‘At 5 O’Clock, I’m Going to Send Everybody an Email’

Introduction:

This week, Paul Downs tells Jaci Russo and Sarah Segal about laying off a third of his workforce. “Here’s the problem in a nutshell,” he says. “Last year, January to March, we sold $1.356 million. This year, January to March: $680,000. March is on track to be the worst month I’ve had since I started taking records.” Paul also tells the owners that he used to have a rainy-day fund for such occasions, but he used it to renovate his house. He does think the layoffs and other cash savings have put him in a strong enough position to hang in there until business picks up. “We’re getting calls,” he says, “we’re just not getting orders.” He’s also trying out a digital marketing service that can identify and contact anyone who spends even just a few seconds on his website. Plus: Paul tells us that sometimes, when forced to lay off people, you learn things about your operation that you might not otherwise have known—like that you’ve been overpaying your sales tax by at least $30,000 a year for quite some time.

— Loren Feldman

Guests:

Paul Downs is CEO of Paul Downs Cabinetmakers.

Jaci Russo is CEO of BrandRusso.

Sarah Segal is CEO of Segal Communications.

Producer:

Jess Thoubboron is founder of Blank Word.

Full Episode Transcript:

Loren Feldman:
Welcome Paul, Jaci, and Sarah. It’s great to have you here. Paul, the last time you were here, you told us that you’d had to lay off two people and you feared you might have to cut deeper. I’m almost afraid to ask, but how’s it going?

Paul Downs:
Cut deeper. We cut very deep. Here’s the problem in a nutshell. Last year, January to March, we sold $1.356 million. This year, January to March: $680,000. March is on track to be the worst month I’ve had since I started taking records. We’re at $73,000 for the month. So I did lay off another seven people. We’ve laid off nine in total.

Loren Feldman:
Out of?

Paul Downs:
Out of, I think we had 26 to start with, and we’re down to 18. Sorry, 27 to 18. And yeah, the only good news is that I’m glad I did it, because I’ve been able to kind of stabilize my cash position. And I now have enough money on hand to run through the end of the first week of June, because my feeling is that, hey, we are still getting calls. We’re getting a fair number of calls from people who have projects. So the demand has not entirely disappeared, but it usually takes time to turn calls into orders. And so what I’ve been trying to do is just manage keeping the runway, making sure we have money to operate for another… however long we can do it, so that we don’t have to cease operations.

And so we’ve laid off the nine people, and everybody else is taking a pay cut, and I’ve taken a complete pay cut. And we’re kind of readjusting our output to match what we suspect we’re going to be doing per month. So last year, we were trying to do $500,000 a month. I think that this year 320k to 350k a month would be a good result. And it’s not likely to happen immediately, but I think that we’re going to see some recovery as the year goes on. That’s my thought.

Sarah Segal:
I have a quick question. First, when I had to do this two years ago, it was terrible, but there’s this immense amount of relief I felt after I had done it—and all of a sudden I could sleep better at night. And I could think a little bit more clearly, like there was a mass amount of stress. So I’m wondering how you’re doing with your mental health. And then my second question is, do you have a rainy-day fund for these kinds of situations? Are you dipping into it, or does that not exist?

Paul Downs:
So mental health, I’m pretty mental healthy, because there really wasn’t an alternative. And when I decided to do the layoffs, I was like, “Okay, now what?” I actually put together a whole presentation for my company that explained the situation as clearly as I could. “Here’s the numbers, here’s where we’re at, here’s where we were at”—and the basic problem being that, coming off your best year ever, you have added staff, and you’ve added equipment, and you’ve done all this stuff to produce more, but you’re carrying a much higher cost. And if the amount of money coming in the door is not nearly enough to sustain that higher cost, then something has to be done.

So I laid that all out for them with numbers and graphs, and then said, “Yeah, and now we’re going to divide the company into two groups: those who are laid off and those who are not laid off.” And everybody was in this presentation. This was talking to everybody at once, and I did the meeting at two in the afternoon, and I said, “At five o’clock, I’m going to send everybody an email, and you’re going to be either in one group or the other.” Because what I did not want to do was give the ones who weren’t laid off the impression that they were just like, “Dodged a bullet, and everything’s fine.” No, you’re going to take a hit, too.

And then what I was trying to do also was not go out of my way to humiliate those who were going to be laid off and to present this not as a question of this being necessarily a result of their individual performance or anything. This is being done to us from outside forces, and the villain is not in the building. And so that seems to have worked pretty well. Well, I sent out the emails and asked people who were being laid off to actually come in the next day and told them, “We’re going to pay you for a couple of days till the next payroll. Here’s what’s going to happen.”

