I’m not a great one for anniversaries but I thought I’d mark the fact that Business360 kicked off ten years ago this month.

It’s been an adventurous time. We started right as the dot-com boom peaked (the market turned in March 2000), sucking away financing options for start-ups, and soon after that 9/11 helped tip the US into recession in 2001. And here we stand today, slowly riding out of the worst recession since the Great Depression. How’s that for timing!

But while we haven’t attained Google-like growth, we’re doing fine: our client base is up, revenues are rising and with new products and services about to launch, I think things look better than ever.

Looking back over a decade you realize how some things have changed and here are a few that strike me:

• We were a crowdsourcing innovator. We didn’t think of it as crowdsourcing at the time (it was 2000 and the term didn’t exist) but it turns out one of the first services we offered relied on an early form of crowdsourcing – we opened team rooms to let people from all over the world compete to answer business questions our clients had, selecting the best material located. It’s something we still use – when you have a tough question you’re researching on the web you often get a better result, and much faster, if you have 10 people searching for it rather than just one – this is true even in these post-Google days.
• Outsourcing research/writing/analysis is now commonplace. Earlier this decade there was a lot of noise about companies outsourcing information and research services. Much of it centered on whether it was wise to outsource and the prevailing view from professional researchers in the US and UK was that it wasn’t, that it would destroy the profession and yield poor quality results. Today, these concerns have largely gone; outsourcing of these functions is now standard practice and large companies that outsource this work are way more common than those that don’t. That’s not to say that it always works – there’s a lot of work that shouldn’t be outsourced and even more that shouldn’t be offshored, but that still leaves an awful lot of work that is best completed externally.
• Outsourcing research trials have gone away. Over the years we’ve been involved in a good number of trials, usually competing against our competitors, although we sometimes didn’t know that until after the fact. The most rigorous by far was run by Goldman Sachs – it lasted longer, took in way more vendors and systematically covered a lot of territory (and I’m pleased to say that we came out top on this one). Other trials that we’ve taken part in were very poorly executed, some entailed just a small number of tasks, some imposed silly restrictions, like preventing vendors from discussing requirements with the requestor, or disqualifying certain sources etc – some of these we won, and some we didn’t. We don’t see many trials these days. Things proceed more organically – companies ring us up and we talk about what we can and can’t do, and the usual course is to gradually get to know each other on a number of projects. Things normally grow from there.
• You don’t always need financing. As a company we never secured formal financing - we had a small amount of seed capital and a family member put in a little too. Instead, we’ve bootstrapped. We watched pennies and grew as our clients started to trust us and gave us more work. And that’s largely how it is today. Most of our work is repeat business and most new clients come from personal recommendations. All of which has meant we’ve learnt to be very flexible and responsive, and that’s been a good thing – giving clients what they want, how they want it, faster, cheaper etc has pushed us forward. On the flip side, lack of capital has meant we let a lot of good ideas slip by.
• Virtual working and working from home are now well-established. When we started, the idea of building a business where all the work is completed remotely, with everyone working from home, was offbeat. More radical was the idea that we could deliver high quality services to top companies with teams of people assembled from around the world that never meet, don’t talk to each other and don’t talk to us or the client. I still find it shocking. To be sure, there is a lot of communication with clients and between a lot of people at Business360 and ClickNwork, the site we built to manage workflow, but for many things we do communication beyond email or IM isn’t needed. So, for example, we have researchers and writers that have been with us for five or more years and that work with us on a daily basis, but who we have never met or spoken to, not even over the phone. But with good online and email based training these people deliver services (research, data gathering, data entry, some document preparation…) to Fortune 100 corporations, banks and hedge funds. That still strikes me as radical. Something I want to do in the couple of years or so is go on a tour to visit a lot of these people and see how it all happens – that would be interesting.

One constant throughout the decade has been rapid change and we’ve had to evolve fast to keep relevant. On that score we’ve been investing a lot in some new ways of doing things and we’ll be pushing some of them out the door soon. In another ten years time I’ll be able to say whether they were a success or a flop. Stay tuned!

