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The founder of VRP Consulting, Roman Medvedev, shares his experience and advice on how to survive a crisis with dev.by and advises businesses to survive and then flourish by not holding on to the past.
Roman, I know that before the pandemic you spent most of your time in the USA. How has your life changed in recent months?
Yes, I often went on business trips in America and Europe. It was important for me to keep in touch with our employees and global client base spread around the world. Clearly that it is currently impossible. Previously, we had a good mix of in-person meetings and video calls with our clients and prospects, but now video calls have become ubitiqitous. Honestly, I’m not sure that I will fly as often as before once air traffic is restored.
VRP Consulting was founded more than 20 years ago. Over the years, the world has gone through at least two global economic crises and now we are facing a third. What is the difference between the current situation and the previous crises?
This is the third crisis in our history. The first was in 2000, and the second in 2008. Each crisis is a unique phenomenon, therefore it is difficult to compare them. All three crises occurred quite unexpectedly. Yes, there was an understanding that someday a crisis would happen, but we hadn’t seen any clear indicators and prerequisites that one was about to hit.
Both the previous collapses and the current situation developed very rapidly. Only a few weeks passed between the moment when the first alarming news began to arrive, and the collapse in the market. But still, it’s worth remembering that the first two crises had primarily economic reasons.
In 2000, a bubble in the stock market of technology companies ballooned and burst sharply, and in 2008 there was a mortgage crisis. The current situation is unusual in that we are dealing with a pandemic. Neither the previous nor the current generation has encountered this.
You say that the crisis came unexpectedly. But there was a lot of talk about the possibility of a serious recession in the United States and the onset of another economic crisis after it.
There was only a common understanding that a crisis would come someday, although there were still no visible signals of an economic slowdown. For example, before 2000, a lot had already been said about the crisis. In late 1998 and early 1999, experts in the Economist magazine warned that everything was about to fall apart. Only a year later, everything had fallen apart and then there was a real expectation of a big collapse in the economy. After 8 years, some experts warned of the possibility of a mortgage crisis, but I do not remember that its onset was somehow discussed by the general public.
A similar situation happened now: everyone understood that sooner or later something would happen, but no one could have even thought that the reason for this would not be an economic phenomenon, but a pandemic that would take over the whole world.
How did the crises of 2000 and 2008 affect the work of VRP?
In 2000, VRP was a small company, and we did not have experience in handling such a difficult situation. We did not understand what we needed to do. In those years, the company worked only in the American market, and our employees were also onshore. I realized that such a crisis was simply impossible to sit through and do nothing. I knew that something needed to be radically changed. It was at that time we moved to our hybrid delivery method with regional delivery hubs and near-shore centres of excellence. I started looking for and hiring programmers for our near-shore offices, optimizing expenses, offering services to clients at lower prices. In fact, it was then that the company appeared in its current form.
Thus, the 2000 crisis became a catalyst for success for VRP.
It was easier to survive the next crisis — we had gained experience from going through a similar situation. Part of the team was already familiar with our hybrid approach and global collaboration. Of course, they worried, watching how the economy was suffering and projects were falling apart for everyone, not only for us. But I could remain calm and help them see past the economic turbulence.
In such crisis periods, the best near-shore IT specialists get more work, as customers are actively optimizing costs and reducing expensive local staff. I think something similar will happen shortly when the global economy fully emerges from the crisis.
But over the past 10 years, much has changed. The world has become more global, the concept of local labour has blurred, and near-shore programmers have become more expensive. Is that not the case?
In recent years, there has been a tendency in the European and American markets to hire local workers. Just due to the fact that companies had enough money for such expenses. And it was generally accepted that local workers who go to the office are more efficient. Our clients often said: “You are great, we like everything, but we want a local worker, or send yours, but to our office.” Now, this situation will change: some of the local workers in the USA and Europe will be reduced and replaced by remote ones.
For that reason, our hybrid approach has given us a fantastic agile foundation for this time. All our staff are experienced in remote work with clients and have seamlessly transitioned to work from home arrangements. We’ve been able to relocate resources to our near-shore delivery hubs and keep our local experts utilized.
As for salaries… It is still difficult to predict, but I can say that in 2008 we already had a remote office and we reallocated much of our resources to our near-shore delivery hubs, and reduced regional worker salaries.