But I didn’t want to just be like, “Get out,” and then let them go home and not really feel part of the company anymore. Because my goal was to lay people off in such a way that I would have the option to bring them back—if we can get sales back where they need to be. Like, I hired all those people for a reason. They’re all good people, and if sales pick up, we’d need them back. So why do the layoffs in such a brutal way that it destroys people and makes them not want to come back?

Now, there’s been a fair amount of discussion in the podcast over the last few weeks of the idea that I would take into account things beyond just job performance in deciding who gets laid off. And my comment, after having heard a lot of criticism about the idea that you would take into account who bought a house or who had a baby, is that in a company my size, I would take all information that I have into account, and that I would never set aside any type of information and say, “Oh, that’s not relevant.” Because all information is relevant. And then I would invite those who feel differently to start their own company and get in trouble and figure out how to do your layoffs yourself.

And that’s your prerogative, but this is how I run my company, which is: I try to get to know my employees, understand who they are, understand what their situation is. I’m very clear on what they do at work, but I just want to know. And so at the end of the day, when I was deciding who was on the layoff list, primarily it was: Are they doing something that we don’t need as much of anymore? And that’s one type of labor. Or are they doing something that we need but we can get the remaining people to do? In other words, can we take one person’s job and eliminate that position, but spread the functions out to other people. Would that work?

And then the third thing would be: Can I get this person back if I lay them off? And that would be a question that would lead me to not lay off someone who I suspect that I would not be able to get back. And so if you were someone who I felt had been around a long time and understood the value of working for me, as opposed to somebody else, I might be more inclined to lay you off, because I feel like I could get you back. And then the last thing would be all of the personal: Who’s got a baby? Who’s got a house? It’s not irrelevant. It’s part of the discussion, but it wasn’t the main thing for me. So, I just want to lay that out there for everybody.

Sarah Segal:
So, I think two good follow-ups on that. One, I think Jaci, on another podcast [episode], you mentioned that you have a different perspective on that, and I’d love to hear your thoughts on this. But also, I was curious as to whether or not you considered a furlough instead of laying people off. Or is the pipeline just not healthy enough to be optimistic about the business coming back?

Paul Downs:
I mean, what’s a furlough? A furlough is, you send someone home and then what? You tell them, “Don’t apply for unemployment,” or “Don’t look for another job”? Like, I just did not feel that that’s fair to the workers. If you’re laying them off, you’re laying them off. You’re telling them, “You’re now free to act on your own behalf,” and to imply that there’s some last-minute savior showing up, I just don’t see it.

I think that six months from now, we will be back to some new level of predictable. You know, sales will be coming in. I don’t know whether they will match last year or not, but in the short-term, I just don’t think that that’s fair to the workers, because you’re presenting false hope, in a way, that you can’t back up. And so I would rather try to make a more severe adjustment right now and claw my way back from it than try to dangle people just to string them along and say, “Hey, it’s going to get better,” when I really don’t think it’s about to get better.

Loren Feldman:
I’m not entirely clear what the difference is between a furlough and a layoff, although one thing I have heard is that, in some cases, furloughed employees retain their health insurance. Does anybody know?

Paul Downs:
Well, there’s COBRA. I mean, when you lay somebody off, you have the legal obligation to offer them the opportunity to purchase health insurance at their cost but through your plan.

Loren Feldman:
Right, but I think with a furlough, sometimes it’s not COBRA. The furloughed employees just remain on the health insurance plan.

Paul Downs:
I bet that varies by state, and I don’t know the answer to that. I mean, when I laid everybody off, February 28 was the last day. But everybody who was on the health plan, I said, “I’m going to carry you through the end of March at least. And if you want to do COBRA, you can do that,” but I didn’t want to cut them off immediately, because people may have appointments scheduled or something.

Jaci Russo:
We pay our insurance in advance, so, like, we’ve already paid April. So if somebody was leaving by my choice or theirs today, they’d be paid for that whole next month, unless I charge them back for it.

Paul Downs:
It probably depends on how different health insurance companies work. But in mine, even if I had prepaid through April and then I went into the portal and just canceled someone today, I would get a refund for that.

Sarah Segal:
Yeah, that’s how mine works, too.

Jaci Russo:
Maybe my agent doesn’t like me as much as yours, because that’s never been an option that anyone wanted me to consider. [Laughter]

Paul Downs:
Well, you know what, let’s not go down the road of bitching about health insurance. But there’s what they tell you you can do and what you can actually do, and at least in my case, those are very different things.

