We’ve been through our fair share of ups and downs at Barrel including some close calls on remaining solvent as a business. Through these rough times, we’ve learned some approaches to help us be more resilient as a business. More importantly, we’ve learned that the ability to survive (and eventually bounce back) requires a mindset that can hold two opposing views: the worst-case scenario where everything burns down in flames and the optimistic view that things will turn around and reverse course.
Holding these two opposing views requires one to see reality very clearly.
As a natural optimist, I often resisted seeing the reality that our business was trending downward, that we were struggling to retain clients, and that our cashflow situation was starting to suffer. My thought was: we’ll land something new, we’ll work out our issues with delivery, and things will get better.
Then when things got dire and my co-founder Sei-Wook started to sound the alarm bells, I’d quickly spiral into a frenzy of panic and stress, often paralyzed except to refresh my inbox every few minutes. It’d take effort to snap out of these spells at which point, we’d be scrambling to do desperate things to keep the business going. Some of these desperation acts included taking on work that we had no business in taking on (often at breakeven or unprofitable budgets) or writing personal checks back into the business.
Over time, with enough scars from experience, we’ve become more alert and conservative when it comes to business health, and the core behavior is to see things as they are, absolutely no sugarcoating or wishful thinking. Any time there’s a dip in business activity or a loss in income due to client attrition, we know it’s time to embrace reality and game out worst-case scenarios. Delaying this type of planning will make it harder to follow through on tough decisions later on.
On the flip side, embracing reality can also mean being realistic and conservative about our new business pipeline. What are the chances that X, Y, and Z deals will land? What are other at-risk accounts that may stop their engagements with us? How far out can we confidently project inflows? We like to think about worst-case scenarios and best-case when it comes to new business. The best-case thinking gives us the sliver of optimism, and in our experience, it’s often the best-case scenario that saves the day and helps the agency come back. As tough as it might be to believe things will get better when the situation looks dire, it’s prudent to also plan for a best-case scenario so we can deliver if these opportunities hit.
Deeper Mindset: Commitments
Beyond holding the opposing views of worst-case and optimistic turnaround in your mind, there’s another dimension to the mindset that’s critical for not only the business surviving but for you personally to emerge intact and not totally burned out. These are commitments you make to yourself about the type of person you’ll be during this time of stress and uncertainty.
As mentioned above, financial pressures have had adverse impact on me in the past. I’m not proud of the person I was in some of these situations: impatient, irritable, self-pitying, angry, and ashamed. I fell into a pattern of blaming others and then trying to “play the hero” by signing some kind of deal to extend our runway. It’s no wonder we suffered some terrible waves of employee attrition over the years. I always think of Pogo’s dictum: “We have met the enemy and he is us.”
In recent years, I’ve vowed to be better during stressful times, and making commitments to myself in concrete terms has been an effective way to maintain mental equilibrium. For me, these commitments are:
- I will be an engaged and present father and husband. Oftentimes, stress at work means being distracted and impatient with family, which is something I want to avoid as much as possible.
- I will be a calm, positive, and supportive leader for our team. I know the future me will be proud of myself if I can weather any storm while treating others with kindness and leading them effectively.
- I will adhere to my healthy habits. I mentioned the feeling of being paralyzed when stressed. One way I’ve been able to break out of a funk, even if only temporarily, has been to stick with the things that keep me feeling refreshed and strong: eating clean, working out, and getting plenty of sleep.
- I will continue to be grateful. No matter how tough things get, it’s useful to remind myself that I have it pretty good and that there are so many things about life beyond what’s happening in the business that are positive and trending in the right direction.
- I will continue learning. The default mentality during financially challenging times for the business is to get into a defensive stance and operate with a scarcity mindset. This often means narrowing my field of vision to focus just on what could go right or wrong, and largely being in reactive mode. I’ve found it helpful to remind myself that all experiences, good or bad, hold learning opportunities that will inevitably come in handy later if I let myself learn from them. Rather than see the struggle as something to simply “get through”, there’s more upside in embracing it as an intense and challenging education, taking a more proactive stance, experimenting with new approaches, and seeing how they play out.