We saw how the pandemic spread to different countries. We saw that traditional small and medium-sized businesses have been primarily affected by the crisis. But what has the situation looked like for the leadership of an IT company? When did you realize that you needed to take anti-crisis measures?
Around mid-February to early March, it became clear that the coronavirus pandemic would be unlike local outbreaks of infections in past years. The alarm grew, but it was still not clear what would happen next. In mid-March, the first news appeared about the closure of borders, about self-isolation in Europe, and I realized that some of our clients’ industries would definitely suffer: services, transportation, hotels, restaurant business.
For me, the tipping point was the first call from one of our long-time customers. The client said: “Guys, we are stopping work.” It was a world- famous company in the aviation sector. Naturally, when all flights were cancelled, they needed to replan and reprioritise projects.
By this time, the VRP management had already discussed and adopted our crisis plan, but this call served as a signal for me — the plan needed to be put into action. Then there were calls from other clients, for example, from the hotel sector. But most of our clients have stayed with us, and no one has abandoned a project completely. Some of them have been suspended since mid-March. By the end of May, all projects in one form or another have resumed.
Our major aviation client, that I spoke about earlier, has also returned to work. If enterprises are returning to their operations, it means that the world industry is slowly starting to rebound.
In my opinion, the peak of the crisis has already passed. Of course, there remain risks that there will be second and third waves of the pandemic, but there is no panic in the market.
How did the VRP top management discuss the crisis plan, and what measures were ultimately taken?
The company’s management is constantly in touch and discusses various situations. We are always trying to model our behaviour and the behaviour of our customers. We have already gained experience of living in conditions of economic turmoil, so an action plan had already been outlined in advance. I can’t say that we had outlined all the steps and numbers — as I said, every crisis is unique. But we roughly understood that we had reserves in place, but in this situation, our financial airbag had to be increased so that the company had reserves for several months in salaries and expenses. We evaluated clients: which ones are most interesting and important to us, which clients we can afford to lose, what would happen if a large client leaves, similar conversations take place constantly.
Therefore, we met the crisis, if not fully armed, then at least with the main scenario of action on hand.
- The most important point for the leader is not to panic. Panic destroys everything. Bring yourself to the task and take a couple of days to think. Firstly, you must continue to work, and secondly, your managers and employees look to you, and a leader’s uncertainty is passed on to the team.
- The next step is to reduce non-essential expenses: rejection of unnecessary office premises, cancellation of events, reduction of trips. Such costs can be reduced quickly and without much damage to the company. But even this step is not always easy. For example, it was not easy for us to abandon the second VRP office in Minsk. We invested a lot in it and we were proud of it.
- Next, you need to look at finances. Even before the crisis, we did a great job of putting all our financial statements in order — both according to the current state of the company and according to forecasts. These numbers should be in order and available for analysis at any time. Managing a company in times of crisis “blindly” is impossible.
- After that, you can finally proceed to optimize costs. This is the most painful and time-consuming part, but it was also done.
Every company has had eight years between the last couple of crises. During this time, you can become very attached to the usual way of doing things. But you need to understand that the situation can always change, and even in a crisis, do not forget about planning for the future: the search for new markets and new directions. In the current situation, markets related to the healthcare system and remote communication will certainly grow. They are focusing their main efforts on sales and marketing and we have begun a large number of projects in these areas.
VRP has been centred around Salesforce for a long time, and so far there is no reason to expand in other directions. But our resources and skills are flexible so we are always we are ready to extend out reach. My recommendation: the company does not need to hold on to what worked well in previous years — it may stop working and the company will be left with nothing.
You mentioned a financial airbag. How much can a company of your level (500+ people) stay afloat during a severe crisis?
I would say this: a company of our level can hold out during the crisis as long as you like. The question is how much time the company has to optimize costs and reorganize processes. But you can continue to work in any conditions. It cannot be that all work ceases.
But some measures need to be taken, and this takes time and time is money. The workers are valuable, we have been discovering, teaching and motivating them for years. This system cannot be allowed to fall apart, because it will take years to reassemble. In any situation, part of the workforce must be preserved. In my opinion, a three-month expenditure fund is sufficient for the company to be reorganized during a crisis.
