A Gould Standard

Ten years later- Have we learned from ENRON?

2012-01-19T13:28:00.000-05:00

by Rick Gould, CPA, JD

December 2, 2011 was the tenth anniversary of the bankruptcy filing of Enron. The demise of Worldcom, Healthsouth, Tyco International, Global Crossing and other high profile public firms followed soon after that event in 2001. I recall vividly the time I taught the Entrepreneuring graduate course I created at Parsons School of Design and how I specifically chose these firms as model case studies. The relevance was there 10 years ago. But I wonder in the context of today’s business environment… have we really learned from these examples?

The downfall of these firms and the liquidation of Arthur Andersen, the CPA firm for many of these firms, generated millions of dollars for other companies. The bankruptcy law firms, the movie industry, as well as the cable specials and books that chronicled the drama, all profited from the failure of these firms and their corrupt executives.

For these past ten years, those of us in the business community and corporate governance heard about and preached about the importance of ethics, transparency and integrity. But have we really absorbed the lessons learned from the ‘Enronrisque’ culture? Have we fully addressed the fallacies that so devastated our feelings of trust and accountability in large companies? That distrust exists more than ever now, as fully exhibited in the NYC Zucchotti Park Wall Street protest and the wider “Occupy” movement.

What is really in place to stop the cover-ups and off-balance sheet transactions that Enron’s Ken Lay, Jeff Skilling and Andrew Fastow so neatly orchestrated? How can the practice of using a business as a personal piggy bank, replete with illegal and immoral abuses that Dennis Koslowski was convicted for as CEO of Tyco, be eradicated?

In light of all the rules and regulations imposed by the SEC, by FINRA and the “Enron Act,” renamed as Sarbanes-Oxley, I have to truly wonder: how effective are they, and how far we have truly advanced in the areas of ethics and transparency?

The Revolt of the “Masses”

2011-11-29T14:49:00.000-05:00

By Rick Gould, CPA, JD

It has been a little over two months since the start of the “Occupy Wall Street” movement. In that period, the protests have spread from a local origin on Wall Street to a nationwide show of dissent. Billed as “A Day of Action”, 5,000 protesters marched into Foley Square in NYC as similar protests took place in Chicago, Boston, DC, Berkely, LA, Portland, Las Vegas, Philadelphia, Dallas and other major cities.

New York City mayor Michael Bloomberg’s decision to raid Zuccotti Park at 1A.M. last Tuesday morning was, in my opinion, both inevitable and correct. The safety implications, the tents, the garbage, the lack of toilets, the sleeping bags, the loud chanting and the drum circles in the park made his order a necessity.

I live, work and breathe in this New York City-world of mergers and acquisitions and investment banking. I fully understand public frustration with the many inexplicable abuses on Wall Street. My stomach churns and fists clench at the thought of all the pain and suffering that the abuses of Bernie Madoff, Sylandra, MF Global and other Wall Street greed has inflicted. It is blatantly obvious: we need better controls.

Strip away the drama and it is clear: we need to get people unemployed back to work. We need to curtail the big bonuses given to Wall Street fat cats when they have led their companies to large losses and/or bankruptcy.

However, I don’t agree with the methods being used by the protesters. Tearing down barriers, torching cars, theft, storefront window-bashing, blocking subways and office buildings, and organizing riots… these will never get the protesters what they want. The patience of residents, business people, store owners, NYPD and the Mayor’s office has worn thin.

The protesters need to do a sanity check on their goals, the results desired and how they will get there. What they truly need is a quality PR firm to guide them in communicating their message.

The goal of the protesters seems to be to inconvenience the millions of people trying to get to work, to school, or to the colleges in the area. The protesters feel they themselves are the “exploited masses”. But those that the protesters are ultimately hurting are the hard-working middle class, the 99%- NOT the 1% they claim to be so angry at. This is a misdirected rage that is counterproductive and will not inspire support for the creation and redistribution of wealth they seem to be championing.

The protesters should be targeting the following as their causes: corporate greed, big bankers, home foreclosures and the 9-20% unemployment rate (depending on method of calculation and geography). Pointing out specific problems and proposing exact solutions may lead to actual reform and legislation and the advancement of their cause. Anger, violence and the deprivation of others’ rights will not. Be careful: the world is watching.

