While the press gives us the view of the bailout of the Big Three and the Wall Street banks at the 20,000 foot level, let me tell you how the economy looks from the ten foot level.

This year started out like most other years, but it was pretty clear to us a year ago that the 4th quarter was going to tank.  In fact, as we recently prepared our 2009 budget and revenue projections, I pulled out the budget guidance from December 2007, and found that we said we should expect a major downturn in Q4 of 2008.  I don’t completely remember now why I thought that at the time, but I guess it was obvious to me that we were entering a recession and the economy was about to turn down, and would turn way down by October.  So what’s the forecast for 2009?  I’ll save that for another blog post.  This one is about how it looks at the moment.

What we noticed late last year was that a couple of clients that depend heavily on donations from financial firms and major computer firms were having problems raising money.  This was a strong indication of things to come.  Some of those clients essentially went out of business by June 2008.  Based on our experience in 2000/2001, we knew that the association and not-for-profit market would lag by about 9 months for seeing impacts of the business downturn, so I think we must have guessed that the early warning signs in late 2007 were going to hit us hard in late 2008.

What we didn’t really anticipate is the severity of the downturn in all sectors, particularly with banks.  Each year is a learning experience, and this one is a rare chance to watch and experience what happens in the severe recessions, which may be a once in a lifetime opportunity to learn.  (I remember the recession in 1974, the one in the late 80’s, and the more recent one in 2000, but don’t remember much about the others in my lifetime.)  This one is definitely different.

Our banking clients are helping us understand the impact of the recession on their business.  The crisis at the top end of the banking world is a very different scale than at the community bank level, and the bailout packages are not yet trickling down.  In simple terms, the recession is being seen in things like dramatically fewer transactions at the teller line, just like there are fewer sales in the retail stores.  People are getting laid off because there is simply less work to do, just like in a factory.

What compounds the problem for the community banks is the lending situation and real estate valuation situation.  Since banks have to “mark to market”, the value of loans in their portfolios drops with the decline of the real estate market, which creates a trickle-down effect.  For those banks with widespread loan problems, the story gets worse.  For those community banks that invested funds in the stock of Fannie Mae, that money is gone.  People are getting cut because you have to do it to slash costs, so that the institution can survive.  Nobody would have ever thought that this combination of circumstances would happen.

For the services firms we work with, the impact is mixed.  We have one client whose business is exactly dealing with complex and major problems with banks - this environment must be a golden opportunity for them.  For other services firms, like the average small law firm or the mid-sized consulting firm, they are all wondering how bad things will get and watching their pennies.  Fortunately - and we are all watching closely - but the services firms in this area seem to be doing better than OK so far.

For the retail firms we work with, business seemed pretty solid until about September.  Then October looked pretty scary for them, and then November was at first dreadful, but by the end, not so bad.  December is actually turning out to be better than last year, but not by a lot.  So, for the retail firms, it looks like the worst is actually over.  Let’s hope that is in fact the case.

For the construction businesses and developers we deal with, the smart ones saw this coming and hunkered down.  Those firms are doing pretty well right now.  For the not-so-prescient ones, time will tell.

For our own company, we are fortunate that we have a focus on different vertical markets so that the economic swings are smoothed out.  Yes, when all markets are swinging up, we do very well, but there has not been a time, in the last recession or in the current severe one, where all markets were swinging down on the same cycle.

What is also interesting to watch is the whip-saw effect of commodity prices and currency prices.  This is a new phenomenon for me to see, too.  The last thing I expected was a sharp rise in oil prices, followed by a rapid rise of the dollar versus the Euro, followed by a sharp drop in oil prices.  This is so crazy.  Now I’m thinking, “so what is the most ridiculous thing that could happen next?”  That’s how we’re approaching the 2009 budget.

