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Agency Layoffs and a Look Into the Future

How much worse will it get and where are we headed?

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In this episode of the Agency Leadership Podcast, Chip Griffin and Gini Dietrich discuss reports that Edelman has reversed course and decided to lay off employees in the midst of the current crisis.

What does this news mean for other, smaller agencies? And what does the future look like for the whole agency industry?

Transcript

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

CHIP: Hello, and welcome to another episode of the Agency Leadership Podcast. I’m Chip Griffin,

GINI: and I’m Gini Dietrich.

CHIP: And after lots of technical glitches, we finally got the intro to this show. If only you had been here to see how the last 90 seconds have gone with false starts and stops. And so hopefully we will actually make it all the way through this recording such that you can listen to it.

GINI: Yeah, you think we’d never introduced ourselves before? That was a comedy of errors?

CHIP: Well, at least I introduced myself by my correct name and didn’t introduce myself a few, for example, that would be

GINI: Well, that’s true. That would be awkward. Yeah,

CHIP: yes. But that’s sort of a sort of a parallel for the times in which we live, right. So things are just a little bit crazy. And who knows what’s happening from day to day, so why should we know how our show is gonna go?

GINI: Yes. It’s a little crazy right now.

CHIP: And so that craziness is sort of kind of what we’re going to talk about today. And I know we’ve talked about it a bit over the last couple of months. But we really wanted to try to peer into the crystal ball a little bit and look ahead to the next few months and see what we see. And this was really spurred by the news that came out this past week that Edelman is going back on their pledge not to do any layoffs during this economic shock, and instead, we’ll be cutting I guess, what about 7% of their global workforce? So you know, not not a not an insignificant staff cut and obviously, lots of good people will be impacted by that. But I think it’s it’s something it’s a it’s a signal that the rest of the agency community needs to be looking at.

GINI: Yeah, it’s, um, I’ve as, as we both have have been watching this pretty carefully, and it’s, it’s sad. I have some personal friends who have been affected by this for sure. It’s interesting though, to look at things like 7% is a single digit from a layout perspective. So when you perspect, when you put it into that, when you look at it from that perspective, it’s not terrible. It’s terrible when you think about the friends that that have lost their jobs in a time like this, which is just a horrible time to lose your job, in any case, but it’s also I think, really hard and admirable at the same time that Edelman Richard Edelman had to come out and say, Hey, listen, I promised that we weren’t going to do layoffs two months ago. And here we are, and I’m really sorry. And it’s it’s tough to have to lay on that sword. And admit that you made that kind of mistake. That’s tough.

CHIP: Yeah, look, I mean, nobody wants to eat Crow, right. That’s, that is probably one of the least pleasant things you can do in life and certainly in business. When you’re as prominent as someone like he is, you know, you that’s something you want to avoid at all costs. But I think, you know, one of the points that he made in the announcement was it this is this is not 2001. This is not 2008. And it’s a good point. Same playbook. Yep. Yeah. And frankly, that’s something that you and I have been saying all along, but you can certainly learn lessons from that. And as someone who ran businesses in 2001 2008, I think there’s a lot of things that that I can take away from that that can still be applied today, but it’s still get this is a very different kind of economic shock.

GINI: Yeah, that’s a really good point. He did say, you know, what he’s he said in an interview with it was either Yahoo repair week, I can’t remember. But said, I was going back to the playbook that we used in oh one and Oh, wait, and and during those times, we had enough net margin and we had enough cash reserves to be able to get through these things so that we didn’t have to lay people off. And so I was using that as the backdrop for these decisions. And this is not it’s not the same, and I agree with him. From that perspective. It’s not the same and it’s, it’s been interesting to see. And he did say, you know, there are industries that were doing really well in, but it’s not making up for the losses. So it’s been interesting to see just from my perspective, the clients that we have that are doing really well, and then the clients that have that put us on pause on March 22, and have not heard from again.

