The Pulse of Business: Managing Uncertain Times

0:00You know, you're going to see some of those things come down. And so now is going to be a phenomenal time to capture more market share and to capture amazing talent. Just make sure you're optimizing for that rate of return. How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who share their biggest secrets on how they think and achieve success? Grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Dice.

0:32Welcome to another episode of Business Lunch. And today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website, and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com, www.businesslunchpodcast.com, and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

1:07Hey, everybody. Roland Frazier and Ryan Dice here with another episode of the Business Lunch Podcast. Wonderful to have you guys with us as we talk about various assorted and sundry things that we would talk about over lunch. Ryan, how are you doing today? I'm doing exceptionally well. The kids are all back in school, which means that we're getting back into a rhythm. Again, I love the summer, but man, it's hard to get anything done when just you're being pulled in all these different directions. So I'm excited to have those those little punks back in school. Let's start talking about what is going on.

1:45I just had a conversation. I just interviewed Cameron Herold for one of our business lunch podcasts. And he was talking about Cameron runs the COO Alliance where they basically have a whole bunch of COOs. It's the only mastermind I know about for COOs. And he was talking about we were just kind of talking about what's going on after the podcast. And he said, you know, man, he said, have you seen like dramatic changes in acquisition lately? Like, you know, getting customers. This is across, he said, at my business and across, I think he said, 17 of the other people that were at his last meeting that they're cutting costs because acquisition is down.

2:33He said those 17 were all in the areas of marketing. And so we started talking about that. But I know he said they went, I want to say that one of the businesses had gone 20 days with no sale. And I know that we had one of ours that went, was it 14 or was it longer than that? It was about, I think it was 14 business days. So it was at least 20 day days. Yeah. Right. Of no sales, which is just insane in a service business. I know that we've seen that across a lot of the, we're recording this, by the way, in August, towards the end of the month. And so August is generally summer is generally slower.

3:18August is usually the worst month. It's the worst month to do an event because most people are like racket, wrapping up their vacations, going back to school with the kids and all that. You just mentioned that. And and it's just not a time that a lot of people are focused on any kind of like discretionary business type stuff. You want to talk about that a little bit about like, should people panic if they're seeing that happen right now and uh and whether they do or don't what are the things that they ought to be doing or or just sit tight to see how things turn out what are your thoughts on that yeah absolutely panic it's always the first uh option it's the safest course of action right because you'll never be caught unaware exactly no i so this is really nothing new in terms of august and the summer months and I get it.

4:09There's an entire Southern hemisphere that's like it's winter for us. So bear with us. I think, you know, most of our audience is in the Northern hemisphere. So I'm kind of coming at it from that mindset, but typically, yeah, summers are, especially if you're B2B, summers take a dip. Not, not the case for certainly if you're in the travel or hospitality, then summer is, is where you're just crushing it. But if you're, if you're B2B, if you're service-based even a lot of, of, you know, non-travel hospitality, fitness kind of things don't do well in the summers. I think though, a lot of us forgot that because going back and certainly if you've started your business in the last three years, you've never actually experienced a normal summer, right?

4:50But historically we would always panic in the summer because sales would always dip. And then finally we decided, let's look at the data and look at the trends. And we realized, wow, they've always dipped in the summer and we've always panicked. And then they've always come back. And so what if we just don't panic? And so we finally began just to factor it into our planning and it was okay. All that changed the summer of 2020. Obviously with COVID, everything was up in the air, but certainly people weren't like taking the summer off like they normally would. They wouldn't travel. Definitely the same thing happened in 2021.

5:18And not only were people not traveling, but because of all the money that the government pumped into the market, they had lots to spend and they were spending it in ways that they typically wouldn't in the summer. They were going ahead and investing in stuff. Hey, they're working anyway. What's the point? We saw a lot of that in 2022 as well. And I think that this summer was the first summer when absolutely people are, you know, they're going on revenge vacation because they haven't done it in a while. At the same time, let's be honest, economy is softening, interest rates are up. And I think everybody's sort of looking at it saying, you know, I don't have as much cash in the bank as I used to.

5:56sales have dipped because everybody's doing this. And now I think you're getting that panicky effect. What I think is going to be interesting to see and what I think everybody should wait to see is, do you start to see stuff come back to quote unquote normal? And I'll explain what I mean by normal in just a second. But do things come back to normal September, October, or do they stay really flat? Do they stay down? If they stay flat and they stay down, I think it suggests that definitely there's greater macroeconomic forces at play here, which doesn't mean that you should just panic, peel over and die.

6:30There's opportunities to capitalize in those times as well. But if they do come back, then look for them to come back to not what they came back to last September and October or the one before that. Go back to 2019. What was your quote unquote quote, normal September, October in 2019. If they come back to that, I think we can generally assume that it's going to be fine. It was the usual summer dip. We forgot because it's been a couple of summers, but everything should be fine. If it doesn't, if it stays as slow, then I think it's cause for not panic, but I think it's cause for thoughtful concern and thinking, okay, now what do we do?

