Diversification strengthens your business
What do you do when the economy falters?
Is your company recession proof?
Can you business survive a down cycle in the economy?
Entrepreneurs find a way to survive when the economy goes sideways.
Listen to your senior colleagues on how they survived in a down ecomomy.
One of the biggest challenges in the long-term life of a small businessman is the cycles of the economy. At one time there is adequate work to keep the firm buoyant and profitable; and, another time in an economic downturn when work is scarce and survival is in doubt.
During my 35 years in business as a small firm architect, I went through 3 major cycles from profitability and growth down to survival and cutbacks then back up again. These cycle were cataclysmic as they devastated a well-run team, all systems were written for growth and uncertainty prevailed in the organization. In times of downturn we were paralyzed, trying to survive and not know what direction to take.
When your firm is riding a wave of an economic boom, it’s hard to imagine how things could ever be different. This is especially true when you experience your first economic down turn. Notwithstanding your older colleagues, parents and other who have been around for longer, warn you of the potential of a downturn along with its negative impact on your business. As new businessmen, never having experienced a downturn before, we don’t listen to their warnings. We think “how could this happen to us?” When the storm clouds of down turning economy are all around us we still do not believe.
When I experienced the first economic downturn, I had built a substantial ‘nest egg’ a reserve fund. By this time, I had been in business for 5 years and had built a strong team of technicians and architects. My reserve fund would finance my company through difficult times and keep the team together. Before a year was out, the reserve fund was depleted and as yet the economy had not recovered, I had to lay off most of the team. This was a naïve strategy.
Since then I have learned, that time and resources available should be put to retooling the company, diversifying, and finding new ways to use the company talents, skills and positions to offer different services. This down time can be used to restructure the company and writing systems for efficiency. So when the economy recuperates the company will be better positioned to generate revenue more effectively and with less effort. This down time may also be use to develop new markets.
Architects who follow the standard format for service delivery are often hit hardest by an economic downturn. First off they are reluctant to stray from the ‘standard’ architectural model of offering services. Skill inherent on an architectural team permits them to offer a variety of useful services outside the standard architectural services set. Depending upon your team’s skill set and the economy in the area where you practice, you will find a match. This is where your skill as the entrepreneur is required to bridge the gap of providing new services, outside the norm of standard architectural practice.
When the economy recovers, your firm will then have more than one means to generate revenue and be better positioned to face the next downturn. Once the attitude of finding new ways to provide services in the market place is in place, there is no limit to where a company can go in terms of diversity and associated growth. This ability to create diversity in what services a company offers will be a new-found strength and will make the company recession proof. It is also a means of differentiating your practice in architecture from the rest.
By diversifying your company and finding new market you have the means of using the diversification along with its new markets to drive business back to your base practice.
When you look at companies that have survived for long periods, you will no doubt see that they have diversified their primary product. With some companies their diversification became their mainstream, a stronger revenue producer than the original company.
Diversification must be a planned event, just as you studied the market when you began your company, you must study the market to determine the need for your diversification.
Once your market viability has been determined, design a business model to compliment your original services offering.
Diversification within a company, as long as it is carefully planned, is a means to strengthen the company. But, most of all it will be a means to survive when the economy takes a downturn. It may even be a means to prosper in a recession.