CHIP: Right? Because because as we’ve said, being put on pause is really the same as being fired and you’ve got our business back. At some point, it sounds a lot kinder and gentler to say pause. Just as you know, a lot of agencies and other businesses are saying that they’re furloughing employees. Look, I mean, a furlough really just a layoff you I mean, it’s, it’s, it’s done with the best of intentions and and certainly those businesses want to be bringing people back just as you know, the clients, I think, in most cases want to come back to their agencies, but the reality is that the environment is very different today than it was on March 1, and certainly very different than it was on February 1 or January 1, when there was absolutely no, none. March 1, you know, you started to get a claims, you know, at least from you know, all the folks that that, you know, I would have said At the time, we’re doing bloomers Christopher Penn.

GINI: I have to say, though, I watched his Of course, because I mean, he’s not only a friend, but I also sit on his board. And so I watched his stuff. And I was like, Can it really be this bad? And he was freaking right about everything. He called the mascot ahead of time. He kept saying wear a mask or mask, wear a mask, and everybody kept saying you don’t have to wear a mask. And then they came out and said, Well, I mean, this is a total side note, but he was right. He was completely right about all of it.

CHIP: And I and I think my being that is probably more painful, or at least as painful. Because I did, I did think that he was an over the top scaremonger. And he

CHIP: oh, he was not unfortunate. I really, really wish he had been wrong. It would have made the last few months.

GINI: Oh, for sure. But you know, the thing was Chris Penn is he pays attention to the data and he lets the data tell the story which is something thing that we all need to do. And you

CHIP: know, it is it is it is an abject lesson in the importance of data and looking at it and understanding it so that you can make accurate predictions about the future. And that’s not to say that that Chris is right about absolutely everything. He’s made some bad predictions about things too. But on this thing he is spot on. Painful painful, yes, yes, yes. I’m sitting in my my darkened office right now. And I spent 18 hours a day here seven days a week. I have literally not been in a car since March 13, or 14th. Not even I mean, I just I have not been more than walking distance around my house in. Gosh, almost three months. Now. That’s depressing.

GINI: It is almost three every three months on Sunday for us anyway.

CHIP: Yeah. And next week, I will get to get in the car though, because my eldest son is graduating from high school and they’re doing some weird graduations by graduation. But yeah, they’ve got a couple of different approaches that they’re taking None of which is a real graduation. But you know, hey, it is what it is. It’s the right living. But so speaking of those times we live in and, you know, obviously, you know, if Edelman has had to go back on this pledge, I think smaller agencies, as I’ve been saying now for quite some time, are going to have to do the same. So if you’re a small agency and have not already downsized, chances are you’re going to have to if you have seen meaningful revenue losses, because it’s simply unsustainable, I’ve talked to plenty of agency owners who have lost 20 or 30% of their revenue. And they’re saying, look, we can we can weather this, I got to tell you, you’re not going to weather this.

CHIP: it need to be looking at as soon as possible at getting your your staff right sized for the revenue that you have now and that you have for the foreseeable future. That doesn’t mean that there’s not a path out of this. I’m not a doom and gloom er here. But I do think you need to be thinking very carefully about how to get to that right size sooner than later. Because the longer you wait, the less less flexibility you have and the less you can treat your team. Right? Right. No, because if you write if you take action now or soon, you can give your your team members more runway. And obviously, it’s a terrible environment to be in, you know, as far as looking for a job. So I wouldn’t wish that on anybody. But at the same time, the more time you have to think about it, at least the the more likely you are to find some manageable scenario for you and your family.

GINI: And look, there might even be an opportunity, you know, I have I have several clients who solely use contractors solopreneurs and there might be an opportunity for you to help some of your employees become business certified, get their LLC or whatever it happens to be and get them a business account. And maybe I mean, it might not be full time, but you can at least put them on part time. payroll or you know, not payroll but 1099 and continue to work with them, but at a decreased opportunities. I think there is a lot a lot of things to from that perspective that you can do as well without having to completely just let your team go.

