The 2023 Banking Crisis and what it means for your agency

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

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: Gini, I’m thinking about putting all of my money into, I don’t know, Credit Suisse. Does that sound like a good idea to you?

Gini Dietrich: No, it does not.

Chip Griffin: No? Silicon Valley Bank? Oh no, no. Crypto?

Gini Dietrich: No!

Chip Griffin: All right, well, we’ll talk more about that right after this.

Ah, banking, it’s one of my favorite topics. I love to, I love to think about these things and yes, it’s unfortunately been a major topic of discussion the last few weeks. And probably a lot will change between when we record this and when you actually listen to it, you know, 10 days or so from now. So if we’re outta date, by the time you’re listening to us, it’s just par for the course for us.

So accept it and move on.

Gini Dietrich: Well, yes, and I think there, the issue is that, you know, Silicon Valley Bank folded and then Signature Bank went behind them and now Credit Suisse. And so we’re looking, I mean, The point is that this is going to continue to happen and we have to help agency owners be prepared for the inevitable.

It’s kind of silly that, you know, we didn’t learn our lesson 15 years ago and we’re back here again. But. You know, having, especially me having run a business through the great recession, I now know what to expect. I can see the signs that are coming and I know how to get through it and survive it. So I think that’s what, you know, whether or not more banks fail in the next 10 days is yet to be seen.

But I think the bigger issue is how do we help agency owners prepare for what could be the inevitable.

Chip Griffin: Right. And, and obviously we’re not gonna solve all the problems of the world here. So we are, we’re not gonna solve why there is a banking crisis today, and we can certainly debate that. It’s being debated heavily.

Yes. You know, I, I think that there are some differences, you know, from a, a purely economic standpoint between what we see today and what we saw 15 years ago. Right? Because a lot of that was just pure lunacy in some of the decisions being made, by financial institutions. I, I think that, you know, now, at least from what I’ve seen so far.

And I’m by no means an expert. It’s not the same level of lunacy where people are just, you know, stockpiling mortgages that are never gonna be repaid and…

Gini Dietrich: right, right, right, right.

Chip Griffin: Using crazy gambling type scenarios in order to try to make money. You know, so we, we don’t have the, the same issues here, but we do have some bad decisions being made by some of the banks, it appears, but it’s largely being exacerbated by fear. You know, I, I sort of, as I’ve followed the, the story over the past couple of weeks, it, it reminds me of It’s A Wonderful Life, you know, and everybody’s just lining up at the bank…

Gini Dietrich: I love that analogy.

Chip Griffin: And, and trying to, you know, grab the cash, whatever they can…

Gini Dietrich: Get my cash out.

Chip Griffin: and, and, and I think that, that, that has certainly caused a, you know, fear has been a, a major factor, and I think it’s a good reminder that fear is not a good position to make decisions from. And, and as we’re thinking about our own agencies and how we’re running them these days, you know, we need to be prepared, but we also don’t want to act out of fear because that’s, that tends to, to lead to even worse outcomes than rational decision making.

Gini Dietrich: Yeah. And I also think that we tend to just human beings, not agency owners in general. Human beings in general tend to wait until there’s a crisis to make change. And I think if we can do one, one thing today, it’s to compel you to make change now versus waiting for a crisis. And when we talk about that, what we’re talking about are, you know, just being prepared.

And there are lots of things, we’ve talked many times on this podcast about the kinds of things that you can do to be prepared. And so we are going to repeat some of that in some cases, to help you understand that these are the things that you can do now so that if the economy tanks, and it probably will, because these things are cyclical, you will be ready and you’ll be able to get through it. And survive it.

Chip Griffin: Yeah. And I, I think in this particular case, you need to be thoughtful about, you know, what the, the impact is on the, the overall economic climate. But because this is banking centered at the moment, you also need to be thinking about what does it mean for you and your banking practices as an agency?

Because, you know, you, you want to try to think about, you know, how do I protect myself so that I don’t have my money trapped somewhere where it’s, you know, difficult to get out. And, and one of the problems that some of the banks had was that, that they were putting some of their money in what seemed to be safe investments, long-term bonds, and not turned out to be not that great a place to, to be putting them when interest rates are rising and those long-term bonds become not worthless, but not very appealing to most buyers.

And so, you know, you need to be thinking about where you’re putting your money and what may have appeared safe six or 12 months. May not be safe today, and you may want to think about spreading your deposits across maybe two different financial institutions, just to give yourself a little bit of flexibility for short-term problems.

Right? Because there, there were a number of businesses that had issues, you know, with being able to meet payroll for a day or two because of the issues in Silicon Valley Bank, even though they, they didn’t end up losing any money. Just from a technical perspective. Yep. It can cause problems because so much of what we do today is electronic, that if you’ve got an account that is changed in some fashion, it can break a connection somewhere else, which may mean that you can be late on paying bills or more importantly, payroll.

