Patient Zero: Running a Small Business During a Pandemic
Patient Zero: Running a Small Business During a Pandemic
Running a service-based business always comes with unique challenges, but one thing is for certain: nobody could have possibly prepared for the challenges that come with running a business during a global pandemic.
In this episode, Andrew describes the process of adapting to a major change through the eyes of an entrepreneur:
- Early anxiety: How uncertainty impacted business plans as the pandemic developed
- Going from expected growth to expected business loss: where do you make cuts?
- Salary cuts vs. reducing employee count: what are the pros and cons?
- Adjusting expectations for yourself under unpredictable circumstances
- Keeping your team motivated and reassured when you’re depleted
- Putting pressure on your systems rather than your people to improve efficiency, especially when morale is struggling
- Moving from long-term financial forecasts to month-to-month budgeting
Business owners: How have you been navigating entrepreneurship through the pandemic? What skills and strategies have you implemented that have kept business humming despite unprecedented circumstances? Let’s connect!
Here’s how to find Andrew:
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Andrew Hong: Hey, everyone. Welcome back to Entrepreneurship Sucks. Today, I'm going to take a little bit different of an approach to the podcast since we're kind of in the middle of COVID right now, and I wanted to share a few thoughts and observations from my perspective as being a small business owner and running a service- based business during the pandemic. I'm hoping that this story can connect with a lot of you other entrepreneurs who are out there. And I'm actually very curious to hear your stories too. One thing that's for damn certain is that no school or work experience prepares anybody for running a business through a pandemic. There's no playbook for this, right? And so when I first started to hear about COVID in February, I didn't really make any adjustments to our business because I was, quite frankly, completely unaware of the potential impact that this thing would have on the economy. There's a lot of news coming out, misinformation, disinformation. I just, I wasn't sure how to react to it. I knew it was something growing in Asia and obviously in Europe, but I had no idea how that would have affected the overall US economy. So when New York started to go into lockdown, I actually started to really worry about everything that was going on out here in LA and how this might spread to LA. Fortunately, a few things, like we were set up pretty much already to work remotely. Like our core infrastructure is really built on cloud- based tools and software. We use Zoom. We had been using Zoom for years at the time. We'd been using Slack. We had project management systems already set up. Everyone was on the Google suite of products. So from an infrastructure perspective, there wasn't any kind of shift that I thought we really had to make. I had a lot of trust in our employees because they had already worked from home. And in looking at the values that we look at in recruiting people to this company, I never once felt that their productivity would go down or anything like that. So I felt really comfortable about if and when we eventually had to make the move to work from home, that we could. And I think ultimately, we just kind of took things kind of case by case. And as I was hearing the news, that was sort of how I would react to making adjustments to our company or our business model. What actually really did scare me was one of our employees got sick in the middle of all this. Then another one of our employees got sick who, coincidentally, they carpooled into the office together. So I'm like," Holy shit. Do we have like patient zero in LA at Tobe Agency?" So immediately when that happened, I realized like," Okay, we can't screw around anymore." I immediately made the decision to just say," Everyone's going to work from home for the foreseeable future. And we all just need to get prepared. Set up your home offices. Take your monitors home. Take whatever equipment you need and bring it home." So that was just around when LA, or California in general, went to like a statewide lockdown quarantine. And as the lockdown started to get more serious and it became clear that the US had no effing clue how to handle this thing, I started to get really anxious. You've probably heard some... You're going to hear some episodes about anxiety or stress or any of that, and I will say that was definitely one of those moments where I was probably the most anxious. So I started thinking what's going to be the implication to our client business because we're a B2B company? If our clients' businesses shut down, they're not going to be paying us, so what does that mean? How is this going to ultimately affect our business, our growth plans, our revenue? All that stuff. And we had just come off of a year where we grew revenue substantially, but took an operating loss because we were really focused on growth. So I immediately started to zero in on our balance sheet and said," Holy crap. How much in reserve do we have if we had zero revenue coming in for the next X amount of months?" So I realized I needed to start setting up additional lines of credit. And at the time, it was impossible to get a new line of credit because the credit market started to freeze up. I had some really bad kind of flashbacks to 2008. I got my line of credit shut down on top of that because they started to pull funding. I started carrying balances on our credit cards to preserve cash. And I started frantically looking for banking relationships knowing that there was potentially like a large stimulus package coming down for small businesses, which eventually became the PPP. I also started to take a really hard look at our P& L. So the staff that we had back in February and March just before COVID was staff that I was bringing on and expecting a roughly 20% year over year increase in revenue. I decided that there's no way this increase in revenue is coming in, so where do I have to reduce my expenses to get to break even? And our biggest expense, nearly 80% of it, is our head count, our people. So I had to make a decision, do I reduce head count or do I reduce salaries? So I decided that our business was uniquely positioned to grow during a pandemic where digital sales and marketing became more important. So I decided that I wanted to keep our head count and reduce salary. So I applied an across the board salary cut of the defensive measure to maintain