Episode 130 – How a Marketing Agency Executed a Layoff After a Rosy Forecast Failed to Materialize – Member Case by Sei-Wook Kim

Episode 130 – How a Marketing Agency Executed a Layoff After a Rosy Forecast Failed to Materialize – Member Case by Sei-Wook Kim

Sei-Wook Kim ran his agency for 16 years and never had to lay anyone off. Then, in year 17, he had to lay off 15% of his work force. Layoffs are a fact of life when you run a boutique, especially if you do not have much recurring revenue. Sei-Wook will share lessons learned from his experience. These lessons will help you execute a layoff if, or when, the time comes.


Greg Alexander [00:00:15] Welcome to the Pro Serv Podcast, a podcast for leaders of thriving boutique professional services firms. For those that might not be familiar with us, Collective 54 is the first mastermind community focused exclusively on the unique needs of boutique professional services firms. My name is Greg Alexander. I founded Collective 54. I’m going to be a host today. On this episode, we’re going to discuss a timely issue, and that is the best way, if there is one, to execute a downsizing. Some of our community members over hired during the pandemic when things were really, really good. And the business, the macro environment is called bit and folks are now dealing with this difficult task of right sizing their business and it’s a tough thing to do. So we wanted to have a guest on with us today who has been through this, who might be willing to share some do’s and don’ts. And we’re lucky that we have Sei-Wook Kim with us, and he’s a member of Collective 54, and he’s going to share a bit of his story. So Sei-Wook it’s good to see you and thanks for being here today.

Sei-Wook Kim [00:01:33] Hi, Greg. Yeah, thanks for having me.

Greg Alexander [00:01:35] Would you mind giving a brief introduction of your company and of yourself?

Sei-Wook Kim [00:01:41] Sure. So you mentioned, I’m Sei-Wook, I’m Co-founder and COO at Barrel. We are a digital agency founded in New York City but now distributed around the world. I started the business in 2006 with my Co-founder, Peter Kang, and we’ve been focused on primarily designing, building, optimizing websites for our clients. Recently we’ve had a specialization e-commerce with Shopify as a platform in particular.

Greg Alexander [00:02:09] Okay, very good. So I really appreciate you being here because this topic can be a little emotional and sometimes folks aren’t willing to share what they learn. So again, on behalf of the membership. Appreciate you coming here. Maybe describe for us at 30,000 feet kind of what happened. And as I hear more about your story, I’ll maybe pick on a few things and ask some questions.

Sei-Wook Kim [00:02:33] Sure. So we’ve been in business since 2006, and we had never done a layoff in our history until 2022. So what happened? You know, through the history, you know, we mainly manage our slower periods of business through natural attrition, reducing contractor usage, or finding other opportunities to reduce costs. But in 2021, one thing that we realized was we were on a pretty strong growth trajectory, at least for us, growing about 30% year over year. And we entered Q3, Q4 with a significant pipeline of new work and we feel pretty positive about the pace of growth that we were going through that year. So with that, with those well behind us, we decided to invest in our growth and invest in quotes there. So we decided to start a new discipline and invest in that and basically hire a full team with a director and several team members ahead of actually winning the business. And we hired a lot of new roles in anticipation of work coming back in 2021. We hiring was a pretty challenging environment for us. There’s a long lead time to hiring new candidates, so when the opportunity came to hire people, we decided to pull the trigger and we ended up hiring a lot more people than we needed. So that’s how we entered into Q4 of 2021. Once we got there. 

Greg Alexander [00:04:16] Yeah, yeah, go ahead.

Sei-Wook Kim [00:04:18] Yeah, once we got there, what we realized was we kept losing projects that we thought were promising and we as we kept losing projects, we saw our revenue declining while our costs increasing. And we were trying to remain optimistic through this whole time, saying, you know, either one or two projects could turn things around very quickly. But the sad reality was that we ended up not winning those projects.

Greg Alexander [00:04:48] So, you know, this is a very real problem. I mean, matching revenue to expenses, which in pro serv is largely headcount is really hard, especially when you’re running a project-based firm and the revenue might be lumpy. And there’s always a debate, you know, do you wait until you have a signed contract to hire expansion headcount, which if you have long lead times to hire people, can be really challenging or do you hire, quote unquote, ahead of demand and bet on your sales forecasts of being accurate and then the business comes in and the way you go, it’s like, I don’t know, putting money on red and spinning the roulette wheel. So a little bit more about your firm. Are you like a lot of agencies where it’s project-based or do you have some kind of recurring revenue like how far out into the future can you see things?

Sei-Wook Kim [00:05:41] About 60% of our revenue now is recurring revenue and 40% project-based. So pretty significant amount of projects that make up our revenue. And yeah, so that can make pretty big swings from a month-to-month standpoint.

