Recession? That’s When You Need to Attack

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Paul down Sarah seagull and Laura Xander discuss how they think about the possibility of recession do they proceed with planned hires do they continue to spend on marketing do they look for unexpected opportunities in addition Sarah having recently taken back ownership of her PR firm asks Paul and Laura how they pay themselves how much cash they keep on hand and whether they think she should expand her offerings to include digital marketing plus Laura who's acquired several businesses over the years explains what she looks for how she decides how much to pay and why she's come to see Acquisitions as necessary for the survival of Jimmy Bean wool as usual all three owners are remarkably generous about sharing their thinking and even their numbers even in Good Times owning and running a business can be a lonely Pursuit our hope is that these weekly conversations brought to you by our principal sponsor the great game of business business will let owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report when Jak magazine named the best newsletter for business owners and which you can subscribe to for free at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and [Music] interviews joining me this week on the podcast are regulars Paul DS who is CEO of Paul Downs cabinet makers which makes custom conference tables outside of Philadelphia Sarah seagull who's founder and CEO of seagull Communications a public relations firm based in San Francisco and Laura Xander who is CEO of Jimmy Bean w a digital yarn store based in Reno Nevada and mine TSH a yarn supplier based in Fort Worth Texas the episode is titled recession that's when you need to attack welcome Paul Sarah and Laura it's great to have you all here Sarah in our email exchange before the show you suggest that you've been having kind of a tough week can you tell us what you were referring to I think this is a tough year or tough life as a business owner I can't um pinpoint any one thing but it's like you know just we're we're looking to hire people we have a lot of work coming on um we all have a lot on our plates wait those sound like good things no no there are good things so I I literally am laughing because I I I can't PL it's been you know nothing terrible um it's all been very good things it's just which mold do you whack first you also suggested that you're kind of thinking about this possible looming recession we've been hearing about for the past year or so and wondering if there's anything you can do to prepare for it that too sounds a little bit at odds with what you just said about having lots of work and looking to hire people well I'm not saying the lots of work is necessarily always the right work I mean we you know we're we're getting projects and stuff I I want to say more than retainers um and there's a drawback to take your projects because if you're on a project you know that at the end of November or whereever that project ends all of a sudden you don't have money coming in but you have the staff up to uh you know support those projects so do you work with contractors or do you add people and have that optimism that more work is going to come in or that particular project is going to continue as for recession I mean if you recall I'm based in the San Francisco Bay area and it's interesting to to see um what's going on around here I'm sure it's it's uh visible in the rest of the country as well but you know every other day there's another tech company that's just been laying off hundreds and hundreds of people so you know we're seeing all of these layoffs happen and my question is and my assumption is at some point those layoffs are going to impact the marketing and PR agencies that support those Industries so it will basically translate to more competition for the work that I'm trying to get so I it's just something always in the back of my mind to be quite honest you mentioned you know that we've probably been reading about what's been happening in San Francisco and the Bay Area the thing we've been hearing most about is Silicon Valley Bank yes has that had any impact on you at all um other than people reaching out to my clients to see whether or not they're involved um or have any relationship to it um no but that said you know we're definitely watching the uh the media conversation about it where you know right now with the instability of the bank Bing system are are VCS and or Banks going to be a little bit more particular about who they give money to because there is such an uncertainty right now in terms of where our economy is going and you know when those VCS don't give out their money or those Banks don't get out give out money then those businesses don't hire us to do their PR and their marketing so there's kind of a domino effect Paul Laura I'm curious have either have you felt any impact because of the the banking crisis or are you rethinking where you're stashing your cash in any way uh no and no uh because I bank with a pretty big bank to start with and I'd be surprised if a run developed on them I'm pretty sure they're on the too big to fail list so I'm just not worried about that yeah same page well and from what I read and I mean it sounds like you're going to get bailed out either way anyway so what difference does it make yeah I mean there was one guy in my vistage group who missed payroll because it turned out his payroll service was using Silicon Valley Bank but I think they sorted it out but it was a real surprise for him that was an issue that we actually had we use this company called Rippling and then we got an email from them like on Friday of last week saying that we needed to make sure that our money could be taken out because there switching out to JP Morgan so that was the