Gini Dietrich: Yeah, and actually when. When this happened on Friday, it was a Friday that this, that Silicon Valley Bank was, was taken over by the government. I had four clients who called within minutes of one another, and it really did remind me of, of what happened in the great recession. . Thankfully, none of them canceled their contracts like they did back then.

But what they needed help with was at that point they didn’t know, you know, they didn’t know if they’d lost their money. They didn’t know if they were, were gonna get gain access to it. And so we spent the whole weekend helping them message things like, payrolls, you may not get payroll in time, or, here’s what we’re doing and it’s going to be late.

And so we were met doing all this internal comms messaging with them to ensure that employees were kept up to date as things were happening. And certainly by Monday, It, it got better because the government was able to cover all of the, the loss. But, and, but you’re right. In some cases, because I think that was like the 13th, I wanna say. Some people were, some companies were late on payroll because you have to process it sooner than that usually.

Chip Griffin: Right, right. Because all the payroll companies like to, to grab the cash a little bit early and grab a little bit of float so that they can make a little bit of money in the short term. Yep. No, I mean, I mean, they’re just preparing, they’re, they’re trying to make sure that everything’s in place.

Gini Dietrich: And that.

Chip Griffin: I’m sure it has nothing to do with the, the massive float that you end up with off of all of those deposits anyway.

We won’t pick on payroll companies today because they do make life easier for most of us. But the, you. And again, there’s no reason to panic here, right? So don’t, you don’t need to go take your money and go stick it in a mattress. You don’t. You don’t need to spread it out over 20 different institutions or something like that.

But just be smart about it. And if you can have a little bit of a rainy day fund that’s maybe in a different bank than your primary one, it just gives you a little bit of flexibility. Doesn’t need to be a lot, just enough. Give you some working capital for a short period of time. If you need it. Now, I don’t think you will likely need it.

I think, I think chances are that particularly if you’re in a US bank, that the regulators are never going to allow any kind of bank to be inaccessible to the vast majority of its depositors, right? That’s just right. That is, it is a politically losing thing. It is an economically losing thing, and so they will bend over backwards, to, to prevent that from happening.

And, and I don’t even worry, most small agencies don’t have more than the FDIC insured amount sitting in a bank account. But even if you do, The odds are you’re going to be fully protected, just as we’ve seen here with Silicon Valley Bank and with some of the others. It is incredibly unlikely that you would ever permanently lose any of these basic bank deposits. But you might have short term logistical issues around it. And that’s what you need to be prepared for.

Gini Dietrich: Yep, yep, yep. And I think, I think having it spread over a couple of different banks is smart. Another thing is, is, you know, we talk about not having any debt. And paying down the debt so that you have the cash. But also consider if you have a line of credit and nothing is sitting on your line, like you don’t, it’s, you have a zero balance on it.

Look to see what the loan maturity is and perhaps take, you know, 10 or 20 or $30,000 down and stick it into your savings account and then pay it back, you know, five grand at a time over the next few months, just so that you have it working for you. Because typically what will happen is in a crisis, a bank will say, oh, you haven’t used that for 18 months.

Right. And they’ll, they’ll just take it away so that you don’t have access to that anymore. And if we’re in a real crisis, you would need access to, to cash from a, from a line of credit. So just be really smart. You know, we’re not tax accountants. We’re not lawyers, but talk to your CFO. Or your cpa, I had a long conversation with our accounting firm about this just a couple of days ago.

And, and he made some recommendations on what we can do. And that was one of them. Just, just to ensure, because we haven’t used our line of credit in 18 months. And he was like, they’re gonna look at that and go, Hey, so you don’t need that. And we’re just gonna take it. So we we’re probably gonna draw down on a little, just a little bit just to show that we do quote unquote, need it.

Chip Griffin: Right. And, and I think that’s, that’s something that a lot of folks don’t realize is that lines of credit, credit cards even, you need to make sure that you use them periodically in order to make sure that they don’t just evaporate because, you know, whenever a bank or credit card company needs to change the numbers on their balance sheet, they’ll just start, you know, nuking some of the available credit because it makes their balance sheet look better, even though the odds are that you weren’t gonna use it anyway.

But you know, it does help them look better to regulators or to the public markets or whomever, or just their bosses. And so you want to make sure that you are exercising any available credit that you have to make sure that it doesn’t go away for inactivity.

Gini Dietrich: Yeah. So I would say, you know, just be really smart about those things, and be prepared. Have conversations with your tax, tax accountant or your, you know, your accounting firm or whoever it is that you use for your financials on the, the tax side of things. And they’ll help you with some of that stuff. And, and I do, I also agree with spreading your, your cash deposits over a couple of different banks just to, just to be safe.