I would suspect that reductions are the most painful step for the company. When did VRP decide to take this step?
We really value our team, these are real professionals who grow and develop with the company, investing a part of themselves in VRP and sincerely love what they are doing. It is clear that to let go even one employee is very difficult, not to mention a few. We considered various options on how to keep employees in the conditions of the suspension of projects: some went on vacation, some we redeployed on internal projects, but we still had to part with some all the same. But we each parted individually: we talked, tried to build a plan for the employee to return to the company after the crisis, or helped with the search for a new job through our HR channels.
Although the market of Salesforce -developers was “suspended”, it did not completely stop. Even during the crisis, our employees continued to receive job offers. Therefore, those who were in the company on the bench and wanted to leave it, we did not hold them back but let go (this was about 7% of employees). In parallel, we reduced the number of vacancies and focused on selecting specialists at a certain level. Such actions have helped minimize the effects of the crisis.
And what about apprentices and testers? Aren’t they usually the first to go during difficult times for IT companies?
I would not point to one particular segment or speciality. Without a tester, programmer or manager, we will not be able to work on a project. Instead, I would look at the efficiency of the employee and not even their salary. There are highly paid employees whose unique knowledge and experience can be sold. Such people in any situation will remain with us, despite external risks. The same with apprentices: some of them are more active and productive, and we look at these indicators. There are different methodologies for effectiveness; we use an internal system for evaluating effectiveness.
Over the recent months, we have observed different strategies of IT companies in a crisis. For example, some of them announced cuts in the salaries of top managers. How much can you save through this measure?
I will be frank: we considered such an option. Moreover, there were cases when heads came to me and offered to reduce their salary themselves. But I would not want to divide people into “heads” and “non-heads” in terms of potential salary reductions: a reduction in income demotivates everyone. In my opinion, by lowering someone’s salary by 20%, you can get a person who works half-heartedly or does not work at all. Also, a lack of motivation and desire for results from the manager will be transmitted to the whole team. Therefore, we decided against such a measure in our delivery hubs. And besides, you can save very little on cutting salaries of top management.
I’m sure you are aware of the discussion generated by another measure adopted by one large local company — the postponed revision of salaries. How effective is it in your opinion?
This is something I do consider to be effective and this measure was one of the first we took. I believe that in a situation of uncertainty and crisis, it makes no sense to talk about revising salaries. I want to remind the IT community that in good years, employees came to management and asked (and sometimes demanded) raises and they were given.
Now is the time for employees to give back to the company. That is honest. But this is temporary: this situation will not last for years.
Have you postponed a review of all salaries, even when renewing contracts?
With very few exceptions, yes. We have explained to every employee that this measure is temporary and that they have the right to even refuse to cooperate with us (and such cases may have occurred).
You need to understand that attempting to save the entire company during a crisis is a suicidal plan. Decisions like these are painful, but they must be taken very quickly. Attempts to preserve everything from before the crisis, every employee, every office, will not lead to anything good. You will still make unpopular decisions, but before that, you will spend all your reserves, and there will be no space left to manoeuvre.
Can company management take advantage of a crisis in order to just save money?
Save – yes. The positive effect of any crisis is that you are rebuilding your work more efficiently. Previously hidden reserves and opportunities for how to do the job better, faster and for less open up but by no means at the expense of people!
Putting people first is one of our fundamental commitments.
These people give the company most of their time and we’ve spent years discovering and nurturing these people. Perhaps some well-known companies use the crisis for their own purposes, but we are definitely not going to do this.
How many times during these months have you had difficult conversations with subordinates?
Almost every day, and sometimes several times a day. These were complex conversations, sometimes philosophical: we are all human, and everyone needs support. But all of us need to understand that a crisis is a temporary phenomenon, after which a powerful restart and evolution usually follow. The crisis allows you to look at your business from another perspective, understand your weaknesses, develop a plan and emerge stronger.
Thank you for taking the time to discuss how to survive a crisis
The pleasure was all mine.
Roman Medvedev is the Founder & CEO of VRP Consulting. He has led VRP Consulting since its inception in 1998 as a general IT outsourcing company and navigated through two previous financial crises.
Article originally published in Dev.by