7:09What does this mean? Yeah, I think you're 100 % right. That revenge travel, when I first saw that, I was like, what the heck is revenge travel? And it's like revenge against the pandemic. It's, it's, it's kind of a, kind of a funny thing, but, but I, I think you're right. And I think that the, like we looked when we saw across several of the businesses, we saw sales dipping or off from certainly a couple of months ago. And we were like, okay, well, this is just the summer thing. And then initially we looked back and said, okay, well, let's look at how do, how do we do last summer, but that's not fair because of all the things that you mentioned that.

7:49So when you guys are kind of looking at, well, you know, I know we can't look at like the last couple months to see, but let's look at the same period for last year or the year before or the year before. None of those are particularly valid because they're, they're impacted by all of the COVID pandemic stuff and the, you know, the, the stimulus programs and all that. So, so I guess, Yes. Don't panic is generally good advice. Never panic. Always try to be proactive. But I think that we look at September, October, and then that's going to probably tell us, are we going to go into a recession? because if things don't come back relatively quickly to normal, then it's going to impact everybody.

8:35So if we see it at the business level, that will trickle down to everything else that can lead to layoffs that can lead to deferred spending for major assets and a lot of those kinds of things. So I think that makes a whole lot of sense. Speaking of recession, do you have any thoughts on where things are going there right now as far as we see interest rates continuing to go up? We see basically none of the normal correlations, those relationships between interest rates going up, for example, and houses, house prices falling. None of that seems to be happening, at least yet. Doesn't seem like there's any big thing that's going to cause that to change.

9:17I know that in our real estate business, inventory on houses for sale is down 75 % off of where it normally is. So it's not likely that's going to change. What's your recession thinking? So I don't think you conflate what's happening in the real estate market with what's going to happen in the rest of the business world. Because the real estate market, I mean, it's all supply and demand. In real estate right now, you're not seeing home prices drop because nobody wants to move out of their house with their 2.3 % interest. And so that's the big thing there. There just isn't any inventory, if there's no supply, and even if demand drops, then that's just going to keep prices where they are.

9:58And so I don't think that you don't have that same impact and that same effect in other places of business, right? If I had a really massive SaaS contract, and I've got an annual renewal coming up for that software, I'm going to look at it pretty closely and say, you know, do we really need this big a contract? Heck, maybe we just did a RIF. We just did a reduction in force and we don't even have this many people here. So even if I still value it to the same amount, I'm not going to be as valuable because I don't have as many people. And so I think everybody's looking for opportunities to make cuts.

10:32That is now the mindset that exists. And so whether or not we go into a recession, I don't know. What I do believe is I don't think that there are many CEOs out there who are making decisions or even people, consumers. I don't think there's a lot of consumers out there making decisions about in what sectors of my life or business am I going to spend more? And I do believe that's everybody's thought. Everybody's been thinking, okay, in what area are we going to spend more this year? Because we have more money and it was free from the government, government cheese. So how are we going to go and spend this?

11:06Now everybody's thinking, how do we spend less? Where do we make cuts? And so invariably, if that's what people are thinking, then recession, not again, they keep changing the definition on that term. So I don't even know. I think you're going to have to you're going to see some stagnation, some pullback in in the economy. I just I don't see a way around it. How severe is it? How long is it? I don't know. But I think if you're not preparing for that, you're and you get caught flat footed that that's just a failure of leadership. Yeah. So then it's kind of an interesting question if it's not going to affect housing prices because, and I agree with you, between the inventory of just homes that are being built.

11:52They were so long that homes weren't being built that there was a shortage anyway, but then you take everybody who was moving basically out of the market because they don't want to pay double or triple what their interest rate that they've got locked in right now is. Um, but in terms of business prices and things, that's always an issue. A lot of people are saying, um, a lot of CEOs and a lot of companies are raising prices. Now we've watched prices go up pretty dramatically. You know, that is the definition basically of inflation, right? But with this happening and as people start to rethink spending and investments and where to prune, do you think that we'll see prices come down?

12:37Is it time not to raise prices? Is it time to raise prices? It's kind of an interesting period of time, right? I think we called it like, you know, we said and you were you were really, you know, banging this drum 12, 16 months ago that raise your prices. You know, you were telling everybody raise your prices. We did an episode we can figure out. And there was an episode where it was like, now's the time to raise your prices. You gave a formula around how how to raise it, because I believe there was a season there where you could raise your prices and nobody was going to notice because everybody was raising their price.