only impact that we had but because it was a pass through it never caused problems I mean I got other problems our sales are down 40% off last year so oh my gosh wow was last year exceptionally good yeah last year was great and then this year is terrible and uh it's all the same people doing the same stuff so I'm not sure exactly what it is but we do still have of a backlog to got about six weeks of work on hand right now so just got to drum something up before then and we we do have some things in the works that should make it better but we're not on the same Pace as last year by a long shot how did how was last year to compare to the year prior to that was like last year a banner year it was and it was it was like that from the beginning I keep very careful records of all the years going back to geez going back to the last ice age about I was going to say the 1900s oh yeah way the the the mid 1900s when I was in the womb I was already doing spreadsheets and so anyway I yeah 2022 was off to a a great start right from the first month and it never slowed down and uh and this year is off to basically the equivalent of 2014 so going from a 5 million Pace to a 3 million pace and I've got the machine built to do 5 million so as long as we still have work I'm going to keep running it at that pace but then if we run out of work then I got to do something so it's a white knuckler but I've been here before and I think that Sarah getting back to your question if if that was your question about how to prepare for a recession a lot of it is just you're going to do the same things you ever did but you just may have to make decisions about how big you are so assuming that you're not going to go back to zero clients or zero dollars you've probably had a configuration in earlier years to do the amount of business you're likely to do and you just go back to that and that's horrible for the people you got to get rid of but that's that's the plan I'm going to do is that the only option Paul labor well that's the the one that's easiest to cut and in my business we've got overhead labor and Mater materials and if the orders slow down you're not buying as many materials and at a certain point you don't need as much labor the overhead is more or less fixed I mean you can cut your own salary which I've already done and you can identify cash reserves you could draw on if you needed to and uh that's as much preparation as you can do now the other thing I'm doing is I had a whole expansion plan and marketing plan in place for this year and and in a recession I don't cut those things like everybody else draws their neck in and I'm like no that's when you need to attack and so I'm going to make sure we have the money to continue all that and try to expand my share even if the market is going to hell there's still people buying my product and I'm going to make sure that we're out in front of them can I ask a question of of the two of you how do you pay yourselves are you like a salaried employee or do you give yourself like like how do you do that yeah I mean I pay myself a salary I mean it's not a ton it's six figures but it's not uh not what it would take to replace you with a professional CEO correct correct so Doug and I both pay ourselves um a salary but then it's mostly the draw stuff right so whatever is left not whatever is left at the end of the year but if there is money left at the end of the year or during the year then we'll pull it out but we take a really fluid approach so so let's say we take a 100 grand out during the year and then we decide we're going to buy another business then we might put that 100 Grand right back in you know and reinvested in the business so yeah it's a little fluid how about you Paul well I learned maybe 20 years ago that if you don't pay yourself a regular salary you just don't pay yourself so back in the day I started doing that just like I'm on the payroll I got to get paid and that was helpful in in starting to make some money out of the company my situ situation now is a little bit different because I have a minority shareholder my brother who owns 23% of the company and we're an S corporation so if I take a draw out of profit I theoretically have to send a quarter of every dollar to him and it's easier for me to just take it myself as salary pay the taxes on it and not have the profits and he's a dream partner cuz he doesn't need the money and doesn't care what I do but he's a he's a shareholder so and I'm HonorBound to you know give him some if we're if we're doing distributions but it's just the the way it all works out it's just better for me to move my salary around and pay as much as I reasonably can as salary and I find it more convenient to just pay the taxes in payroll too than to have to make the quarterly payments and blah blah blah blah blah I mean I still have to do that but yeah I'm not sure that my situation is directly applicable to anybody else other than if you don't pay your like Sarah are you on the payroll right now are you making a regular salary we had had a parent company up until the end of last year and we spun back out of that company and reestablished ourselves so going into January I knew that you know we would be at $ January 1st and starting the invoice so I knew that I would my the q1 would be a little bit iffy in terms of me getting paid in fact I took $220,000 of my own money put it back in the company just to make sure that I could make payroll while we were waiting for invoices to be paid and so I'm on payroll but it's nominal like and it's enough to like pay for my health care and pay for taxes and all that kind of stuff I've managed to pay back 75% of the money that I had put in and now I have I have a little Nest tic right um and I can pay myself back I have a couple other things I need to to deal with but Q2 is like