Review of Billing Rates Should be an Ongoing Process

2011-08-01T12:59:00.002-04:00

By Rick Gould, CPA, JD

Our 2011 Billing Rates & Utilization survey clearly showed that firms are focusing on raising rates. Billing rates are now averaging $513 per hour for CEO’s of agencies with $25 million or more in revenues, and $291 among smaller agencies, Agency VP’s average $261, with the highest among Washington DC agencies averaging $306 and SVP’s $356. I believe this uniform spike in billing rates is indicative of a marginally improved economy and is consistent with growth of the industry in both net revenues and operating profit.

Productivity, measured by billable time utilization has been far below optimal levels. Senior VP’s are billing out only 63% of their theoretical yearly capacity of 1700 hours. And while some rank and file account managers are averaging as high as 99%, some are averaging as low as 70%. The goal for account executives should be at least 90%, a goal reached by almost all firms achieving 20% profitability.

For our full report please email me at rgould@stevensgouldpincus.com

The Myth of the CEO President (of the U.S.)

2011-05-27T14:55:00.001-04:00

By Rick Gould, CPA, JD

It was not surprising to learn this week that Donald Trump finally decided not to run for president. I, for one, never expected him to run; too much to lose, too little to gain.

I respect and admire The Donald for his entrepreneurial energy and his razor-sharp ability. Thinking big and turning adversity into business triumphs are his strong suit. He has created a brand second to none. The legacy of his name is a cash-cow. His buildings are among the highest quality. He has done much for New York City. He is a creator, an innovator, a true visionary. The list goes on.

I am happy for him to continue in this role, as well as in his very lucrative prime-time role in “The Apprentice” and “Celebrity Apprentice”. (Yes, I’m a viewer.) However, his idea of a CEO President, in my view, is a dream. A myth. Far from reality. Let me explain.

His concept is fueled by wealth, power and, yes, a very large ego. It is further fueled by those who support him and by people who want to identify with him, and with the buzz. With the glamour and excitement. These things are subordinate to what a successful president really needs to be focused on. Does The Donald, or any other high-profile CEO, really have the humility to put this aside in fulfilling the job description of U.S. President?

Many dynamic and successful corporate CEO’s dream of ascending to high political office. In addition to Mr. Trump, there is Mitt Romney - a founder of Bain Capital in Boston (for President), Carly Fiorina - former CEO of Hewlett Packard (for Senator of California), and Meg Whitman - former CEO of E-Bay (for Governor of California) to name just a few. But can these CEO’s and former CEO’s withstand the media and public scrutiny that comes with the territory of running for elected office? Can they handle the requisite financial disclosure, the dirty laundry and skeletons in the closet being aired? The divorces and love-children playing out in the media? The incredible number of political surprises and resignations from candidates and elected officials of the past few years shows running for any office a challenge, one that is well beyond an accumulation of votes. The possibility of being smeared by the media, right or wrong, true or untrue, always exists.

I, being a product of the business world, wonder if these successful CEO’s can truly run the country as well as their own companies. Would they be as effective as a CEO President as they are as Chief Executive? It takes extremely different skill sets to run a country. In addition to their charisma, which they all seem to have, being President requires diplomacy and the ability to inspire and engage people of all walks of life... both friends and enemies. The Chief Executive is not accountable to voters, only to his/her board of directors and investment bankers. The President is accountable to his/her cabinet, to congress, to special interest groups… and ultimately to the voters.

Few American Presidents have the background, experience and ability to run a large Fortune 500 company. And even fewer CEO’s have what it takes to handle the realm of personal exposure a presidency brings. Those who believe that our country can be run like a corporation and by a corporate Chief Executive are in for a long wait. I doubt if it will ever happen.

Financial Injustice

2011-01-01T13:25:00.004-05:00

By Rick Gould, CPA, JD

The Securities & Exchange Commission and the Financial Industry Regulatory Authority (FINRA) have imposed massive changes, licensing requirements and continuing education accountabilities on financial industry professionals.

What amazes me, though, is how little has been accomplished by the Justice Department in prosecuting those guilty of corporate abuses for personal gain since the debacles of Enron, Worldcom, Tyco and others of the early part of this decade. Only a select few have gone to prison.

