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NMK Business Development Survey: Spring 2003

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By: NMK Created on: April 17th, 2003

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A snapshot of business development and commissioning practices among UK digital media companies in March 2003.

NMK Business Development Survey: Spring 2003

Report by Richard Naylor

One of the most important aims of the NMK programme is to improve the processes of contracting and commissioning within interactive media. NMK works to achieve this through the dissemination of best professional practice. Up-to-date market information relating to business development is central to this process and this is why NMK undertook a survey of business development and commissioning practices within the industry during March 2003.

1. Introduction

In the mid-1990s, the UK's fledgling interactive media industry found itself born into a world of plenty. Advanced economies were experiencing one of the longest post-war periods of sustained economic growth, and the explosion in popularity of the internet prompted companies and investors alike to pour money into the new medium. The struggle for many interactive media companies during the 1990s was thus to grow their businesses to keep pace with demand.

Interactive media companies now find themselves in a much harsher operating environment. The dotcom crash, the advertising recession and the general global economic slowdown mean that business rarely 'walks in through the door' in the way that it once did. Adapting to meet this challenge is crucial to the success of agencies and other suppliers of interactive media products and services.

2. Survey respondents

The survey canvassed the opinions of only those individuals with direct responsibility for either business development or commissioning. The results are based on 161 respondents , representing 121 different companies and a further 40 independent sole traders or freelancers. The respondents are primarily involved in the production, development and implementation of interactive products and services (84%), compared with 16% on the client side.

3. Trend towards new business

The balance between new and repeat business is a delicate one: as a rule, winning new business involves more costs than winning repeat business, but reliance on a handful of clients can leave a business over exposed.

The survey reports that the split between new and repeat business for producers and developers of interactive media is roughly 40% new business and 60% repeat business. However, this pattern looks set to change in favour of a greater proportion of new business. Twice as many respondents (44%) report that they are looking to increase their share of new business, when compared with those seeking to lever their existing customer base to increase repeat business (22%).

The trend towards new business seems to be, in part, the result of the current economic downturn and the pressures this is placing on business. As one company put it: "We're not gaining any new tenders from one of our main clients due to their rationalisation".

Other respondents also reported "indecisive investment strategies" and "slower purchase cycles" on the part of their clients. An absence of new commissions from existing clients seems to be a factor then in the trend towards an increasing share of new business for some agencies.

4. Key Sectors

Just over half of the enterprises focus their business development efforts on one or more specific sectors, while the other 50% look to generate new business from all sectors. Of those naming particular sectors, Media is the most important, cited by over 58% of respondents. Other commercial sectors regularly targeted include Technology and Financial Services, both highlighted by 40% of enterprises. However, the public sector is now also clearly seen as a major commissioner and purchaser of interactive products and services. Government is the second most commonly targeted sector, identified by 47% of respondents, and the Charity/NGO sector is also cited by 40% of the sample.

Table 1. Key Sectors for Business Development, Spring 2003

Source: NMK, 2003

Government and the Charity/NGO sector are even more important to the companies in the survey (as opposed to the self employed sole traders and freelancers). Looking purely at the companies' responses, Government at 56% and the Charity/NGO sector at 47% are the most regularly targeted sectors outright.

The rise to prominence of the public sector is clearly related to its current upsurge of investment in digital assets, driven by central government targets to transfer all government services online by 2005. More prosaically, the industry's focus on the public and NGO sectors is also likely to be bound-up with the depressed state of much of the private sector. As one respondent put it:

"Due to the lack of cash in the commercial sector we have been forced to focus on the public sector to gain new clients."

5. Business development practices

As Table 2 below illustrates, of the range of possible business development practices, respondents mainly use two very traditional methods for generating new business: personal contacts and recommendations. Winning business through partnering and forming alliances with other companies is also used either regularly or frequently by roughly half the enterprises.

The use of direct marketing techniques (including cold calling) is not yet widespread within the industry - almost one third have never used any form of direct marketing to promote themselves. The message from respondents is even more emphatic in relation to seeking external help with business development - over two thirds have never utilised third party business development specialists. Clearly, business development is seen as too much of a core activity (and very probably also too commercially sensitive) to externalise.

Table 2. Use of Business Development Practices in Interactive Media, Spring 2002

Table 2: Key Sectors for Business Development

Source: NMK, 2003

The reliance on personal contacts for business development is typical of many other media industries. It also chimes with the client-side findings related to the low numbers of clients that actually advertise their contracts (see section 8 below). However, 'personal contacts' as a response is one that would benefit from further investigation and unpacking. For instance, what kind of personal contacts? How and where are these contacts made? In some cases, the contacts are likely to be truly personal (e.g. school friends, family members etc.). In other instances, it is also likely that they will be contacts made initially in some professional context (e.g. a conference, a previous job, a trade fair, an awards show, a pitch etc.) that later become friends and acquaintances and who subsequently meet each other outside of a professional context (e.g. in the bar, on the football pitch etc).