where I'm going to be looking at my p&l and going oh well I can actually pay myself a salary do I do that or do I take withdrawals like I'm kind of in this uh decision space right now in my situation there's not much difference to whether in terms of the taxes of whether I pay myself a salary or pay myself out the other end so there's less money in my pocket if I pay myself from the draw because as I said I got to split it with somebody our approach has just always been because we've had some bad years keeping our salary at a level that doesn't tax the business you know and gives us the flexibility so yeah we pay ourselves a salary for kind of accounting reasons and for tax reasons but you know we've talked about increasing it and I don't know we just would rather have the flexibility of giving ourselves the draw if that money is there versus being tied to a salary and all of a sudden you have a bad year and then we're super stressed out because we're not profitable and you know maybe we have to kick more money in because we paid ourselves too much in the salary and all that kind of stuff so we've taken a really gradual approach to kind of increasing it I don't know if that's helpful at all but we've been very conservative I'm curious about your use of the word tied to a salary I mean you guys are the decision makers you can change it whenever you feel like it can't you it can but I mean there's still but I mean the emotional side of that and the like oh my God where I need to cut my pay I don't know that just feels like it's just easier emotionally I guess I started off this year with my salary at 280 Grand a year which is which is you know I'm pretty happy with that and then looking at the lack of sales and the cash that we're not getting but still wanting to maintain the marketing efforts and some equipment purchases I just cut it to 100 Grand a year so like okay I just freed up $180,000 in my budget and uh if I need to cut it again I'll just do it I think the part of the the answer for everybody is on the other side is what do you need to run your life and uh Laura you've got I mean you don't have a kid in college yet but it's coming at you and mine are done with that thank God and Sarah I don't know whether you have children but everybody's got a a particular financial situation and the company is part of that and I think there's a great comfort in being able to dial it up or dial it down like I don't have to ask anybody's permission I just do it which is nice yeah that's a great Point Paul and that's I guess part of our approach has been let's just make our salary as well you know what we need to live our lifestyle and then if there's gravy there's gravy Laura are you when you're taking a lower salary are you building up a cash Reserve in the business 100% yeah and what what is that what's your target do you like to have a half million line around or a million or 100,000 or what what is it that's a great question and I'd have to ask Doug what his comfort level is but yeah somewhere between a half and a million yeah that's a pretty good healthy pile of cash and so it's yeah and so and for us you know we've done what four I think four Acquisitions in the last five or six years we get opportunities all the time so it's more like are we making enough that we can live and then whatever is left over we can either decide to invest in ourselves or we can decide to invest it in another business to help us grow more so it just gives us some flexibility it gives us cash flexibility for the cash reserves like what percentage of your revenue or what did that half million reflect oh that's a great question and you know I don't know we'll do about 14 million this year so you could do the math I know a lot of people say like to have a really healthy business you should have a six-month Runway or whatever I haven't looked at it that specifically Doug does all the cash flow stuff and I look at all of the p&l and the profitability and I look at the cash flow as well but he makes sure that you know we have that Runway that we always have that Runway what do you do with those cash reserves where do you keep them do you are they just in a checking account or like do you do invest them or like what do you do with them um a combination of all those things we've got some just sitting in cash cash that's liquid readily available um at any point and then we put a bigger chunk away in Investments and then if a big investment opportunity comes up then maybe we will sell those off and use that as cash it also depends on the market you know like if the Market's really low then we might put more in the investment side and less in the bank you know try to buy a bunch of stuff while it's cheap yeah I mean Doug my husband's a finance guy so he loves to kind of play with that stuff well there's another thing underline all that which is whether you're able to operate profitably and collect the money that's owed to you those are the only methods by which you can amass a pile of cash I mean the third method is to get a bunch of deposits from people and then run a little p on scheme but well bank robbery too but yeah yeah but so Sarah if you're trying to figure out how to get a pile of cash the the critical thing is that you're you're doing business profitably and then you can build it up that whole six-month guideline it's a concept I have never found it to be particularly realistic for my business and Laura it sounds like you're not you don't have 7 million bucks lying around and know so agreed yeah yeah you're not doing that either but a lot of it is just how much would you really need to get through a rough patch and what are what are you looking at and yeah then where would I get it where would I get it if I needed it and I often will take money out of the business and if necessary just loan it back