Are today’s cases more complex than Enron or Worldcom or Tycos? And we were successful in convicting Enron’s Ken Lay, Chairman, Jeff Skilling, CEO and Andrew Fastow, CFO? We convicted Bernie Ebbers, CEO of Worldcom and Dennis Kozlowski, CEO of Tycos. All are serving prison terms, other than Mr. Lay whose premature death, before sentencing precluded the humiliation of prison.

And Bernie Madoff got his rightful fate, a 150 year sentence, after turning upside down the lives and financial stability of thousands of hardworking individuals. The bankruptcy trustee, Irving Picard, is committed to recovering, via “Clawback”, the financial gain of many feeder firms for Madoff, as well as Madoff relatives, employees, his CPA and others who gained from this debacle.

Now the Justice Department, led by Attorney General Eric Holder, is increasing major efforts against “Insider Trading” abuses. Public company executives, hedge fund partners and managers are all subject to criminal investigations.

I ask where are the investigations and prosecution to those responsible for the financial crisis that caused the worst recession since the great depression?

What about those from Lehman, Bear Sterns, Merril Lynch, Citigroup, AIG or the many mortgage companies that participated and benefited from the Sub-Prime Meltdown? The settlement with Countrywide’s Angelo Mazilo was a joke in relation to how he personally benefited. And why, if the team is as high quality as professed, is it taking so long?

Why aren’t those executives that are responsible for the mess created being held accountable? Why are they embellishing the position that corporate crime pays?

Isn’t corporate fraud as serious a crime as theft or robbery of a store or a home or a business?

The financial crisis of the past few years needs to result in more prison terms, more very heavy fines, more accountability to restore the trust and confidence of the American public. Throwing the book at those responsible will further that vote of confidence in support of the SEC, FINRA and our Justice Department.

Is Selling Your PR Firm an Eventual Goal? 10 Easy Tips to Sucessfully Prepare

2010-06-01T12:46:00.002-04:00

By Rick Gould, CPA, JD

Every PR business is ultimately for sale. The fact that we are still in a downturn makes it even more challenging. Banks aren’t lending. There are multiples more sellers than buyers. Buyers that are active and manage to obtain credit are buying quality firms strategically- for specialty, for location, or for intellectual capital.

So what can you do NOW if selling your firm is even remotely an eventual goal? Follow these 10 tips and you will be able to successfully prepare end enter negotiations from a position of strength.

1. Start planning early.
Get outside counsel to learn the process and what you will ultimately need to do prior to discussions with a buyer.

2. Get your financials in order.
Be sure to use a reputable CPA firm and request they do a review report. This is short of an expensive audit but at a higher level than a basic compilation. Never believe you can ever substitute your business tax returns for a signed-off CPA report. A buyer will politely walk away.

3. Be realistic as to price expectations.
There are many perceived formulas circulating in the industry, but there are only a handful that are industry specific and acceptable. Get a professional valuation of your business.

4. Have a strong second tier of management.
This is critical in supporting value. If a firm is just an owner and a bunch of AE’s it substantially reduces value. Buyers always look beyond the top tier of management, beyond the CEO, beyond the principals.

5. Have systems in place.
Accounting, time management and workflow utilization systems are imperative for maximizing efficiency and profitability. They also adds “perception points.”

6. Expect an “earnout period”.
Be prepared to be paid out over 3-5 years based on agreed-to targets and goals. This earnout method is widely used and is equitable to both buyer and seller.

7. Have non-compete, non-solicitation agreements in place with key staff.
Include them in the sale- as you get a check they get a check. Thin is very incentivizing.

8. Have an integration plan.
Show how you would divide tasks post-sale, integrating your staff and those staff members and technologies of the buyer.

9. Be mindful of your lease.
Don’t renew your lease, or worst case renew it for a short-term. Try to go to month to month if your lease expires.

10. Write a business plan.
A business plan is a mission-critical, challenging project. You may need professional help preparing one. Show how you would use your staff and resources after the sale. It will always add “perception points” with a buyer. To do a thorough business plan you are required to think about the future. It makes you think about staffing, technology and the competition. It is a roadmap. It is truly an art to write a quality business plan. If you already have one for your firm, just a little updating will do the trick. Do so and watch a potential buyer light up and want to further discussions to buy your firm.

