Starting a business is easy, but staying the course is tough. Apparently, (and don’t quote me, my research consisted of a very quick Google search) 40% of businesses fail/close within the first five years of trading and property-based businesses have one of the highest failure rates. Which is why value engineering is so important.
This figure could be skewed by the prominent use of SPVs within the industry (which are companies created for a very limited reason such as developing one particular site) but it is still a pretty worrying stat. Funding and cash flow are often blamed and, just like many businesses out there, mine has had its dark days. In truth, it was the understanding and passion of members of the Scroxton & Partners Team that helped us survive and grow, not injections of money (but the cash would have been nice at the time).
Value Engineering Begins at Home
Because cash is so important, and easy funding thin on the ground, we completely reviewed what we were doing as a business and, more importantly, what we were giving away for nothing. We looked back at the projects we didn’t win and realised we were spending tens of thousands of pounds in free site visits that went nowhere, not even a courtesy call or email to say ‘thanks but no thanks’.
It was a jagged pill to swallow; we essentially had a spare senior level salary being wasted each year for no return and every hour we spent away from our live projects was an hour less of value we could build into our service and brand.
Value Engineering Begins at Home
We decided to review exactly what it was we gave away for free, and we decided that it had little value other than telling people how much our future service would be. We also realised that we were being used as a reference point to allow smaller or less quality-driven practices to undercut us. And most importantly we realised we were visiting projects and potential clients who were not interested in a quality service or well considered design at all, they just called us out because it was free.
So we drew a line in the sand and decided to charge a small fee so that we could improve the quality of the information that we gave to clients after the first meeting. We wanted to help them understand how to move forward with or without us and provide something tangible with bespoke ideas just for their project or problem.
By asking potential clients for a small investment in their project it has made a huge difference. We can happily say that we are now lucky enough to have clients that value our work and time as much as we value theirs; we have no ‘time wasters’ because they are not prepared to pay for something that they know they do not intend to use; and we are serving existing clients better by giving them more of our time at no extra cost (and no loss). On the whole our new strategy has been very well received by most that we work with and our conversion rate is excellent.
My somewhat roundabout point about value engineering is that poor cash flow and a lack of funding for small businesses definitely causes problems but, by reviewing what your business is doing, you might not need funding if you can find efficiencies and add value within your current service or production structure. Think carefully about freebies and offers. Charging for your knowledge and expertise does not make you Dick Turpin, but it could very well save your small business in uncertain time.