to the business so I needed to buy a fairly expensive piece of equipment and rather than lease it from a from a service or from some other people I just loan the money to the company and I'm getting 10% on it and I could change that anytime I feel like it you know like once you have some personal assets you can use them in the business and often deploy them in a way that would be difficult to replicate going to the open investment Market because you have control over the whole thing both ends of the deal so you can set an interest rate you can you can decide you know payment schedules pre payment whatever yep now I know that there are legal limits to what's considered to be reasonable amounts of interest to pay but these days 10 probably even 15% isn't going to raise anybody's eyebrow so it's a way to get in income out of the business in in a way that's uh that just like it's under your control and a better alternative than a lot of other ways to park cash that's a really good one we've we will loan the business money but we never do it that formally I mean we just kick in you know if we need to kick in some money because we've got something going on you know like we had an opportunity to bring in um a couple of containers of product as opposed to just small air shipments and it would make sense over but it would take us a year to for that Financial benefit to really hit so we just you know we kicked it in personally and then we usually pay it off within a couple months so we don't worry about the interest or worry about the schedules so I guess for us Sarah like we just kind of look at it all as and this is probably the WR way to do it but you know our personal money and our business money and again there's a lot of fluidity to it and we kind of think about it as is there something that we personally would like to invest in you know as part of this business you know let's go buy we know that if we spend $200,000 on bringing these containers in we're going to end up saving $50,000 so you know is that return on investment worth the money you know and worth worth the risk and that's more than we'll get in the stock market so we just do that interesting I'm at a decision point right now where um I can start giving myself a decent salary or I can hire more people and which is going to grow the business more I think hiring people I think getting me out of the weeds and getting more people to do kind of the the the stuff that I shouldn't do anymore is going to help the business and so it might mean another quarter of of beans right at home but I think that the longterm benefit is is worth it but it's just you know it's kind of hard to digest too yeah I mean beans and rice are good for you it's like lots of protein I mean that's it's just that's just a Sweat Equity like where do you want to invest it and to me you know where are you going to get a faster return on your investment so either you pay yourself 50 Grand or you hire somebody else yeah you know for 50 Grand and which one of those is going to make the bigger impact and it sounds like you could scale things faster by hiring somebody else yeah in the Bay area in particular there are a lot of PR agencies that are like 100% Tech and that's all they do so guaranteed you know all of these layoffs are going to result in killing their pnls we have kind of not purposely but just because I I like to do a lot of different things um have recession proofed ourselves a little bit it in terms of the diversity of clients that we have because we have everything from you know Tech clients B2B to to Donuts but is that enough to keep us insulated from any official downturn of the economy Laura how's your business been doing this year it's good it's steady steady stable no huge ups and no huge Downs so yeah I mean we can't complain we're working on the efficiency side we're working on what we've been working on the last couple years which is creating higher margins um becoming more efficient uh you know reducing some of our expenses and raising people's wages you know so moving that around do you see any signs of recession in your various businesses oh no not really um but I I mean well I guess that's not true yeah I mean we're seeing lots of Fallout in our industry lot of businesses sale quite a few compared to like yarn shops around the country shops manufacturers Distributors all of the different variants um I'm probably getting uh realistically maybe one every two weeks I'll get notice of somebody who's trying to sell or is selling or is going to just shut their doors and go out of business how do you get notified about that um they contact me and ask if we're interested in buying them usually because you have been buying businesses over the last few years yeah yeah we're kind of on that list of potential buyers or you know just Rumor Mill you know somebody will say hey double top secret you know just want you to know this is what's going on what's a good-looking business to you like one that's about to fail probably isn't all that attractive but no those are actually the most attractive do you think so why yeah just because they're the biggest challenge and that there's the most upside that's where we've had success that we can rebuild um and restructure and turn around you know what we tend to be good at I guess is financial management figuring out where their efficiencies and you know we've got some technical Savvy that a lot of these other businesses don't have so yeah that's the fun part is finding people who are about to go under um and who have perhaps been mismanaged and we can just jump in you have any examples of that like where you were able to like you found something that was a sinking ship and was able to really resuscitate it oh yeah yeah I mean that's every business that we've bought over the last few years um and we've