One More Mindset: Survival is Everything
Even when we managed to survive close calls and bounce back from business struggles, I was often wracked with shame and self-criticism. In my mind, everyone else in the agency business seemed to be doing well, growing, and making big bucks. Why were we so terrible?
Being in business for over 15 years has been humbling because I’ve been reminded over and over again that staying in business is no easy task. It’s possible to ride a wave of momentum and feel like nothing can go wrong for quite a long time, but all businesses eventually face crises and existential threats. Some of our struggles as a business could have been prevented more easily than others, but I’ve come to appreciate that making it through tough periods is nothing to be ashamed of. To have another week, another month, another year to operate as a business, to employee talented people, and to deliver on our promise is a privilege and a big deal. It means having more at bats to see if we can score more runs and rack up some wins. You can’t win if you’re not in the game anymore. Survival ensures you stay in the game.
The following are a list of tactics we’ve employed at various points in Barrel’s history to push through times of business struggle. These were during moments when new business seemed to dry up, key clients left us, and our financial projections felt bleak.
1. Expense Management
The most obvious place to look since it’s the easiest to control, we take a fine comb through expenses to cut back on any non-essential items as possible. This could be software, service vendors, employee perks, decoration, office space, and contractors. In some cases, asking for price reductions or more favorable payment terms can be an initial step before totally canceling something.
2. Double-check invoicing activity
I liken this to feeling about for loose change under the couch, but we’ve had enough instances of finding thousands of dollars that it’s not a bad use of time. Scrutinize every single project and account to see if there were missed invoices. Even with a robust bookkeeping and finance workflow, it’s possible that a project was not fully invoiced or some numbers were left out that led to a partial invoice.
3. Collect payments
Cashflow is more critical than ever during business dips, so it’s critical to secure account receivables. It’s also possible that there are delinquent accounts whose status for full payment may be iffy. For these, it may be helpful to get a bit aggressive and ask for prompt payment. Perhaps an installment plan or even partial payment can be negotiated if there’s the risk of default from the payee.
4. Game out worst and best-case scenarios
We find it useful to know exactly how many days we can remain solvent if no new business were to come in ever again. Going one step further may include accounting for client attrition or some percentage of projects going sideways and not fully paying out. Once we establish a baseline “worst-case” number, we can play around with different expense and personnel cuts to see how many days we can extend the runway. We also do levels of “better-case” and “best-case” scenarios where we anticipate winning a few, some, or all of the deals we have in the pipeline and see how that impacts our runway. In some cases, expenses will have to go up to accommodate extra work, which is useful to project, no matter how far-fetched it may feel in the moment.
The key to gaming out these scenarios is to first establish your risk tolerance and what you’re willing to put on the line. Do you want to pull down your line of credit? Give the business a personal loan? Bring your own owner comp down to zero? Once you’ve figured out how deep you’ll go, you can start to map out which tough decisions to make at which juncture. For example, you may give yourself 3 weeks to land $150,000 of new work at which point, if you’ve fallen short, you’re committed to laying off 5 people and giving up your office space. Having these decision trees mapped out upfront will provide clarity later on if the situation turns more stressful and your thinking is clouded by all kinds of negative emotions.
5. Reduction in force (RIF) planning
Planning the worst-case scenarios will give you a sense of how many jobs to cut, but it’s also helpful to think in advance of who and in what order you’ll be making those cuts. This is perhaps every agency owner’s nightmare, to have to let go the very people they hired. But people costs are the core cost centers in an agency business, so at some point, if business doesn’t pick up, it’s necessary to right-size the firm.
The RIF plan should take into account the roles that are critical to keep operations going as smoothly as possible even with staff reductions. Redundant roles, where you can make do with less people, are the easiest targets (relatively speaking of course – all these decisions are incredibly hard). Are there roles that you, as owner, can take back and run in order to save costs? Are there people who’d be okay with taking a reduced part-time role or being furloughed? Who are the star performers you’ll do everything to hold on to as much as possible? Who are the struggling employees that, by being let go, may actually benefit from a fresh start elsewhere?These are people’s lives that will be impacted, so this exercise comes with incredible weight and seriousness. However, it’s best to plan sooner and even when the likelihood of any imminent RIF moves feel remote. Having gone down the path of planning for such a terrifying scenario will prepare you mentally.