Sarah Segal:
But as far as taking people’s personal situations into account, Jaci, didn’t you say on an earlier podcast [episode] that you’re a little less—you know, it’s more about the health of the business than taking people’s personal lives into account? I’m not putting that on you. I’m just on the fence.

Jaci Russo:
I probably did. I hope that I said it kindly. But for me, I am very grateful that—we’re in our 25th year now—I have not been faced with the same decision the same way that Paul has. And so I don’t really know how I would respond in those situations. I hope I never find out. It’s a club I don’t want to join.

I do know that when we talked about it a couple weeks ago, because this was starting to percolate, I remember thinking: When I look at our team, we’re lean. So I’m just gonna eliminate the PR person, eliminate social media. We’re cross-trained, and we don’t have redundancies. And so we’d have a real pickle if I was gonna start laying off people, because it would have to be almost a department, and that would eliminate a service line that we’re paid a retainer for.

We’ve had a couple of clients over the years say something’s changed for them. They need to rework the scope. You know, we’ve had to make some modifications. But the ad agency world is notorious for: Get a client, and hire; lose a client, fire. And we’ve tried really hard to not fall into that pattern that other agencies do. And so I think part of it is just a lot of dumb luck on my part—not really great skill-sets on my behalf, don’t get me wrong. But we luckily have not been in that position. And we’re month to month, so it’s not like a client’s bound to a 10-year contract, and therefore I sleep at night knowing they’re not going anywhere tomorrow.

Any of them could leave at any time. But our average length is six and a half years, and our longest is about 12 or 13 right now. So that gives me a little bit of comfort that I don’t have to make this decision anytime soon. But you know, our economy is a bit up for grabs right now. So although it’s not affecting our business at the moment, if it affects my client’s business, there’s a conversation that has to be had.

Sarah Segal:
I’m in a similar situation as you. I don’t have a lot of redundancy. But I want to say that it was Jay on this podcast who once said, “Your business is not a charity.” And I have to say that I kind of align with that. So when you make your decisions, you have to make it based on the health of your business. And if you don’t, you’re going to impact the people that remain. And I kind of align with that. And I know that’s a little bit on the harsher side, but when I lay people off, like when I had to do that a couple years ago, it was not a great experience.

I did sleep better afterwards, but I did everything in my power to get those people new positions. And I’m happy to report that they’re all in great places. We still talk, we have lunch, we get cocktails here and there. They’re all in a good place, some of which is because I helped make some introductions for them, or pointed them in the right direction. You know, I did what I personally could to help them get over that, but I had to make some really tough decisions. I let go people who I really admired, who had been with me since day one, who knew where all my skeletons were. But they did work that I knew I could do.

Loren Feldman:
Let me jump in here. I wanted to say, Paul, you said that some of the comments you took as criticism. I don’t think many people, if any, meant it as criticism. I think there were kind of two strains of reaction to what you said about taking those personal things into account. First of all, everybody acknowledged that you laid it out in terms of one of the things you enjoy about being a business owner is getting to know your people and seeing them every day and knowing what’s going on in their lives. And certainly no one would be critical of that.

Paul Downs:
Well, some people would be.

Loren Feldman:
Do you think so?

Paul Downs:
Yeah, I think that what I heard—and I can’t quote word by word—but a desire on the part of some commenters to say, “No, don’t take that into account. It’s not fair.” There was a feeling that employees should be judged by what happens in the building only—as if that’s actually possible, to tease out the exact contribution of each employee. I think that would be very difficult, in my case, but maybe it’s possible. If you had a team of just sales people, you could just tell whoever sold the most, they’re the winner, and whoever sold the least, they’ve got to go. There’s some jobs that are very easy to score, but mine just aren’t.

Loren Feldman:
By the same token, I think some of the people who raised questions would also question whether you can have perfect vision into the personal lives of your employees.

Paul Downs:
Of course you can’t.

Loren Feldman:
Right, and that’s what they were saying. And maybe this is a fine line to draw. I think it was more along the lines of, “I would do it differently,” than “Paul is doing it wrong.” I think there were two strains of thought. One was from someone who wrote on the 21 Hats Slack channel that trying to do what you’re trying to do is a version of playing God, and I can understand why you would take that as criticism. That was the most extreme comment, I think. There was another conversation that was more along the lines of: Once you start looking at those personal factors, it’s a lot like paying somebody differently because they have a family versus someone who does the same job but is single, and that you get into dangerous territory there.

