Press Coverage
Profiting in a downturn
Interviewer - 2001-10-11
Despite the constant doom mongering, there is no concrete evidence to suggest that the whole UK economy will enter recession now or nest year. However, the telecom and dotcom meltdown has certainly caused reduced growth for the rest of us, and the CBI has confirmed that this downturn is affecting service industries now - as well as manufacturing. So, while serious difficulties will be avoided, those who joined the recruitment industry in the last few years are having a rude awakening. The easy pickings have gone, and we now have to work much harder for our money. No bad thing, some might say.
It is worth reviewing some lessons learned the hard way from those of us who were around between 1991 and 1994. Downturns are a perfectly normal, regularly recurring part of the business scene, not an aberration. Well run businesses cope with them - and indeed profit from them. The recruitment industry is relatively new, however, so the early 1990's were a real shock to many of us. But those that survived came out fitter, with increased market share.
Targets
We'll start with some biology. Did you know that if frogs are placed in a pan of boiling water, they jump out - they don't want to boil to death.. However, if the frogs are placed in a pan of cold water, and the pan is put over low heat, they will boil to death over time.
If the business world, if your environment is changing slowly (fewer briefs, lower activity, smaller pipeline of business, dwindling vacancies), you need to respond quickly - or you'll end up in hot water. Gradual changes can fool you into thinking that everything is fine, perhaps with just seasonal (i.e. August) variations.
Managers should be forecasting revenue no less than six months in advance, and predicting the impact of these changes. If activities and ratios aren't being measured, then work out an effective monitoring system now. Ratios will change in this market, so drive activity targets, are the key to rectifying any performance gaps.
Unlike ten years ago, there is a war for talent. Demand far exceeds supply in most sectors, particularly for degree-qualified professionals. Canvassing to see what vacancies a company has is a waste of your precious time. It is much better to ask: "What skills do you need in your organisation that are hard to find in this market?" Then target resourcing activities accordingly.
The skills question addresses the headcount problem. If a company needs those skills, then they will replace existing headcount with your candidate and you can justify premium fees.
Be aware, though, that this approach only works when you are savvy enough to convert the candidate's attributes into real benefits to your client. There is a difference between describing your candidate's skills and experience and translating them into an effective marketing strategy. Make sure you know how your candidate can give your target client a distinct advantage over their competition.
A key element in any downturn is the strength of client relationships. Consequently, all energies need to be focused on client facing activities. It is imperative to talk to clients about their business, rather than merely ask for job vacancies - because it is necessary to create business opportunities. The key is clear, honest communication. Clients pay invoices, but in the good times, many agencies focus too obviously on candidates. Get closer to your clients, have a better understanding of the problems they face, and work out how you may be able to help.
Offer consultancy rather than just concentrating on the sell. Information on client issues is paramount. While the number of recruiters has stayed stable, the number of opportunities among their clients has decreased. So now there are the same number of us chasing a smaller number of jobs. This just means that we have to be more pro-active.
Be first in the pecking order so that you gain time to fill the positions. And, again, talk to employers in the market regarding opportunities - the high-demand skills they need and other problems they have.
Use this approach to win exclusive or sole supplier relationships. Understanding the skills that clients need the most, and supplying them, will give you a valuable edge. Capitalise on this by putting your relationship on a more formal footing, and eliminate your competition as much as possible.
We sometimes make assumptions that limit our perception of who our potential clients might be. They should be qualified by their ability to want, need, and afford our services. Don't assume that because a company is small now that it isn't viable to work with - or that just because they are downsizing, they aren't prepared to pay for particular skills. Looks can be deceiving.
The opportunity cost
This is the market for the smart recruiter: the one who gets close to his clients and markets his best candidates. As always, the recruiter knows the opportunity cost of what he is working on - where to spend his time, what will pay off and what might pay off. Clients are more discriminating and will take longer over decisions, so it is even more important to focus activity in the right direction.
Closing the client on interview dates at the job order stage is essential to identify those jobs that are worth working on and those that are not. Wasting time on jobs that will not pay dividends is a gamble. You are more likely to get workable briefs from marketing your best candidates than from cold canvassing. All your competitors are chasing those same leads. Take references and ask if the referee would re-employ your candidate. If the answer is yes, then you can ask if they would be interested in other candidates with similar experience. If they are, bingo. Take a full brief.
If, as a recruitment manager, you have been living off the fat of the market recently, then the gaps could start to show in your management skills. As well as the operational essentials above, there are other steps you should take.
Tim Moynihan, formerly a finance director within the Hays Group and now a non-executive director of several successful consultancies, says that, surprisingly, a downturn for temp and contract agencies results in positive cashflow. Ess working capital is needed to pay temps in periods when cash is still being received from clients for invoices raised in a period of greater activity. In the longer term, it is a lack of cash - not a lack of profits - that makes a business go bust.
Borrowing limits
Timely management information and forecasts result in sensible decisions. Moynihan advises recruiters to negotiate adequate borrowing limits now, before they are needed, rather than waiting until your back is against the wall.
Very few costs are fixed in this industry; eliminate unnecessary ones and renegotiate any that can't be cut completely. Be prepared for the financial squeeze that occurs when business picks up again - because additional working capital will be required, and lenders are less likely to lend on the back of poor historic trading performance.
Moynihan adds that now is a good time to improve your 'staff gene pool' across the business: "Sales, support and management staff will all be easier to find. Use this to your advantage and improve your key asset, but be selective."
Still on the subject of financials, you need to understand the level of sales you need just to cover costs. This break-even point is calculated by dividing your fixed costs by the gross margin percentage. (Gross margin is the real income of the business, not sales). Breakeven points can be reduced by cutting fixed costs and improving gross margin percentage.
Doing this will enable you to retain similar profit margins, even if you lose sales. Sometimes selling less at better margins is better than increasing costs and trying to sell more (and dropping your rates to get volume business). At least make sure you have adequate financial information to make these decisions.
Don't Panic
A final word - this market is not for the faint hearted. Shelley Gorys is director of IT recruiter Alexander Francis.
She says: "It is the time when good recruiters will shine and cowboys will stand out. Earn your salary and earn your fees. Customers expect agents to sweat blood - now is the time to show them you do. Forging ahead with your team is the best way to tackle this climate - we will be here in the next five years. Who else will be?"
