Maximizing the Return on Your BD Costs

With business still languishing, A/E firms are understandably being very cautious about spending. Some continue to trim costs. Interestingly, many firms have substantially reduced their business development expenditures. Marketing staff positions have been eliminated, with corresponding cuts in marketing activity. One large firm halted a major initiative to improve its business development process.

The wisdom of cutting BD costs is debatable. If what the firm was doing wasn't working, then certainly it would be unwise to continue funneling money into it. But is cost cutting the best approach, or should that money be redirected to more effective strategies? Done right, business development isn't a cost at all. It's an investment. If your BD investment isn't yielding a proper return, you're either (1) not investing in the right things or (2) not giving it sufficient time and attention to make it work.

Let me suggest some ways to maximize your BD investment in these still uncertain times:

Analyze how your BD labor is being spent. One A/E firm principal complained to me that their BD labor costs were too high (they were). His conclusion was that they needed to cut marketing staff. I encouraged him to first look at how those costs were distributed among his staff. He discovered what I suspected, that his marketing staff constituted less than 20% of his BD labor costs.

We reviewed how much time each of his "seller-doers" was charging to BD. The principal was surprised at what he found. Some technical professionals who had charged substantial hours to sales, for example, had not made any evident contribution to bringing work in the door. Others had spent many hours on proposals, yet had little, if any, success to show for their efforts. Rather than cutting marketing staff, the firm decided to redirect how their technical professionals were spending their time.

Push BD efforts upstream in the sales process. In analyzing how your BD labor is being spent, it's valuable to compare pre- and post-RFP efforts. In many firms, 70-80% of BD labor is expended on proposals, and this number has likely grown in the recession. This kind of "downstream" emphasis is almost always accompanied by a low win rate. These firms are not investing adequate time building relationships and uncovering client needs before the RFP is released.

If you are spending 70% of your BD labor on proposals and only winning 25% of them, then it can be argued that you are wasting about half your time. Imagine that your firm redirected more time to pre-RFP positioning and relationship development. You now spent only 50% of your time on proposals and improved your win rate to 45%. That's a shift of 25% of your BD labor from unproductive to productive efforts.

But in reality the transition is even better, because you're spending more time building relationships that can pay off for years to come. Simply responding to RFPs and spending most of your time on losing efforts is a poor investment of your BD dollars--not to mention an ineffective strategy for building a sustainable business. That's not to suggest you pursue only proposals you're pretty sure you will win, but to avoid those with a high probability of losing.

By the way, the example above is not merely hypothetical. That was the improvement one of my clients made after we redirected the emphasis of their BD efforts from proposals to sales. We cut the number of submittals by 40% and increased sales (in dollars) by 33%. And there was no increase in their BD costs.

So how do you move more activity upstream in the sales process? A few suggestions:

• Implement a "no know, no go" policy. This means if your firm hasn't been talking to the client before the RFP is released, the decision is automatically no go. There are always a few exceptions, but generally the win rate for such proposals is dismal and not worth your time. Divert those hours instead to pre-RFP relationship building.

• Avoid over-emphasizing the proposal pipeline. When I first started participating in the regular sales conference calls of the engineering firm mentioned above, I noticed that branch managers seemed to take particular pride in talking about how many proposals they had in the works. Proposals, not sales, dominated the conversation. I suggested that proposals only be mentioned either when they involved other offices or when they were successful. That helped shift the discussion to focusing more on clients, not only on those calls but across the organization.

• Develop client account and capture plans to drive pre-RFP activity. Compile all the associated action items in one place (e.g., your CRM system) to help prompt and track follow-through. If you don't scope and schedule sales activities, they will naturally receive less emphasis than project and proposal tasks. These plans also help encourage people to focus on your best clients and sales opportunities.

• Budget seller-doer time for BD. In too many firms, business development is done with "left-over time." That usually means it's done too seldom and too randomly to be really effective. It's critical that you treat BD activities with the same importance and discipline as you do project work, meaning it needs to be similarly budgeted, scheduled, and tracked.