Sarah Segal:
I am vehemently against that. You should never pay people differently because of their situation. I feel very strongly about that. In fact, what I do with my team is, I have pay scales in ranges for each position. The team is very well aware of what those ranges are. If you’re starting into the position, you’re offered this. If you’re more senior, you will graduate up to the higher end of that position. But I do not pay people based on their personal situations or anything else.

If you’re hired in a job, and you do that job well, and you do it so well that I need to promote you, then I need to promote you into the next pay scale. I’m not going to pay two people that are doing the same job different amounts. I had that happen to me personally when I was younger in my career, and so now, forget that. That’s never going to happen to me. Like, I’m never going to run a business that does that.

Paul Downs:
What if you had an employee who was working remotely, and you’re paying most of your employees based on San Francisco cost of living. You’ve got someone in Ukraine or Costa Rica. Would you pay that person differently?

Sarah Segal:
I don’t have people working in Ukraine or Costa Rica.

Paul Downs:
All right, but I’m asking you, what would you do in that situation?

Sarah Segal:
I’d pay them the same rate.

Paul Downs:
Okay.

Loren Feldman:
It doesn’t have to be Ukraine. It could also be, I mean—

Paul Downs:
It could just be any place way cheaper.

Loren Feldman:
It could be Lafayette, Louisiana.

Jaci Russo:
I was gonna say, we are in the same situation as Sarah, but the opposite. We have the same structure. We have the same scale. I mean, it’s probably not the same scale. We also have a scale. We do it based on time, experience, etc., and it’s a Lafayette rate. And so we have a real hard time recruiting people from big markets because it does not align with their lifestyle. But it would not be fair, in my opinion, for me to pay somebody less just because they live in this town than somebody who lives in a bigger town that has a different standard of living.

Sarah Segal:
Oh, I have the same problem in my industry. So I’m a consumer lifestyle agency. We do some tech, but not very much. It’s not what we put on our banner, right? But tech PR agencies in the San Francisco Bay Area are a dime a dozen. Tech company retainers are, like, twice as much as a consumer retainer, and so we just don’t pay as much as those tech agencies.

So when I’m talking to somebody, and I’m potentially hiring them, one of my questions is, like, do you really want to do consumer lifestyle? Because this is the situation: You are never going to make as much money as if you go to work for a tech agency. You’re never gonna make those dollars working for a small- to mid-sized agency, but we get to do really fun shit. Excuse my language. And that’s how I cede it. But I can’t keep up with some of these larger tech-oriented agencies. I just can’t—or even agencies that have a really robust tech and a lifestyle consumer. I can’t keep up with them because they use those tech-retainer dollars to offset the lifestyle retainers that are less, generally.

Loren Feldman:
Paul, I’d just like to say that I kind of stirred the pot on this one. I kept bringing it up because I found it to be a really interesting topic that I thought smart people could disagree on and take different positions. It was not my goal to stir up criticism or to make you feel even worse at a difficult time. So, I’m sorry you took it as criticism, although I certainly understand.

Paul Downs:
You know, if the pot is stirred, that’s fine. And I can take quite a bit of criticism. As I said, anybody who wants to run their company differently should do it. And if you came and ran my company, you might run it differently. You might not. Everybody’s got a different decision here, based on the main thing being company size. How easy is it to classify your employees? And whether you have any desire to get beyond just the first level of evaluation. And if you don’t, then don’t do it.

Sarah Segal:
I think Paul has thick skin. He’s been doing this for a long time.

Paul Downs:
Well, also, I’m always convinced I’m correct, so it makes it easier to ride. [Laughter]

Sarah Segal:
I’m not. But you know, there are certain things that I feel strongly about. You have figured out what works best for you, and you gotta keep doing that.

Paul Downs:
Well, a lot of it is that I have stats and records going back decades. So I have a very good idea of what normal looks like. And when it doesn’t look like normal anymore, I can at least make a case for why I decided to do what I was going to do. And it was interesting that, having given this big talk to the company, there were basically no questions about, “Well, why are you doing this?” They got it. I laid it out for them. “We have to do this. If we fail, everybody goes. If I don’t do this, we’re going to fail.” And so, it wasn’t really something that seemed to be, like, Why did he do that? Everybody was like, “Yeah, we could see it coming, and you laid it out there, and here we are. We’re on board.”

Loren Feldman:
You know, Paul, that’s an interesting point about transparency. Because, I’ve heard owners have this conversation over and over again through the years, and there are some owners who look at it and say: The last thing I want to do is share my numbers, my sense of how the business is doing, with employees. Because at some point, if things aren’t going well, and I do that, it’s going to scare everybody. And nobody wants to think that the leader doesn’t have control of the situation. Whereas what you’re saying, I think, is: You have credibility because you’ve been sharing those numbers all along, and you didn’t have to work real hard to convince people that this is a difficult moment where the actions you’ve taken were necessary, right?

