I’ve failed to blog this year because I’ve been too busy; at least that’s my excuse and I’m sticking to it! Business is up (about 50% on last year) and it’s been hard to get space to take a breather.

I’d like to be able to claim credit for this upswing (one of my roles is to get new business, after all) but I can’t – it largely happened without my doing. In fact, there seems to be an inverse relationship – the less I try to sell the more work comes in; it won’t be long before someone cottons on to this and I’m put out to pasture.

So what’s behind this? It doesn’t really make sense – the US economy (still by far the largest source of our business) remains moribund, companies continue to cut back and the general push to make savings by outsourcing to low-cost countries remains the orthodoxy.

A couple of reasons are that I think we do a good job (hey, you’d expect me to say that!):

• We have a good team that does quality work. We get to know clients, our churn rates are very low, we have very experienced people etc – these are the minimum requirements in today’s environment and we tick the boxes.

• We’re easy to work with –no minimum commitment, we do a whole range of services so can help out in many ways, we’re very reachable and responsive and while we’re not super cheap, we’re not super expensive either.

But there are three other reasons I think are at play, driving work our way:

• Clients are overworked
• Indian-based vendors are getting more costly and often still miss the quality mark
• Corporations are increasingly turning to contractors and project based work

Clients are overworked

No surprises here. Over the last two years they’ve cut to the bone and people that remain are working harder, longer and need help. Companies don’t have the bandwidth to train lots of people or vendors and are happy to turn to an external vendor they can trust.

Indian vendors are getting less attractive

Let me say upfront that I have nothing about work being conducted in India, in fact I think it’s often a great idea – we have a good number of people there that work for us, and so I know the benefits. But I also see some of the downsides and I think increasingly clients do too. This is what we hear:

• Outsourcing to India is no longer the bargain it once was. The Rupee/Dollar exchange rates continues to pressure Indian providers (their costs are in Rupees but their income is usually in US$). Since Jan 2009, for instance, the dollar rate has fallen from nearly 52 Rupees to about 45 today, a 14% fall, continuing to erode their cost advantage
• Vendor rates have also gone up as companies try to move up the value chain
• Quality remains an issue, especially in areas of writing and services that require cultural insight (marketing, advertising, trend work etc)
• Churn rates are high and clients are fed-up at having to train and retrain.
• Minimum FTE (full-time equivalent) commitments are off-putting

Here’s an anecdotal example of how things have changed. Over the last month we’ve been recruiting to create a team of five writers for some newsletter work we have. We’ve advertised on online job boards, used Elance, Guru, and leveraged our own teleworking database at ClickNwork and reviewed in detail over 200 applicants from a pool of well over a thousand. In previous years I’d have expected Indian freelancers to be amongst the cheapest, but today its people in Pakistan and Africa (I’m sure they’d have been cheaper a few years ago, but they just weren’t as connected then); good Indian freelance writers are today seeking rates comparable to writers in the US, which would have been unheard of just a few years back.

Shift to contract work

Last, companies are getting used to using contractors. This has been going on a while but the recession gave companies a great excuse to cut back, and instead of hiring back, they’re using project-based, contingent labor. A couple of stats:

• An April 2009 report (“The Emerging New Workforce”) by Littler Mendelson, one of the largest employment law firms in the country, predicted that following the end of the recession, “50% of the workforce added in 2010 will be made up of one form or another of contingent workers. As a result, approximately 25% to as high as 35% of the workforce will be made up of temporary workers, contractors, or other project based labor.”

• This isn’t just unskilled labor; it’s increasingly the domain of professional work. This chart, that comes from Staffing Industry Analysts, via Little, makes the point that over time, spending on contingent labor has increasingly been for professional skills (“Commercial” = Office/clerical or industrial)

• Analyst Christopher Dwyer of Aberdeen Group believes such workers already make up 20% of the labor force, a figure that will rise to 25% as early as next year.

Put it all together and you have companies overburdened, looking for different solutions than putting more work over to India and an emerging acceptance of project-based work completed by a growing cadre of temporary professionals.

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.