Growth Momentum, Circa 2010

2010-03-03T10:27:00.002-05:00

By Rick Gould, CPA, JD

As we see the economic uncertainty of 2009 subside, we slowly exit the recession that has hammered the PR industry for the past 18 months. Now is the time to plan for a period of growth. Many firms saw their revenues cut in half over the last year, a painful and humbling experience.

Set targets, and set goals for growth in revenues today. Growth in revenues, if managed carefully, will beget growth to the bottom line. Looking at historical organic growth rates and projecting them out to the future should be a high priority.

Growth Momentum best describes this kind of economic recovery activity. This kind of thinking will positively drive your strategy. Is there a niche you would like to try (i.e. Healthcare, Crisis, Public Affairs etc)? The growth that most matters is the growth in the value of your firm. Just growing the top line will generally not increase value. Growing the bottom-line is the key to growing value.

Growth Momentum also has risk: the risk of growing in revenue size and staff with a negative effect on the bottom line. Economies of scale do not automatically occur unless this momentum is managed judiciously and effectively.

My blogs and messages keep coming back to our Annual Benchmarking Study. Industry benchmarks closely managed in relation to your actual stats provide the utmost critical tool to monitor and manage your Growth Momentum.

Most firms want to grow, but are unsure about how to best approach and manage the process. New challenges, new opportunities, and increased depth of services and staff are all contributing variables to growth. Growth can be a careful, measured approach or it can be a careless, emotionally driven one. Which approach do you think maximizes a firms’ value and price tag when the agency principal wants to monetize this valuable asset?

Larger firms that consistently surpass industry benchmarks possess the value and price-increasing intangibles in the valuation of their firm when they are in play to be sold. This will further drive growth momentum.

By adopting a culture of Growth Momentum and managing via benchmarking, firms will inherently evolve to keep staff motivated and attract new clients. Growing, successful firms that also exhibit top quality service and value are the ones that will survive the economic uncertainty.

Your starting point to launch this concept and to adopt a culture of Growth Momentum is to participate in our Best Practices Benchmarking Survey, being distributed on Monday, March 1. By doing so, you will be one of the first to receive the full survey report and findings once it is released. This report will outline the critical industry benchmarks you need to be following to maximize your economic recovery activities.

StevensGouldPincus 2010 Benchmarking Survey

PR Agencies Gearing Up for a Robust 2010

2009-12-28T21:55:00.003-05:00

By Rick Gould, CPA, JD

Our recent Economic Uncertainty Survey Report, to be released on January 11th, only confirmed what PR firm CEO’s predicted at the start of 2009: that it would be a challenging year, a year of client budget cuts, of staff layoffs, of decreased revenues and lower profit margins.

In February 2009, 65% of the 237 firms surveyed predicted major clients budget cuts, and now, the more results tabulated verify that prediction. 63.7% of the 157 firms responding showed a decrease in net revenues. My conclusion was that PR agency CEO’s are adept at predicting what lies in the future. 64% also predicted a substantial negative bottom line effect, which was also validated. The agency bottom line on an average, went from 19.2% to 11.6%; a 40% drop in profitability.

So it is with hope and confidence I predict that 2010 will be a year of rebuilding, rebounding and increased profitability. 64% of the firms currently surveyed believe revenues will increase in 2010. 22% are confident that they will remain the same. In these turbulent times “flat” is “up”.

Several of the CEO’s I interviewed added that their predictions were conservative. Many who checked off “no change” stated that they were reluctant to check “increase” in order to “play it safe”. Since when do PR CEO’s play it safe? Entrepreneurs are classic risk-takers and playing it safe was never their end game. This just goes to show the magnitude of the impact this years events have had on PR.

If firm CEO’s manage their firm using our historically validated benchmarks, hire and train quality staff, take on new clients selectively, and watch client profitability closely then the prediction of increased revenues and profitability for 2010 will be realized. I hope a year from now I will be reporting this reality to you.

Manage your firm as if you will be selling it tomorrow and you will soon see how 2010 has the potential for a banner year for your firm and the industry.

Happy Holidays and Happy New Year!!

