As an agency, Barrel has been hit hard by the coronavirus crisis. Within a span of 2 weeks, we saw over 18 engagements–a combination of retainers and one-off projects–get canceled, postponed/paused indefinitely, or reduced. The immediate impact has been over seven figures of previously certain income now most likely gone forever.
Adding to this challenge has been the shrinking pool of opportunities on the new business side. Engagements we had put in proposals for are either canceled or postponed. The number of inbound leads has dropped sharply as well. The thing mainly keeping the business going are the retainers that haven’t canceled, the projects in progress, and small add-on work from existing clients.
We feel terrible for our clients who’ve suffered massive disruption as a result of the crisis, whether it’s from store closures or supply chain challenges or just general drop in demand. Some have already laid off staff and are fighting desperately to stay in business. We all hope this soon passes.
With this as the backdrop, we’ve been working to manage the situation as best we can by speeding up decision-making, increasing the frequency of communications with the team, and being vigilant about cutting costs and stretching every dollar.
Below are the tactics we’ve employed thus far to keep the business afloat. I believe we’re still in the early stages of this and things could get worse for the business before it gets better. However, I think sharing our experience, even if it’s not relevant for other agencies out there, could yield some useful tidbits for folks having to deal with some loss of business.
Daily cashflow projections
We have an Excel spreadsheet model that we’ve been using for nearly 14 years (with various modifications) that gives us a clear view into our day-to-day cashflow. This model is perhaps the most important tool during this time as we rely heavily on it to make decisions.
The main numbers we look for are our projected cash balances for each day and what our runway looks like. We’re able to figure out how many days we have until we’re insolvent. We then look at dips where we may have to pull our line of credit. We also play around with scenarios like cost cuts, delayed payments, and further losses in business to see how this impacts runway and dips in cash balance.
Playing these scenarios out allowed us to make the call that we needed to increase our line of credit and to institute a salary reduction across the board. It also gives us a sense of how much new work we need to invoice and receive in order to extend our runway, info we can match up with our new business pipeline to see what the shortfall might be and how we can make it up.
I can’t imagine how we would’ve operated without this model. It really is the difference between being able to see and working in the dark.
Daily debriefs with Partners
Working from home and facing unexpected changes each day, communication within the leadership team has been paramount. In addition to our Slack chats with the broader team leaders and our Telegram chat amongst the partners, we’ve found it helpful to have a 30-minute debrief video call at the end of each day to catch each other up on what’s happened.
Sometimes the calls are about critical financial decisions we need to make and at other times, it’s just a way to see each other, shake our heads collectively at what a crazy day it was, and try to keep things light with some laughter and commiseration.
Reaching out to clients
While we’ve had to react to clients reaching out to cancel or postpone engagements, we’ve tried to reach out and catch up with as many of our clients to see how they’ve been impacted.
Some of these outreaches have resulted in additional pauses and cancellations, and we’re okay with that–we’d rather be the ones to initiate that conversation versus having to be blindsided.
Others have responded positively to our outreach and some have even yielded new work. The goal of the outreach isn’t to win new work but to check in, see how our clients are doing, and see how we can be helpful. Relationships matter a great deal and during these times, it’s important for us to show our true colors as a partner that cares.
Cost Cuts
We went into aggressive cost-cutting mode as soon as the first wave of client cancellations hit. The obvious ones were the software subscriptions that were non-essential to our daily operations. Even with essential software, we were able to reach out to the companies and reduce the number of licenses we had to match our current team size vs. keeping a few extra ones on hand.
These changes didn’t move the needle as much as the cuts we made to our contractors. These were tough moves as we really value the work that our contractors do and hate that they’re also being negatively impacted. We honored existing projects that had already been pre-allocated but ended up cutting out quite a bit of retainer work and bringing those functions in-house.
Bringing contractor costs down has made a big difference but we’re also risking our future relationships with them. It’s very possible that many contractors impacted by this crisis will either try to find full-time jobs at more secure employers or shy away from working with a smaller agency like ours in the future. These are some of the unfortunate trade-offs we need to make in order to protect the full-time team.
Keeping the Team in the Loop
Communicating with the team has been top priority during these times. We’re only as effective as our team’s ability to focus and get work done. It’s a stressful and anxious time, and while we can’t completely alleviate this, we can, as leaders, at least keep them informed and share what we’re thinking, seeing, and doing to keep the company going.
As soon as we started losing business and felt this would be a trend, we sent out an email to the team letting them know that we’ve been hit and that we were reviewing different ways to stabilize the business. This is the email we sent (edited to remove any confidential information):
As you know, the spread of COVID-19 has had widespread impact on all aspects of life in just the past week. We wanted to take the time to update you on what’s happening to Barrel as a business, how we are being impacted, and what this may mean for us as a company.
A number of clients have been hit hard by COVID-19. Our clients with brick & mortar establishments or businesses that rely on travel, tourism, and in-person interactions have seen revenues dry up overnight and some are facing a really tough road ahead. As a result, they’ve had to cut back on budgets and for some, we’ve become an expendable expense.
On top of this, clients or prospects that were exploring new work with us are either postponing or shelving projects.