our balance sheet so that we wouldn't be writing negative cashflow and sucking down any cash reserves that we had on the company, and that also reduced the amount of pressure that we had to grow revenue as well. We also looked at some of our software costs and also downgraded to a smaller office, but there wasn't really a lot of fat to trim from a fixed cost perspective. I think our biggest problem though was our business was based on a retainer model and that most of our clients now wanted to transition to doing more project- based work. So this meant that revenue was pretty predictable a year out before, but now, it's only predictable two or three months out. So I needed to constantly find new projects to replace the loss retainer revenue from our clients. And quite frankly, even today, I'm still having to do this because it's a constant struggle to make sure that our sales pipeline is full enough to make sure that we can replace the projects that roll off with new projects. But overall, throughout the year, we continued to grow revenue year over year, but the company has not been as profitable as I would've liked, right? So I realized that I had to be really flexible and that I had to kind of forego profitability this year. And this year was really about survival, right? It's about keeping our company together. It's about keeping our services together and making sure that we're still doing business development, that we're still trying to grow revenue incrementally, right? But maybe not as quickly as I expected before. And to this day, our staff is still on salary cuts. And this is still one of the biggest challenges that I'm currently trying to figure out is that how do I get revenue back to a point where it's predictable to support the staff at their fully loaded salaries, which were really predicated on a retainer model for our business, right? So that's kind of a summary of kind of what we've gone through as a service- based small business with about 10 employees and about 10 contractors at Tobe Agency. And I think there's a few lessons that I learned through this experience. The first is managing your personal life and your business life is a lot harder during a pandemic, right? And you got to adjust expectations for yourself accordingly. I think one of the best posts that I've sort of seen out there and the ones that actually kind of tug at the heartstrings a little bit are these CEOs that don't have childcare. They could be CEOs of small businesses, growing businesses, well- funded businesses, mature businesses, but holy cow, you can relate to a CEO really well when they're like," I had to wake up at four this morning before my daughter woke up to get the work done that I couldn't do yesterday because the daycare was closed and I had to watch my daughter all day." I can't tell you how many conversations I've had with leaders who are literally homeschooling their kids while running a seven plus figure business. It's just been incredible to see how people have been able to manage through that, and myself included, my wife included as well. It was already hard to kind of manage your personal emotions and separate them from your business, but now, in the middle of a pandemic, your personal emotions are basically your business. And I think one of the hardest things that I had to do was to think clearly, communicate clearly, and reassure our team that everything was okay when I was not doing okay. I was emotionally exhausted. I had an enormous amount of uncertainty about what was going to happen with the economy and our business. And I was just really fed up with all of it, right? I just realized that I couldn't just work the sheer amount of hours that I wanted to anymore, right? Either there just wasn't enough time in the day, or I just didn't have the brain power at eight o'clock at night or four o'clock in the morning just to continue working. So I had to adjust my expectations and I had to realize that if I thought I was operating at a seven or an eight before, right now, a five is good. I have a saying. I love golf, and one thing that you do in golf is you have a handicap. And so for me in golf, like if I play bogey golf or I play one stroke over on every hole, that's equivalent to a par for me. And so, right now, what I sort of told myself is like bogey is good, right? During a pandemic as a CEO. Hell, even double bogey is probably okay, right? So that was the first kind of lesson is just making sure that you adjust expectations for yourself accordingly. The other is knowing when to back off of output. And I started to realize that these quarantines and lockdowns have a big effect on our overall psyche, right? In that I actually made a very conscious decision to back off of and not be so focused on people's output and their metrics. I realized that this was a good time for me to actually look at our internal processes to clean up the way we did our work because that actually made the work easier for our team, which would actually increase output with less output. So I spent a lot of time with our project manager to figure out where we could improve efficiency around client service delivery. And I always knew that was kind of an issue there, but this was a good time to clean things up, and this had a really big net positive impact on our business. So backing off of just pure output or just getting more projects done and work done, and focusing more on the internal stuff was a good move because it not only let our team kind of back off and relax a little bit and feel like they weren't always under the gun to deliver projects all the time, but it also allowed me to build better processes so that when things were back to normal, they could work more efficiently. The last lesson I really learned from all of this was just throw your fucking plan out the door. Because what happened, we all have budgets, we all have goals and proformas that we're trying to hit. And long story short, the pandemic completely screwed my proforma P& L. When COVID first hit, I tried to build a quarterly plan to try to plan that out. That was a stupid idea, especially at the end of March when we had no idea what was going on. And then when June rolled around, I realized like," Okay, I'm not going to try to project out quarterly. I'm just going to try and build a monthly budget and try to hit that budget monthly." Revenue and expenses, that's all I looked at. So I had a laser- like focus on revenue and making sure that our pipeline was fat enough. And if it wasn't fat enough, I would crack the whip to be like," Yo, let's get these projects through the pipeline. Let's keep moving them," right? And I focused heavily on our personnel costs. So again, taking into account our variable costs, our labor, like our contractors, but also the personnel costs on the employee side, off our fixed side, right? And so since June, I have had a high level yearly plan. I have a general, a high level revenue and expense and profitability number that I'm trying to get to, but I didn't put much weight into that plan. But every month, I actually build a new budget focused on managing that budget week to week. So I've gotten a lot more focused, and actually, I kind of realized like," Holy cow, Andrew, this is how you should have been running the business in the first place," right? In addition to obviously having like a quarterly and a yearly plan, but I realized that this was the single best thing that I could have done during a pandemic, which is to be flexible, to realize that," Hey man, that budget you put together didn't work inaudible an assumption that we're in the middle of a pandemic."