April 2009

How many legs does your stool have?

        I have been observing a number of professional service firms go through a series of challenges in the current downturn.  All of these firms are in the development industry and all of the traditional markets are moribund, at best.

        One firm in particular was a specialist in serving the housing industry.  All of the major players are in survival mode.  They are trying to dump assets – often for pennies on the dollar – in order to get them off the books. 

        Fortunately, there are some signs of activity.  Some investors – both large and small – are trying to pick up the great buy, either raw or developed land (the latter with empty, unbuilt lots).  It is a positioning for the next upswing, but one knows for sure when this is going to happen and will most likely occur slowly.

        Regardless, the firm in question was 95% committed to a single market.  It was the preverbal one-legged stool, i.e. dependent upon one market or source (industry wise) for support.

        At a time such as this, most markets are struggling, but some firms are better positioned to survive than others.  Those dependent upon only one source are mostly struggling, depending upon the vitality of the specific market in which they are involved.

        As a general rule, those companies with multiple legs are doing better.

        Now, I know this is in contrast with an earlier article recommending you specialize for greatest effectiveness and market penetration. 

        So, how do we resolve this conundrum?

        You can’t be all things to all people, for this is an age of specialization.  Yet, how do we specialize in appropriate ways, without creating an adequate diversity of client base?

        Here are a few suggestions, but you must work this out for yourself – as it applies to your industry. 

• You must have a strategic plan.  One that identifies your major markets and capabilities, and at the same time provides for more than one service or product category.

• You must have specialties upon which build your reputation.  They can be within the same industry, but different segments of that industry.  (An example is an architectural firm with specialized departments, such as space planning, hospitality, health care, etc.  One or more of these markets may be down at any point in time, but its likely one or more is maintaining.  Of course, such options may not be available to the single practitioner, or small consulting firm)

• Another approach to specialization is to have unrelated areas of expertise that do not cross over.  Each area may be marketed independently.

• Agility is important, for it may be necessary to move to another segment of your industry, such as the contractor who moves from new construction projects to remodeling.  This is not always easy and cannot be done quickly once a market is starting to turn down.  You must start positioning yourself before the problems begin.

There are no simple answers, but the key is not to be lulled into a false sense of security during the good times.  You must plan, set in contingencies, constantly monitor the market and, finally, never be still or satisfied.

A friend of mine used to work with a major builder, in the land division.  This means he was acquiring land for development and was familiar with all of the due diligence necessary prior to purchase.  When he lost his position, he took his skills into his own consulting practice.  He is now working for people, many of them banks, with problem properties.  Such properties have been returned to the bank due to default or they are headed that way.  He uses his understanding of land deals to help banks work out of their problem properties.  Get the idea - same skill set, but working in another area of the industry where there is activity.  My friend is having a ball and will likely remain a consultant, even when the market turns.

As a consultant or freelancer, you have the choice to avoid bureaucratic inertia and continually reinvent yourself as technology evolves and markets ebb and flow. 

Be proactive, keep a positive attitude and find or create those areas that thrive in any market.