Chip Griffin: Yeah. Again, don’t do anything crazy. This is not something to worry about too much. I think, you know, to me the, the, the broader thing you need to be thinking about is what is the impact of what we’re seeing today on economic conditions, generally? On big business and what their plans are? Because that trickles down to the mid-size businesses and all of that impacts all of us in the agency world.

And so if people are looking around and they’re getting nervous, they may start pulling back. Just before we started recording, I saw that Amazon had gone through another round of layoffs or is going through another round of layoffs of fairly significant size.

Gini Dietrich: I can’t imagine why. Between the two of us, we have to keep them afloat. I don’t understand this.

Chip Griffin: I, you know, I, I would think so. Although you know today I just discovered that apparently I can get same day delivery even in rural New Hampshire.

Gini Dietrich: That’s awesome.

Chip Griffin: Which shocked me. So I, I don’t know whether they’ve got a warehouse now around here, but I was, I was ordering a simple computer cable that I just needed, and it said, you can have this today. I’m like, okay, sure!

Gini Dietrich: Yes, please. Thank you.

Chip Griffin: Why not ? But that’s, I can’t imagine how that’s happening. Huh. But yes, I mean the Amazon truck is here pretty much every day.

Gini Dietrich: Yeah. Here, here too. So I don’t understand how they playing people off because…

Chip Griffin: We’re trying, Gini, we’re trying, we are trying to keep them all employed.

Gini Dietrich: We are. Yes. I’m trying really hard.

Chip Griffin: And I watch Amazon tv, which is important cause my brother works for Amazon tv. So, or Amazon video, I guess is what they call it. But, Anyway. Anyway, sorry. So, but, so you do need to be thinking about what that means. Again, you don’t overreact and you can go back and you can listen to any of the podcast episodes where we’ve talked about the possibility of recession, because it seems like we do this every six or 12 months that, you know, there’s some potentially bad thing around the corner, whether it’s a recession or a pandemic or you know, any of these things.

And the way you prepare for them is pretty much just the way that you run your business well, anyway, right? Yes. I mean, that’s, that’s the thing to, to be prepared for an economic downturn is really not all that different from what you should be doing day to day. And, and when you experience an economic downturn, whether that’s in the broad economy or in your agency specifically, what do you do?

You tend to go and accelerate the decisions that you’ve been putting off for too long. Right? If your agency shrinks, you typically need to reduce your head count. But what do you do? You immediately start looking at the people who were probably mediocre performers at best anyway. Yep. That you probably already had some discussions with your team about.

Well, you know. Yep, yep. Should we keep Joe around? Joe is, ehhhh yep. I dunno about Joe, but you kept kicking that can down the road because it was easier not to deal with it and then, oh look, now we gotta deal with it. Yep. And, and, and the same thing with other expenses, with, you know, non-human capital expenses. You know, you look at your software more carefully.

Do we need all these subscriptions? Are we actually using them all? Should we get rid of them? Should we get rid of some of this office space? All of these are things that you should be thinking about anyway. It’s just forcing you to do it because now there’s something really bad that will happen if you don’t deal with it.

Gini Dietrich: Yeah. And then on the client service side of things, I think you really need to be thinking about how… and, and this to, to your point, goes to how you’re doing things anyway. How are you reporting results and you know, how are you demonstrating that the work that you’re doing is driving revenue? And I know I have this debate over and over and over again with people because people will say, well, I build a website, it doesn’t generate revenue.

Or we do brand awareness. It doesn’t, doesn’t generate revenue. The truth of the matter is executives only care whether or not you are, the money they’re spending with you has a return on their investment, and you have to be able to prove that. So one of the things that we do is I sit with, I, I personally sit with the VP of sales for our top three clients every single week, and we go through leads that are generated by a marketing function.

Every single week. And we put it all in the CRM to understand where they came from, what marketing delivered it, and where they are in the process. And then every month we say we, marketing and communications has influenced X amount of dollars. And I only know that because I sit with the VP of sales for three different clients and I go through their CRM with them every single week. And it’s tedious. It’s laborious. It’s not my favorite thing, but it helps us demonstrate that we are influencing a certain percentage of revenue. And so when it comes to having the conversation, should we let this agency go because we’re in the middle of a crisis, the VP of sales will say, no, we can’t do our job without them.

We might cut back, but we can’t do our job without them. And that’s where you want to get to with your clients, is them saying, we can. We’re not gonna be able to hit our numbers without this agency.

Chip Griffin: Well, and, and not only do you have to get really good with reporting and, and really show that roi, you really need to be listening and communicating with your clients to understand what were their pain points to begin with.

So why did they hire you for the work? Because I continue to be shocked by how many agencies don’t really understand why they’ve brought in, been brought in, right. They think they’re being brought in just because they want a new website, but why? There’s some reason why they want that new website.