Paul Downs:
Well, part of it is that there’s a very clear external enemy here, who’s fucking us over. You know, it’s like it’s not obscure what’s happening, or we can’t figure it out, or we don’t have any way to understand it.

Loren Feldman:
But Paul, let me stop you there, because I’ve asked you in the previous times you’ve been here, if you know why your business has fallen off so much. And it sounds like you’ve achieved a higher degree of clarity. Tell us why.

Paul Downs:
Yeah, my project, at the end of the day, it’s sort of a luxury product. And so, I mean, first of all, there’s a group of jobs we were working on that were in Canada. Well, they called me up and said, like, “Fuck you. You’re an American. We’re not doing any business with you.” Okay, I know who did that.

And then the other thing being that you have a lot of people who are just not pulling the trigger, because there’s just this air of uncertainty in the market. We do well when people are pretty clear what tomorrow is going to look like, and that’s been, for better or worse, the situation for a long time. And then all of a sudden we get into a world where incredible forces, economic forces, are being unleashed or shaped this way, that way, almost at random and without ever settling on any particular state of being. You know, are the tariffs on? Are they off? Or is it this much? Is it that much? Nobody knows, and so it’s perfectly logical for people to not buy the luxury product in that environment.

If they felt like, “Oh, we can spring for the expensive table last year,” they just don’t feel like that now, and the behavior is crystal clear. There’s nothing else in the whole information ecosystem that’s changed. We’re the same company, same product, same people, same pricing, same internet presence—everything is the same, except the overall atmosphere out there of whether people are confident or not. And you see this in the stock market falling. And I think that in the last podcast [episode], which I listened to, Mel Gravely was like, “Yeah, recession’s coming because people are clutching.”

Loren Feldman:
No, he said, “It’s here.”

Paul Downs:
Yeah, well, I mean, we’re getting calls. So to that extent there are still people out there who have projects, but we’re not getting orders. People are sitting on their hands. So to me, it’s just pretty clear what’s going on. I’ve seen confidence collapse many times. That’s what really causes recessions. There’s always a precipitating event, and then as a result of the event, everybody’s like, “Oh my God!” And then they stop spending money, and that causes the real damage. And I think, again, it’s just not hard to pick out what’s going on that’s causing that to happen.

Loren Feldman:
I asked you this last time: Are you inclined to try to do anything different to find business?

Paul Downs:
The only thing that we tried differently is that we recently got access to a service that allows us to see who’s browsing on our site, whether they call us or not. And it actually has pretty good demographic information on people who are on the site, like, for even 30 seconds. And sort of surprisingly, we can see who they are, what firm they work with, get their email, what pages they visited.

Loren Feldman:
That’s a little scary.

Paul Downs:
It is kind of scary.

Sarah Segal:
You have to share this.

Paul Downs:
My AdWords guy is like, “Hey, would you be interested in this?” And then I started looking at the information. I was like, “Oh my God, this is great.” But the question is, if someone’s just browsing on your site, they haven’t signed up for anything. There’s no cookies or anything. Somehow, they’re sniffing out this information. And if we reached out to them, would it be too creepy?

So we are trying, in a limited way, to reach out to certain people. If we saw that it was someone who is a good potential client, who spent 30 minutes on the site looking at 20 pages, we can craft an email saying, “Hey, you were looking at this. We just want to tell you: We’re here to help.” And so we just started sending out a few of those emails. And I don’t know whether that’s going to work or not. That’s the only thing different.

Sarah Segal:
Are you willing to divulge that?

Paul Downs:
What’s it called? Hold on a second…

Loren Feldman:
I have had the experience of going to a site and putting something in my basket, and then deciding not to buy it. And then they’ve reached back out to me and say, “Hey, you forgot to”—

Paul Downs:
No, this isn’t that. There are no baskets on my site. We’re just looking. We’re just able to see what they’re doing.

Sarah Segal:
But even with a basket, you don’t type in your email address. So they’re able to see what Loren is viewing and then figure it out and reach out to them.

Paul Downs:
Well, yeah, I mean, this is really startling. It’s called Visual Visitor, and I’m getting it through an agency that manages my AdWords. I don’t really know too much about it, but the amount of information on each person is really startling, because it’s presented to me in a portal, and I can click on the name and I get a little pop-up that has all their personal information. They’re linked in a summary of what their business is, what the company does, and then all the pages they visited, how long they spent on each page.

