Episode 232

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There’s not a small business owner on the planet who isn’t concerned about how the coronavirus is going to impact their business, employees, clients, and family. Those worries are complicated by the fact that this is also a health risk to those you love. I can’t help with the health risk part – but I can help ease your fears about your business. We’re going to survive this together and in this episode, I am going to give you some tips and tactics to get you and your agency through this storm and back to calm waters.

If you’ve owned your agency for a while, you’ve already survived a similar season. We weathered 9/11 and in the U.S the ’07 to ’08 recession. It wasn’t pleasant or pretty — but you got your agency through it and I want you to recognize that you can and will do it again.

I’m going to walk you through steps to protect yourself and your agency in these areas:

  • Your team
  • Money
  • Clients
  • Biz dev

It’s going to require strong leadership and a kind, compassionate heart — and following the metrics to get your agency through the next few months. But you’ve got all of that in spades — so let’s get through this together!

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here: https://www.whitelabeliq.com/ami/

What You Will Learn in This Episode:

  • How this economic slowdown is not the first we’ve seen
  • What to keep in mind if you shift to a remote work situation
  • The place where you’re at the most danger of putting your agency at risk
  • The financial metrics you cannot afford to ignore
  • How to take a long-range view of the virus situation and find opportunities in the chaos
  • The unlikely upsides of this season
“You’re the captain of your ship — and your ship is in the middle of a storm. Your #1 job is to be the leader and get your ship through the storm and to calm waters.” @DrewMcLellan Click To Tweet “Don’t promise you aren't going to let anyone go. Promise that you’re trying to be the best leader you can be and that you’ll be honest with them. That's what a great leader does.” @DrewMcLellan Click To Tweet “Don’t gamble your family’s finances, your house, your retirement, or your kid's college fund to get through this short season. You absolutely have to run your agency right now by the numbers.” @DrewMcLellan Click To Tweet “You’ve navigated rough waters before and you’ll get your agency through this. You do that by managing by numbers and knowing that as the captain, you have to think first and foremost of the entire ship — not any one person.” @DrewMcLellan Click To Tweet

AMI works with agency owners by:

  • Leading agency owner peer groups
  • Offering workshops for agency owners and their leadership teams
  • Offering AE Bootcamps
  • Conducting individual agency owner coaching
  • Doing on-site consulting
  • Offering online courses in agency new business and account service

Because he works with over 250+ agencies every year, Drew has the unique opportunity to see the patterns and the habits (both good and bad) that happen over and over again. He has also written several books, including Sell With Authority (2020) and been featured in The New York Times, Forbes, Entrepreneur Magazine, and Fortune Small Business. The Wall Street Journal called his blog “One of 10 blogs every entrepreneur should read.”

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Speaker 1:

It doesn’t matter what kind of an agency you run, traditional, digital, media buying, web dev, PR, whatever your focus, you still need to run a profitable business. The Build A Better Agency Podcast, presented by White Label IQ, will show you how to make more money and keep more of what you make. Let us help you build an agency that is sustainable, scalable, and if you want down the road, sellable. Bringing his 25+ years of experience as both an agency owner and agency consultant, please welcome your host, Drew McLellan.

Drew McLellan:

Hey, everybody. Drew McLellan here with another episode Build A Better Agency. As you might notice, this is odd that I’m doing a solo cast this week. It’s out of order, as you know. Normally, I do four-guest episodes, and then one solo cast, and my last solo cast just aired a couple of weeks ago. So, things are a little caddywompus, but I wanted to talk to you about what’s happening in our world in terms of the coronavirus and how it’s impacting everybody’s business, and I want to walk you through how we are going to survive this, and how we’re going to get through to the other side because we are going to do this together.

So, I apologize that I don’t have a guest for you this week. Hopefully, this will be super helpful to you, and you will forgive me, and then we will get back to our normal routine. All right.

