We just completed a survey that went to thousands of principals in the creative services industry. While a comforting 37 percent of firms expect to bill more fees in 2008 than they did in 2007, 25 percent expect revenue to be flat and 38 percent expect to bill less this year. By any measure, seeing 63 percent of firms with flat or declining revenue is a downturn.

What causes a downturn within a given firm? Obviously the economy at large has tremendous influence, but sometimes the cause is not so wide­spread. A downturn can also be triggered by the loss of a key client (typically one that repre­sents more than 35 percent of billings), the loss of a key employee, embezzle­ment, divorce, partnership disputes and the seemingly inevit­able cost overruns and distractions that accompany any facility change.

The actual impact from one or more of these causes is exacer­bated if financial reporting isn’t up to par, cash cushions are a little thin, marketing is sporadic or client relationships are such that they don’t give second chances.

Whether or not you need help with a downturn right now, and regardless of what might have triggered it, there are four dangers to avoid when navigating one. You can’t always pre­vent a downturn, but you can certainly lessen the impact of one.

DANGER #1
Widening your positioning in an attempt to create more opportunity. At face value, doing so makes sense, but it’s a short-term solution with long-term negative implications—sort of like eating your seed corn when you’re hungry. You think you’re different and claim to be more dedicated, a better listener and a branding specialist who really looks for collaborative, holistic solutions, but there are tens of thousands of firms just like you doing business. The truth is more like a distinction, but without a difference. Besides, your client probably cares about different things and would be hard-pressed to tell the difference between you and the next firm they work with.

If you don’t believe that, give up the account and see how long it takes them to replace you. When you do everything for everybody, the only leverage you have is doing more of it faster and cheaper. Selling expertise that effectively eliminates a “fit” between you and most clients is what leads to good fees, enough time to let good work simmer, and clients who so value your contribution that they give you a seat at the table—early in the process.

Should you find that you must step outside of your area of exper­tise (entering dangerous territory where there are plenty of substitute sources from which your client can choose), here’s how to do it with less risk: First, still put all your marketing time and money into finding more clients in your established area of expertise. Second, accept this other work outside of it, but only if you can make money and have an impact on the client’s situation. Third, don’t harbor illusions that these compromise clients will ever turn into great clients over the long term. Fourth, don’t make your work for them public, thereby limiting the erosion of your reputation.

DANGER #2
Thinking less about profit and more about cashflow. After all, the cash cushion is starting to thin, you’re reaching to cover your monthly overhead to avoid the tough decisions just around the corner, and all you need is to make it past this next hurdle.

You may have carefully defined the qualifications for your ideal client, but the temptation to compromise can be com­pelling, if not regarding the qualifications themselves but the pricing of individual projects. Couple that with a legitimate fear of losing the client, and you may begin to set some bad precedents by over-servicing the account.

The results of the hectic activity are predictable: Cashflow without profit—and the decisions you’re trying to put off will still require action because they aren’t going away.

Individual projects for any given client don’t have to be profit­able, but the relationship needs to be profitable or you’re violat­ing a basic rule of business. Keep profit a sacred requirement, even if it means that you get a second shift job to make ends meet while maintaining your busi­ness integrity.