13:12Yep. I think that season's passed. I'm not saying that you can't raise your prices, but I think if you simply raise prices and your competitors aren't and you're in a market where there's any retraction or slowdown at all, I don't know that strategically that's the best move. Now, I do think you can raise your your prices, but change the terms. So what we're seeing coming back now in bigger ways, now that interest rates are higher, look, they're higher for everything. Like so what people are paying on credit cards is really high. So if you offer terms in your business, maybe everything was paying full before and they were happy to pay in full and get a discount because they could put it on a credit card and it was fairly low interest.

13:57Not the case anymore. So if you issue terms, I believe that if you're getting better terms, it's a classic like my, you know, you know, my price, your terms, your terms, my like pick one. I think that's where we are from if you're going to raise the prices, you need to fundamentally change the offering, which I think there's opportunities to do that as well. Or what you need to do is offer better terms. I do think you can raise the price because in general, when people get scared, what they will buy and what they will pay more money for is speed. Yeah. they're less interested in figuring this stuff out for themselves.

14:30So now I think is the time to raise the price by offering a more turnkey type solution, a more done for you type solution. Whatever you were doing before, whatever you were selling, get it to them faster with less work on their part. Get them that in. If you sell the end result, I think then you can raise the prices. The other thing that we've just done in a couple of the businesses is implemented financing so that we weren't really offering it before. We had PayPal, I think does a 66 month, same as cash. And we had that, that generally isn't available to people that are outside the United States.

15:06And we have a fair number of people, about 40 % that buy from outside the States in that business. And so we put in basically financing, didn't change the price, but made financing available. And that just happened for us. So it'll be fun to see how that plays out. And this is third-party financing or this is like company? It's interestingly enough. So we always offered payment plans, and then we did that internally. But now what we're doing is because the advantage of like if we could get people to the PayPal, then we get 100 % of the money up front. Because PayPal charges us nothing to do that, pays us 100 % of the money, takes the contract, does the financing for six months, same as cash.

15:48And then after that, it becomes an interest finance thing. So people have to qualify for it. So, but, but the take rate on that is, is relatively low. The number of people that can qualify there. So what we've done is we've got, we still have that. We still have our internal payment plans that we had before, but those are typically make three payments, which is effectively a 60 day finance plan. A third now, a third in 30 days and a third in, in 60 days. So what we've added is we've basically said, okay, first, let's see if we can get you something better than PayPal. and something that will also be available to our outside the United States people.

16:27And so that's taking them to, we've found for them, credit cards that offer 18 to 24 months, same as cash, no interest for that period of time. And so we're walking people through that so that they can get that funding and effectively get what they want from us, but they can pay for it with no interest over a longer period of time. We get 100 % of the money. As soon as it gets paid, everybody wins. For the people that can't, I think that's a 700 credit score to do that. For people that are lower than that, we can go down to about 660. Then we can use third party financing for that. And that is a straight out finance contract kind of thing.

17:11And we also lose, depending on the company, as little as 10, but as much as 22 % of the purchase price goes also as a discount to the financing company. So it's a significant cost to finance. But if you're picking up, if that's at the very bottom of your finance funnel, then you're still picking up sales that you wouldn't have had before. And you're still getting about 80 % of the money. So I think it does pencil. Yeah, I mean, 80 % of something is better than 100 % of nothing. That's just math. I did that right now. I put that in chat GPT and it said that's not the case. I didn't even need a calculator.

17:51It'll be interesting to see with these third party finance companies and even like the, you know, interest free, if that doesn't tighten up. This is the thing I think to watch for. Right. And when you if you start because I remember this is where it pays to kind of be, you know, maybe older than some of these young whippersnappers who started their business in the last decade or so. I remember 2008, 2009 when getting a letter from my bank saying that my credit line had been reduced. And I at the time had, I think, a line of credit around$180 ,000,$200 ,000. It wasn't quite$200 ,000, but it was right there.

18:26Like$185 ,000 was the line of credit. And I think at the time I maybe had$32 ,000 that was out there on this line of credit for this particular company. and I got a letter saying that my line of credit had been reduced and it had been reduced down to, wait for it,$32 ,000. It had been reduced down to the amount that I, so basically they wiped out my line of credit. Then you started to see them constrain how much credit they were given on credit cards. If you see a tightening in the credit markets, that is when typically things do start to go into recession because that's where a lot of people, that's where people's discretionary spending is coming from both individuals and businesses.

19:08And what we have right now is consumer debt has never been higher than it is today. That free money came out. Everybody started spending. Everybody elevated their lifestyles. And by everybody, I mean consumers and businesses. Businesses hired up like crazy, signed up for really expensive software. That was why we had the massive inflation. So all of this happened at the same time. And then when it went away, most of us did not adjust our spending habits. People were still going out to dinner as much. They were still going on the same vacations just instead of using the free money they got from the government or the free, the extra money that they had because the economy was just exploding during this time.