So again, we can identify people who are clearly thinking about, “Oh, I’m looking at all this stuff because I want to see more.” And the thought being just like: Reach out in a very gentle, single email: “Hey, we saw you’re on the site. We saw you’re looking at this stuff. How can we help?” That’s it. So I don’t know whether that’s actually going to work or not.

Sarah Segal:
No, but you have to do that stuff. I mean, I’m sure that Jaci probably uses a similar program for her PR stuff. But you know, every email that we send out, we can tell how many times you’ve opened it and where you’ve opened it from, so we know when to follow up. This is not necessarily for prospective clients. It’s more for media relations or influencer relations, but having that kind of Intel just makes it so you’re more thoughtful with how you’re going out, too. You’re not spamming people and just doing these mass distributions, which don’t result in sales for anybody.

Paul Downs:
Well, that was my thought, that if we use the information, if we have this information about who they are, what their role is, craft something that says, “Hey, we think that we can help you in these ways,” and be pretty specific about it.

Loren Feldman:
Jaci, I’m curious, are you familiar with this type of service, and would you use it?

Jaci Russo:
We do use something like that. The web team doesn’t really let me attend their meetings anymore, because my ideas apparently wasted time and annoyed them—I’m using air quotes. [Laughter] But we do have a suite of tools. And you’ve got some tools, like HubSpot, for example, where we’ll do everything you’re talking about with emails, the hosting of the website, as well as who’s coming there. What we’re ultimately talking about, really, your UTMs and those unique trackers can be embedded in ads, emails, links, so that you can track everything and where it’s coming from and where people go from there. And then you’ll know more about their habits.

And the point of it, and the reason why I think I’m not bothered by it—I know some people are really disturbed by privacy and data—but my thought is, “If I’m in the market for this widget, then I want people to give me ads for that widget.” I would rather that than I get ads for all these other things that I don’t care about, and I’m never going to be in the market for. Yes, customize the experience for me, please.

Sarah Segal:
The one thing that does freak me out is when I’m talking about something in my house—we have Google Home—and then randomly, I get served up ads after talking about something I know that I’ve never searched for.

Paul Downs:
Well, you let that thing into your house. [Laughter]

Sarah Segal:
I know, I did.

Paul Downs:
It’s probably in the terms and conditions somewhere that you accepted, like, “Yes, we will read your mind and send you garbage. You agree.”

Sarah Segal:
And it’s a love-hate relationship. I’m basically like, “Oh, that’s weird,” but I move on. Because honestly, I know a lot of people are worried about privacy and all of that, and I respect that. But part of me is like, my life is not super interesting. So I’m kind of an open book, and I don’t really care. But that’s just for me, personally.

Jaci Russo:
There’s some discussion around: Is the machine listening to you or not? Obviously. There’s also some discussion around: The ads have been out there the whole time, but once you talked about it or someone else talked about it, that kind of opened the filter in your brain to see the ad that was always there.

Paul Downs:
I don’t think that’s it.

Jaci Russo:
I’m not taking sides in the fight. I’m just telling you.

Paul Down
Just applying Occam’s razor, it’s way simpler for Google to have that thing listen. You can do all kinds of voice analysis now, and just serve you up an ad. That makes a lot more sense from a business standpoint than, “Oh, we’re just gonna fire ads and hope people notice them when they start talking about, you know, whatever, kayaks.”

Sarah Segal:
I’ll do a test. I’ll randomly talk about snowshoes in my kitchen over the next couple of weeks. I don’t need snowshoes and I don’t care about snowshoes, but I’ll do it and see whether or not I get served up anything. I’ll report back.

Jaci Russo:
I have an a-l-e-x-a right here in my office. So I’m also going to talk about snowshoes. Snowshoes. How much I want snowshoes. Maybe going skiing later. Need some snowshoes. And I’m in Louisiana. So we’ll see if an ad pops up. We’ll know it’s very intentional.

Sarah Segal:
Screenshot it and share it, because that will be awesome. We’ll share it on the 21 Hats Slack channel.

Jaci Russo:
Yes, I will.

Loren Feldman:
Paul, early on, Sarah asked you if you have a rainy-day fund that you are opening up now to get through this.