You need to understand that. But more importantly, today, you need to understand why are they continuing to work with you? What is the pain point that you’re actually relieving? Because, yes, revenue is important and, and you can find ways to report that, but in some cases it may not be revenue that’s really the biggest motivator for them to be giving the work to you.

It may be that you’re solving some other pain point. Maybe they don’t have the expertise in-house to do it at all, and so they need to have you for that purpose. Maybe it’s because, you know, they’re, they’re unhappy with someone else internally, and so you’re, you know, filling a gap. All of these things are potential opportunities because when they get into a situation where they have to cut back, what are they gonna, what are they gonna do? First they’re gonna probably cut back the outside help. Yep. Right? So you may take an initial hit. Yep. Then they start cutting back the internal teams. Yep. Now that creates an opportunity for you because the first thing that they hire is not going to be full-time headcount. The first thing they hire is going to be an outside agency.

Yep. So you need, the more that you are in communication and you understand these things, you may be able to turn something, you know, that, that looks like it’s a bad thing into simply a hiccup or a blip. Because usually in my experience, the agency goes and then the internal staff disappears very shortly thereafter.

Right. They think that they can do it by just getting rid of the agencies, but it turns out no, we’re still gonna have to have layoffs. So if your clients are having these financial issues, It’s, it’s going to create pain. But there is that opportunity when they realize, oh, crud now nobody’s updating our website.

Nobody’s getting us media coverage. Nobody’s working with influencers. Ah, we need help. Be that help.

Gini Dietrich: Yeah. And I think that, that, I think that raises a really good point too, in that when they come to you and want to cancel your, your contract or scale back on your contract, be flexible. And I think that’s one of the biggest…

Chip Griffin: No, sue them! Sue them, tell them that they have to pay the whole thing.

Gini Dietrich: Some people do. They say, well, you have a 60 day termination clause and you have to do this, this, and this. And I have found that business almost always comes back, especially when you’re flexible and you, you say like, during the great recession, I was like, yeah, I mean, okay, and the pandemic, same thing.

What am I gonna do? Make you. Make you do a 60 day termination clause when I know you don’t, when the whole world has shut down. No, of course not. And all of those clients came back. So if I had been a jerk and made them fill, fulfill their, you know, the legal part of their contract, which I could have done, but if I’d been a jerk about it, then they wouldn’t be back.

So be, be flexible, be willing to work with clients. They may, may say, we’re gonna have to scale back, to your point, and then, you know, two months later they come back and say, we need to, to increase again because we need your help with these things. So just, just be willing to work with them whether or not your contract allows for it.

Chip Griffin: Right. And, and what I would encourage you to do is try to find a way to scale back rather than stop, if you can. Yeah, absolutely. Because, because if you can even, even if it’s way below what your normal minimum would be Yep. You, you’ve still got your foot in the door. Yes. And so that makes it much easier to simply increase that number you know, three or four months down the road. Yes. As opposed to if it actually terminates, there’s a good chance they’ll still come back. But it’s gonna be more of a process and it probably will take a little bit longer, so. Yep. You know, certainly if you get in, you know, part of flexibility is being willing to bend on some of those minimums, be careful about bending too far on profit margins and things like that, because if you bend too far, then you start getting into trouble with future pricing.

You may get into trouble short term with cash flow because you have to pay more to get the work done. Yep. You can take a little bit of a haircut on profit, but not so much that you’ve, you’ve said a really bad precedent. But, but try to, to keep your foot in the door if you can. And, and you will have a much better shot at be being made whole, sooner rather than later.

Gini Dietrich: Smart, smart advice. Yeah. The world is not ending yet. The sky is not falling yet. But be prepared.

Chip Griffin: No. And and look, we, we’ve been having this discussion for years. And, and, and we haven’t with, I mean, we obviously had the pandemic disruption, but that’s not to me a, a typical recession. Right. But we haven’t had, in the five years that we’ve been doing this show, we’ve had multiple conversations about preparing for a recession, and yet we really haven’t had a, a true recession in that period of time.

Gini Dietrich: Not yet.

Chip Griffin: You just don’t know when it’s gonna be, so don’t overreact. I mean, that, I think, to me, that’s the biggest message. It’s, it’s what I said, you know, at the start of the pandemic, it’s what I say now, do not overreact to what you’re hearing. React to what you’re seeing directly with your own clients, your own agency, because everybody’s experience is going to be different.

And if you’re, if you’re flexible, if you’re creative, you will find ways to get through whatever comes at you.

Gini Dietrich: That’s right. But be prepared now. Don’t wait for the crisis to hit.

Chip Griffin: Exactly. Be prepared. Just don’t be afraid.

Gini Dietrich: Yes, I like it.

Chip Griffin: Except maybe of listening to us, we’re scary people.

Gini Dietrich: Very.

Chip Griffin: And with that, we’ll draw to an end of this episode of the Agency Leadership Podcast. I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And it depends.