19:51Now they were putting it all on credit cards. And so if you see a tightening there, I think it's, uh, I think that's when things are going to get, things are going to get tough. Do you think it's worth chatting about what to do if that happens? Yeah, I think number one, it would make sense. And I was trying to remember, was it a million, million and a half or two million that we had on a credit line in one of the companies that around the pandemic, they said, we're I don't remember if they said, I think they said, we're not renewing. Was that what it was? Or something happened where we just paid it off and said, we're not going to do this anymore.

20:29they basically ballooned it. Yeah. They basically said, we're not going to, it was, it had a, every two years it was going to renew. And they were essentially, they, they were, they were going to renew us. But instead of the line of credit being an actual line of credit, it was like, we had to have equivalent cash deposits at the bank to the line of credit that they were issuing. And we're like, well, then we'll just be our own line of credit. Like this, what is the, and that was basically their way of saying, we don't really want your business anymore. And so, and be careful of that because we like with, without it, we just happened to look at that.

21:04And the team was like, okay, we get lines of credit. We want to keep a line of credit. We've told them it's important to have a line of credit. So they're just going through the process and applying everything. And then we're looking at it going, this is dumb. We're going to literally pay interest on money that we have to keep in the bank so that we can not be using the money we have to keep in the bank so that we can have debt? And no, it was like made no financial sense at all. And what you said about the credit tightening, I think that's something that you guys ought to be ready for. So I would be thinking about that.

21:40It's wonderful to have credit lines to help you with your business, but I would be very careful because if you get that notice and you've got to take care of that and you're in a down economy, it's going to be pretty hard to get that paid off. Because keep in mind too, that's after tax dollars. You got to pay that off profits that you've got. It's not as easy as it sounds. Yeah. Yeah. And that's when businesses go out of business. They go out of business when they get that letter from the bank saying, we're not going to extend your line of credit. We cut your line of credit or we're going to exercise our balloon option.

22:11You have to pay this now. Or maybe your sales dipped a little bit as a result of this and your cash dipped a little bit. You find out that you're out of covenant. And they now before they weren't doing reviews, They weren't even looking, they weren't even asking for it. Now they're going to ask for your financials. They're going to review it, decide that you're at a covenant, want to call it all in and you're, you're done. So yeah, look, I think now's a good time to go back and review your loan covenants. Make sure that you're in covenant. If you're not hustle, hustle, hustle to get back in because that has taken out many of a good profitable business.

22:44Yeah. So let's, let's, I think that's important thing to look at. Let's talk also about if you're thinking about being careful based on the conversation that I was having with Cameron. If you're thinking about being careful and maybe shoring up things, the one place that history and data from multiple studies tells us not to cut is marketing. We've recently decided to go in significantly heavier in marketing. We added about$100 ,000 a month of spend. And while it is unfortunate that we did that and then got a significant tightening, I'd say August was the worst month that we've had this year and worst month in a lot of years, actually.

23:31And of course, that happens right after you say, we're going to go all in on marketing. But we're not going to change that. We're going to push through and we're going to make it happen because historically, as other people cut back on marketing, if you stay the same or double down, then you end up getting a greater share of voice. You get top of mind. You get customers that would have gone to the competition that now come to you. And eventually, if other people are cutting back on marketing, your cost of marketing goes down as well. Do you have any thoughts to share with people on that? Yeah, I mean, it's the classic.

24:09I couldn't find who said it. It's often credited to David Ogilvie, but he didn't actually say it. But the quote is, in good times, you should advertise. In bad times, you must advertise. And it's the one thing, like you said, that everybody cuts first because it's typically the biggest line item next to people. And laying people off, that feels mean. That's an uncomfortable conversation. I don't want to have that. It's easier to cut the marketing spend. I think good leaders during this time will realize what are the investments. And I think that's the important thing. What are the investments that are getting us not just the highest return, but the fastest return?

24:44So what you're looking at is not just a high ROI investment. You're looking at a fast return on that investment because then you can redeploy it. So this applies across the board. I think it's worth stack ranking your advertising spend, your marketing spend, and simply saying, but don't stack rank based on ROI, stack rank it based on return. How quickly does it come back? And you will find that there are some channels that return faster, maybe not as much as others, but they return faster. You'll find that there are certain campaigns. So you can go at the macro and at the micro. You can also do the same thing with people, right?

25:24There might be some people that they're just not close enough to the cash register and making that thing ring that you just can't invest as much in that department or in those people. And that can be hard, you know, especially when, you know, if you just made the decision to hire up in a particular area, but that was a really long bet. Now may be a time when you choose to not make a long-term bet, but rather to make a bet on something that we believe is going to return quickly. Like marketing. I mean, you said invest in 100 grand in marketing. We knew that was going to be a 60 to 90 day investment.