Paul Downs:
Well, I had a rainy-season fund, and then I renovated my house, and now I’ve got a rainy-minute fund. [Laughter] But one of the goals of doing the layoffs sort of at the first hint of trouble was to make sure that we are maintaining our cash position. So when I did the layoffs, I had about $450,000 in the bank, which would have been enough for maybe four weeks of operations, not even at the previous staffing levels. And we were expecting some payments, which came in, and we’re continuing to do work and send stuff out the door. So right now, I have $850,000. Now, I put in some of my available cash left after the renovation. I put in 150 grand, loaned that to the company, just as an extra cushion.

But we’ve continued to improve our cash position, which I’m happy about, and a lot of that is because of cutting costs and also just adjusting our spending to a lower level of output. So I don’t have a rainy-day fund lying around normally. I mean, I always like to have cash, but what I’m doing is trying to manage day-to-day operations to prevent cash from disappearing. And one of the interesting things is that when you lay people off and then start looking into their email accounts and various other aspects of their performance, you discover some things. Like, for instance, my purchasing manager had never signed up for tax exemptions on many of the vendors that we use for our goods—and just by simply not doing that, was spending something like $30,000 to $40,000 bucks a year in sales tax that we didn’t need to be paying. So when I saw that, I was like, “Huh?”

Loren Feldman:
What were you doing that you saw that this time?

Paul Downs:
Well, I had to go in and sort of start looking through all of our vendor accounts with various people we buy stuff from that were associated with this gentleman’s email. And I logged into his email and started looking at all the emails and realized that, when we were getting order acknowledgements, there was sales tax on a lot of these things. I was like, “Oh my God, please don’t tell me we’ve been paying an extra 6 percent on half a million to $750,000 in purchases every year for God knows how long.” And sure enough, that’s what was going on. So one of the things about laying people off is that somebody has to pick up the pieces of what they’re doing. And in administrative positions, that can be a bit of a surprise when you realize someone just was not doing something fairly basic and didn’t seem to recognize that that was an issue.

Loren Feldman:
Paul, for anybody who might be wondering if they’re in the same position, why was there a sales-tax exemption?

Paul Downs:
Oh, well, this varies by state, but in Pennsylvania, if you’re a manufacturer, pretty much everything you buy is tax exempt. That’s just a state law. Like there’s two. There’s several different categories for a sales-tax exemption. But one of them is: Are you a manufacturer? Another one that’s pretty common is: Are you reselling this? And so, if I was buying reams of paper and selling them to people, then I should not be paying sales tax to my wholesaler, but I should be charging it to the person who I’m selling to. Some of the stuff we do falls under that, but most of it is just like anything I buy—if I buy coffee cups, if I buy a machine—it’s all tax deductible because I’m a manufacturer. And that, as I said, may be different in different states, but that’s how it works in Pennsylvania.

Loren Feldman:
What’s the mood like at your company now?

Paul Downs:
It’s difficult for me to answer that question, because, of course, when the boss walks around, everybody is behaving differently than if they’re not being observed. My feeling is that the mood is pretty good, considering what we just went through—and again, because I made a very clear case of why I was doing it and what I hope to accomplish by doing it. And the fact that the sales have continued to be miserable, sort of points to, “Hey, he was probably right.” And the fact that we’re not running out of cash is also like, “Yeah, he probably was right.”

The people who remain are chastened because they know that they are going to take a pay hit, but they could have been laid off. So when you lay off a bunch of people, the survivors are almost always smart enough to put a smile on their face and try to not be the next one. And I told people—they’re like, “Hey, this sucks”—in my email to the ones that are laid off. I started with, “This is not your fault, and this is not my fault. This is something that was done to us. And this is why it’s happening.” And I think that that makes it easier for people to accept, too.

Now, of course, you do take into account performance when you’re making these lists, and so there is a tendency to clean house to a certain extent. So some of the employees that I got rid of were on the more troublesome end of things. Although they were doing their jobs, they were causing more drama than necessary. So getting rid of people like that is also a mood booster for everybody who remains. And I don’t know, my feeling is that we’ve come through it about as well as you can come through something like this. And having heard from my son about how layoffs happen in bigger corporations, I think I did a pretty good job. And we tried to give everybody a sense of humanity going out the door and clearly explain why we didn’t have an alternative. And I think that’s about the best you can do in these situations.

Loren Feldman:
Sarah, when you laid people off, if I recall correctly, you chose to lay off some of your more senior people, which I think you told us at the time really surprised them and maybe others. Did that work out the way you hoped it would?

Sarah Segal:
Oh, it was very stressful. I was in a situation where I had to cut costs. And you’ll see this at much larger companies, that as soon as you get into the C-suite roles, your tenure is a lot shorter because there’s a lot of pressure on you, in terms of delivering for the company. But they’re also really expensive.

