The financial climate is looking gloomy – but how will it affect your studio? Can you turn troubled times to your advantage?
It’s hard to ignore newspaper headlines and TV reports fuelling the rising panic about the current ‘credit crunch’ facing the UK as part of the wider slowdown of the global economy.
With reports of falling house prices, rocketing interest rates, and sharp increases in petrol and food costs, financial forecasters agree we are facing an economic slowdown, while a few prophets of doom are already bandying around the dreaded ‘R’ word: recession.
As the crisis starts to take effect across UK businesses, few believe the design industry will remain unscathed, as clients look to tighten, slash and – worse – completely eliminate their budgets for design work.
After a decade or so of economic boom, only the veterans of the design industry will have experienced such dreaded lean times before, if indeed they come to pass. So how do you prepare for the worst, and what steps can you take to ensure your design studio survives to emerge stronger and fitter for the next upturn in business?
Industry veteran Amanda Tatham says there are key indicators and early warning signs of a downturn in the design industry. Tatham, who founded Tatham Design, www.tathamdesign.co.uk, 20 years ago, says one sign is more email from suppliers seeking business and a drop in their suppliers’ prices.
“Print suppliers that used to be very expensive are suddenly the same price as everyone else,” she observes. “I’m feeling this from printers at the moment, definitely.”
Falling budgets is another sure sign, says Stefan Zachary, founder and managing partner of Zachary Design, www.zachary.co.uk. “First, the average fee-spend for projects begins to drop, followed by the number of enquiries for new projects.”
In the digital sector, Jon Bains, who co-founded Lateral www.lateral.net in 1997, has felt a slump coming for some time. “If you head east or west [outside the UK], the average cost per job drops substantially, leading to increased outsourcing,” he says. “We’ve also got increased competition from other marketing communications sectors, who are all digital now.”
It’s one thing being able to spot a downturn coming, but quite another being able to weather the storm. For more than 30 years RitaSue Siegel has been advising design firms. Her company, RitaSue Siegel Resources www.ritasue.com, is a leading US advisory firm for design agencies and consumers of design services.
She has counselled clients through numerous market dips, including the dot-com crash and the post-9/11 slump. “Firms that succeed in a difficult economy offer strongly differentiated perspectives, capabilities, and proprietary knowledge that clients want to buy,” says Siegel.
“[Such firms] approach [a downturn] with a strategy of increasing their competitive advantages, developing a flexible workforce that responds to changing situations, maintaining a passion for doing important work and sticking to their guns on pricing.”
Know your worth
Siegel says that during a downturn it’s important for design firms to get pricing right. “Do not lower prices – value your work, or your clients won’t. Also, avoid clients that ask for a free creative concept phase during the selection process. Clearly and fairly describe the scope of work, and charge accordingly.”
Stefan Zachary agrees with Siegel. “Do not drop your fee levels, as it merely devalues your business and design in general,” he says. “It’s better to stand your ground, and state what you would like to do and what it will cost.”
Zachary adds that it’s important never to carry out speculative design work, “but be prepared to meet, discuss and send out intelligent proposals of suggested work stages and fees.”
Amanda Tatham believes the most important factor when it comes to costing should always be effectiveness. “In a downturn, clients tend to think of design as a cost and not an investment. They want you to reduce your costs, and I think this is a fair request, because they want to make sure it’s cost-effective.”
This is why, she says, designers must educate clients about the relationship between cost and effectiveness. “There’s no point in reducing the cost of something to the point that it’s not effective. The whole point [of design] is to be effective and to use the designers in a way that is going to bring the best value.”
As an example, she says: “A client asked to us to produce a brochure and newsletter, and I told them I could see no point in having both, and suggested they just had one very smart publication, which they went for.
“You might say I talked myself out of some work, but actually I talked myself into a long-term contract, which is good for me and good for them, because we produce this item to a much higher standard [than would otherwise be the case] whenever they need it.”
“Do more with less,” advises Jon Bains. “The main thing to do is focus on what is necessary to get the job done and disregard the ‘fluff’. Clients will focus on return on investment, so you’d better ensure you’ve agreed on those metrics up front, and that they are realistic, given potentially reduced spending.”
