Keith Richards: No margin for error

With good and bad markers on the economic horizon, Keith Richards, head of marketing at Gallowglass suggests strategies for survival in a challenging market place…

Depending on your choice of analyst, descriptions of the economic outlook for the next 24 months range from gloom to growth.  On the optimistic side, Britain’s manufacturing sector ended the year on a high. All sectors of British industry, from electronics to cars, are entering 2011 on a strong footing.

Less rosy are reports of sluggish high street performance, arising from fragile household finances. The rise in VAT and cuts in public spending will further dent consumer spending and business activity. And the services sector, which accounts for 70 per cent of the economy, has slowed right down.

So while the economy seems in no imminent danger of the dreaded double-dip, it’s clearly too early for unalloyed optimism. And if Ireland, Spain or Portugal were to set further alarm bells ringing, the UK’s overall recovery could be impacted.

One of the greatest concerns for business at the start 2011, is that those companies that were overstretched through 2008-09, will run out of steam if things don’t pick up significantly in the coming year. And the companies most at risk will be those that have won business by shaving their margins to the bone.

Such practices are all too common in the events sector.  As builders of the physical infrastructure for pretty much every type of event imaginable, Gallowglass has observed too closely for comfort the type of company that only wins business by quoting at break-even level. The rationale being that if they win high enough profile events they may get bought-out  on the strength of their impressive-looking  portfolio. Meanwhile, they glean whatever meagre percentage they can by squeezing their suppliers.

This strategy is risky enough, but if you throw into the equation the potential for a fickle client taking its business elsewhere, the cash-strapped intermediary – that will almost certainly be applying poor financial management disciplines at the same time, will go to the wall, leaving debts all over the industry.

We can all name agencies that were notorious for such practices – before their spectacular collapses – and there will doubtless be more failures to come in the months ahead. Suppliers are so concerned about such threats that they are already meeting routinely to compare notes on late payers and to identify those agencies and production companies that are flying by the seat of their pants.

The winners in this challenging market place will be those that demonstrate flexibility, quality and courage in management. Companies fold because they run out of cash. So insisting on purchase orders and not giving clients credit, could make that crucial difference between survival and collapse. At the moment four fifths of our industry don’t apply such basic good business practices.

The banks constitute a further threat. Any rise in interest rates will prompt bank charges to increase significantly and those companies that are already teetering on the edge now, will topple.

Thankfully it’s not all bad news. GDP growth is projected to increase in 2011 from 1.2 per cent to 1.8 per cent. And while the events industry will be affected by cuts in public spending, we’re hearing that it’s the reward and recognition activity that will see the primary casualties, while spend on internal communications events will continue; albeit with reduced budgets.

Of course we have the trump card of the 2012 Olympics to look forward to. This translates not only into an enormous amount of potential business directly related to the Games themselves, but all the other ancillary activities that will come to London – from corporate hospitality to theatre and other cultural activities. Many of which will require input from set, sound, lighting and AV companies as well as event organisers. If you could choose any sector anywhere in the world to work in, the UK events industry would have to top the list for obvious reasons.

So those well-managed companies that are daring to prepare for growth over the next two years should analyse the potential level of business they could sensibly sustain, and calculate the finance and the resourcing (be it human, marketing, IT or equipment)  required to win and deliver that level of business. But if they’re only starting to think along those lines now, they’d do well to get moving – and fast!