For me, I had to make cuts that were going to make an impact on my cash flow and my bottom line and my revenue. And I had to do that with the most senior people, because it was going to have the quickest impact and the fewest people. That said, it was not the easiest thing in the world, because I was left with competent or awesome really motivated junior people who were all of a sudden thrown into, “Hey, you need to start working on strategy too. And you know, I’ll help you with that, and we’ll work on that.”

My biggest problem was, I had had a social media manager who was fantastic, who had been with me for years, just somebody who got that shit done and really delivered for clients. And I had to let her go, because she was expensive. But the person that was junior to her that I expected to fill those shoes wasn’t ready for it, and I had a misperception of what her skill-set was, because I wasn’t managing her, necessarily. And so that had an unfortunate domino effect where she eventually left the company because she found another position. But it wasn’t a clean departure.

And I was very fortunate to happen to find another human to fill that role within two to three weeks—someone who I will literally bend over backwards to never have leave, because she knows what she’s doing and she’s always trying to enhance the services that we provide. So, long story short is, if you’re a business owner, yeah, you can cut from the bottom, but that’s not going to shift your P&L as quickly as you want it to. So, it worked for me.

Loren Feldman:
But I think it also meant that you had to dive back in and get more involved in the day-to-day operation, right?

Sarah Segal:
Oh yeah, one hundred percent. So I went from being 50-percent billable back to close to 90-percent billable for clients, which took my foot off the gas of finding new clients and establishing new relationships and all of that. And I had to do that. And what’s funny is when you become less billable and you rely on your team to deliver, there are things that they do and that they create in new systems that I’m not necessarily in the weeds of everything that they do. So there was a—not a learning curve—but I had to refresh myself a little bit.

Loren Feldman:
Paul, are you taking on tasks now with a smaller crew that you didn’t have to do before?

Paul Downs:
Yeah, absolutely. I mean, that’s part of it. The work is there, and as I said, figuring out, “Could we reallocate somebody’s load to other team members successfully?” was part of my thinking. I did end up laying off from all levels of the company, too, some of the more highly-paid people. It does have a big effect on the payroll, and I was able to negotiate one position that was salary and commission to be 100-percent commission, so I’m getting the full service of this person without having to pay the salary. In other words, it just lowers my cash load. And if sales come in, he’ll make money.

So it was all about trying to make sure that we’ve dialed back our spending as much as possible. We’ve continued to provide all the services that we need to for each other. But at a lower level of sales, you don’t need as much of everything. So, if you needed three project managers, then two or one will probably do the job, if you’re doing a third of the sales. So it’s just thinking about it that way. How do we maintain capacity and cut costs?

Loren Feldman:
Jaci, last time you were here, you told us that you were a little bit surprised that, given all the uncertainty in the world, your business was holding up quite well. Is that still the case?

Jaci Russo:
It is, but I feel like talking about it out loud is going to somehow jinx it. I’m not superstitious, but I’m a little bit -stitious. And I mean, I’m knocking on all the wood I can find. So far, so good.

Sarah Segal:
I’ll add mine that, like, we’re fine. We’re fine.

Jaci Russo:
Shhh! Don’t say that! [Laughter]

Sarah Segal:
We’re fine. I don’t like being fine, though. I want to be better than fine. Like we’re fine, but—

Loren Feldman:
I think fine’s pretty good right now.

Jaci Russo:
Right.

Loren Feldman:
I also think it’s good to say it. I think—

Jaci Russo:
Oh, Loren!

Loren Feldman:
I understand. But people need to be reminded that, you know, businesses are different, and even in a really bad recession, even if that’s where we’re headed, not everybody does terribly.

Jaci Russo:
No, and I agree. And look, we’ve come through 9/11, which was a huge blow. At the time, we had a ton of hospitality clients and nobody was traveling. We’ve made it through the ‘08 financial crisis, and at the time, we had a ton of business banks and regional banks that really were hit hard with that housing crunch and interest rates. We’ve been through three—that I can count—oil downturns, and we’re in oil country. Up until the mid ‘80s, I think 47 percent of employees in this region were employed by an oil-and-gas company. Now it’s 7 percent. That’s how much this industry has changed over the years. And we made it through Covid. So, we’ve weathered some big business storms. I don’t know if this is going to be one of those, the biggest one of those. I mean, it feels like something big is brewing, and I’m grateful that so far, we’re fine.

Loren Feldman:
All right. On that note, my thanks to Paul Downs, Jaci Russo, and Sarah Segal. Thanks for sharing, everybody.