actually bought some assets over the last couple months that we will probably next year end up putting some energy into and resuscitating but yeah I mean the yarn manufacturing company I mean they were on their way out and we've resuscitated that restructured all the staff brought it back to life brought it back to profitability restored their image restored the culture you know in the business itself and then you know there were a couple of other brands that we had purchased one had been completely shut down and we just you know brought it back to life and made it a million-dollar business again um and then another one was a smaller business what's your secret sauce proba that Sweat Equity that we were talking about you know just working your ass off gaining 10 lbs eating crap for 6 months not sleeping working as hard as you can possibly work and digging in and refusing to fail and then the financial side of it have you regretted any of the purchases you made longterm no in the moment yeah of course absolutely um like we bought one in October 1st I think is when we closed on it so it was a it was our first distributor ship so now we're the North American distributor of this yarn that's made on the Shetland Islands in Scot it's you know from a mill that's 135 years old and as it turned out I don't regret purchasing that distributor ship but the timing was terrible you know we had had to let a key player go in our business about a month before and then our operations manager down in Texas of our other business moved and resigned so we didn't have an operations manager so I had to take on those two jobs and try to integrate this new business into our business without an operations manager and without another key manager so it just you know the timing was terrible and it just wreaked a lot of havoc and you know then you start to find out all the things that these two people weren't doing that you thought they were doing and so it's been a lot you know the last five months has been a lot it'll be worth it and it's already started to be worth it but I mean it's just you know you give up your life how do you decide how much to pay for a business that you acquire for me personally I look at the net profit of the business and then obviously what they're doing and then what if I well it sounds like you're buying some businesses that don't have net profit some of no some of them do I mean they definitely do sometimes it's not much but for me it's can I pay this back in two to three years you know can I pay the investment back is the goal and then my personal goal is to try to beat that prediction and pay it back faster so can I get it to profitability can I get sales up and can I get the expenses down faster than I thought that I was going to be able to so that's been the goal as an example if the business is making $30,000 a year then I wouldn't pay more than maybe 75 you know 75,000 then plus inventory Paul have you ever thought about buying a business I have did you get close no it's a local comp competitor who is sort of been a thorn in my side for years because they were poorly managed and didn't have any real pricing model so they would just be selling stuff at absurdly low prices and undercutting my ability to go to market locally and so I um approach them and say hey we're in the same business it was a a partnership a sales guy and a manufacturing guy and spent a lot of time looking into that business and came to the conclusion that it was worth nothing cuz the two partners were actually loaning money to the business every year to keep the doors open and that's not a situation I want to be in I was still interested in doing it because I thought that it would at least remove these people from the conversation and I was confident that I could manage it much better and do a better job but my Visage group members look through the whole thing and they said you need this like a hole in the head because I just you know like I've got got my own business and um so I gave up that effort but the funny thing is those guys recently came back and said the manufacturing partner had retired and another sales guy had bought into the business so now you got two sales guys and they can sell but they don't know how to manufacture so they're running into problems actually doing the work and we're investigating them Outsourcing all their tables to me which would be very attractive proposition but they still have the problem of not having any real pricing system and they also don't have any mechanisms to understand what happens to a job once they sell it when it's on their shop floor they don't keep track of any of the labor hours that go into production on a per job basis so they have no way of checking whether their prices were any good and I've got systems that do all that but they're not easy to assemble those systems so these guys are in the beginning of a conversation about whether you know like how are we going to work together as opposed to against each other and that's the only business I've really thought about trying to acquire and uh they're relatively close to me I I would not want to acquire a business that wasn't close by because I don't like to have to travel a lot and I mean I don't know Laura how you do it running back and forth to Texas it sounds like Dreadful to me yep Laura's what business is in China and Vietnam too yeah Laura have you ever bought a business that wasn't didn't come to you for sale like where you're like I want to buy that business and you've approached them and said yeah okay what did that look like that was the first one but they were out of business so she had shut down the owner had shut down actually she had come to me like 3 years prior and we weren't ready and had never bought a business and you know I wasn't ready and so a couple couple years later um