There’s a question in every newspaper and every news site. Will there be a recession?
If there is a recession, what will happen to your consulting?
The answer is, “Whether there is a recession or not, you need to improve your consulting performance now.”
If you don’t improve your consulting business and there is a recession, research shows that about 20% of businesses that took a business as normal approach declined in the recession and a large percentage failed.
If you don’t improve and we don’t have a recession, your consulting business just keeps plodding along at the same or slower pace.
If you do increase your consulting business performance, then research shows you will be one of the winners. If there is no recession you become a winner. If there is a recession you become a BIGGER WINNER.
That leaves only one logical choice. Improve your consulting business performance.
This blog outline how to prepare your consulting business for a recession and how to take advantage of improving your consulting performance, whether the recession hits or not.
What Made the Difference Between Winners and Losers in Past Recessions?
The following tips on preparing for a recession come from my own experience of consulting through three large recessions and from extensive research by large consultancies into the differences between winners and losers after recessions.
Research on 4,700 public companies that went through the 1980, 1990, and 2000 recessions found that 17% did very badly.
But there were 9% that not only survived the recession they did spectacularly well. That 9% outperformed their peers by at least 10% in sales and profit growth. These same findings were backed up by follow up studies done by Bain and McKinsey.
What were the differences between winners and losers?
What strategies and tactics can we use for our independent consulting?
Winners Focused on Growing Niche Areas, Controlling Spending, and Improving Operational Performance
The companies that survived the past three recessions and had high growth following the recession followed clear strategies,
- Identify and segment divisions and products by their profit contribution and by their future growth potential.
(As independent consultants we can identify and segment by our consulting services and growth potential in niches.)
- Reduce spending in low-profit segments and increase investment in high-growth segments.
(As independent consultants focus your investments of money, time, skills, and networking on areas of future growth.)
- Retain and build employees in the high-growth segments.
(As independent consultants we should invest in skills, education, certifications, and partnering with adjacent consultants.)
- Increase operational performance throughout the business, especially targeting areas of high profit and expected growth.
(As independent consultants that means not resting during a downturn, but rather focusing on niches with high potential while increasing our branding and outreach.)
Improving Your Operational Performance
Companies that won during and after recessions did not cut expenses across the board and indiscriminately lay-off people. They focused growth efforts on high profit, high potential areas.
The big winners also invested in improving their operational performance.
- Examine your clients and projects and identify which gave you the best return and which have the best future growth potential.
- Reduce or cut spending in areas that are not producing a high return.
- Invest in performance improvement and niche building in high growth areas where you can build a defensible niche.
- Build relationships with the best independents and boutique firms that give you adjacent and complimentary skills so you can join forces to compete with larger firms.
- Automate your marketing and brand building. Marketing research for 2021 and 2022 clearly shows marketing and outreach for professional services are heavily using social and web marketing.
- Leverage the Cornerstone to Capstone™ processes taught in our Consulting Mastery Series™ of courses.
Manage Money to Improve Performance
Too many businesspeople immediately think of cutting expenses when they hear the word “recession”. That tactic can kill your business.
You Can’t Win by Cutting Expenses Across the Board.
You should eliminate debt. High debts were a leading cause of downturn or failure during recessions.
Also, companies that cut operating expenses quickly and deeply had the lowest probability of recovering after the recession.
The winners after the recession were businesses that rapidly controlled expenses but spent wisely on improving operational performance. Researchers labelled this group, Pragmatic Companies.
These winners balanced defensive and offensive moves to conserve funds while improving operational performance and preparing for growth in well-defined niches.
- Pay off debt and credit cards.
- Immediately start managing your cash and debt. Here are seven tips from Michelle Singletary on managing finances during a recession.
- Do not wait until a recession is declared. (By definition, economists won’t declare a recession until there have been months of economic slowdown.)
- Monitor subscriptions and SaaS accounts. See which subscriptions you need full-time (save with an annual subscription) and which ones you need occasionally (subscribe monthly as needed).
Reviewing subscriptions saved my one-person business a couple of thousand dollars this last year.
- Keep a strong cash reserve. Even in good times consultants must have at least three to six months cash reserves to smooth the Feast-or-Famine cycle and to cover unbudgeted expenses. The shortest recessions last six to seven months. The longest have lasted two years.