P.S. also check out our current SGP Blog entry, “10 Predictions for 2010”.
stevensgouldpincusblog.blogspot.com

Post-Graduate Education Has Failed Wall Street

2009-11-11T16:10:00.001-05:00

By Rick Gould, CPA, JD

Having weathered the rigors of graduate and law school, as well as teaching a graduate course in Entrepreneuring, I’ve noticed something is absent from the classroom environment. There is a critical piece missing from the overall education puzzle.

Many of today’s troubles on Wall Street stem from the lack of emphasis on sound business practices and ethics. Special focus on these critical areas is needed to develop a specific mindset. Education in the areas of developing strong ethics and pay-for-performance systems are the cornerstone for addressing this problem.

Incentivization programs are an important ingredient to the capitalistic system. But when executives become rich as their companies chalk up huge losses, then the stockholders are paying a hefty price and long-term share value and reputation are eroded. And this turns out to be a lose-lose for all stakeholders involved.

What is missing in most of today’s post-graduate MBA programs, Law School and Doctoral programs is analysis of executive compensation systems. This should be a required course early on in all programs, certainly at business schools and the required ethics course at law schools.

The concept of bonuses based on actual performance must be ingrained as the new cultural mindset going forward. Organizational structure, the role of the Board of Directors and how board members get compensated should all be scrutinized. Base pay, bonuses, stock options, expense allowances and perks should all have transparency and accountability.

Revamping corporate governance and compensation systems to be deeply rooted in ethics, to be specifically tied to actual performance, and to be transparent will go a long way toward preventing the degree of financial meltdown we have witnessed this past year.

What critical piece of the puzzle do you think is missing? How do you foster sound business practices and ethics in your firm?

Listen to your Chief Financial Officer (CFO)

2009-09-21T09:30:00.003-04:00

By Rick Goud, CPA, J.D.

The CEO may be the visionary leader of a PR firm, but a firm also needs a strong financial leader to maximize its potential. Most PR agency CEO’s are not financially savvy. For that matter I am being quite kind in my assessment.

It is fine to not master the financial end of the PR business. However, especially in recessionary times, know your limitations and lean heavily on your CFO for careful guidance and tutelage. If you do not have a CFO, find one. Now more than ever, you need to listen to the tune that YOUR numbers are singing.

One of my partners, Ted Pincus (Financial Relations Board founder and CEO, sold to what is now IPG in 2000), at StevensGouldPincus is among very few PR CEO’s that I have met that fully understand balance sheets and P&L’s. If you do not possess this unique combination of talents, then there are steps you can take.

What has become popular in many smaller agencies is to hire a part-time CFO. The part-time CFO may work 2-3 days per week, but will not come cheap. For example, if a full-time CFO commands an annual salary of $200,000, then a part-time CFO may command $100,000. The upside is you are getting the talent, experience and education of a $200,000 CFO. The value-added may be well worth the investment.

There are many highly experienced individuals that would welcome a part-time position, including well qualified, business-savvy mothers with young kids. The part-time position could result in a happy, motivated and very productive person, as well as a PR firm that improves profitability.

The CFO’s office should be right next door to the CEO. The CEO needs to meet with the CFO regularly, confide in her/him and most importantly have full confidence and trust in that person. Close proximity and communication are key.

We have recently witnessed billions of dollars lost forever as a result of corporate scandals marked by mismanagement, fraud and greed. Accountability and fiscal responsibility are now much higher up on the chart of boardroom priorities. Consumers demand it, and your clients likely demand it too.

The CEO, especially in PR agencies, is usually the eternal optimist, the strategist, the rainmaker. The CFO is usually the realist, the detail person, the one who can see behind the numbers, project the financial future of the firm and proactively recommend what could be a hiccup in net revenue and profitability trends. The CFO can and should tell you exactly if layoffs will be needed, or if you should be cutting back on freelancers, or subletting space or cutting back on T&E expenses. The sum of the CEO and CFO positions ideally nets a whole that is greater than that of its parts.

Maintain Brand Equity During a Downturn

2009-08-27T12:52:00.005-04:00

By Rick Gould, CPA, J.D.

For PR firms, what is more important than your brand? It must be treated and protected as if it were a unique, complex piece of intellectual property.