So, first and foremost, if you remember nothing else that I’m going to say to you in this podcast, what I want you to remember is you are not in this alone. We, meaning me and AMI and other agency owners are here to help and be a resource for you. Please do not feel like you’re navigating this on your own. So, whether I’ve ever met you before or that you’ve ever come to a workshop, whether I see you all the time, whether you’re in another country, please reach out and we will do everything we can to help as best we can. So, let’s get through this together just like we’ve gotten through all kinds of other things together.

The reality is we are now about to experience the recession that all of you have been expecting and fearful of for the last two years. You have been anticipating this recession for a long time, and you’ve had ample time to prepare. So, hopefully, you are prepared. Hopefully, you have a cash reserve and you’ve done some other things that we’re going to talk about in a minute.

Even if you have not, it’s okay. There’s still time to make great decisions, which will allow you weather the storm. That’s why I want you to think of this as. So, I know that it’s scary on a personal level because it’s a health concern, and I know that you’re worried about your family and your friends, and things far beyond your business. I want to encourage you in those things as well, but today, my job is to help you protect and keep your agency in good shape, so you can survive this.

The reality is that our country and our world has survived events like this before, and those events actually went much deeper and lasted longer than what this event is going to be. So, many of you who are listening, if you’re old enough and if your agency has been around for a while, we have survived 9/11 together, and we survived the ’07-’08 recession in the States, and many of you who are listening around the world have survived the recession in the last 15 or 20 years, and you’re still here.

I want to underline that for you. You are still here. Your business is viable and strong, and you will survive this, too. Is it going to fun? Nope. Is it going to be easy? Probably not, but you will survive.

What all of these things have in common were two things, that we were afraid, and the economy took a dip because of the event and because of our fear. So, now, as agency owners and leaders, we have to manage for both of those things, the fear and what’s going to happen in the economy.

The good news is in both of those events, just like in this event, the economy rebounded, and we had many great years post the 9/11 or post the recession, and we will have that again. So, we’re going to be okay. I promise you. We’re going to be okay if we make good, smart decisions now.

You survived those things and then you’ve had some amazing years since that survival, and there’s no reason to think that you’ll have a different outcome this time. I want you to, throughout this conversation today, I want you to think of yourself as the captain of the ship, and your ship is right now in the middle of a storm. Your job, your number one job is to be the leader, to be the captain of that ship, and to get that ship through the storm and in to calm waters. That is your priority, to allow the ship to survive this storm and to find calm waters when they’re available, all right?

So, I know, I know, I know, I know your number one concern is your people and you’re starting already to think about, “If we have less work and if we have less money, what is that going to do to my people?” I know you care about this more than anything else. I know you’re thinking about the money, but you’re thinking about the money and when you get afraid about the money, it’s typically not about your family. It’s typically about the families and the people that work for you.

So, let me say this. How you respond to what’s happening right now with your team, with your people, with your clients is going to have a huge influence on how they respond. You are their leader. You are their guide. You are the pathfinder for them. So, you set the tone for how your entire agency is going to approach this challenge and this opportunity because there’s going to be both challenge and opportunity in this like there always is.

So, you need to stay super calm. You need to be amazingly compassionate because you know what? You’re going to hear some crazy stuff. When people are afraid, they get a little nutty, and you’re going to get requests, and you see tears, and you’re going to hear all kinds of personal things, and you’ve got to stay calm, compassionate, and kind. Always remember that everybody is scared, and it’s your job and it’s your privilege to help them manage that fear and get them to the other side. Whether they stay on the ship or not, by the way, doesn’t mean that you can’t be a great advocate for them, a great coach for them, a great leader and get them to the calm waters. All right?

Never ever forget, and this is hard for you guys, and I know it is, but never ever forget that it is your job to protect the agency, not everyone at the shop, not any one person. It’s your job to protect the agency. Your job is to get the ship to the calm waters.

Now, the reality of that job may mean that you are about to have some very difficult conversations and you may need to make some very difficult decisions, but as the captain of the ship, never lose sight of what your job really is.

So, the first question, the question I’m getting every day, every hour is, “Should we let the team work from home?” What I will tell you is it depends. It depends on what’s happening in your country, in your state or province, in your city. You want to make sure that you’re aligning with what’s happening right outside your door, not what you’re seeing on social media, not what you are seeing on the national news. This is a local problem. It certainly feeds into a national and international problem. I’m not suggesting that, but the level at which we respond is absolutely aligned with what’s happening at home.