I was talking to a client the other day who had read my last blog entry (imagine, a reader!) and who pointed out that a bunch of the work they had given us was a direct response to the recession. Recession as demand driver, funny. But it’s true. I went back over the last six months to look at the work we’ve been given that stems directly from the recession, and it’s a bunch, about 20% of what we’ve been doing:

First there’s ongoing tracking work – as the downturn got going a few clients asked to keep tabs on specific issues such as the actions of competitor companies, core sector news etc, so on a daily and weekly basis we’ve been:

- Capturing and distributing articles that look at competitor response to the recession (price movements, packaging changes, cost-cutting drives, marketing campaigns and so on)

- Preparing newsletters that contain summaries of the more significant developments. Most of these are sector specific, so, for instance, one looks at how all the large consumer goods companies are responding

- Writing monthly and quarterly sector reviews that largely summarize the findings of the above two

- Preparing monthly economic reviews that pull together historic and forecast economic data, sometimes with summaries of competitor actions

And then we have a bunch of ad hoc work that roughly groups under these themes:

- Lesson capture – looking at past downturns and pulling out insights that can be applied today – Do companies do better when they acquire during downturns or upswings? Is it better to cut deeply and early or hold out for smaller later cuts? Do innovation and new products pay off better in recessions? What role can messaging alone play as consumers pull back on spending? There’s lots of it, and coming from many angles.

- Impact studies – trying to gauge the changes underway, where they may head and how profound they will be. We’ve done these for a range of sectors – real estate, homebuilders, banking, personal care and food – but they almost always point back to consumer demand and changing consumer attitudes.

- Bankruptcy studies –  looking at different sectors to identify weak players and likely bankruptcy candidates, which we do using things like asset impairment rates, debt maturities,  cash flow analysis, Altman Z-scores, leverage and coverage ratios, bankruptcy ratios, going concern metrics etc.

- Trend analysis – trying to get a sense of how things are evolving, how fast and in what direction. Trends are capricious things and this work is more art than science, so we often back it up with site visits and interviews (for example, we’ve been doing a lot of looking at Japan lately, most recently seeing how companies communicate to consumers fatigued from its lost decade).

- Future views – thinking about how the commercial landscape will change, how attitudes will diverge from previous trends, assessing what consumers will be looking for, judging which players will fold, which will conquer, and so on. It’s sort of reality-based navel gazing.

And here’s a funny thing – the first recession-based work we were given happened over a year ago, in January 2008. Things were fine then (consumer confidence was high, GDP growth strong, unemployment low and so on), but some of our clients were seeing weakness in parts of their business and, interestingly, the National Bureau of Economic Research (NBER) dated the onset of this recession to December 2007, although they didn’t announce it until December 2008. Here’s betting that in the next couple of months we’ll get our first assignment looking at ways of how to profit from an upturn that comes on the heels of a sharp contraction. And that will be a good thing.

That’s what I was asked, by email. Someone read my previous entry and wanted more details on how a company could truly realize savings on their research and related knowledge work, without a loss of quality.

Here’s a case study based on some client experiences - brace yourself as it’s rather lengthy; if you still have questions at the end of it, just let me know.

Context: Mid-sized consulting company with a corporate library of eight: two sector specialists, five generalists and one researcher for quick turnaround requests. The company is headquartered in New York with five researchers; two others work from a Chicago office and the fifth in LA.

Until Q1 2008 the team was running at full stretch with a small network of local freelancers helping out as needed (Business360 was part of the network), but since Q2 demand started to soften and there was a sharp drop in Q4. With practice (non-billable) work the team is still busy but billability is down to about 60% and still falling.

The company has an internal charge rate of $120/hour for its research services and tries to operate as a profit center, although the reality is they are happy to cover costs.

We’ve been working with the company to look at how they can save money and still deliver a quality service, and (roughly) this is how the numbers stack up. Note: we exclude data costs here which can be large but don’t really affect resourcing decisions.

First you have basic salary costs:

Then for each employee there are a series of direct oncosts (insurance, pension, training etc):

Add these and you arrive at a grand total for annual direct costs of $725,513.