Brand equity is an important factor in PR firm valuations; a valuable asset that can be monetized. The strength and experience of your management and staff, along with the quality of your clients, are a few things that improve brand equity.

To build your brand, you do not need to commit to big budgets, especially in recessionary times. What builds the brand is the quality of your work, the perceived value- added to your client base and the approach to service producing measurable results. This requires an attitude and mindset consisting of more than dollars. It requires integrity in your approach and trust in your client relationships. And more than ever it requires a positive reputation.

Richard Edelman, in his midyear Global Trust Barometer, noted that trust in business and government is rebounding. It was way down a year ago.

Trust is what creates loyalty and improved brand recognition. When a firm creates a brand as a “trusted adviser”, that brand may stick for years. A brand of trust, integrity and confidence is a key strategic asset.

What is evolving in business is a major shift away from traditional advertising in trade magazines/ directories and toward areas relating to the web. In a recession, firms typically make the mistake of cutting back on brand building activities. Don’t fall into that trap.

Brand building should be an ongoing effort. Forward-thinking executives avoid cutting their branding budgets. All available channels to build your brand, including constantly improving your website and search engine optimization efforts, should be pursued.

Develop an over-arching theme for your firm and promote it in your writings, capabilities kits and speeches. Do what Richard Edelman has done so well over the years, as he ascended to be the largest independent PR firm in the world. He built his brand upon trust and exemplary value- added performance.

Find something unique to build your brand upon. Make it important, relevant and lasting. Do so and your brand equity can be more greatly monetized through an M&A transaction at a time of your choosing.

Beyond The Salary - Perks that Count

2009-08-07T14:00:00.003-04:00

By Rick Gould, CPA, J.D.

In recent months I have been performing an extraordinary number of Valuations of PR agencies, reasons being intended sale of the firm, buy-ins of partners, buy-outs of partners or simply to get a reading on the worth of the firm.

One of the areas I closely analyze are employee perks. I have compiled a list of perks from firms I have reviewed.

Feel free to use it as a checklist in comparing your firm’s compensation package, beyond the salary.

You may even consider, as an option to your staff, offering some of these perks as an alternative to a raise. If the perk costs you the same amount and you get a write-off and it is tax-free to the employee it is a home run.

The P- List:

Health Insurance
Dental Insurance
Vision Insurance
Therapy for work related disorders
Life Insurance
Long-term Disability Insurance
Short-term Disability Insurance
Health Club Membership
401K Plan
Direct Deposit
Flexible Spending Account
Credit Union Membership
Travel Allowance
Theme Park Discounts
Store Memberships
Legal Assistance
Tax Assistance
Financial Planning Assistance
Personal Leave (Sick, Bereavement, ill relatives care etc.)
Maternity Leave
Paternity Leave
Additional Vacation days
Extended Holiday weekends
Reduced work week
Education and Courses

Please email me if you have any perks that are not on the P-list rgould@stevensgouldpincus.com I will than re-blog the list at a future date.

Please do not include corporate cars, motorcycles, limos, car services, corporate apartments, corporate yachts, corporate jets, baby sitters, nannies, daycare and dog walkers. The P-list should be perks offered to your professional staff. “Executive” perks and abuses will be covered in a future blog.

My advice - If you do provide perks to your staff include a list of the perks and the value to the staffer at year-end either with their W-2, bonus check or annual review. It can only help the mindset of the staff in assessing their worth and perceived value to the agency by its management.

PR “Model Firms” Dispel Benchmarking Doubts

2009-06-22T16:38:00.004-04:00

By R ick Gould, CPA, J.D.

Recession contrary “Model Firm”? What is a recession contrary Model Firm?

A recession contrary PR firm dispels the notion that a firm can justify poor performance if we are in an economic slowdown. Uncertain times, financially challenged periods or whatever the label assigned, the fact remains that recession contrary PR firms use benchmarking (not rationalizing) to weather the storm.

I have closely tracked a select group of firms since the years following September 11, 2001 and the unpredictable Tech explosion/implosion. These firms, while evolving through the same conditions and changing business world as their competitors, developed the ability to maintain 25-30% profitability. They continuously pour investment dollars back into their firm by hiring quality staff, expanding space in desirable working conditions, giving generous staff benefits and bringing in the best technology and outside consultants.