So, if you are in a city where the K-12 schools have been canceled or the kids are doing online learning, but basically the kids are at home, then odds are you’re going to have to let people work from home because otherwise, they don’t have anyone to stay with their kids, and all of a sudden, all you’re doing is adding to their stress, right?

If you’re a virtual agency, you’re in great shape. This is old news for you. You’ve already figured this out, but if you are a brick and mortar shop and you’re considering working from home, you need to have a plan.

So, in your city, for example, right now where I live, the K-12 kids are still going to school, and what they’re saying is that it’s still safe for them to attend school. So, most of the businesses here are still asking the employees to come in to work as long as the business is not 250 people or larger.

So, there’s a whole spectrum of decisions you need to make. Do you want to require them to come in? Do you want to let them make a choice? So, some people come in to the office and some people don’t. Do you want to mandate that everyone stay home and work from home? So, lots of choices, and everyone is going to be unique to your agency and where you’re located.

Do not allow anybody to pressure you into making a decision that’s not right for your agency and your people. You’ve got this. You can figure this out. If you are considering working from home, then you need to have a plan. You’ve got to have structures. Structures still matters even, in fact, amongst the virtual agencies and AMI that I get to peak into how they work everyday, they’re more structured than a lot of brick and mortar agencies. So, they have daily huddles on Zoom or whatever tool you choose to use. They require everyone to keep a chat open so that they can, in essence, walk down the hall and talk to each other virtually. They have all kinds of structure in place to create an environment that allows everyone to be collaborative with each other, even though they are not in the same space with each other anymore physically.

So, you’ve got to work that out. You got to have a plan. By the way, you don’t have to figure this out by yourself. You have a lot of smart people working for you, and depending on your age, you may have a lot of people who are more technologically advanced than you are. So, let your team help you figure this out, but, for sure, build structure into the day so that everyone still feels like they are connected with one another.

Also remember that working from home isn’t always easy, especially when it’s thrust upon people by an event like this rather than them having time to plan for it. So, you want to help them be successful. You want to give them the tools to do that. All of a sudden trying to work, when you’ve been used to working in an agency, not that they’re quiet places, but there’s form and function in their places, all of a sudden, working from your kitchen table while your kids are screaming for breakfast or the dog is howling and all the things that happen when you work from home, none of that is easy.

So, you’re going to want to coach your people about how to set up a workplace. You’re going to want to make sure they have the right tools, and help them be successful on your behalf.

Use video as often as possible, so that the connection is as close to face-to-face as you could make it, and this is not about the work, this is about the humanity of our work. Pick up the phone and call them as often as you think is necessary, maybe once a week, just to see how they’re coping. As human beings, just check in with them.

So, I want you to be a leader, not just their boss. So, I want you to care for them not just their ability to output work, not just their ability to function in a new environment, but I want you to care about them like I know you do. I want you to show them how much you care about them like I know you do. In terms of all of it, how they are psychologically handling it? How are they emotionally handling it? Is anyone in their family being affected by this in a way that is different than all people are being affected by it? So, pick up the phone, make the connection, and really be their leader. All right?

The other thing you want to do with work from home is you want to make sure that they understand if you’re a brick and mortar shop, that this is temporary, that this is not going to be the new normal after the virus is under control, but that we are going to go back to working in the office in a collaborative work environment like we always have.

One of the easiest ways to do that is to tie the work from home policy to a specific date. So, for example, our K-12 schools in our area are teaching remotely through April 10th. Therefore, we will work remotely through April 10th. At that time or early than that time, we will reassess as the situation changes and we will adjust accordingly.

By setting it to a date or tying it to another factor that is really influentialing your decision to let people work from home, that tells them that this is an evolving reality that may change over time, but, B, it is not your intention to go virtual all of a sudden. So, be clear with them that this is a temporary fix, and you are anxious to get everyone back into the office as soon as it is smart and/or safe to do so. All right?