6. Drum up new business
In the agency business, I’ve noticed a tendency in ourselves and in some of my peers to fall into a bit of complacency when the going is good, believing that the stream of inbound opportunities and account growth will continue unabated. But when things slow down and new work dries up, it’s stunning how quickly a robust runway can start to melt away.
Our response in such situations has been to get all hands on deck to drum up new business. It’s a somber reminder that we should’ve been more proactive and prudent in farming for future business and always keeping in touch with folks in our network, but nothing stirs activity like the possibility of going out of business. Activities may include reaching out to existing clients and inactive clients, hitting up prospects who reached out to us in the past but didn’t work with us for one reason or another, tapping contacts in our respective personal networks to see if there are opportunities. Having a functioning and populated CRM is a godsend in these situations.
Drumming up new business can also mean exploring different service offerings, perhaps reconfiguring different service packages to lower the price of entry or to allow for shorter-term engagements. Since time is of the essence and getting a “yes” becomes more important than ever, rethinking the design of what you sell can make a difference.
As I mentioned earlier, surviving can lead to acts of desperation, including taking on work that doesn’t fit your positioning or at budgets that can put you back in a difficult financial position later on even if it provides short-term relief. This is where you’ll have to walk the fine line of making decisions to stay in business or to preserve the jobs of your employees. Sometimes these two things are aligned and sometimes these two things are at odds. Taking on work that further puts the business in the hole to avoid making job cuts short-term can quickly spiral into a vicious cycle that ultimately ends in going out of business and everyone losing their jobs anyway. But there are also situations where taking on the desperation project can be enough to buy time to turn things around. Nothing is as clear-cut as you’d like them to be, but it’s worth gauging the long-term impact of your decisions as much as possible.
7. Outside Cash
If you feel that there’s a strong likelihood that business will pick up and there are enough opportunities in the pipeline to eventually reverse the downward trend, buying time through an outside cash infusion can buy some time and keep things operational. This is not a decision to make lightly, and it’s important to be very conservative in estimating potential wins while also having contingency plans for deep cuts if things don’t materialize.
Outside cash sources could be any of the following:
- Personal loan to the business from the owner(s)
- Drawing on the company’s line of credit
- Factoring receivables if you have some long-term contracts
- Taking out a bank loan
- Giving up equity (a stake in the business) for cash investment
There are drawbacks to each of these options and if the business is struggling, it’s likely that some of these avenues are closed altogether. If you’ve done the work of establishing your risk tolerance as suggested above, you’ll be able to feel out how much “on the hook” you’re willing to be in order to give your business a chance to survive. I’ve heard stories of both incredible triumphs as well as unfortunate ruin and variations in-between from taking on outside cash, so it’s not a silver bullet, just another tactic to employee as part of the broader effort to survive.
Running a Business is a Privilege… It’s Also Not for Everyone
In my bubble of following various entrepreneurs and investor types on social media, it’s very easy to fall into the trap of thinking that everyone else has scaled their businesses and become ultra-successful. I have to remind myself that being an operator of a small business that’s grown and sustained a nice life for my family and numerous employees over the years is nothing to downplay or dismiss. And that I’ve been able to play the game for over 15 years is another sign of immense luck and privilege. So when things aren’t going our way or the business outlook looks particularly grim, the acknowledgement that running my own business is indeed a special opportunity helps me realize that survival is paramount and that I don’t ever want the music to stop.
I also understand that running a business isn’t for everyone. There may be certain situations where the level of stress can rise beyond what someone ever wants to be subjected to. Or perhaps bearing the weight of being responsible for the livelihood of others, of potentially cutting jobs, of not being able to pay yourself for prolonged periods, or of having to admit to failure – these downside situations may not be worth the potential upside. And that’s perfectly okay, running a business isn’t for everyone, otherwise it’d be impossible for businesses to have employees who support and sustain it. But for those who opt in, survival is no small part of keeping the dream going.
Check out my highlights from Corporate Turnaround Artistry by Jeff Sands which walks through all the ways in which companies are restructured and managed to come out of bankruptcy. I learned a great deal about business survival through this book.
Wow, this is a very good read and super helpful.
I run an agency called Eikon Labs and will be noodling on the thoughts shared here. Thanks!