Revamp your marketing strategy. Are you getting a good return on your marketing dollars? Chances are you don't know. Most A/E firms invest in things like trade shows, direct mail, advertising, public relations, website, and marketing materials without seemingly expecting a tangible, trackable return. They simply trust that these things enhance their reputation, name recognition, and overall market positioning.

Of course, in tough times like these such nebulous outcomes are a luxury. So marketing activities are cut because they haven't proven their near-term value. Yet effective marketing does produce real, observable outcomes. The key is to devote most of your marketing expenditures to developing content and experiences that clients value.

When I served as marketing director for a national environmental services firm, this was the approach we took. We produced articles and white papers on issues of interest to our clients, created what was then the best environmental management resource website available, kept our clients routinely informed of regulatory trends and developments, invited them to leading-edge strategy roundtables, and provided free technical seminars--among other things.

Because of these activities, clients were regularly calling us. That's the one marketing metric that really matters. A number of companies that approached us due to our marketing efforts eventually became long-term, high value clients. I discussed this type of marketing in more detail in an earlier post.

Effective marketing is another way to move more of your BD dollars upstream. One of the best benefits of marketing is the ability to maintain an ongoing presence with existing and prospective clients. Since clients don't always need your services, it's often difficult to ensure the timeliness of your sales calls. But quality marketing helps keep your firm fresh in the client's mind when the need arises.

One more thing to keep in mind about marketing. One study of companies across multiple industries found that the ones that increased marketing activity during previous recessions grew much faster (as much as 10x) when the economy recovered than companies that cut their marketing expenditures during the downturn. But another recent study found that over half of professional service firms decreased spending on marketing in 2009, with one-quarter of firms cutting their marketing budgets by 25% or more.

So while it's wise to stop funding ineffective business development activities, it could be a big mistake to scale back the effort overall. The important thing is to maximize your BD investment by focusing limited resources on the strategies that really work.

From Anarchy to Accountability

Much has been made of the supposed shortage of leadership skills among engineers, architects, and scientists. There is certainly truth in that observation. But let's give leaders in our business credit where credit is due. They have a tough job. After all, they have to try to lead engineers, architects, and scientists!

Technical professionals--like other professionals--are notorious for their sense of autonomy and resistance to being "managed." They are usually talented, creative, fiercely competitive, confident, and independent-minded. The very traits that make them effective in their profession can present significant challenges to anyone trying to organize them into a group or team. Consultant Patrick McKenna appropriately characterized this challenge in the title to his book on the subject: Herding Cats.

The result is what borders on anarchy in most professional service firms. This is often most evident among principals, managers, and senior professionals. They may tacitly agree to a new corporate strategy, initiative, or policy, but typically resort back to whatever they've grown most comfortable with or what they think is best for them. Thus meaningful change and improvement comes only slowly and grudgingly in most of our firms.

As a consultant, I am constantly confronted with the complaint "we need more accountability." This problem seems to be associated with every facet of our operations where improvement is sought, from project management to business development to conducting employee performance appraisals to turning in time sheets on time.

So how, as a firm or group leader, can you navigate the transition from anarchy to accountability? It's not easy, but here are some strategies I've found effective over the years:

Seek the consent to lead. The rights of leadership are not assigned by title or management decision. They are voluntarily bestowed by those who will follow. As David Maister observes:

• In a professional firm, you can manage only what the professionals will let you manage. To get anything whatsoever done, professionals must voluntarily approve and accept new accountabilities ... They must agree to be managed.

This conclusion may turn our conventional ideas of corporate governance on their head, but my experiences (and I presume yours) bear this out. I commonly encounter managers who assume they have the authority to lead, but are afraid to use it. Whether they admit it or not, they instinctively know that such authority doesn't really exist. So the unspoken standoff persists, and little change happens.