So, that’s the people side of it in terms of money, but we’re going to talk a little bit more about handling all of that in terms of the people and the money. So, I know the money part is the second biggest worry you have, and it’s tied to your biggest worry which is, “How do I take good care of my people?”

So, a couple of thoughts. Number one, if you have a line of credit, now is the time to extend it if you can, depending on your relationship with the bank, depending on your receivables, and other factors, given that everyone is in a bit of a panic right now, you may or may not be successful in that, but it’s worth trying, right? So, extend that line of credit if you can.

If you don’t have one, get one if you can. Apply for one right away. Again, apply for one at the bank that you think is most friendly to you and your business. So, for many of you, it’s going to be a local community bank or credit union, somebody that knows you and the community. By the way, this is not so you can go into debt because now is not the time to go into debt. I am not advocating that one iota, and we’ll talk about that more in a minute.

This is about giving you peace of mind. This is about giving you another safety net that will allow you to feel like you’ve got options, but I am not, underline not, encouraging you to go into debt to stay alive and get your boat to the calm waters because all you’re going to do is weigh down that boat, and it’s going to sink when you get to calm waters anyway. So, not what I’m saying.

So, oftentimes, when agencies go into debt, whether it’s during a crisis like this or it’s just an average Tuesdays, oftentimes, agencies go into debt because they are afraid or not willing to want to delay a tough decision around people. That is almost always why you end up going into debt because you know or you think you know, the numbers tell you that you are overstaffed, that there’s not enough in the pipeline to suggest that you should stay overstaffed, but you do anyway because these are your people and you care about them, but what you’re doing is you are basically risking your house, your kid’s college fund, your retirement. You’re literally gambling with all of that when you go into debt.

Now, using your line of credit to manage cashflow or things like that for 30 or 45 days, lots of us do that. I’m not saying that, but what I’m saying is do not look at your line of credit as a big chunk of money that you can use and have a long-term debt associated with it because that gamble never pays off. So, do not gamble your family’s finances, your house, your retirement, your kid’s college fund to get through this short season because it is going to be, in the grand scheme of things, a short season. So, do not gamble. Make the tough decisions if you are put in the position that you have to do that.

By the way, this is a great reminder that every 18 months or so, you should be trying to get your line of credit extended. So, use it, meaning borrow a couple of thousand dollars, pay it back another couple of months later. Get some activity on it so they can see you’re using it. Even if you’re not really using it, create some activity. Then every 18 months or so, go to the bank and ask for an extension. It’s always easier to ask for an extension or a loan increase, a volume increase when you don’t need it. So, that should be on your calendar, anyway, for about every 18 months. That’s a different podcast for a different day, but it just popped into my head so I thought I would tell you.

Here’s the other thing. Even if you have ignored me every time I say it because I had been preaching this since the dawn of time, you absolutely have to run your business right now by the numbers. So, if you have not heard me ad nauseum talking about 55:25:20, in the show notes, there’s going to be a link to a very short video that explains the 55:25:20. That’s the ratios that I want you to run your business by, but you absolutely have to be running your business by the numbers right now.

If you have to skimp on the 20%, which is the profit part, we’re in that season. I get it, but do not let it drop too low. Do not be unprofitable. So, if you have to let it ride at about 5% to get you through this season, I’m okay with that for the short run, but you need to be profitable even now, and if that means you have to make decisions, then make the tough decisions. All right? So, absolutely run by the numbers.

Another number that I have talked to you about before that I want to remind you of is you need $150,000 of adjusted gross income for every full-time equivalent, for every employee you have. So, remember, AGI or adjusted gross income is you take your gross billings, you subtract out all of your cost of goods, including your contractors, and what’s left is your AGI or adjusted gross income, and you need $150,000 of AGI for every full-time equivalent. All right?

The next thing I want to make sure that you think about is your cash reserves. So, I have always been a fan of an agency having at least two to three months of cash reserves that you can easily access. If you have a client that is more than 25% of your AGI, then you need to have at least four months of cash reserves. The bigger the percentage they are, the more you need to have in reserve, but for most of you, two to three months of cash reserves is going to be plenty.