CHIP: Oh, absolutely. And look, there are agencies that are looking for help right now, that you know, yeah. So, you know, for MCs, that are, you know, more focused on, you know, crisis or, you know, health care, or some of these areas, they actually have seen an uptick in work. And, you know, I, as I’ve said before, I don’t think that’s going to sustain I think that, you know, a lot of that’s going to start you know, coming back to, to normal ish, if you will, but there are still real opportunities out there that you ought to be thinking about taking advantage of, if you are unemployed or or underemployed or if you’re a solo, you know, so, so look for those opportunities and take advantage of them.

GINI: You know, and the other thing I will say is, if, if you have an opportunity to take on some new business, find ways to be able to do it so that you can still make a profit on it. Maybe it’s not at the full, full amount that you normally would charge. So, for instance, if you get a somebody who calls and says I’m looking for this particular thing, and my budget is $5,000 for the project, well, you might not be able to do it for $5,000. Because they really want $50,000 worth of work. But is there something that you can do in there that allows you to bring in that that cash, but doesn’t require $50,000 worth of time to get it done?

CHIP: Right. And I think that’s absolutely critical. You’ve got to be focused on profitability for your current business. That’s why you need to look at your staffing and resourcing right now. But you also need to look at profitability for the work that you’re bringing on because there is there is that unfortunate tendency when times get tough for business owners in general agency owners in particular, to sharply discount prices in order to to just get any revenue in the door. But bad revenue is just as bad today as it was six months ago. And so it may, it may feel good to be able to have a check to go cash. But if more money is going out the door than is coming in, you’re not putting yourself in a better situation than then you had been.

GINI: But you can for sure. I mean, if if I just had this, this very thing happened where somebody said, My budget is 70 $500 Can you do this, this, this and this? And I said, No, I mean, for 70 $500 we can’t do all of that. But we can do this or this. And they were like, Okay, that makes sense. So, you know, it’s a three week project and we made 7500 bucks. So it I think there are opportunities if you’re willing to open your brain a little bit and, and look for the opportunity and be a little creative. You do have to be creative. There are some ways that you can still make still make money, still make a profit on that kind of stuff and make a go of it.

CHIP: Yeah, I think you know, one of the other important things here is that agency owners need to be very careful about negotiating against themselves right now. Because the The other thing that I’ve seen In situations where a contracts coming up for renewal, or you’ve been working on a project, and you want to try to get that next project, and so I’ve seen some agency owners who have instinctively said, Well, you know, we need to find a way to offer this cheaper to my existing client going forward. And I don’t think that you should come at it from the immediate assumption that you have to reduce your rates, there may well be an opportunity to, at the very least hold steady, or in the case of one of the clients that I was working with, in the last couple of weeks on a on a renewal, they actually managed to get more from the client than they had been paying previously, because they added on additional work and, and that was someone who was originally going into that renewal, expecting that they were going to be reducing their fee with that client. And I said, Well, hold on, you know, stop, you know, talk about, you know, something to add on to say at least starting from a better negotiating position. It doesn’t mean that the clients not going to say, hey, look, you know, we’ve got a we’ve got to be more cautious. We’ve got to cut back but you shouldn’t, you know, until the client into case that they need to cut back, you shouldn’t be assuming it as the agency you should be, you should be operating from a position of optimism and try to work to grow the account or at least hold them steady and only cut when you absolutely have to.

GINI: Yeah, and I would also add to that I have another client who, earlier this week, I had proposed a strategy session for a prospect and they were like, yes, we want to do this. This makes a lot of sense everything, can you reduce the price and she was like, I can’t I can reduce the scope. Instead of doing it over two days, we could you know, reduce it and do it over a day, instead of doing a full plan. I can give you executive summary. I can reduce the price that way. And they’re like, No, no, we want the full thing and she’s like, I can’t I can’t reduce the price then. And they end up saying, okay, fine, and they pay for it. So just because they’re asking doesn’t necessarily mean that they won’t pay for it. So find opportunities