Many senior designers have learned lessons the hard way in previous slumps. From 1990 to 1992, Zachary was MD of retail design giant McColl Group International, overseeing 350 staff, before the company fell prey to the global recession of the early 1990s.
“We cut staff from 350 to 55, thus keeping our gross margin healthy, but we could not cut our fixed expenses, due to building leases. Our owner decided it made more financial sense to let us sink than to pour cash into our survival. I started my own design group at that time but promised myself I’d not rent space.”
Zachary runs his agency from a Buckinghamshire barn, converted partly with local authority grants. He added: “I sometimes meet with old McColl colleagues, many of whom run much bigger agencies than mine and should be doing well, but they are struggling because they have big offices in London that cost a fortune to run. The thing is, you don’t notice £1 million in rent when times are good, but in a downturn it can be the difference between surviving and going under.”
Jon Bains says that his agency survived the dot.com crash “by the skin of our teeth – as a business we had set a 30-person size limit, so in the last boom we chose not to expand, and this put us in a better position when the faeces hit the fan. We couldn’t actually afford to lay anyone off at the time, so we went for several months on reduced salaries while pitching our hearts out. Thankfully we won a few major bits of work, which meant we limped our way through it.”
Trim the fat
Cutting overheads is one way to reduce the financial pressure. Siegel says: “Instil thrifty behaviour and stay lean.” She recommends flying economy class, planning one-day trips to reduce hotel costs, and using the Web and teleconferencing to reduce trips.
Where overnight stays are unavoidable, “use cheaper hotels and rental cars, regardless of who is paying the bill,” she says, adding that agencies should always take advantage of client paid trips, even to see prospective clients.
Keeping a steady headcount is something RitaSue Siegel urges her clients to practise. “Adjust the firm as appropriate but try to keep headcount. Consider alternatives to lay-offs, such as voluntary days off without pay, especially in summer, salary reduction starting at the top, trickling down as necessary, and four-day weeks.”
Managing staffing levels is crucial for larger agencies, but less so for boutique agencies, who may have just two or three full-time staff. The question currently facing owners of such outfits is whether they are better off having no staff at all, drawing upon freelance talent instead.
During a downturn, this approach has many benefits, as Stefan Zachary attests – although he adopted a very structured way of working with freelancers. “I set up a formal network of consultants and got them to sign contracts with me,” he explains.
“This meant I could market their collective skills and experience without bearing the salary costs of inactive people. This also meant we did not need large offices.” He adds:
“The one thing we did not skimp on, however, was technology – we always have the best and most advanced hardware and software. This itself saves money, and allows the firm to occupy a leading market position.”
One encouraging feature of the current slump for Zachary and others such as Amanda Tatham, who has also opted for the freelance model (see the case study, page 24), is that as the larger agencies downsize, there is an increase in the number of middle-to-heavyweight designers available for hire across the disciplines.
Rise and shine
It is possible, then, to ride out a downturn – but what about turning the tough market conditions to your advantage, strengthening your position in the design sector?
After all, a studio that can thrive even in tough market conditions will positively flourish when the market picks up again. Tatham says that in the last recession, she made the most of the downtime that came from a lack of work to target prestige projects – work that was short on profit, but long on lasting impact.
“We were given a stamp-design project, which was shortlisted for a D&AD pencil, and were one of only 54 nominations out of 24,500 companies worldwide,” she says.
“We approached this project in a different way, and were truly innovative; each stamp performed a kind of magic trick. We got lots of publicity and kudos from this, and it meant designers wanted to work for us because we did nice work, and clients were impressed as well. You can’t always measure things in financial terms.”
Zachary says that a slowdown can also be spent honing your marketing effectiveness, something that makes firms less susceptible to future slumps, but that can be neglected when business is booming.
“Use any spare time sharpening your marketing material and Web site, and ensuring you can respond fast to any new enquiry with considered replies, backed up with good, standard documents,” says Zachary.
“The idea is to systemize the approach to marketing and sales, to be prompt and business like in all communications, to market internationally and think in terms of what clients actually need, rather than what you want to sell.”
Although the credit crunch is undoubtedly bad news for a lot of people, many experienced designers are welcoming the downturn as a chance to finally take a hard-earned break.
