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!
The other day a friend asked me about starting a business – he’d been laid off and was thinking about branching out on his own. Specifically, he wanted to know about cash flow and how long it takes to get paid – he had some money to get himself going but would need money from clients arriving in around 6 months. Did I think that was feasible?
It sounds easy but the reality is that getting paid for work you do itself takes work. I looked at our situation and the days accounts payable (debtor days in the UK) for clients that we invoice after we’ve done the work is about 50. Meaning that it takes about 50 days on average from when we invoice our clients to when we get the check.
But we often do work at the beginning of the month and only bill for it at the end, so that could add another 30 days, but let’s say an average of 15. And then there are large projects that might run for a few months. Factor all this in and it goes to about 100 days – that’s over three months of waiting until you get paid for the work you’ve done.
And all this happens once you actually have work. My friend had contacts and thought he might be able to start work in about a month or two and we reckoned that if he could bill monthly for his work he should be fine. He’s still deciding what to do.
I should say that most of our clients pay promptly and are great, and a good number even pay in advance, which helps enormously. Still, over the years we’ve got a few scars. Back in about 2000 IBM stopped paying us for over 12 months as they upgraded their payments system (that was when we were starting out and we got through that with a loan). A couple of years ago we wrote the business plan for new beverage - Fyxx Water - that got funding and launched in the US, although they didn’t pay our invoice (they stopped answering our emails and calls and we wrote it off). And recently Nokia had difficulties paying us as they moved their accounts payable to somewhere in Eastern Europe (we eventually got it, about 6 months late and in the meanwhile currency movements had erased about 20% of its $ value).
But sometimes you get lucky. Just over a year ago I got an email from Lehman Brothers that wanted help with some aspects of their research. After a few conference calls I visited them at their London offices in late August. We’d signed an NDA, reviewed rates and we were headed for a trial when the proverbial hit the fan. The world’s financial system shook, trillions of dollars of value was lost and we entered a brutal global recession. And me, I felt like we’d missed a bullet.
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.
I was expecting 2009 to be a terrible year for Business360 (it may be yet!), but so far business is surprisingly strong. We are up on last year, two of our top three months happened this year and the pipeline is looking fine.
Sure, we’ve had some disappointments. Some clients have pulled right back (especially banks and hedge funds), some have asked us to lower rates (sometimes we can, often we can’t), some have reduced the amount of work they send us, but most clients are giving us much the same or more, and at the same time new clients have come to us (ad agencies, professional service companies, large corporations…), and these new clients have generally given us a lot of work. Go figure!
I think part of the story rests in clients cutting back on their own payroll and needing vendors to help out, but I think a more significant explanation is that companies are really reluctant to cut back on research. I’m afraid I can’t claim this insight as my own; the light bulb went on last night when I read an article in the April 20, 2009 edition of the New Yorker, by James Surowiecki in his column, The Financial Page, called Hanging Tough.
Surowiecki points out that
“…numerous studies have shown that companies that keep spending on acquisition, advertising, and R. & D. during recessions do significantly better than those which make big cuts.
In 1927, the economist Roland Vaile found that firms that kept ad spending stable or increased it during the recession of 1921-22 saw their sales hold up significantly better than those which didn’t. A study of advertising during the 1981-82 recession found that sales at firms that increased advertising or held steady grew precipitously in the next three years, compared with only slight increases at firms that had slashed their budgets. And a McKinsey study of the 1990-91 recession found that companies that remained market leaders or became serious challengers during the downturn had increased their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them.”
Of course, advertising is a little different from R&D, but a lot of our work comes from consumer goods companies conducting market research, or trying to get consumer and brand insights, or from ad agencies wanting a better story for a new business pitch, and good research is an essential part of all of these.
If Surowiecki is right then the companies that will emerge from this downturn strongest will be those that continue to invest, looking for better ways to help their consumers - using research and analysis to identify opportunities, and marketing and advertising to communicate them.
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