I went to her and I was like I know you're shut down and you don't have any inventory but could I buy the name can I buy your contacts can I buy you know the designs in other words can I bring this back to life and so we just worked out a deal where I just paid her you know I paid her some money and then also gave her royalties on everything that she had created or you know that this brand had created you know we still write her a check once a quarter and give her a percentage Sarah you seem very interested I am it's something that I've always been curious about you know I'm a I'm a small But Mighty agency and we're growing very organically which is great but I have a client who's great was explaining how like you know when you're a startup you need that kind of influx of of cash to kind of get yourself up into the atmosphere once you're in the atmosphere you don't really need it I mean you kind of created this self operational mechanism right so how do I go from small to medium or medium to large without necessarily getting an outside investor or taking out a small business loan or you know what are the options buying an agency is a little bit more halfhazard because there's no inventory you're buying essentially clients and expertise so it's not something I know much about so that's why I'm asking questions yeah I mean I don't think that I even thought about it that strategically it was a little more just kind of ADHD kind of hey some of this stuff has come to my lap now I'm starting to look for it a little bit more now that it's you know we've done it so many times it's not even how do I go from a small to a medium to a large business it's just how do I keep surviving you know how do we keep kind of diversifying if you will yeah how do we have new projects how do I have new stuff out there um and just kind of watching the market and seeing where the market grows and recognizing I guess you know that the part of the business that we had in 2010 I mean it's just not relevant anymore you know I mean we have gone from I might have mentioned this before but you know 10 years ago 100% of what we sold was made by other people we sold other people's stuff and now about 70% of what we sell is stuff that we create ourselves you know and that's I mean that's just happened kind of naturally over the years and now we're kind of looking for more and more things where we have more margin so we can pay people more so that we can keep the same people and even if our sales don't necessarily increase our margins increase so we have more cash so we can do more interesting stuff so we have more control and then as you watch all these businesses go away that we were ryant on selling their stuff we need more control you know that was a big watershed moment for me there was a couple years ago where I recognized like why are our sales not increasing and I went and I was doing some data research and saw that we had done $750,000 in sales of businesses that don't exist anymore you know they've disappeared over the last two years and we hadn't replaced those sales with new brands and so just recognizing kind of the attrition and our own industry our core focus is earned media and social media organic social media that's what we do we do it very very well but I can't tell you how many times in the course of year already we've been asked by clients or potential clients if we would do their digital ad spend as well and that is not our core competency we don't have anybody inous that does it I do have a couple external partners that I've referred people to do I figure out a way to add it to our offerings um and how do I do that yeah I mean I might try it test it once see how it goes I literally had a client come in like this week and and looked at me and was like I I will give you this amount of money I I don't want anybody else to do it we trust you I want you to do it and they know you'll figure it out Paul if somebody came to you and said look we I know you don't make chairs but if you'll make us a chair you know similar to the you know would you do it I mean if they're throwing you big money you wouldn't no hell no I mean I get asked to do that stuff all the time and and uh when I was starting out and I didn't have a million customers I would do it and so now I don't do it because I know what that's like I I'm always very concerned about first of all what are the client's expectations Sarah this guy's going to give you all his money but he wants something back at the end of the day he wants clients so can you deliver that are you confident that you can do that managing digital ad spends that's quite complicated in my experience and you need to like depending on the plat form you need to sort of understand each platform how it's administered how it's reported how to interpret the reports what are they not telling you like there's so many ways that could go wrong I would hesitate to jump into it without the client being totally aware of what your weaknesses are and so I find that saying no to business which is not the business we're in has been a good move for me because we're really really good at something that very few people know how to do and everything else that people ask me to do somebody's already really good at it doing it and we're just going to get our brains beat out if we try to beat them and so why bother yeah and I would take I take the exact opposite approach um in that I shouldn't say I take the exact opposite approach it's and obviously we're you know in very different kinds of businesses so the risk and reward is very different but for me it's my core competency really is treating people well you know being good to customers it doesn't matter what I sell it doesn't matter what service I provide because that just is I mean that's almost just like a symptom so for me Sarah I mean