Fear… and Consulting during a Downturn

Lets face it, when times are good in consulting, when recruiters are constantly complaining that “there just are not enough people”, it is easy to feel secure in your job so long as you are not gratuitously unqualified.

When things are going the other way, however – when business declines – my god how things turn.  Every day, I hear from people who are afraid… very afraid, of what might happen when they hit “the bench”.

I understand this fear.  For the record, I have it as much as anyone.  When times are hard, and you know that even good companies are not going to keep you on a bench much beyond a couple months, it is easy to start to assume the worst – and plan your life as though the worst will happen.  You assume your client will kill your gig for “budget cuts”, you will hit the bench, nothing will happen in two months, you will be laid off, you will burn through your savings, your wife will leave you, your kids will hate you, you will live in a park nearby your house, and your wife and kids will be walking your dog with “the new daddy” – who got the gig you didn’t – and your old dog will pee on you while you are waking up after sleeping that night in that park where your old family decided to take a walk.  And that is all before you contract Swine Flu and die a horrible death, alone.  You laugh – but this is not that unusual of a thought process that someone hitting the bench might have in their head during bad times.

Whatever you do, you have to get past this.  Things were not as good as you thought during the good times, and things are not as bad as you probably think now.

I am not saying bad things can’t happen.  Indeed – they can.  But chances are – just like it is unlikely that you will get a coin flip right more than a few times in a row, chances are, all the bad things will not happen in a row.  My guess is that most consultants wont end up with their former dogs peeing on them.  And if that does occur, at least misery has company.

My theory – and I have at least some reason to believe it is true, is that many tech consultants, when presented with layoff, will get creative.  Some will go independent – taking shorter term gigs until a longer term opportunity comes along (and who knows, perhaps finding they like the indy life and staying there).  Some will form startups (note, if I find myself unemployed, I am going full bore developing Twixcel!)  Others might even change careers.  And that is for the – in the worst case – 20% or so in this business that end up getting laid off.

I could be wrong.  Maybe Armageddon is here.  But even if it is, if things are that bad, I might as well live with it, since there is nothing I can do about it.

So… what can you do about it?  Well – how to survive is another post.  But in the short term, dealing with the fear is the most important thing.  In the short term, my best advice is to focus on your client now.  The client you have now, even if they are not perfect in every aspect, is golden – do everything in your power to get extended.

Now, assuming that does not happen, what to do next?  Stay positive.  Show up to the consulting company office every day (if you can) – and volunteer to work on anything and everything you can – especially anything related to helping in the sales cycle.  But don’t overdo it by trying to work 60+ hours per week.  Keep your sanity – work out – and pay attention to your family and hobbies.  You need your support system intact if anything bad does happen.

Lastly – do not let fear paralyze you or demoralize you.  If, for no other reason – you gain an advantage in the market, either within your consulting company – or external to it, by being that “positive, high energy person”.  Remember, you can adjust your sail, but not the wind.

This is, of course, very easy to say, harder to do!  Those who know me know that I often do more than my own share of “worst case scenario assumption” when I do planning.  Half the reason I wrote this post is to remind me what I need to do to deal with this :)

Fear… and Consulting during a Downturn

How Technology Consulting Firms Die

I recently got an email from 4 former colleagues, all on the same day, that a firm I used to work for a long time ago had missed payroll. It was a very saddening thing, for sure – one of those things that make you ache for people that are stuck in companies that are falling apart. Because of the nature when bad consulting firms die (bad economies) rather than limp sickly along (good economies) – the death of a firm almost always happens at the worst time for the true believers who stuck through to the end.

How does this happen though? What is it that makes a firm die.

At one level, technology consulting is not that complex of a business. You have people, you bill them out on projects, and the difference between what they bill and what they cost is your profit. How can you possibly screw that up?

