On the anniversary of the 1987 market crash, I have a message: An economic downturn is coming. And it’s overdue.
Anyone who has worked through a recession (and in my career, I went through four) knows how devastating its effects are. Business starts to dry up. Clients disappear. So do fellow employees. Investments in the future, such as technology upgrades and training and development, are put on ice. Raises and bonuses become fond but distant memories. (Note: a promotion from account coordinator to assistant account executive is not a substitute for a raise.)
Historically, business cycles (expansion, peak, trough and recovery) tend to have a lifespan of six to ten years. The four I slogged through were eight, ten and six years apart, the most recent of which was the Great Recession of 2007-2009.
Not to belabor the obvious, but almost ten years have passed since the last recession, and anyone who thinks another won’t happen – soon – is guilty of magical thinking.
But technically, “recession” only refers to that period of time that the Gross Domestic Product actually shrinks. The real pain comes in the “trough” and “recovery” phases. The recession ends when the economy reaches the depths of trough. It may stay in that trough “bumping along the bottom” for months before any signs of recovery appear. And the recovery (the period of time during which economic indicators return to their pre-recession levels) usually takes years.
The trough and recovery phases are particularly difficult for PR agencies to manage through. I was on the “client-side” during the last downturn and take it from me, it was no picnic. But agencies get hit harder, in my opinion. Staff, already fully engaged in the best of times, are asked to carry an extra load. Seven-day workweeks become the norm because those new business proposals have to get done sometime.
Even more pernicious, clients (new and old) are going to demand widespread discounting, either through lower contractual billing rates or over-servicing (which is the same thing) or else they will put the account up for review. And, of course, clients themselves are constrained – getting approval for an agency budget may take months as the winning agency waits and waits for the phone to ring. It still makes me shiver to recall the experience.
One ironic outcome of economic downturns is that in my experience they tend to foster innovation, albeit innovation borne of desperation. Once the recovery has taken hold and some of the pressure subsides, those rates that were dropped to keep the lights burning can’t just be cranked up again. No client is going to accept that the media tour you did last year for $20,000 is now back to $30,000. And in all likelihood, they are already buying as much of whatever you’re selling as they need or they would have ordered up another batch already.
Coming out of the recovery in 1992-1995, the world was discovering this thing called the internet. Clients didn’t know exactly what a website was or what it could do for them but they wanted one because their competitors had one. (I once was visiting a prospect who proudly told me that his company had a site on the “Wide World Web”.) FOMO, as they say. Agencies nimble enough to stay a step or two ahead of their clients and prospects suddenly had a new potential income stream. And it worked. Internet eye candy was the catalyst of the agency world’s recovery and expansion.
The same thing happened after the 2001 downturn, only this time it was internet 2.0 and e-commerce that propelled a phoenix-like rise from the ashes of the recession.
In the years since the Great Recession, the growth of the “Internet of Things“ and the widespread corporate adoption of social media as a mainstream communications channel fueled yet another recovery.
All of these technologies had a breathtaking impact on the shape and path of the PR profession, rendering the world I worked in even into the mid 90s unrecognizable and obsolete.
Still, the benefits of desperate innovation do not outweigh the pain and misery of a prolonged economic downturn and I wouldn’t wish it on anyone. But we know it is coming. We can’t stick a pin on the point where the peak will end and the next recession begins, but we can at least learn from history and start preparing for the worst.
Managing long-term fixed costs like real estate is an obvious step, and the surge in work-from-home arrangements can serve two admirable goals. A commitment to rigorous and meaningful performance assessment of staff in the best of times can help ensure you have the best team in place when it hits the fan.
There are ways to run lean without being mean. Now’s the time to think about that, because the days of this expansion-to-peak are numbered.
Categories: Random PR Thoughts