For freelancers and those running boutique agencies in particular, turning back work even when there's plenty on offer is almost impossible, so a little enforced tranquility can be welcome.
Amanda Tatham, for one, is sanguine about the next couple of years. “I don’t actually care if there’s a downturn that much because I would love a little bit of time off,” she admits. “Because I don’t have staff, if I don’t have lots of work I shall have a little bit more time to myself, which having worked so incredibly hard for the past 30 years I would really enjoy.”
Case study: moving with the market
Amanda Tatham has been running design agencies for over 20 years, and has first-hand experience of three downturns, including the current one. The first was in the late 1980s, when she was specializing in annual report business. Because of the steady nature of this area, her business was only slightly affected – but more through luck than judgement.
“We employed about 20 people at that time and we did make some people redundant. But we didn’t set about getting that type of work because it was recession-proof, but because it was boom times.”
By the end of the 1990s, Tatham had downsized her business considerably. She came out of a partnership employing 15 people and set up her own business, Tatham Design, with just three members of full-time staff.
“The reason I downsized,” she explains, “is that the annual report business was incompatible with being a mother, because it’s round-the-clock work, plus a lot my business began to be bought up by bigger PLCs.”
A year and a half ago, Tatham decided to change her business drastically once again, aiming to increase the firm’s flexibility. It was a prescient move. She explains: “For the past ten years I’ve employed two admin people part-time and two full-time designers. The designers I took on were always young and usually left after two or three years, and I decided that when they left I would not replace them.
“What I did instead was become more of a virtual business. I decided to work with designers as partners, but they are not young and straight from college but hugely experienced freelancers, many of whom have worked for me full-time before. Many are mothers now, and work with me part-time on a flexible basis.”
She adds: “The other thing is that young members of staff tend to be trained in one thing, such as print or branding, but I might require them to do a wider scope of work. This is very limiting, especially as we seem to be being offered much more Web design work.”
Instead of drawing upon the limited skill sets of junior staff, Tatham now hires experienced specialists, such as Web designers and a packaging design artworker who she says is “fantastically experienced”.
She says: “I can put together a world-class design team that covers areas of expertise that is almost unmatched in other design companies, because I have the ability to bring in the right people.”
One downside of hiring hot freelance talent is that it is more expensive than junior staffers. Tatham says that this is a necessary evil. “During periods of not very much work I am not faced with having to find things for young designers to do, which is what I was faced with during the last recession. The strong aspect about [this tactic] is sustainability.”
Tatham – who in the 1980s was a board member of the Design Business Association – says this business structure is one other design firms would do well to follow.
“I meet a lot of other small businesses who, having been very successful, all of a sudden have no work, and they get a terrible shock. Suddenly they have to shed employees, move out of their studio, and sub-let.”
Innovating one’s business is the key to surviving bad times, Tatham believes. “One design company I know only did public sector work, and it just dried up on them. They weren’t good at innovating their business. I’ve innovated my business three times, and it’s this constant reviewing and testing what you do that is the key. You have to be on top of it the whole time, not just when times are bad. It’s a constant job.”
What about freelancers?
Although design agencies have been badly hit by the credit crunch, many sole operators such as illustrators appear to have largely escaped any ill effects – so far. The question for leading illustrators such as Serge Seidlitz www.sergeseidlitz.com and Jeff Wack – based in the UK and US respectively – is how to cope when a dip in demand hits and, just as importantly, how to structure their work lives with an eye on the long term, so that future market fluctuations do not affect them.
Although Seidlitz admits he’s lost one job due to the credit crunch, he is sanguine about the future for illustrators in general. “I think there’s always going to be ad space to fill, magazine content to make, book covers to design, and, hopefully, illustration is something that will be used to do this,”
The trick, he says, is to remain relevant. “If your work is relevant to your market then you’re going to be in demand. Commissioners are less willing to take risks.”
Jeff Wack, an LA-based illustrator who has been freelancing for over 20 years, has experienced several business downturns during his career. “My ability to stay afloat during these periods has been a combination of reliance on artists’ reps, staying in touch with my existing clients and diversifying my range of artistic styles and services to accommodate requests for different illustration needs.”
Seidlitz agrees that having an agent offers a degree of protection from falling demand. “My agents are out there working hard to keep me busy. If I had to go and take my portfolio to meetings all the time and do all the paperwork I wouldn’t have the time to illustrate.”