we've never made yarn before I've never made handbags before but the risk reward the risk was so low and you know I was able to isolate the risk that we were willing to say okay 50,000 bucks you know or whatever the number is you know you hire one person for 50 Grand what's the potential upside I mean if the potential upside is that this is a whole new side of your business that you didn't even know could be I mean maybe this is your future you know maybe this other part is kind of dying and this is where all the growth is going to happen but you won't know unless you try it yeah I know and there's a huge gray area in terms of paid and unpaid media now and it's like part of me it it has that perspective of like I need to add to our offerings in order to maintain relevancy um in this space like yeah we're really good at what we do but like paid advertising I mean you see all the media you know yep it's digital marketing is such a mess and I I can understand why your customers are coming to you Sarah I mean you're building credibility with them and they see this as a natural extension but whether it really is or not is an interesting question cuz digal marketing is so tough there's two levels of risk there's the risk that the whole the whole situation the vast forces involved here are just against you and that's why people are coming to you cuz even the people that they've hired who are really good at it can't succeed in an environment where the utility of digital advertising is just going down the toilet that's one possibility the other one is it could be a great field but you there people aren't executing and why not so I would want to understand why people are coming to you and what expectations they have and then can you actually operate in a way that's better than whatever anybody else is doing we went through all this when the pandemic started and I here I am making giant corporate conference tables and people are like well why aren't you making standup desks for home or home office they're like well there's already people making all that and they're doing a much better job than I can and I can't just like emergency ramp up a a a credible product and marketing effort uh in a hurry and I'm not even going to try and so and that turned out to be exactly the right decision so I think you could either say yes or no to the opportunity to do that but you should really think carefully about what's involved and what happens if it goes wrong do you two do digital ad spin like do you have digital ad spans on for your businesses yeah hundreds of thousands yeah oh I have yeah for years I mean I've been dealing with Google since 2003 so do you have an outside agency that does that for you at the moment yeah to manage my adword spend but I've dialed it way back from the Peaks because we eventually over the years I became more sophisticated about how to do it and when we built coding into our website that clearly identified whether a caller was coming from an organic search or an adword search it revealed that 99% of our clients were coming for organic and less than 1% from AdWords and so I cut back the budget incredibly at that point it's like why spend the money and you know don't even get started on trying to advertise on LinkedIn or Facebook or Instagram each platform is going to be different and have a different sort of a different Sweet Spot different way to succeed and and I don't know how easy it is to get that expertise very quickly that might be a case where you try to acquire some who knows how to do it but I don't know whether anybody knows how to do it it's constantly changing and so people succeed for a while and then they go around and wave their flag like oh I succeeded and then everything changes and that approach is now oversaturated and doesn't work anymore so I don't know what to say yeah I mean we've have been doing digital advertising for forever um in fact I think that's you know one of the first times that Lauren and I talked and met was you know talking through our you YouTube strategy which was organic but then turned into digital and all you know paid and everything my guess is that people are coming to you because you you already know their Story I mean we've never we don't Outsource it and we won't Outsource it because there are too many hacks out there they don't know your brand they don't know the story they don't I mean it just becomes formulaic and to me that's just wasting money so somebody's got to really understand who you are what you are what differentiates you you know what makes you newsworthy all these kinds of things what does your team look like that does that for you like how many people do you have working on that um you know we have a team of one two three four but really one person she really manages that so she manages you know all the Facebook advertising and the Google and and everything else with a little bit of help how much do you pay her do you know I do I mean she's paid a you know kind of an executive salary and what's your total spend on just the media every year um a couple hundred grand so you're 10,000 a month plus yes more like 20 okay I was at 12,000 a month for many years and now I send Google 2,000 a month mostly because I just think they want money let's give them some I want money too Paul uh you're getting plenty from me Lauren and that's true here I am right yep the thing is that the amount you spend in digital may or may not be related to the results you get it's very difficult to to tie it back unless you have a a really nailed down process to identify how every inquiry that comes into the client where it came from who it is is the story they're telling you likely to be true there's um there's so many ways it can go wrong and it's such a moving Target and so complex with all the different platform forms you know like