CHIP: for graduates of akia but you know, it’s probably right And to be honest with you I don’t really want a Ferrari they don’t they don’t look particularly comfortable to sit in and

GINI: well you can’t drive it on here and if you go over a pothole you really screw things up. Yeah, we’re where

CHIP: I live I pretty much couldn’t drive it at all. I don’t even think I could get it up my driveway with my driveway to the bottom out. You know, I, the day I drove at home, I’d have to take it in for some $15,000 I’m certainly not going to fix it myself. I know nothing about cars. I tried to learn something about cars a couple years ago and then I realized that now everything is so fancy and computerized and tightly packed that you know, you can’t really serve yourself even if you know what you’re doing so

GINI: but so yes, you cannot buy a Ferrari on a Kia price,

CHIP: right and so and you shouldn’t expect that either. You also need to be careful, as always, of the notion that well, I can just get them in the door cheap and then you know, get them back to regular price. After everything settled down, ain’t never works.

CHIP: Nope, nope. Now, I mean, you can you can do things where you’re offering, you know, less service in the short term or, you know, you can do things where there are explicit short term discounts more in the terms of payment terms, but it needs to be with an explicit, you know, this is, this is what the rates are, and it’s not a, you know, we’ll just, we’ll figure it out later. Because even even with clients that you know, well, or think, you know, well, it’s just it’s so hard to get someone to reframe their value proposition in their head for your services. So you can use it right from from the gate.

GINI: Yeah, I have a client. He’s been a client for 10 years. And we did that we did that 10 years ago. And I have never in 10 years, had been able to get him to where he should be ever right. And that’s my own fault. And really, we keep him as a client because we love him and he’s, he’s a great client, so it’s fine, but why? Because I did that 10 years ago. I have never been able to ever, and I even had the conversation with him. And he’s like, I’m never paying you that amount of money. And I was like, Okay.

CHIP: So, so so let’s, let’s spend a little bit more time now looking out over the next, you know, three, six months, you know, where do you Where do you think we’re going to be at the end of the year? You know, as an industry, you know, do you see it? You know, bouncing back? Do you see at some point, people becoming more loose with their budgets? And obviously, you know, a lot of this depends on, you know, more macro economic issues that, you know, you and I are not really qualified to judge but, you know, I think that even even within the macro environment, there are still things that will take place in the agency industry that, you know, maybe we can at least speculate about.

GINI: Um, well, in the the PR week article that interviewed Edelman he talked about, we would reevaluate around Christmas time, and the article was like, that seems a little soon. I agree with that. I think that, honestly, and truly until there’s a vaccine for COVID, I don’t think there’s any sort of normalcy in terms of outsourcing for agencies or funding or anything like that. And then it’ll take another 18 to 24 months for that to come back around. So I think we’re good three years away, if not longer, that doesn’t mean that we can’t grow and that we won’t increase our revenue or anything like that. It just means that what we knew in 2018 2019 and before is not on the forefront.

CHIP: Yeah. Well, I mean, I guess in some ways, I’m more optimistic in some ways, more pessimistic. So let me let me try to explain that a little bit. You know, I think from let’s deal with the pessimism first. I think the, the path to complete recovery is much, much longer than that. I mean, I think we’re, you know, before we see the industry back to where it was Six months ago, I think it’s probably going to be 567 years. Before we get back to something like that industry wide. What I do think is I do think in the short term or shorter term, I think there there is there are going to be pockets of growth that even start to appear as early as this fall. And I think the the reason for that is that as you see other industries trying to claw their way back, they’re going to need communications and marketing support in order to get there and they’re going to recognize that, and they’re I think the likelihood is that on more project oriented things on more direct impact to the bottom line, type communications and marketing, I think that will come back sooner. And really, I think it’s going to start coming back in the fall to some degree Not, not by any means a complete recovery, nothing like that. You shouldn’t be assuming that. But I think that, you know, while we’ve seen, you know, sort of almost complete holding pattern in the last few months with you know, very teeny pockets of hope. I think that those pockets of hope will grow as we move into the fall. And as people start to think in their own businesses about how to get out of it. So, you know, like, I guess, you know, so on the one hand, I’m more optimistic. On the other hand, I’m more pessimistic.