To break the impasse, you need to actively negotiate the terms of leadership with those you are attempting to lead. Outline mutual responsibilities and expectations. Secure "nagging rights" designed to help your colleagues achieve the goals both parties agreed on. Even professionals are willing to be led when they see how it will enable them to succeed.

But establish non-negotiable values and standards. The counterbalance to the negotiated terms is the realization that some things are not open to negotiation. Corporate values cannot be willingly violated by anyone, regardless of his or her stature in the firm. There must be minimum standards of performance, whether related to service, quality, safety, or financial management. Unlawful or unethical behavior cannot be tolerated.

These immutable values and standards are what define the soul of the firm. They also form the foundation of strong leadership. Failing to enforce them to overlook offenses by important firm members or to appease recalcitrant colleagues will not gain their favor over the long run, but only compromise your effectiveness as a leader.

Manage nonbillable time utilization. One of the biggest deterrents to corporate change and improvement is the failure to properly allocate and manage nonbillable time. As a leader, this is a critical resource, both for you personally and for those you lead. If you expect to get much accomplished on any corporate initiative, you will need to secure commitments of nonbillable time from those involved. You will also need to commit an adequate amount of your own time. Don't leave it to "whenever I find the time." Budget and track nonbillable time "utilization" on your initiative or activity. Treat that time like you would project time.

Give latitude in the details of implementation. Most seasoned professionals don't respond well to being told how to do their job. After all, they are the experts. Unfortunately many firms get overly prescriptive in defining how things should be done (while often being vague about the expected outcomes). These firms establish detailed procedures, complicated forms, and exhaustive reporting requirements. When these are ignored, they create new ones.

To break out of this cycle, it's best to focus on what you want accomplished and let your colleagues determine the details of how to get it done. After you've reached mutual agreement on the goals, invite participation in outlining implementation steps. Encourage simplicity, minimize bureaucracy and reporting. Allow for individual variation as long as the desired results are achieved. Then, as noted above, obtain permission to hold folks accountable for doing what they said they would.

Align personal goals with corporate goals. This is powerful but often overlooked strategy. One of the best ways to motivate people is to help them achieve what they already aspire to do. Look for ways to align individual goals with your firm or team goals. To the extent practical, shape corporate strategy based on what key firm or team members want to achieve personally.

You could argue that this is what essentially happens anyway. Yet rarely have I worked with a firm that intentionally pursued the juncture of personal and corporate initiatives. Goal alignment facilitates the best way to lead: Instead of telling people to "come follow me," you're asking "how can I help?"

Build relationships and understanding one on one. Group dynamics can be a funny thing, and leaders who attempt to lead primarily in group settings often get false readings about what people are really thinking. It's best to supplement group sessions with one-on-one conversations to build trust, understanding, and agreement. Ask each individual for his or her suggestions, and how you might help that person be more effective or make things easier. One on one is also the best forum for gaining the "consent to lead" described above.

Give recognition. This common-sense recommendation is unfortunately often neglected. As McKenna and Maister note in their book First Among Equals:

• Managers often fall into the trap of looking for problems to be fixed rather than seeing successes that can be multiplied. This results in everyone being risk averse and cautious. It does little to encourage the vital task of regularly finding new ways to do the job better.

Everyone craves recognition. This is as true of senior members of your firm as it is of junior staff. So learn to dispense it on a regular basis. Be careful, though, of singling out individuals for what was, in fact, a team effort.

Leverage peer pressure. In the typical professional services firm culture, peer pressure is usually more effective in influencing actions than management directives. For this reason, a team approach is advised. Help the team build a sense of mutual accountability, making commitments to each other and regularly reporting back to the team on their progress. But don't take it to the extreme of trying to embarrass anyone in front of their peers. That will not only cost you that individual's voluntary commitment, but likely the team's as well.

Deal with prima donnas. Every firm seems to have at least one--a principal, key manager, or senior professional who refuses (either openly or passively) to get on board with new corporate initiatives or changes. There's no denying the value these individuals bring to the firm, but their staunch independence can undermine your best efforts to improve performance. Many leaders simply acquiesce, hoping the momentum of others' actions will prevail. More likely, however, the double standard ultimately compromises the effort.

