| | By Mick James
It doesn’t seem long
since we were talking
about exit strategies and
how to grow the equity in
a consulting firm. Now
that the downturn is upon
us, does that mean that
consultants should adopt
a completely different
strategy to survive a
recession?
Paul Collins, founder
of Equiteq, which
provides M&A services to
consulting firms and
potential buyers, doesn’t
think so. His firm has
just produced a booklet,
100 tips for
consulting firms to
survive and grow in a
recession, which looks
at how the principles
that underpin equity
growth can be used to
meet the challenges of a
recession.
Collins’ model of the
“eight levers of equity
growth” is based on his
own experiences growing a
consulting firm in the
early years of the
century, and contains 80
key performance
indicators which underpin
equity growth. This has
now developed into a
web-service which helps
firms prioritise their
activities.
“Having built all that
and finding now what
looks like a recession, | |
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| | the question is how to
view those KPIs,” he
says. “We went through
them and for each one we
asked what would be the
practical tip or tips
that would help a firm
get through a
recessionary time.”
While many consultants
have never planned to
sell their businesses,
Collins believes it’s
worth focusing on equity
value, because it’s a
direct reflection of the
certainty that a buyer
would have of revenues
and profits being
sustained or growing.
“If you do all the
things that enable you to
grow the equity you will
build profits and help
your cashflow,” he says.
Collins’ primary
advice to firms going
into 2009 is focus. “You
need to focus on existing
clients, focus on
business development and
those projects where you
have a ‘right to win’,”
he says. “Look at
existing and past clients
and give them no-brainer
propositions – tell them
we’ll help you survive
the recession and also
help share some of the
risk.”
This will often entail
offering some form of
contingent fees. “In my | |
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| | advise our firms to
increase spending on
marketing. Marketing is
an investment and you
should get a return on it
even in a recession. It’s
much easier now to
measure your return on
marketing, so there’s no
excuse.”
In fact, Collins
advises firms to measure
everything: gross and net
margin, utilisation by
sector – every week.
“You need to know
which sectors are going
to give you trouble,” he
says. “Measure everything
and make that information
available to the
leadership team. Part of
that may involve getting
someone senior in with a
finance skill, even if
it’s on a part-time
basis.”
Redundancies may seem
inevitable, but firms
should not be too quick
to forget the lessons of
the war for talent.
“It’s a knee-jerk
reaction to let people go
– it cost consulting
firms a fortune last time
round,” says Collins.
“Also, once you start
people thinking ‘Am I
next?’ they start leaving
of their own accord.”
One way of avoiding
this is to look at making | |
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| | as many direct costs as
possible variable. This
can start at the top by
making more of senior
partners’ remuneration
performance-related.
Firms could also consider
trading equity for salary
while times are tough.
Most consultancy firms
will also have
considerable scope to
tighten up internal
processes, and this can
be a useful way of
keeping staff busy rather
than leaving them “on the
bench”. Keeping people
upbeat – and informed –
is vital.
“You need to lead from
the front but also to
share the load,” says
Collins. “The last thing
you want is to overstress
yourself and end up
getting heart attacks and
ulcers.”
Collins believes that
if firms continue to
focus on the areas that
built value in the good
times, they can survive
the bad times, and for
those firms that have
done this so far, the
prospects seem good.
He says: “85% of our
clients report that they
are doing OK. They say
things like ‘Yes, we’re
worried, but at the
moment we’re having a
record year’.” | |
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