Our first and foremost priority is to protect the employment of our core full-time team as best we can. We will do everything in our power to keep the team together during this time. This will not come without some sacrifices on the part of everyone.
The following are potential moves we’ve begun to make or may explore making in the coming days and weeks to help extend our runway:
Government relief: We’re exploring government relief like 0% loans and the tax holiday to shore up our cash position for the coming months.
Drawing on our cash cushion: We’ll be accessing our cash savings that we’ve put aside for emergency situations like this and it will provide us with some coverage.
Salary reductions: We may institute temporary salary reductions across the entire team to free up cash to help extend our runway.
Furloughs / reduced hours: For certain full-time roles, we may reduce weekly hours or number of days to help with costs. In some cases, we may ask certain team members to take weeks or months of unpaid time off.
Layoffs: We absolutely want to avoid this if possible, but we owe it to everyone to at least plan for the worst and have contingencies in place for severance and transition.
We are also re-forecasting our targets for revenue and profitability in 2020 in light of the new realities. To keep the business going, we may have to be more flexible on pricing with certain clients and also stretch our capabilities to deliver value. We will exercise our best judgment on the types of new work that we take on but please know that we’ll also be weighing financial considerations as well. The prospect that might have been a “maybe” might become a hard “yes, let’s try to win.”
This will be an uneasy and uncertain time for all of us. For our part, we will be as straightforward and transparent about what’s going on. We will not sugarcoat the challenges and hardships we face as a company but do our best to communicate our approach and actions.
We’ll be convening a virtual town hall on Thursday at 1PM ET/10AM PT to answer any questions and to share any new developments between now and then.
As we mentioned above, there will be sacrifices made by everyone at the company during this time. It’ll take a team-first mentality and positive attitude for us to get through this. Our various team leaders will be reaching out to everyone individually to talk about concerns and to hear how you’re all doing.
We are in the middle of a crisis that nobody could have predicted. The best we can do is focus on what we can control and support each other. This period is an opportunity for us to work more closely together than ever, to deliver value for our clients, and to be creative and resourceful in a resource-constrained environment. We appreciate each and every one of you. Let’s make it through this together.
Sincerely,
The Partners at Barrel
We followed this up with a town hall Zoom video conference which prompted some good questions and feedback. A follow-up that came from this was a thrice-weekly update (Monday, Wednesday, and Friday) of how the team is doing in terms of any client changes that can negatively impact the business, new business wins, and and other moves we’re making.
Here’s an example of an update with sensitive info removed. In the email, we also included a link to a spreadsheet showing the full impact of all the COVID-19 related losses.
Client Changes
- [Client 1]: Explanation of their biz circumstances. They’ve suspended all work with us which is at least $XX,XXX worth of work.
- [Client 2]: This was for work already done. They've notified that they will be unable to pay for the outstanding $XX,XXX payment due to business challenges
- [Client 3]: Their operations are halted as their main events are all canceled. We had a proposal out for branding ($XXX,XXX) and website implementation ($XXX,XX). Unfortunately, this work has been suspended indefinitely.
New Business Wins
- [Client 4] has signed on to a quarterly retainer ($XX,XXX)
- [Client 5] has moved off of their retainer but has agreed to a $XX,XXX one-off project
- [Client 6] agreed to have us do some stop-motion animation for $XX,XXX
We're hoping that the client delays and cancellation news will be slowing down. Note to Producers and Account Leads — if you haven't had a conversation with clients about how COVID-19 has impacted their business and if they expect any changes in their engagements with us now and in the future, please let us know. It'll help with forecasting.
Sincerely,
The Partners at Barrel
We’re committed to being straightforward and as open with our finances as necessary to paint the picture of the company’s financial health. We know our team members will have varying degrees of concern, interest, and understanding in what we share, but we would rather err on the side of having provided too much information and too much forewarning about what might be coming than maintaining silence and blindsiding them with a sudden move.
An important benefit that’s come out of our communications effort is that it’s forced us to be on top of our business performance on a daily basis versus a once-or-twice a week review. Because each day can bring unpredictable cash flow impact, we’ve had to keep a pulse on the finances, new business activity, and the sentiment of existing clients. During the crisis, we hope this level of heightened awareness allows us to move quickly and attack issues before they become problems.
More to Come
The above are some of the most obvious actions we’ve taken thus far. There are a number of other moves we’re currently making or preparing to make including applying for the SBA Paycheck Protection Program loan that came out of the CARES Act.
We’ve also been developing temporary retainer programs for clients impacted by COVID-19 who, rather than put the engagement completely on pause, can still work with us on a limited basis at a temporarily discounted rate with better payment terms. I’ll share more on this after we’ve implemented it.
Working from home, seeing the team only through video conference calls, and uncertain about when all of this will end, it’s easy to feel down and distracted. However, we’ve chosen to see the crisis as an opportunity to really get the business into the best shape it possibly can–leaner, more creative, and tighter than ever–and find a way to emerge from this stronger than ever. It all starts by taking it one day at a time, staying positive, and being grateful we have this opportunity in the first place.