A healthy firm retains earnings during the good times, so it can carry at least some of it’s people through the lean times – at least to a point. There are firms that don’t do this, firing savagely exactly to demand (aka “zero bench”), but most of them quickly devolve into body shops since people generally figure out when they are being sold a consulting company when they really are working in a contracting company. If we are talking about consulting, then we have to assume one of the functions of the consulting firm is to smooth out demand so that consultants can be buffeted against the raw ups and downs of the markets. A firm that fails to put up these buffers does not die in the sense I am talking about, but rather, it simply morphs into a staffing company.

When a consulting firm dies, on the other hand, it is usually when whomever runs it decides to suspend reality and operate as though things are fine for far too long. Consulting firms who experience sales lulls will have to lay off consulting staff at some point. If demand goes down 20% over the course of a year, and it stays there, there will need to be adjustments to staff to meet the new lower level of demand. Cutting too slowly typically will cause utilization of the entire consultant base to slip below the minimum level to create any profit at all. Such a firm starts to take on debt to keep people, since there is no other source of money to make payroll.

What happens then? Well, taking on debt means that, all things being equal, getting to “even” will be harder. Since getting even is more difficult, riskier and risker projects have to be undertaken, or the cuts that do occur have to be of the much more savage variety. The action that gets taken, at this point – tends to be much more difficult, harmful to morale, and ultimately, hurts the chance of recovery in the first place.

By this time, if fear has not set in yet, it probably is now. Everything is high stakes. Every deal *has* to get done. Even if it means compromising the estimate, lying to the customer, or otherwise taking more risks. Round and round we go in the death spiral, until there is nothing left other than those few consultants who managed to survive despite the company – being sticky at their client – rather than because of the company.

Sadly, by this time, the number of billing consultants bringing in revenue is small, but the management overhead has not shrunk nearly enough, and even if you operate a zero bench, and paid off the debt, AND cut salaries significantly, it still can’t make money. Making payroll becomes an act of further and further desperation, until such time as things like receivables loans are being taken out. It is not long before bankruptcy ensues, and the only asset left are the aforementioned consultants who are on long term staff augmentation assignments. If that. Sometimes, nothing is left whatsoever.

How can a firm avoid this? It helps to make sure – no – make certain – that overhead is being managed aggressively. And by overhead, we mean managers who don’t bill, directors who don’t bill, IT departments that make internal tools, and so forth. You may need some of these things, but especially during a recession, you need to look at each of these positions, especially the high level ones that tend to try to build empires of other non-billables. Personally, the humane thing to do, in my opinion, is to try to use the network you generate in the firm to find external jobs for those folks, rather than just fire em. That way, instead of having a pissed off former executive, you have a guy grateful that you made a smart business decision and found them something else to do – and possibly a new *buyer*. While I am not a big fan of consulting firms acting as job placement firms, doing so for high level non-billable staff is a big exception, as far as I am concerned.

The next thing to avoid this is to be brutal about honestly. If the pipeline really looks terrible, you have to be honest with people, and you have to be honest with yourself. It might mean you have to let people go. Doing so carefully, and based on merit – i.e. actual skill relative to salary – to the degree you can backfill projects – is critical. If you are not transparent about why certain people stay or go, it will be assumed it is based on spurious political factors. If you are going to do it on trailing 12 month utilization, at least be honest about it, so people understand the reasons.

The third thing to avoid is to make sure you continue to invest in the people you intend to keep. This is not the time to stop investing in training, networking events, or god forbid, allowing your sales people to invest in developing the business. Bad times are when you need to distinguish your capabilities and be very smart about your investments, not simply stop.

Lastly, it is critical to think with your head, not with your heart, when confronted with bad times. I see more firms get in trouble because the decision makers make those decisions out of fear, rather than evidence and data. Fear spreads, causing people to react too harshly, cut too savagely, estimate too aggressively, over-promise, and under-deliver. Check your fear at the door – don’t make business decisions from the same place you run from tigers.

Recessions are awful times. However, they do have a useful function, in that they rightfully kill off firms that ride the tide up during good times – but have no foundation to survive bad times. The upside is that better firms can take up the old project portfolios, usually doing a lot of fixing of problems that the old firm caused. Thankfully, when better times return, those survivor firms are the first in a position to pick up the consultant/victims of the previous firm.

How Technology Consulting Firms Die