GINI: Well, I mean, there was a wall street journal article that talks about it’s going to be a decade before the economy recovers before we get back to where we were in even February of this year. So I don’t think you’re wrong, unfortunately. And I think if you are wrong, great, you, we’ve we’ve helped people prepare, right, and it’s better to be over prepared than underprepared. So, I would consider that and I would consider the types of things that we’ve talked about in this episode and you know a few others about being helpful and offering services that you may not have offered before finding ways to quote unquote package or create products, and bundling premium price products so that are services so that you can you know, charge less but still deliver some Your value doing those kinds of things are going to allow you to survive this.

CHIP: Right? And I think that, you know, look in any of these situations, you have winners and you have losers. So the the playbook from Oh, for sure, don’t apply precisely but the the winners and losers part does. And Edelman was looking to be a big winner out of it by not laying off staff and trying to hold on to things and they were very clear about that in their original announcement a few months ago. But there is an opportunity for agencies who are nimble, who are innovative to even sooner than the end of the year start seeing some real acceleration in their businesses, because what folks need to be doing is they need to be thinking about how they can use their agency services to deliver more immediate results and impactful results. Yes,

CHIP: the big grand long term communications plans or marketing plans that are surrounded surrounding branding or things like that, those are those are going to be much slower to come back. The things that We’ve seen already doing well can continue things like crisis and reputation. Absolutely, those are those are there. But from a communications and marketing standpoint, you need to be thinking about things that have a more direct and tangible benefit to the client. And that’s going to help them increase donations, move the needle on their issues, make sales, whatever it is that they’re trying to do. And so you really need to rethink how you’re doing it and not thinking these, you know, grand long term plans, those will come back last, the first thing they’ll come back are the more targeted, project oriented, results driven activities. And frankly, that’s something that agency should have been looking at before this anyway, because that’s your bread and butter, the more aggressively you can grow. That doesn’t mean there’s not a place for the long term communications and branding play. But you know that that should be layered on top of that other work for any agency 100%

GINI: It’s a total bummer to come full circle that Edelman had to make this announcement but I think this is where it’s very indicative of where we’re headed. I don’t think it’s going to get better anytime soon.

CHIP: No, and I and I think that it is important for all business owners, particularly agency owners to be thinking about things from a realistic perspective. You really, you need to sit there and say, what’s what is most likely to happen? And generally, when you’re doing planning, it’s better to assume the worst case because for sure, you can always take advantage of best case scenarios. But if you’re prepared for Worst case, then you at least protect your downside and you you survive to fight another day. So, you know, be absolutely looking at that in the course have your business and say, Okay, well, you know, if these restrictions remain in place, and the economy remains down for, you know, 369 18 months, you know, how would I adjust to those and think those scenarios through because if you’ve got that, you know, well put in your mind, you’ll be in a much stronger position to make the adaptations that you need so that you can be on that winner’s column a year from now.

GINI: Yes, yes. Yes, different revenue streams, big

CHIP: indeed. Well, on that note, we will bring to a close this episode of the Agency Leadership Podcast. It’s been a sobering conversation, but hopefully we’ve offered some useful tips for all of you and it’s definitely sobering. I have no alcohol anywhere around me right now. Well, it’s good because

GINI: it’s noon, you could probably start drinking now.

CHIP: Yeah, I have a general policy about not drinking before noon anywhere except in Las Vegas.

GINI: Yes, I fare on vacation. On vacation. Yeah, the rules do not apply in Las Vegas.

CHIP: But the rules do apply here. And so we will end this episode of the Agency Leadership Podcast. I’m Chip Griffin,

GINI: and I’m Gini Dietrich,

CHIP: and it depends

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