The crash of a graphic studio (a case study)

The dotcom crash hit graphic designers catering to high-tech companies later than most.
Graphic studios were still busy fulfilling orders for brochures, website, exhibitions, road shows, invitations and corporate collateral production. As a result, they kept on working day and night, with their staff of fulltime employees.
Then, almost overnight, they noticed that orders were put on hold or cancelled, with no new work was coming in.
Most graphic studios had depleted their cash reserves, relying on bank credit facilities to keep the business going.

As the shock began to pass, it was clear that action had to be taken.
The marketplace for large design studios had dramatically changed - freelancers and small agencies were now able to enter larger companies.
Potential clients simply did not see the added value anymore of working with a large and prestigious designer when they can get the same result from a relatively unknown and small studio.
One large design studio came to the conclusion that their added value was working with the client to define its core marketing messages, help create and maintain marketing programs together with producing the deliverables, as well as arranging the logistics and management of global shipping and fulfillment.
The studio went on repositioning itself by communicating this message to potential customers. It also seized down by firing 20% of its workforce.

The design studio was able to pitch a large multi-national company that was heading up its marketing efforts from Europe. In order to get this account, the design studio got permission from its banker to exceed its already maximized credit facilities. The studio not only got the account, but also was able to charge premium prices. Wanting to expand on this, the studio decided to form a truly international entity offering solutions to American and European companies.
In post 9/11 US, even established PR companies were struggling; so the studio decided to start with a European office, and once the market would pick up, target the US. To be able to start a local European company, the studio established a local European entity, headed by the local Managing Director for European operations. The studio hired local staff and office space, spent a month on training its Managing Director, and standardized all its presentations, including telephone scripts for initial pitches. Soon after, a local salesperson was hired for setting up initial meetings with potential new clients. The studio invested again lots of time talking about the strategy of finding the right type of client, deciding on a direction, creating a core listing of potentials and talking to them.
The design studio was convinced that they had a fresh, unique sales position and that the market was interested in its offer. This turned out to be a miscalculation. Companies with in-house PR professionals and marcom managers didn't see any added value in an outsider performing marketing research and SWOT analysis. Five years after the high-tech crash, the design studio had to close its doors due to lack of demand.

What went wrong?

1. The studio used to be (too) big – with a substantial payroll and a hefty overhead
2. The studio never made any reservations or preparations for bad times
3. The studio did poor marketing in the good times – “they come to us”
4. The studio didn’t analyze its price/quality ratio – even after the crash
5. The studio misread its competition
6. The studio didn’t conduct a proper market research on the wants and need of its past, present and potential customers
7. The studio left its core business, where it had a sterling reputation
8. The studio went into competition with in-house marketing professionals, which turned out to be lethal
9. The studio didn’t rebuild its home base, but invested time and money in entering foreign markets
10. The studio set up office in a country were it had to operate in an unfamiliar culture and a foreign language
11. The studio didn’t foresee the legal and practical problems of running a company from abroad
12. The studio founded a JV together with a local manager, thus making the decision making process too complicated

What lesson can graphic companies, studios and designers learn from this case study?

• Prepare for the future. Marketing, PR, graphics are normally the first areas where companies try to save a buck and orders could be delayed or cancelled.
• Listen to your customers – even if it means compromising on great graphic designs.
• Build customer loyalty – companies will stay with (or come back to) studios that are reliable.
• Make sure to limit fixed costs and overhead.
• Stay in the field that works; graphic designers are no marketers and vice versa.
• Specialize in a few areas (annual reports, website design) and become one of the major players with a sterling reputation in that niche.
• Perform ongoing market research on trends, (potential) customers and competitors