The one common thread among these recessions contrary Model Firms is that they consistently manage by the numbers. They manage by benchmarking.

Recession contrary Model Firms keep their labor cost under 50% of Net Revenues. They keep their Operating Expenses at around 25% with their major item, rent, between 6 – 8%. Managing using key benchmarks assures them the requisite profitability needed to grow and increase the value of their PR firm.

For additional insights from the 2009 Best Practices Benchmarking Report please see the StevensGouldPincus Blog at: http://stevensgouldpincusblog.blogspot.com/

Diversifying Your Specialties Can Add to Your Bottom Line

2009-05-19T22:22:00.002-04:00

By Rick Gould, CPA, J.D.

PR firms, regardless of their specialty, usually learn and master the fundamentals of successful PR campaigns. They develop skill sets not only as publicists but also as counselors and advisors.

Those that specialized in disciplines as technology, travel and financial/IR did extremely well in prosperous times… but their profitability plummeted during the tech meltdown and the financial bust we are experiencing now.

I suggest a change of direction in these unusual times. To insulate your firm from future hard times and recessionary cycles, hire a top notch PR specialist in a specialty different from your current offerings.

Diversify your client service offerings. Build the new specialty and invest in it. Be entrepreneurial. Take a risk, oversee it, and provide guidance… but allow others to run it and develop it. This will provide a cushion when revenues may be slipping in your primary specialties.

Let’s use law firms as an example. Those specializing in M&A transactions during boom years moved into restructuring and turnaround specialties when deals were infrequent. Bankruptcy law firms that were looking for work when the economy was good are now searching for attorneys with a bankruptcy background. And firms that created class-action specialties as corporate C-suite and Madoff-type frauds were uncovered are now thriving. The time to create these specialties is when it is a deliberate, measured choice… not when done in panic or survival mode.

These unusual times may require a change in direction. Diversifying makes the challenge more transparent and keeps the firm focused on long-term viability.

2009 Benchmarking Survey

2009-04-27T16:09:00.004-04:00

By Rick Gould, CPA, J.D.

I urge all PR Firms to participate in the 2009 StevensGouldPincus PR Firm Benchmarking Survey. Last year we had 105 firms participate.

The report will provide both comparative historical stats for 2008, trends and a tool for you to budget & plan for 2009. You will be on top of and in control of where you can improve your operations.

Managing by Benchmarking is the most expedient and effective way to assure your profitability goals.

The industry profitability Benchmark was 22.0% two years ago, 19.7% last year. I believe it will be lower for 2008… but how much lower?

The survey is for U.S. and Canadian firms and includes the leading and most profitable independent firms. We also summarize key stats by our “Model Firms,” firms that we have been tracking over the years and have shown a consistent pattern of strong profitability in both boom and recessionary times. These stats alone will justify your efforts in completing the survey.

Remember - all submissions are in confidence, no names are ever mentioned and all stats are averaged by size, region and specialty.

If you need a survey sent to you please email Yadi Gomez, ygomez@stevensgouldpincus.com

Our deadline is Friday, May 1, but if you need an extension please email me at rgould@stevensgouldpincus.com or call me at 212-896-1909.

Thank You!

P.S. Firms use this survey as a vital resource for planning. We highly appreciate the time you put in and be sure that your participation further assures its validity.

Gameplan for the Recession of 2009

2009-04-23T17:12:00.000-04:00

Reposted from Monday, January 5, 2009

By Rick Gould, CPA, J.D.

We tell all of the PR agency CEO's that we counsel that if they continue to manage by benchmarking, manage by the numbers they will get through the current recession that will hit us the hardest in 2009. Here are some tips we offer that may be of help to you!

1. You MUST lay off staff if revenues are down...you can't keep staff and "hope" things will get better. It takes courage and is painful but it must be done.

2. Cut costs wherever possible... freelancers, temp help, non-essential travel and entertainment.

3. Freeze hiring unless for a critical position...All staff needs to work harder and longer to get through the recession. Bonus staff members that do so after the firm is over the hump. Any staff members not willing to do so should be the first to go.