- Invest in classes and certifications to build niche skills and expertise.
- Increase your niche and marketing skills. Take courses like the Consulting Mastery Series™ where I guide you in building a high-performance independent consulting business. Also take business and technical courses through MOOCs and industry certifications.
Always monitor the health and speed of your billables.
Large companies in trouble are more likely to slow payment of a small consultant than they would a large consulting firm.
I know two consultants who were stiffed by large companies during the DOT COM crash. In both cases, the consultants continued working, unpaid, for over a month in the hope they would be paid. After one of these businesses declared bankruptcy, the consultant was told to “Get in line” behind the others who were owed.
Some businesses make a business practice of stiffing small contractors because the contractors don’t have legions of lawyers to fight back. For example, Trump’s organizations have had more than 3,500 lawsuits for failure to pay small contractors in the past three decades. Businesses sued for unethical practices are likely to continue unless there is a significant leadership and culture change.
- Research client history before signing large, long-term contracts. Research librarians at universities and large cities have access to TONS of information. Check EBSCOhost and other info aggregators through the libraries.
- Get an advance on large contracts, especially when you are responsible for sub-contractors.
- Invoice on time and never let late payments slide. If a deposit is a few days late, call immediately. The first resort is to contact your client manager. My second step would be to discuss the impact of stopping work.
- Know when, how, and who is in control of your paycheck. I’ve only ever had to make one call to a client’s accounting department, but it did get an immediate response.
- Maintain ownership of your work product. Consult with an attorney on how to write your contract so that you maintain ownership of your Intellectual Property until you are fully paid.
- Theft of service is no different than theft of money or physical property.
Improve Your Client’s Operational Efficiency
Talk to existing clients and look for new clients where you can improve operational efficiency, not just cut costs.
Digital transformation has exploded due in part to the COVID epidemic. McKinsey & Co. has written extensively on areas that beg for digital transformation. Remember, you can work for smaller businesses that can’t afford a big consulting firm. These links describe areas of digital transformation and some of the difficulties,
Digital Transformation: Improving the Odds of Success, McKinsey & Co.
Build Your Personal Brand and Network
There are a few areas during recessions that made significant improvement for my independent consulting. When other consultants slowed their efforts and cut back on marketing and outreach, it worked well for me to build brand and client loyalty.
- Keep writing and speaking. When you have days with no billable hours, either do outreach, like we teach in the Consulting Mastery Seriestm or work on your blog, white paper, or book.
- Give free Lunch ‘n Learns or webinars to past clients or highly qualified prospects. These were big loyalty and visibility boosters for me.
I never had a prospect or client turn down a free lunch time seminar, webinar, or training. The business buys the pizza and you bring valuable content.
Contact your clients and ask which topics are most valuable for them. You don’t have to give them a full course banquet, but a “taster selection” with DIY guidance will help them and make them look forward to calling you back. This is also a great time to build personal connections and learn what a business really needs help with.
More than once, free Lunch 'n Learn seminars or noon workshops created new clients for me within AT&T, Pacific Gas & Electric, and other large regional businesses in the western US. Attendees in the free Lunch ‘n Learn seminars remembered me because they came away with solid action items, ideas for change, and a free workbook that contained an action plan they built during the workshop. (Of course, the workbook included my contact info). Guess who they called when their department’s budget increased?
Do hybrid meetings that combine onsite teams with WFH members using Zoom or Miro. This REALLY builds a feeling of reciprocity with prospects and clients. You will be remembered!
Make your webinars sticky! Everyone downloads PDF workbooks for webinars. But wouldn’t you be more memorable if you mailed a spiral-bound workbook to each participant so they had it for the webinar? No one throws away a notebook that has their own ideas and Action Plan in it. Of course, you should include your personal contact and Calendly link.
Provide Alternate Consulting Solutions
One of the great super-powers a good consultant has is a quiver full of alternative solutions. Apply that super-power to your own consulting business. Think of alternatives for delivering your consulting services.
Here are some alternative solutions I’ve used when asked to reduce prices,
Never Reduce Prices, Create Solution Tiers
Reduce prices as an absolute last resort. Instead, present tiers of solutions at decreasing price levels. Each tier can have its own additional add-ons such as number of hours on site, training, coaching, and support.
