Boutique firms faced unique challenges in recession

In 2009, the struggling economy set an industry standard of decreased revenues and budget cutting.

In 2009, the struggling economy set an industry standard of decreased revenues and budget cutting. According to a survey by StevensGouldPincus (SGP), 64% of PR agencies suffered revenue declines, with the most affected group being firms earning less than $25 million.

Rick Gould, managing partner at SGP, says boutique agencies earning less than $5 million a year faced more challenges during the downturn, as they have less management to rely on and are more dependent on keeping their existing clients.

“Larger agencies have the benefit in a recession, because they have varied specialties and a depth of management and staff that helps them weather the storm,” he says.

While some large agencies closed their low-performing offices in places like Sacramento and reined in overhead by freezing salaries or laying off staff, there were small agencies that closed their doors altogether, such as Schenkein in Colorado and The Catevo Group in North Carolina.

“Small agencies are dependent on keeping the cash flow they have and trying to maintain stability in revenues, so that's something we were focused on throughout the year,” says Sharon Linhart, managing partner at 18-person boutique, Linhart PR.

The Denver firm said its revenues were flat in 2009.

Aaron Kwittken, managing partner of his boutique, Kwittken & Co., notes that new business growth is a struggle many smaller agencies face, as they're pitted against larger firms that may have a range of specialties to offer.

“Spending time going after contracts we can't win isn't smart business,” Kwittken says. “We became a lot more selective on contracts we went after, vetting new business options we knew we could win based on our background.”

Knowing that the loss of one client can be critical, successful boutiques invested in client service and staff training during the downturn.

LaunchSquad, a San Francisco-based tech firm and winner of PRWeek's 2009 Boutique Agency of the Year award, says last year's business exceeded 2008, allowing it to double the size of its New York office, grow overall headcount by 23%, and its client list by 25%.

“Because of the economy, there were a number of valuable candidates that might not have otherwise been available,” says Todd Barrish, MD and co-lead of the agency's New York office. He adds that focusing on improving employees' skill sets through training and conferences were instrumental in staying successful. “Investing through a downtime, with time, effort, and focus, will put you at the forefront when the economy turns.”

Linhart also expanded the agency's offering and its staff with three new positions, including the addition of Southwest Airlines' social media guru, Paula Berg.

“We used the year to augment our skills, investing in a suite of video capabilities, and software and training for our staff,” says Linhart. “Our strategy has always been to be pretty lean and nimble, and that's one of the advantages of being a smaller firm.”

Meanwhile, Kwittken notes the importance of remaining flexible in fee negotiations.

“We had a lot of clients asking ‘Can you do more for me for either the same money, or less?' And the answer always has to be ‘Yes,'” Kwittken says. “But it's not about over-servicing, it's about over-delivering, and there's a difference.”

Kwittken adds that 75% of clients who cut back on spending in 2009 have already committed to larger budgets in 2010, and he expects the firm's revenues to increase by 20-25% this year.

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