you're great at YouTube are you going to be any good at Tik Tok who knows and what's that experience like as a trying to administer an account like that Sarah if I remember correctly you have some expertise in influencer marketing could that be the type of digital marketing that you focus on no we already do that that's its own beast but like people are we literally are being asked to will you view our Facebook ad spend will you figure out how what money we should put behind Instagram will you help us with Tik Tok and it's something that I I feel like we should stop saying no to but I don't know how to start saying yes so that's why this conversation is very helpful can you pick one of the people that you feel like you work really well with and basically do it not necessarily for free but you know come up with an agreement with them that like hey if you're willing to let us try this let's do some beta testing together together we'll give you a great deal on it you know blah blah blah blah blah yeah no I have a client who literally said I will give you $15,000 a month just to spend on digital advertising because I trust you you will do it and I looked at that person and I said I don't have anybody that does that I'll have to hire somebody and they said okay good that's a very interesting conversation but my boy I mean I would want to understand what their understanding of what they're getting for $155,000 a month is now do they have any metrics on how many clicks how many calls how many sales what's the clickthrough rate well because you're going to need to be able to demonstrate whether you're succeeding or failing yeah this is a unique client because it's a brand new product to the United States so they don't have anybody currently doing it we wouldn't be taking stepping into somebody's shoes we would be starting from scratch so there's like no metrics to compare to well maybe it'll be great I mean it's 15,000 bucks a month well no no that's the that's the amount of money spent on the digital ad spend that's not the pay for Distributing that $155,000 so on top of that we would have some sort of you know percentage of of that spend and I don't know what that looks like necessarily but um I'd have to figure out what that payment structure looks like I would say this is a case where you really need to understand what's normal operating procedure in this market you know Laura and I both have experience in it but it's not like I know what every Furniture maker does I don't care I that's that's just who I am but in this case someone's coming to you with expectations in a budget and you don't even know how to charge for it so you better find somebody who does who is running this kind of thing and see if you can pick their brains and figure out okay what would be normal to do here do I want to undercut normal in order to get Market Shar do I want to charge more for the risk you know like without understanding what the other alternatives are I think you potentially could be in a ton of trouble I I agree with you that's my cautious side saying that and I'm very cautious with other people's money so Laura's probably be like oh go for it who cares chargeing whatever they'll pay Laura have you had success recently with the kind of digital marketing that Sarah is talking about yeah I mean we still working uh right now you know the text messaging stuff is killing it and that's been maybe a year a year and a half so we use a company called attentive and our Market loves it you know they sign up for these text messages we send them out the ROI is way higher than Facebook or Instagram what kind of messages are you sending out uh it depends new product um sometimes if we have some sort of deal but not very often usually it's new product stuff and you send pictures along with the text M you can it's a little more expensive to send the pictures but yeah you absolutely can how do you get people to opt in to the service um through the website you know so and we're kind of doing the if you sign up you get you're eligible to win a raffle or you know win this bag or something like that so um no it's been great it's been really really good so this sounds like the next generation of email marketing it 100% is and it's funny when this came up I found out about it it was literally a year and a half ago I told our marketing manager who does the digital ad stuff I'm like I think we should do this I really think we should do this and she didn't want to do it she was you know kind of irritated and I'm like please please please just try it let's just try it and now like the whole team that's all they I mean they love it do you have to do text yep Paul you asked really I have two teenagers um I have one teenager who's on the verge of applying to college but I also do I coach on the side but teenagers don't look at email right at all all of their communication is either through text or SnapChat those are the two places that they communicate with people and that's it so emailing them is pointless because they will never see it so if you're not leveraging text or messaging as your means of communication you're not going to be attracting or engaging with younger audiences and you're eventually going to not have new customers so that's really smart Laura my thanks to Paul down Sarah seagull and Laura Xander and of course to our sponsor the great game of business which helps businesses use an open book management system to help build healthier companies you can learn more at Great game.com thanks everyone wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at Lauren 21h hats.com that's l r n21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcast follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess Theron founder of blank word Productions okay now you can leave thanks for listening everyone [Music]