4. Defer bonuses other than for lower level account staff and admin staff who count on their week or two salary bonus to survive.

5. All management take pay cuts...They received big raises and bonuses when times were great in 2006 and 2007 and now they need to reduce compensation and/or forgo bonuses for the new year.

6. Use C-Suite Conference calling whenever possible instead of meetings that entail expensive travel and hotels. Do a line by line analysis of each cost and expense and look where it can be reduced.

7. Management teams must "manage" very tightly...staffing levels and mix of account teams. All staff should know that their commitment to efficiency and productivity is necessary and expected. The account teams need to work within client budgets to assure profitability.

8. Sublet space if you have space available after layoffs.

9. Meet the recession head on...What is needed now is leadership, discipline and guts to do what is best for the "firm"....(i.e. layoffs, cost-cutting and belt tightening across the board). PR agency CEO's are smarter as a result of the recession of 2001-2002. Having gone through it they have built up cash reserves and learned how to manage by the numbers. They have also been open to advice by professionals who are in a position to help them.

10. There is no road map or crystal ball for 2009. The squeeze is on but it is not a surprise. It has been predictable for months. It was foreseeable. So PR pros should not complain, just roll up their sleeves and do what is needed to get through this and still maintain respectable profitability of at least 15% and hopefully 20%, which was the average of firms for last year.

At SGP we believe with tight management and knowing what is needed to be done the majority of the firms will be fine. CEO/Owners of smaller PR agencies that are not prepared for 2009 will most likely end up merging their firm into a larger firm and go back to being PR account execs and not need to worry about the back office, tight cash flow and managing the firm.

The key to strategy in a recession is KEEPING THE CLIENT, at all cost, especially when client relationships may be at risk due to disruption of account teams due to layoffs, and to client earnings declines. It means super attention to justifying PR program results and value; and maybe voluntary adjustment of client fee commitment. It's better to negotiate a fee reduction on a temporary basis than lose the client forever.

To weather the coming New Year, CEO's and Owners should cultivate a positive outlook and vision for their firms. Take advantage of your downtime by tightening management and improving accountability. Develop and increase marketing strategies and find other projects to provide and enhance the creative edge, unique to your own company's strengths. Be sure to communicate your vision and be optimistic, as it will inspire enthusiasm. Let the downturn be the spark to drive innovation and creative thinking in 2009.

Now May be the Best Time to Acquire

2009-04-23T17:11:00.000-04:00

Reposted from Monday, March 9, 2009

By Rick Gould, CPA, J.D.

For most prospective buyers, an acquisition in this period of economic uncertainty appears high risk. Some buyers may be hoarding cash reserves previously earmarked for acquisitions in case the downturn sticks around longer than anticipated.

However, now may be an opportune time to acquire IF:

• A firm is stable financially and has a clear vision and strategy, and

• A firm’s strategy is to strengthen core business, create a new niche division or to have another “existing” office.

While the strategy of most firms in a downturn is to focus on maintaining the core clients and specialties, an acquisition can be a positive option to supplementing core values. Expanding in scale and scope can both add to a firm’s bottom line and post-recession position. More time is available during a recession to focus on effectively transitioning the merged firm.

From a sellers’ perspective, we have found that many who have never entertained selling before are doing so now. They are looking to be relieved of back office, gain depth of staff, have access to additional capital, protect their present financial position and secure the family financial future. The correctly matched buyer will support their priorities and values.

Other prospective sellers have realized from this downturn that being an entrepreneur is not always lucrative and fun. The financial and personal risk became more real, and they concluded that managing all aspects of the PR agency may not be for them. PR and client service are their passion, and their preference moved away from independent entrepreneurship and toward securing a senior level position within a larger PR firm.

Although valuation multiples have certainly decreased, we do not anticipate they will be further reduced.

The best positioned buyer firm will have a solid acquisition investment plan. Such a plan consistently points to the goal of making an already valuable buyer’s business even more valuable.

When managed, cultivated and executed properly, the acquisition investment for the buyer will have a significant payback. The value-added in earning potential will be in multiples more than its cost once the investment is recouped. Few, if any, of the major public firms today grew solely through organic growth.

What may spell economic uncertainty to selling firms could translate to major opportunity for those properly positioned on the acquiring side.