One question that we (almost) always ask organizations that are considering our services is: Has money been budgeted for this project?  If so, how much has been budgeted?  As you can imagine, there are a number of different responses to the question; however, essentially there are two responses.  The more popular response goes something like this, “Well, um, yes, we have money in the budget for project XYZ.  No, I can’t reveal that amount to you.”  The less popular response sounds like this, “Yes, we have set aside money for the project in the budget.  While I can’t tell you how much has been set aside, our expectation is for proposals between $X and $Y.”

Why don’t organizations reveal how much they’ve budgeted for their project, or, at a minimum, what their expectation of how much the project will cost?  I can think of a couple of reasons.  They include:

• If we reveal our budget — let’s call it $X — to vendors, every last one of them will bid $X or $X - 1.
• It’s none of your business.
• We really don’t know what the project will cost and we’re using this RFP process to help us figure out how much to budget.

Let me address each of these reasons.

If we reveal our budget, every vendor will bid that amount (or close to it)

OK, I understand why someone would think this way; however, in today’s IT consulting marketplace, there is enough competition between far too many vendors chasing a limited number of clients and projects that I just don’t think it happens that often.  In an ideal world, we, as a IT consulting firm, would be able to convince you, the possible client, of the value of our services and justify the cost of our bid as a sound business decision.  The reality is that price does matter.  Organizations, especially those in our target markets — associations, non-profits, professional service firms, financial institutions — have a limited amount of money to deal with growing IT issues.

It’s none of your business

While I’ve never heard a possible client use these exact words, I’m sure there were more than a handful that were thinking it after hearing our request :-)  Yes, you do have a right to reveal or not reveal information about your organization, your staff and your requirements.  However, the more transparent and open the process is, the more likely that (a) you are going to find a vendor that fits and (b) the project will be successful.  Yes, we are in the business of making money; however, the best way for us to make money and to succeed as a service organization is to develop solid, long-term relationships with our clients and work hard to deliver quality service at a fair price.

We don’t know how much the project should (or will cost)

As a vendor, I think this reason is the most frustrating one to deal with.  If you’re not willing to invest the time and energy to figure out how much you think the project will cost, why should I, as a vendor, spend time and resources to develop a good response to your RFP?  Instead of issuing an RFP, perhaps the better approach would be to issue a Request for Information (RFI) instead.

I’m sure there are many other reasons.  Send me your feedback via the comment feature and I’ll post them.

Please see Five Things Every RFP Should Contain for other comments, as well as my disclaimer.

As an IT consulting firm providing network integration, web design and software development services to small to medium sized clients in the D.C. area, we receive lots of RFPs (both solicited and unsolicited).  Please note that most of the RFPs I deal with are in the area of web design and development, so some of my comments may not apply to RFPs for different services or products; however, in general, I think my comments apply across many kinds of RFPs and other formal (or informal) solicitations for products and/or services.

The RFPs I review vary greatly in terms of quality and quantity.  I’ve seen good proposals that are no more than a couple of pages.  I’ve seen not-so-good proposals that go on for 20 to 30 pages.  Quantity (or the thud factor) does not necessarily correspond to quality.  Since most of the proposals I read are related to web development, the discussion points and examples below will be geared towards that particular kind of RFP.  Here’s what I think all good proposals should include:

• What are the critical success factors and key requirements for the project?
• Who’s involved in the decision-making process?
• What criteria is being used to select a vendor?
• What internal (or external) constraints affect the project?
• How much has been budgeted for the project?

As a general rule, the more time and energy that the proposer invests in the RFP, the more likely we can either (a) propose a solution that we believe meets their requirements or (b) help them find a vendor that is better suited for their project or (c) decline to bid, which saves everyone time.

I’ll deal with these five discussion points in future blog entries.  If you have others you’d like to see added, please let me know.  The true power of a blog is not in the initial posts, but in the subsequent discussion that it provokes.

As always, I welcome your comments about this blog.  Post them online for everyone to view or e-mail them to me at james99 (at) networkats (dot) com.