What this means is that, as with a number of other knowledge-intensive sectors, people 'work' at building up personal contacts, as these can often play a role in professional and business success, even when this may not be may be immediately obvious at the first time of meeting. This is often referred to as 'networking', and a few respondents listed the ability to network as their key business development challenge. But networking can have overly instrumental connotations, and the more subtle blurring between social and business life is better captured by the following quote from another respondent when answering the same question regarding their key business development challenge:

"Developing a good circle of personal contacts to grow [the business] from."

Unsurprisingly, the most frequently used practices for generating new business - personal contacts, recommendations and partnering - are all rated the most effective means for generating new business by respondents.

However, as Table 3 shows, two other ways of generating new business - from affiliate businesses of existing clients and by PR and profile raising activities (such as speaking and writing opportunities) - are also well regarded in terms of their effectiveness in winning new business.

Table 3. Effectiveness of Business Development Practices in Interactive Media, Spring 2003

Table 3: Key Sectors for Business Development

Source: NMK, 2003

6. The new sales imperative

In addition to those challenges outlined above, another factor that comes through clearly when we asked the businesses to name the key challenges they face with regard to business development is what might be termed 'the new sales imperative'. As referred to in the introduction, many interactive media companies and individuals are having to learn or buy new skills in order to undertake more proactive business development work:

"Lower number of tenders in the market place means having to create opportunities rather than identify and close them"
"Until recently we had not done any specific new business campaigns"
"PR and profile raising [is the biggest challenge]. Until recently we've had most work via word of mouth or have been recommended."

The heightened importance of the sales function is also posing a number of organisational challenges, particularly for smaller firms:

"[We're a] small business with no dedicated business development role so the biggest challenges are a) balancing business development with client work and b) not over-committing to new work when existing work unexpectedly extends its scope."
"[The biggest challenge is] creating a meaningful sales reporting mechanism, generating enough sales leads of the scale that we require for our business model [and] closing large deals with a small team."

7. Size of projects

Respondents were asked to indicate the typical project budget for the work that they undertake. As Table 4 below shows, the majority of interactive media projects appear to fall into one of two size bands: £20K-50K, or under £10K - both of which account for a similar proportion of responses (around 29%).

Table 4. Typical Project Budget for Interactive Media, All Respondents, Spring 2003

Table 4: Key Sectors for Business Development

Source: NMK, 2003

Across the full survey, the responses of the freelancers and sole traders do not vary significantly from the responses of the firms. However, this is not the case with regard to project size, where the two groups exhibit considerable divergence. So, when the responses of the freelancers and sole traders are discounted, as in Table 5, the mid-sized bracket of £20K-50K is clearly the most common budget for interactive work, accounting for over 34% of responses - roughly 15% more than for any other size band.

Table 5. Typical Project Budget for Interactive Media, excluding Sole Traders and Freelancers, Spring 2003

Table 5: Key Sectors for Business Development

Source: NMK, 2003

Unsurprisingly, project size is closely tied to the organisational capacity of the respondents. This is also evident in relation to the maximum project value which companies and sole traders are prepared to take on. At the lower level, some freelancers will not consider taking on a project of even £10K. At the top end, however, only projects in excess of £10m would stretch the larger companies. The most commonly stated project limit was for work with a value of £100K.

Without yet having any longitudinal data, it is not possible to make a statistically-based assessment as to whether budgets for interactive media work have increased or decreased over the last 12 months. However, a number of firms in the survey do report that budgets and fees have indeed fallen recently and link this to increasing competition, particularly at the lower end of the market. In their words, they are witnessing:

"Falling budgets - average project budgets [have] dropped significantly." "'Cheapening' of the internet services industry by cut throat pricing and 'cowboys' offering poor quality services"
"Commoditisation and downward pressure on pricing from smaller/less well established agencies keen for business"
"Being invited to pitch for ridiculously small budgets against too many agencies. Clients seem to think that it is a shopping spree and invite up to 20-30 agencies to pitch for a £30k job"

One company sums up the situation of fewer commissions and increasing competition as, "a buyer's market [which is] pushing down fees".

8. Commissioning

There are far fewer numbers of clients within the survey than for the production/development side. So, the following survey findings are necessarily more speculative, and should therefore be read with greater caution.

Contracts and commissions for interactive media work seem to be rarely advertised. More than 75% of respondents reported that they never advertise for the work that they are tendering. Just under half the clients (48%) always use an 'Approved Supplier' list or roster when commissioning interactive work and the rest combine this approach with an open tender process for some work, depending on the nature of each project.

In terms of how clients find out about interactive agencies and other suppliers of interactive media products and services, once again, recommendations (73%) and personal contacts (64%) are the most typical routes, but industry events and networking activity are also seen as important, used by 41% of respondents.

Interestingly, only slightly more than a third of the clients have specific, formal tendering criteria that they insist all suppliers meet (for instance, a certain number of years of audited accounts). This contrasts with the sentiments of some smaller agencies in the market who do perceive that they are unfairly discriminated against in this regard:

"[We are often] pipped to the post by bigger companies who offer the 'comfort factor' of larger turnover, which seems to be more important than creative or technical innovation and understanding of the target audience."

9. Next steps

NMK would like to thank all those who took the time to complete the Business Development Survey which is the basis for this report. We would also like to know whether the findings presented here chime with the experiences of others. So, please email any comments that you have to enquiries@nmk.co.uk and we will look to include the best as a response to this report.