Sam Summerskill, an agent with illustration agency Debut Art www.debutart.com, advises that illustrators who are currently looking for an agent stay “true to your own creativity – don’t mimic styles or follow trends. Unique work is the key, especially with advertising, because people want a look that no one has ever seen before, and it’s the big idea that’s really important”.
He adds: “What we’re looking for is ideas and fresh talent – people who are doing something new and exciting, and who understand our clients’ needs.”
Illustrators also need to keep one eye on the future. Four years ago, as part of a long-term strategy, Wack left his home-based studio to go into an office that he shares with designer friends and a fully staffed entertainment-business design agency.
He says: “Even though I am a completely autonomous freelance illustrator, our companies do share some of the work that comes across our desks. The side benefit has been the ability to supplement my regular flow of advertising work with the various entertainment projects they work on.”
Seidlitz also recommends having as diverse a client base as possible. “I work with clients in America and Europe, as well the UK. It can’t hurt having as many different markets open to you – although getting paid in dollars isn’t so great at the moment.”
Wack says that despite his best efforts, he has experienced brief periods of “stalled or stagnant workflow”. He advises other illustrators experiencing a similar thing to use their spare time constructively. “I have found that sending informal emails to existing clients and showing a few new samples helps to keep my work fresh in their minds.”
How to beat the squeeze
- Don’t borrow money. Only buy what you can afford to pay cash for
- Don’t hire-purchase anything.
- Avoid expensive locations.
- Avoid unnecessary travel.
- Concentrate all your energies on producing good design.
- Spread risk by building a wide client base.
- Sell internationally, but don’t open overseas offices.
Find new clients
- Slumps mean mergers and acquisitions, which in turn means a surge in demand for rebranding work. Keep an eye on the design press to see who’s buying who.
- Don’t let your eagerness for new work blind you to bad clients. Demand has slackened, there are more competitors, there is less money being spent, and there’s more uncertainty. Will that new client you’ve talked to really do the project? Are they looking for help, or are they using you to gather information?
- Demonstrate your firm’s unique selling point – some clients perceive design consultancies as commodity providers. Emphasize your firm’s point of view, its intellectual property, its process, its design and technical capabilities, and its unique tools and services.
- Tell your success stories and document the distinctive results your company has created for clients. Emphasize strategies, projects, programs, and other deliverables, such as campaigns that have helped secure a client's place as market leader.
- Don’t wait for business to walk through the door. Everyone in the firm should search for products, brands, and situations that could benefit from the studio’s services.
- Some clients want broad name recognition: public relations is one tool. Hire specialists to position the firm as an industry leader. Involve staff, as well as principals, in media coverage, in speaking at conferences and writing articles for trade and technical journals and magazines.
Rethink your team
- Consider hiring senior sales and marketing specialists who can become principals once they prove themselves.
- Continually interview and hire star performers who come on the market as replacements for under-performing or laid-off staff, and/or use them as contractors. Build a network of contractors to bring in with the peaks and dispense of in the downturns.
- It’s better to have a smaller team of excellent designers than a larger team of mediocre ones. Keep your top performers: understand what they want, and what drives them. Challenge them, keep them interested by giving them the type of work they prefer. Consider a reward system to encourage your best staff to stay and help build the firm.
- Be ready to respond quickly to all new enquiries by having standardized presentations, model proposals, terms, and agreements in electronic format ready to be emailed out.
Packaging design produced by Amanda Tatham’s team.
Amanda Tatham made use of the downturn to engage in ‘prestige’ projects such as this stamp project – which was shortlisted for a D&AD Pencil award.
Jeff Wack’s poster for computer game Civilization: Revolution.
Jeff Wack recommends keeping channels of communication open with clients and other contacts. Above Wack’s work for the video game Rollercoaster Tycoon 3: Soaked.
Jeff Wack’s projects have included the video game Dead to Rights (above) and work for the Colorado Tourism Board (below).
Jon Bains says that although his digital agency, Lateral, survived the dot.com crash only “by the skin of our teeth, the changes they put in place then helped them go on to net major clients, including Amnesty International.
illustration chu www.schudio.co.uk