( silence) So in terms of what's next for our agency and sort of what I see in the future, I'll be perfectly honest, I have no idea how we're going to emerge out of this pandemic. Until we feel confident that there's a vaccine, therapeutics, it's going to be a very bumpy road to recovery. And I think one thing is for certain, is that the companies that will make well out of this thing are the companies that are technology companies, online companies. And the companies that are going to suffer massively through this are clearly like the brick and mortar, small to medium sized businesses, right? Restaurants, bars, gyms. It's unfortunate that certain businesses have to suffer more than other businesses because of this pandemic. And I actually will say, and I'm bringing a little bit of politics into this and I know I said earlier that I wouldn't bring politics into it, but I actually think that the government needs to really look at the businesses that are being the most impacted by this pandemic, your brick and mortar stores, freelancers event businesses, all those types of businesses that have just been, they can't even run their business because of this thing. We need stimulus for those folks, right? And until there's some sort of stimulus package out there, there's going to be a ton of uncertainty around what's going to happen in the market. And we know that investors, businesses do not like uncertainty. So I'm lucky in the sense that many of our clients have online businesses and that they're growing due to the pandemic, so we're most likely going to be doubling down on the services we're offering. We've see a lot of increase in our interest in rich media services, which is where we use video and audio content to better connect with prospects and customers. A lot of B2B companies are realizing that conferences aren't coming back anytime soon, and because of that, they've got to figure out a digital way to do outreach for sales. So we're working with a lot of companies to create podcasts and more engaging content for the sales team to help them make better connections and replace or augment their sales strategy since they can't go to conferences and things like that anymore. I continued to keep our salaries reduced until I have confidence that we will have more predictable revenue, for example, taking down more retainers. And our team has been really gracious in taking these salary cuts, but it's one of the things that actually weighs the most on me right now and it puts a lot of pressure on me to figure out how to get these salaries back to normal. I'm cautiously optimistic about revenue growth for us in 2021. I'm expecting a 20% year over year increase in revenue growth from where we are this year, but I want us to focus more on profitability. So a conscious decision that I've made going into 2021 is that maybe we don't need to focus so much on growing revenue, but let's make the revenue we have today more efficient. Let's drop more to the bottom line with the revenue that we're trying to get today. So I don't know how that's going to turn out. Next year could be the best year we ever have. And in fact, now that I think about it, revenue- wise, and to some extent, even profitability- wise, this has been a pretty good year for us. But there's a lot of uncertainty still and our business model has really changed from being more of a retainer- based model to a project- based model. So as a business owner, again, I don't have a crystal ball. I can't predict into the future. I'm cautiously optimistic. I will continue to run my business being cautiously optimistic. I will not be making any large investment decisions and everything will need to be tied back to some sort of ROI, as it should be always. But in the end, I think we'll be okay. There's going to be some more pain for us in the future, I absolutely know that, but in looking at what's happened to a lot of the other businesses out there as a result of this pandemic, I felt pretty grateful that we have a business to stand on and that we actually have not had to make any layoffs to date. So I'm pretty happy about that and I take that away as a positive. For any of you out there who are running a business through COVID, I'd love to hear from you. And I would like to know how have things worked out? What are some changes in mindset or business strategy that you've applied to your business? And if you have any stories to tell, please reach out to me because I'd love to hear them and love to hear how you've navigated this tricky environment. I'd be happy to share with you as well some of the things that I've done. So a little bit different of an episode this for this week, but I hope that you found, if you're an entrepreneur and you're running a business out there, I hope you can relate to some of the stories that I told here because it's been a really interesting time to be a business owner, to say the very least. So I'm going to wrap it for today's episode. Thanks for joining me. And if you like what you heard, please subscribe, rate, review, and share this podcast. Check out some of the other podcasts that are on the Tobe Agency network as well. We've got some really good ones around video marketing, content marketing, company culture. So we're building out a lot of really cool podcasts on the network. There's going to be some more creative focused ones. And we're just experimenting with a lot of different topics and new ideas for the network. So we'll include links to where all of our content lives in the network in the show notes. And if you ever want to just talk to me about entrepreneurship, get at me on Twitter @AndrewNHong, and we'll see you on the next episode.