Has the recession changed your business model?

Has the recession changed your business model?

Interior design

Since the recession, cashflow is the toughest thing to manage for designers because clients want longer payment terms and suppliers put bills in earlier.

The free flow of business and projects prior to the recession has long gone. Budgets and payments are more controlled, as are completion deadlines. The flow of work is not consistent and somewhat unpredictable, which means it is difficult to forecast long-term business goals.

Competition in the market has prompted interior designers to take a global approach to business. Some companies have survived the downturn and some have gone bust. Cash flow is the most important part in running and maintaining a successful business.

“Everything has changed in my business since the recession. I decided very early on that if you do not find ways to work in this new environment, you face potential failure,” said Melissa Greenauer, founder and principal designer, Greenauer Design Group (GDG).

“Ultimately, you have to focus on what makes the best business sense and generates profit for your business. Given the fact that there is not enough work to go around, you have to outskill the competition, be increasingly creative and unique yet remain commercial in your design approach.”

John Rabone, MD, R&R Design, agrees with Greenauer on taking a global approach. He said the firm has been very lucky because most of its work has been outside of Dubai for the past year-and-a-half.

“Looking back, decisions on who we work for certainly helped us to get through the recession, too many companies were over exposed in terms of working almost solely on high risk projects which, once they were put on hold, meant the bulk of their income ceased overnight,” he said.

“In our area of design you tend to work with the family owned franchise business or direct for the brand as opposed to the developer so cashflow is far easier to predict especially when you’ve been working with clients for many years.

“In some instances, payment terms may have changed but so long as you’re aware of this you can allow for it, it’s when you’ve no idea and there’s no contact from a clients accounts office that it can create problems.”

Greenauer believes her biggest challenge since the recession is trying to capture enough consistent and solid work in one region.

“I have expanded my services so clients get more for their fees, and I have learned not to turn away any work unless it truly doesn’t fit within our business model,” she added. “My new strategy is two-fold; I am focusing on new markets for projects, as well as checking in with old clients so I can work with more repeat business that is referral based, and therefore less risky.

“As a designer, you want to work for the best possible clients and make sure you exceed expectations because this is your best opportunity to land new work with like people and good budgets,” she added.

Trisha Wilson, CEO and president, Wilson Associates, has also re-examined its business model by tapping into different aspects of the market – healthcare, commercial, senior living, and specialty food and beverage design.

It has launched three studios; Blueplate specialty food & beverage studio, Inn-Box Global Turnkey Solutions and Medica Design, healthcare design solutions.

“I have always believed that flexibility is the key to weathering the storm, and those who survive are usually the most adaptable to changing circumstances,” she added.“The market ahead is cautiously optimistic.

Renovation and development is picking up, yet I am still seeing the norm to be quite value driven. The future of hotel design will continue to evolve with new technology, lifestyles and “green” influences,” she said.

Alfred Johnson, principal and managing partner, Alfred Johnson Interiors said the primary challenge lies in adapting to a client’s requirements. He also believes combining design and build services is on the rise with design companies teaming up with contractors to provide a turnkey solution for small to medium projects.

“Aside from design firms around the region having to renegotiate regular fees, we have had to further our search for human resources with a higher requirement of multi-tasking talent that subsidises the need for an increased amount of staff, while aiming to balance the overall equation of business,” he added.

Johnson said pre-recession times called for a design’s life ranging from four to 10 years, varying from what type of commercial property it was. Now, the focus has matured towards being economically feasible.

He added that the ratio of cost effective materials and products against its high end counterparts is now as high as 70%-30%. Cost effective economies such as China, Vietnam and Indonesia have increased the quality of their products, which now contribute to over 63% of commercial interiors within the region.

Clients wanting to get a higher return of investment for their post-recession budgets, tend to lean towards the incorporation of financially viable products with their designs.

“The recession has ensured that our prerogative as design consultants remains stronger than ever, maintaining focus on the client’s needs for longevity and original design intent while we adapt to the ever changing economic factors that drive our industry,” he added.

On the opposite side of the scale, Marie-Noelle Swiderski, managing director, Blanchard Interior Design Architecture said the impact of the recession affected her business differently because she set the firm up in 2006 and what started with out with small baby steps has been growing within a maturing market.

“This entailed testing a business model that we felt was appropriate to what we wanted to achieve, but it was not proven right for this particular market.

“A business model that privileged a small structure,” she said.

The company eschewed advertising for a preferred word-of-mouth and industry-specific presence with little to show except for a portfolio of projects outside the Middle East.

“As our first steps were taken here at a time when the market was in full effervescence, we were, so to speak, feeding on crumbs when others, more established, were feasting on five-course meals,” Swiderski added.

“As we were gaining our stripes, building our local experience and portfolio, with the wonderful commissions and fascinating briefs we had dreamt of being signed on, we were still gathering strength as others were asserting their status as forces to be reckoned with, trend-setters and visionaries of the modern design Dubai.

“When the storm hit, the projects we had signed on continued at their sustained pace, even though two of the last freshly won were rather suddenly cancelled, and we ploughed on. Colleagues, peers, friends, family even, lost their jobs around us. We were brought to a point where the whole team had to be let go of, then two weeks prior to the end of the notice period, signed back on, as we won a substantial new commission.

“These were difficult times, for the heart, the soul and the wallet. And yet, from then, we kept at it. The projects kept coming through. The differences? There were much fewer enquiries, yet those that came through were more earnest, more substantial and motivated the team to do well.”

According to Swiderski, its business model has evolved by asserting itself. It has added architecture to its interior design and decoration expertise and is transparent in all dealings, ensuring clients get the best value for money, from subcontractors, suppliers, craftsmen, service providers, and the hours it puts in.

“That means that, more than ever, relationships are what allows us, our industry and this market, to survive and still flourish, despite the challenges and pitfalls of a fragile conjuncture.

“Many of our peers have suffered, if not disappeared. For those of us lucky enough to remain standing, we build, nourish and thrive on the quality of the human, personal and professional relationships we have been creating over the years,” she added.

To sum up, Rabone added that where we are now, the market is still generally pretty unpredictable but it has found some stability with its clients.

“We can’t expect things to return to the levels of 2008 for a long time and given the indications from the global markets the recession may have ended or may get worse so it’s a bit like the blind leading the blind.
“With this in mind it’s better to tread carefully and make sure you’ve still got your regular clients and maintain the level of service,” he said.

“2011 looks like being a good year for us, but we’re wary that this could change overnight so we’re still being careful but looking at other markets to see if we can make further inroads into these areas and increase our business.

“I won’t make any predictions on the recession being over but at least there’s been some light at the end of the tunnel and we’ll keep treading carefully into 2012.”

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