But salaries and related costs aren’t the only ones, there are also indirect corporate overheads, which in this case we just limit to office rental costs:

Note: we use 60 square feet here which is a little tight - most estimates call for ~125ft but the company runs a hot desking approach and believes this amount is all it needs.

Put it all together and you get total costs for each employee:

These costs go to establishing the research services of the company that are charged out on an hourly basis, some for billable purposes and some for non-billable. I mentioned above that billable work for the client’s research team has been falling and this matters since many research teams aim to cover their costs internally and the only way to do this is through internal billing. Research teams do work besides billable assignments but billable work is usually better measured, the value of the work is clearer and for many teams the percent of time billable is the key metric that is tracked. Accordingly, this analysis focuses on the most cost-effective way a research team can complete its billable work.

The amount of hours an employee can be available for billable work is crimped by vacation, public holidays, sickness and training needs, with the actual number of hours available for billable work is around 1,864:

Of these 1,864 hours the company hopes to get as many billable hours as possible, and the higher the number of billable hours, the lower the average cost.

There are two ways to look at these costs - just direct costs (i.e., those that would stop as soon as the employee was laid off), and those that include indirect costs (office rental costs and other costs that don’t stop as an employee is laid off but which are avoidable in the longer run). This difference is important since if companies really want to save what they can, they need to think about ways to avoid all possible costs, and this means reducing office space.

At high billable levels (90-100%) we find that average costs come down to about $43-48/billed hour on a direct basis (4th column), and $66-73/billed hour on an indirect basis (last column). Depending on the work we do, Business360 charges $15/hour to $250/hour (sorry for the large range, but if we are doing basic and regular data entry, web search etc it is at the low end, while rates for specialized consultants or financial analysts on urgent projects are much higher). Most of our research work is in the range $40-80/hour, so while we are competitive when a research team is at higher billable levels, the case for giving us lots of work is weak, although it is prudent for them to keep a vendor or two on hand to cope with peaks in demand.  (There are two separate points worth mentioning here - Business360 is a variable cost, not a fixed one, which means our costs only apply as we complete work (there is no charge for idle time, vacation, training etc); and second, our network-based business model means we can often access researchers with greater familiarity with certain subject areas, but I’m leaving both these aside for this analysis.)

The table above shows how we can usually help companies save money against fully accounted internal charges. Cost savings opportunities emerge when billability rates fall: below 90% we can save companies a good chunk against their full (with indirect cost) expenses, and below about 80% we even save money against their direct costs.

A logical company’s approach is to reduce its internal team in size so it runs at as close to 100% billability as possible, although given the choppiness of workflow, 90% is a realistic maximum.

So returning to the example, the company can make savings and get all its billable work done through reducing the size of its team by four, layoffs being the unfortunate reality in today’s climate. We assume reductions are made from the larger and more costly New York team. To complete the picture, we assume that Business360 picks up regular assignments that don’t require in-house knowledge (newsletters, clipping services, data capture, some secondary research), which means we can do them cheaper (~$40/hour), as well as a similar amount of some higher value tasks that can be done remotely (competitor analysis, telephone interviews, some analysis) at, say $60/hour, all of which makes for an average rate of $50/hour.

So where does this leave us? The company is still getting all its billable work completed; the in-house team is running at full tilt (and with its own internal charging, making a profit) and Business360 is picking up the difference. Business360’s work is completed mainly by people based in the US working from home, with the possibility of it being done by our teams in lower-cost countries if the need is there to process work overnight or make even greater savings.

In terms of total costs, the company moves from total direct costs of $725,513 to $359,730 (with the level of work associated with 50% billability for the original team of eight) or $732,530 (with the level of work associated with 100% billability for the original team of eight). With indirect costs the total moves from $1,109,513 to $530,397 (at the 50% billability rate) to $903,197 (at the 100% billability rate). Essentially, the company saves money under any reasonable scenario, possibility up to over $500k annually, and at the same time manages to move much of its costs from fixed to variable, not an insignificant achievement in this difficult climate.

Apologies again for the length of this thing, and if you have any questions please do contact me or leave a comment.