Addressing your prima donnas may be your toughest leadership challenge. Begin by approaching the individual privately. Seek agreement on the need for change and ask for suggested strategies that this individual is willing to personally commit to. Remind him or her of the influence wielded in the organization. Often these individuals acknowledge the need for improvement, but feel they are exempted (even though they probably won't admit it).

If the person continues to resist after you've tried appropriate measures to get him or her engaged, then there's a tough decision to be made. You decide: Which is more important--this individual or your firm's efforts to grow and improve? A top performer or the values and standards you claim are crucial to the firm's or team's success?

Hopefully it doesn't come to that. But I've seen prima donnas hold their firm hostage many times. It's a crisis of leadership, and your response can be a key differentiator between anarchy or accountability.

Recession Exit Strategies

The recession reputedly ended last summer. Did you notice? Among the A/E firms I've talked to and read about, it appears the outlook for 2010 is mixed. Some are anticipating a better year. Others expect the struggle to continue. Much depends on what markets you serve.

Regardless of your prediction for the next several months, economic recovery will not come quickly. And most experts seem to think that the business world will be changed even when it comes. What shape this so-called "new normal" will take is still to be seen. But you can begin taking steps to better position your firm for transition from the lingering recession. A few suggestions:

Get close to your clients. As budgets dwindled and projects were delayed, some A/E firms failed to maintain regular contact with their clients. That was a mistake. Now is the time to demonstrate that your client relationships mean something more than a source of income. Clients still have needs, although many still lack funds to proceed with capital projects. But you can still help, either gratis or for a fee they can afford. Some things to keep in mind:

• If you haven't already, transition your business development away from a transactional approach to a relational one.
• Learn how the recession has transformed business for your clients. Uncover changes in budgets, schedules, operational priorities, management mandates, procurement practices.

• Establish yourself as a valued resource and problem solver. Don't waste clients' time with self-serving "fishing trips." Bring something of value to every meeting with the client.

• Increase marketing, but focus on delivering helpful content rather than promoting your firm.

Engage your employees in making positive changes. If your firm has endured layoffs and other cost cutting in recent months, it's important to create a sense of optimism among staff. Uncertainty and stress can drain much of the creative energy that you need to return your firm to growth mode. Don't mistake busyness for innovation and efficiency (see below).

One of the best ways to counteract the recession impacts on your staff is to give them more sense of control over the future. Enlist their active participation in one or more initiatives to strengthen the firm's prospects in the coming months. But won't this hurt the bottom line? The long-term effect, of course, is to boost profitability. To minimize costs in the short term, the secret is to effectively manage your nonbillable time.

Focus on improving work process efficiency. Other than business development, probably the most important initiative in the coming months is to figure out how to dramatically improve your firm's productivity. I'm not talking about utilization here, but the ability to produce more in less time and at less cost. Why is this important? Because the evidence suggests we will be facing a higher level of price sensitivity, perhaps for years to come.

There have long been opportunities to improve in this area. Rework in our industry averages perhaps 15-20% of project budgets. One study concluded that productivity in the design and construction industry has actually declined over the last 40 years, in sharp contrast with most other industries. To maximize profit in a new era of client austerity, you need to find ways to improve the efficiency of your project delivery process.

Rethink how you measure performance. The common financial metrics we use make sense from a financial perspective. But they are not necessarily good measures of--nor effective incentives for--human performance. For one thing, they are trailing indicators. They quantify results from past actions, and may not be that helpful in guiding what should be done now or in the future. And they may not be effective in motivating desired behaviors.

Take utilization, for example. This is probably the most heavily enforced metric in our business. But how exactly should people respond to the mandate, "We need to improve utilization"? The obvious need is to generate more revenue, but that usually takes time and is limited to the domain of a few rainmakers. You can cut staff (and this has been common in recent months), but that is clearly not the favored course of action. Or people can charge more time. But if the work isn't there, how does charging more hours benefit the firm?

