Leading a services team through a demand shock
What the April and May 2020 data actually showed, and how a creative and technology team should respond: fixed costs before headcount, weekly cash, honest client conversations, and the work that held up.
Contents
In a demand shock, a services company should cut fixed costs before headcount, review cash weekly instead of monthly, and reopen scope with clients rather than price. The data published by mid-May 2020 shows a contraction of unusual speed and unusual unevenness by sector, which makes client-by-client triage more useful than one across-the-board policy.
Key takeaways
- The IMF projected global growth of −3% for 2020 on 14 April 2020, and 5.8% in 2021 if the pandemic faded in the second half (IMF, April 2020).
- The ILO estimated on 29 April 2020 that second-quarter working hours would fall 10.5%, equivalent to 305 million full-time jobs.
- 70% of ad buyers were adjusting spend, with digital budgets for March–June cut 33% and traditional media 39% (IAB, 15 April 2020).
- The shock is uneven by geography: ECLAC projected −5.3% for Latin America but −2.3% for Central America, and the European Commission −9.4% for Spain.
- 51.4% of US small businesses reported a large negative effect, and 31.4% expected more than six months before normal operations (U.S. Census Bureau, 14 May 2020).
What the numbers said by mid-May 2020
Everything published so far is a projection made under a stated assumption. The IMF's April outlook assumed the pandemic would fade in the second half of 2020. The European Commission's 6 May forecast projected the euro area contracting about 7.5% and rebounding 6% in 2021, still below the 2019 level.
Labor moved faster than output. The US unemployment rate reached 14.7% in April 2020, with 23.1 million people unemployed, and the ILO's estimate of second-quarter working-hour losses rose from 195 million full-time equivalents to 305 million within weeks.
On 29 April 2020 the International Labour Organization estimated that second-quarter working hours would be 10.5% lower than in the last pre-crisis quarter, equivalent to 305 million full-time jobs, and that almost 1.6 billion informal economy workers were at significant risk. Source: ILO Monitor, third edition, 29 April 2020.
Two implications. April's forecasts were already stale by May, so plan in scenarios rather than in a number. And a Honduras client and a Spain client are not in the same recession.
Fix the cost structure before you cut people
The first instinct is to reduce headcount, because payroll is the largest line. It is also the line that determines whether you can deliver anything when demand returns. Take the other lines first: software licenses per seat, unused tooling, office and travel, subscriptions bought for a capacity you no longer have.
Second, convert fixed cost to variable where the contract allows it. Reduced hours across a team is slower and more reversible than redundancy, but it is worse for the people who can least absorb it, so make that decision with numbers on the table.
Third, run cash weekly. Payment terms and collection cycles already constrain what a services company can build, and in a shock the constraint tightens without warning. A client who pays at 60 days and then extends to 90 has moved your runway by a month without telling you.
Which work held up and which stopped
Advertising and campaign work moved first and fell hardest. IAB research released on 15 April 2020 found 70% of buyers adjusting spend. Among them, digital budgets for March–June were down 33% and traditional media down 39%. Anything funded from a discretionary marketing budget was exposed.
The U.S. Census Bureau's first Small Business Pulse Survey, fielded 26 April to 2 May 2020, found 51.4% of small businesses reporting a large negative effect from the pandemic and 31.4% expecting more than six months before operations returned to their usual level. Source: U.S. Census Bureau, 14 May 2020.
What held up was work tied to an operational problem the client now had: moving transactions online, replacing an in-person process, fixing infrastructure that suddenly carried all the traffic. That is a different sale from a brand refresh, and it favors firms that can describe value where buyers compare on price.
The client conversation you cannot postpone
Call every active client before they call you, and ask what you would ask before quoting: who now approves spend, what the date is protecting, and what happens to this work in six months. Those questions decide project outcomes in normal conditions and decide survival in these.
Then offer scope changes rather than discounts. A price cut is permanent and unearned. A reduced first phase, a deferred second phase or a narrower deliverable keeps the relationship and the margin per hour, and gives the client a decision they can defend internally.
Say what you do not know. The IMF, the ILO and the European Commission all published April and May projections with explicit caveats about the second half of the year. A studio that claims more certainty than the IMF is not reassuring anyone.
FAQ
Should we discount to keep clients during a downturn?
Prefer scope reduction to price reduction. A discount resets the client's reference price permanently and is hard to reverse when demand returns. Reducing the first phase or narrowing a deliverable protects margin per hour and leaves the pricing structure intact.
How far ahead can we plan with the data available in May 2020?
Not far. The IMF's April 2020 projection of −3% global growth assumed the pandemic would fade in the second half of the year, and the European Commission's May forecast carried similar caveats. Plan two or three scenarios with defined triggers, and review them monthly rather than quarterly.
Is the shock the same everywhere we operate?
No. ECLAC projected a 5.3% contraction for Latin America and the Caribbean on 21 April 2020 but 2.3% for Central America, while the European Commission projected 9.4% for Spain on 6 May. A multi-market studio should triage by market, not apply one policy everywhere.
What should we document while this is happening?
The decisions and their reasoning: why a cost was cut, which client terms changed, what triggered each scenario. That material makes the recovery repeatable, and it is the same written decision record that keeps a company from depending on one person.
What to do next
Cut non-payroll fixed cost this week, move collection review to a weekly cycle, and call every active client with the three questions before month end. Hold price and negotiate scope. Tell your team nothing you cannot support with a source: credibility is the one asset that does not recover on a schedule. By the end of 2020 the revised outlooks will show which of April's assumptions held, and that is when the plan gets rewritten.