You can break a large project into chunks, with pieces priced separately. Go into triage mode where you and the client do an in-depth strategy session and decide which pieces of the project are essential and which can be done in-house (with a training or audit package), and which can be done later.
Productize Your Consulting Services
In the Consulting Mastery Series™ of courses we spend an entire module on productizing your consulting. That module includes 1:1 coaching and checklists and resources for productizing your services.
Your consulting services do not have to be delivered at full price with you onsite. Think how you can deliver your solutions as products through different channels at different price levels. Here are some ideas,
Train the Trainer
Instead of you doing all the the delivery in a large organization, train their trainers and development teams to deliver your training and materials.
If you can do a polished PowerPoint presentation with a few handouts, then you can do an online micro course using Teachable or Thinkific as the delivery platform. You could even do live presentations with Zoom and use the Zoom recording for asynchronous/evergreen delivery in Teachable or Thinkific.
You don’t have to be Hollywood producer to create micro-courses, just make a PowerPoint, outline a script, then record and edit your video using Camtasia. Add short workbooks with fill-in-the-blank PDFs for student take aways.
COVID has accelerated the world’s move to virtual business and remote consulting. You do not need clients within driving distance.
The advantage of a specialized niche is that you can take that expertise and use the special skills we teach in the Consulting Mastery Series™ of courses to find and target the exact people who desperately need your skills. Instead of limiting yourself to a local region, you can consult from your home office to clients who are nine time zones away.
Build an Agile Team of Independents like the “Rolling Stones”
Remember, independent consultants, or teams of independents, are less expensive than large consulting firms. But you have to have the niche expertise to beat a larger firm.
Consultants Win Going Up and Win Going Down
There’s a saying I first heard in Las Vegas, “The house always wins.”
In casinos, the gambler may win, or the gambler may lose, but in the long run the casino (the house) always nets a profit.
In a recession, independent consultants that plan well are like the house. Client companies must change, reduce costs, improve operational performance, invest in new directions, and pivot to new strategies and niches. That is all work for consultants.
Companies that choose layoffs to reduce costs will hire consultants to replace employees. The cost of consultants is often less than total employee costs including benefits.
An important consideration in choosing clients is that clients who use a "cut-across-the-board" cost reduction strategy usually fail. If you work with them watch the exit and your receivables. I know one HR consultant who fired himself as his last official act in a business that used the "cut-across-the-board" strategy.
Where is Consulting in Demand During Recessions?
Accounting and Financial Advisors
Clients must manage major financial changes during a recession. So whether the bottomline is going up or down, there is always a need for financial, investment, and tax work and advice. Accounting and finance are in high demand during recessions.
Organizational Restructuring and Layoffs
Layoffs are brutal. They destroy morale, the company image, legacy knowledge, and the ability to restart and grow. During the Great Recession, 2009, 2.1 million employees were laid off in the US. This causes a slow return to normal.
Consultants can help clients develop alternatives to layoffs so clients can build back faster. Some alternatives are inter-department transfers, shorter hours, shorter work weeks, performance pay, and more. Retaining employees retains legacy knowledge, builds morale, and enables a company to quickly rebound.
Digital Transformation and Operational Improvements
Consultants who advise on digital transformation and operational improvement can look at a massive amount of research from Harvard Business School and McKinsey & Co. reports to show that digital transformation is difficult, but it is critical to survive and thrive.
Recessions Do Not Hit All Industries and Niches the Same
When you pick industries and niches to focus on, consider the direction of the industry’s growth and their needs. Remember you can do consulting for a client who is going up or going down, but the one going up can become a long-term client.
Industries that grow during a recession are inelastic, always in demand. For example,
- Accounting and financial advisors
- Auto repair and maintenance
- Basic transportation
- Consumer staples
- Freight operations
- Home repairs and maintenance
- Professional services
Industries that have trouble during a recession earn income from luxury and discretionary spending. For example,
- Home furnishings
- Leisure, hotels, and resorts
- Real estate
Your Big Take Away
There’s one lesson that comes out of all of this. As an independent consultant you must,
Stay Aware, Stay Agile, and Stay Adaptable
Correctly positioning your independent consulting firm and developing a high performance consulting business will make you a winner, whether or not there is a recession.
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