The best metrics are directly tied to the actions you need to get the desired results. These are leading metrics, tracking whether people are doing the things that really matter. Another critical measure is how satisfied your clients are and how you can do better for them. Employee satisfaction is also important, because it influences performance. With some thought, I'm sure you can identify other metrics that are better aligned to the results you value most.

Be cautious about moving into new markets. If your core markets are currently depressed, the natural temptation is to look for better ones. That may well be smart strategy, but you're probably better off trying to increase your share of the markets you're already in. Competition in all sectors is tougher than ever, and you can waste a lot of time and money trying to break into new areas in the current climate.

This often leads to the transactional approach mentioned above, writing proposals for contracts you have little to no chance of getting. This is consuming the attention of a lot of A/E firms these days. That focus is better directed to the business you know, getting close to your clients, learning more about their needs, diversifying services through teaming and strategic alliances, positioning your firm as the trusted experts in your field.

The need for strategic focus is greater now than before. Pick a few things to concentrate on, and give it your best effort. That's better than the reactive, scatter-gun tactics that are common in our industry today. You may find there are more opportunities in the marketplace than you imagined.

Becoming the Compelling Choice

Most A/E firms derive 70-80% of their business from repeat clients. That's good. Unfortunately, one survey found that over 50% of our clients would be willing to switch from their current providers. Other research suggests that only one in four clients would recommend their primary provider.

So the hold you have on your loyal clients may be more tenuous than you thought. This is particularly true in a bad economy. Yet never have your loyal clients been more essential to your firm's well being. Are you willing to go the extra mile to retain those vitally important clients?

There's a simple (in concept)--yet not so simple (in practice)--formula for making your firm indispensible: Give your clients value they can't get from your competitors. The primary advantage you have with ongoing clients is the relationship. Clients typically stick with their current providers, not so much because they think they're the best, but because they have an existing workable relationship.

So have you assessed the relationship with your top clients? One way to think of this is the simple formula: Satisfaction = Expectations - The Experience. How do you know your clients are satisfied?

• The first step is to clarify what their expectations are about the working relationship. Almost no one does this in any formal sense. This is the "benchmarking expectations" step in my client service delivery process.

• Then you need to ask how the experience of working with you has gone. By my informal survey, only one in four firms do this routinely. Check out this earlier post on how to solicit client feedback.

It's also helpful to understand the difference between requirements and expectations:

• Requirements. Stated explicitly verbally or in writing, typically in the form of an RFP, work order, or contract. Usually define specific, impersonal, and objective conditions for meeting needs and satisfactory performance. Scope, schedule, budget, and technical criteria are the primary project requirements, and too many in our industry are comfortable proceeding with only this information.

• Expectations. Typically unstated unless asked. These are usually more personal, subjective, and sometimes less specific criteria for establishing a strong working relationship. It will involve intangible measures of trust, responsiveness, concern, and connectedness. Understanding expectations is key to making yourself indispensible to clients.

To become the compelling choice, you have to move beyond simply meeting requirements. You need to meet and exceed expectations. Some firms throw around marketing slogans like "we exceed expectations" without even understanding what that entails, much less actually doing it. It's a high standard, seldom achieved. But it is achievable.

The following diagram depicts three service value thresholds. Meeting requirements makes you competent, critically important but the client expects no less. Meeting expectations gives you a competitive advantage. Firms often don't even know what the expectations are, so meeting them consistently puts you in rare company. Exceeding expectations makes you the compelling choice.

Of course, if this was easy everybody would be doing it. That's precisely the point. One more challenge to keep in mind: When you exceed expectations, you in effect set them higher next time. So remaining the compelling choice would seem to commit you to a process of continuous improvement. Then again, until your competitors start doing a better job of uncovering client expectations, outdoing other firms in this regard might be easier than you thought.