If you’ve done that already, good on you. If you haven’t done that, then if you have money inside the agency, get it out of the agency, put it in a savings account, and keep it so that you can lend it back into the business, but you’re going to want to have at least a month’s worth of operating expenses inside the business, and then another two to three sitting outside of the business in your personal name, and you can loan it back into the business. Why that? Because you make very different decisions when you have to write a check to loan money back into the business because you’re avoiding letting Babat go even though you know that you’re overstaffed by one person. Very different emotional connection to that money when it’s in your name in a bank account, and that you have to lend it in, but however you decide to store the money, two to three months of cash reserves is ideal.

So, what do we do about people tied to money? If someone leaves, do not replace them right now unless they are mission critical. If they’re mission critical, then go ahead and replace them, but if they are not mission critical, then you want to give yourself the breathing room of not having that salary. If you are in a position where all of a sudden you need to think about shifting from fixed cost, W-2 income, to variable cost, 1099s or contractors, you need to start thinking about that. I don’t care how you feel about having all the talent under one roof. Now is the time to learn how to use outsourced talent if you haven’t already learned that. Many of you are already doing a lot of that, so it’s already comfortable for you, but if someone leaves, rather than replacing them, really be thinking, “Can I trade this fixed income of a salary for a variable income with a contractor?” Because that way, if that client or that work goes away, I don’t have to let somebody go. I just stop working with that contractor for a period of time.

If you are overstaffed, today or in a month or in two months, if you are overstaffed, the people who own the relationships with your clients have to be the ones that you protect. You have to think about them as the key person of the keys and you have to protect them over everybody else.

Unfortunately, people who write, draw, who write code, they can be replaced more easily and with less long-term cost to your agency. So, keep your AEs, your relationship people close at hand, and if you have to let someone go, start with the people who definitely add value to your agency, definitely have a skillset that’s valuable to you, but it’s something you can buy on the open market and it doesn’t really impact your client relationship.

If you’re going to put your agency at risk, this is where it’s going to happen. I know this because I have talked to so many of you so many times about this challenge, even when the economy is good. You’re not awesome at this. So, now, the idea of letting someone go when you’re worried about their ability to find another job, I know you’re hurt, I know how hard this is going to for you. So, if you’re going to put the entire ship at risk, which means, by the way, everybody drowns, right? Remember that. If you’re going to put the entire ship at risk, this is where it’s going to be.

If you’ve been to any of our workshops or listened to any of our other podcast episodes, you know that most agencies are overstaffed. When you look at that 150K per FTE, most agencies can’t hit that number or aren’t today hitting that number. So, the reason that happens is that agency owners allow it to happen, and then you pay the price.

So, again, keep in mind, you are literally stealing from your kid’s college fund or your ability to retire when you don’t make the difficult decisions of rightsizing your shop. That is going to be more true in the next six months than it has been in a really long time, than it has been since the ’07-’08 recession if you’re in the United States. It’s easier to ignore that we’re overstaffed when things are going well, when everything else is working, when clients are paying their bills on time, but now, when all of this stuff is going to shift, now it’s going to be difficult to make this describe. I get it, but it’s more important than ever that you remember, “I am the captain of the ship. My job is to get the ship safely to calm waters,” and that may mean that the ship arrives with less people than it started the voyage with. I get it.

You know what? This is never going to be easy. I don’t want it to be easy for you. It should never be easy. We’re talking about people’s lives here, but your job is to get the ship to calm waters. So, if you have to carry less weight on the boat to get through the storm, to get to those calm waters, that is a difficult decision that you have to have the courage and the fortitude and the faith to make knowing that you’re doing what’s right for the agency. All right? I know it’s hard. I really do.

Another thing with your people is you need to be talking to them a lot. So, tell them what you’re thinking about. Talk to them about the money. Be more open book that you’ve ever been before if you’re not an open book. Let them help you come up with solutions. They’re afraid. They’re really afraid about everything right now. The more you tell them, the less they have to make up in their head, and the less they’re going to make a k