approach in a downturn, virtually no experienced business and marketing professional will agree that it is a good strategy.
Providing value is another thing associated with good business. Value does not have to cost anything. A smile is value, encouragement is value, putting in a little more time is value, going the ‘extra mile’ is value. Anyone can provide some form of value at anytime, anywhere.
To illustrate the value of providing value, the example of Joe, the sandwich shop owner, is a great story.
Joe, a simple man, ran a small sandwich shop in the city. He loved his business and served his customers like family. He would pile on the ingredients and often supply small side dishes and drinks free of charge. Joe, being in the food business, was able to obtain many of these extras at low cost. His joy in serving was given for free.
This was just how Joe wanted it. His customers responded with regular patronage and his business thrived and was very profitable. Everyone was happy.
One day one Micky, one of Joe’s friends stopped by and noticed all the free extras Joe gave away. Micky was not educated in business and was a little alarmed by Joe’s generosity. He said to Joe, “You should not give things away. Don’t you know there is a recession going on? You need to cut costs and save as much as you can.”
Joe thought Micky had a point and stopped the extras immediately. Customers became dissatisfied, patronage dropped, and Joe’s business struggled. Joe phoned Micky and said, “Thank you Micky for the warning. You were right. The recession is here, and I didn’t even know”. Are we doing anything to create our own recession?
There are many things that a practitioner can do to be successful during a downturn. We will finish here though, on the subject of education.
An economic downturn can be hardest for the business owner who is unprepared for it. Knowing the fundamentals about being prepared come with education. How can anyone know how to avoid something that is going to hit them if they don’t even know what it is or even if it is there. Better education leads to better choices.
Self-education about business, marketing, finance, the economy, and self-improvement should be continuous and regular (preferably daily). To do this, time must be spent, which should be factored into the cost of doing business.
Business will always happen; society cannot live without it and there are more than enough things of value in the world for everyone. Anyone too, can offer, at any time, unlimited value, creativity, and ideas that cost nothing.
Economics is not a physical science; it is a social science, coming from people. It began before berries were traded for fish. Being a social science, it is shaped by people, and the smarter and more creative people are about the economy, the better off everyone will be.
By Greg Blain Architect
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