Greg Alexander [00:06:02] Now, back in ’21 when you were experiencing this, was it 60-40 split back then?

Sei-Wook Kim [00:06:09] I would say if I had to go back probably a little bit less, 50-50, maybe higher on the project then versus the retainers.

Greg Alexander [00:06:21] Okay. And, you know, having now gone through this, you know, what lessons have you learned and what did you ultimately do and what advice would you have for our membership?

Sei-Wook Kim [00:06:32] Yeah. So the biggest mistake that we made was we kept burning our costs. So we had monthly losses for 4 to 5 months before we made any action. And so we so by February of 2022 decided to make the decision to lay off about 15% of our team, because a very challenging decision, especially because we had just hired some of these team members months prior. So we went through that and a lot of things that we learned through that process, doing it for the first time. A few things that we changed in our business. First, just being more transparent about our financial situation with the entire team. I felt like a lot of our team felt a bit blindsided about the news because they just weren’t in the same conversations that we were having. So there are few team members that knew about our new business pipeline. Not everyone really understood the financials. So when the news came, a lot of people were surprised. And the second thing that we took away was that we need to make decisions quickly. I think every you know, when you’re losing money, every day counts. In hindsight, we should have made this decision in December, not February, maybe even sooner, when we saw the signs of the business not coming through. So I think the speed is something that we really took away of being swift with making cuts where needed. 

Greg Alexander [00:08:16] And when you made the cuts. And it’s always unfortunate when this happens, but, you know, from time to time, cycles matter and you have to do this. How did you communicate it not only to the people that were being let go, but also the people that were staying?

Sei-Wook Kim [00:08:33] So we did as much planning as possible where we would meet with the leadership team, the managers of these people, and in some cases team members that may have been directly impacted by these people leaving. Those were informal conversations. But once we did the formal layoff, we had a communications plan that we had laid out for the full team, setting out an email on the day of the layoff saying this is what happened. And we followed up immediately the next day with an all hands meeting so that we could field any questions, really give everyone else the confidence of moving forward and the plan that we had for our account team and the plan for the future. And then same thing for the clients. In some instances it’s 1 to 1 call. Let them know what’s happening, let them know who is taking over the account, looking forward. In other instances, it might be an email plus call, a follow up, but really trying to be as hands-on and present with the team and clients as possible. Yeah.

Greg Alexander [00:09:40] You mentioned two big learnings. One was being more transparent with the financials and the second was moving quicker. On the moving quicker one, it’s really hard because if you have this sales forecast and it says this work is coming and then you know, you, you hold out hope that the work is going to come in and you don’t want to pull the trigger and let some people go. And then the work does come in and you’ve got to go back and rehire them. So any like practical advice around, I don’t know, improving the sales forecast or something along those lines?

Sei-Wook Kim [00:10:12] In some ways, we’ve taken a very of the worst case scenario approach to looking at our sales forecast in a traditional sense. We have a waiting system for where deals are in the pipeline, but just playing through scenarios of what happens if you know, our estimates are correct and we end up losing more than we expected. We’ve, as a business, been a little bit more conservative after this experience about hiring into full-time roles. So thinking about what can we bring on in a contract capacity or a part-time capacity at least to give us the flexibility if we need to scale down, there’s less impact overall to the team. And just really running slim with expenses and other non-essential costs as possible, just so we have the flexibility to extend our runway as much as possible. 

Greg Alexander [00:11:11] And then on the first learning, which is being more transparent and open about sharing the financials, sometimes our members are a little afraid to do that because, you know, if you start showing a deterioration in the business, it might make the employees nervous and some of them might quit and some of your stars might quit because they think their job might go away. How do you balance, you know, the need to do that with the fear of rattling some cages?

Sei-Wook Kim [00:11:38] Yeah, it’s definitely a fine line and it’s a bit of storytelling as well as sharing the numbers. Oftentimes the numbers, you know, depending on who the person is, at what level and their familiarity, it may seem overwhelming to see a bunch of numbers thrown at them from revenue to projections of margins. And we aim to be just transparent with the numbers sharing them as they are. But layer on what we’re feeling about the business on top of it. So, you know, we have a lot of business in the pipeline that we feel confident. For these reasons, and these are the actions we’re taking to make sure that the business is stable. And if that’s not the case, be honest about it. Say, you know, we’re not too happy with how things are looking. We may have to do a layoff again, which, you know, that statement in itself goes inside a lot of kind of uncertainty and fear. But for the team members that we, you know, who are stars and we definitely want to keep, we’ll have the conversations to make sure that they feel comfortable about the situation.

Greg Alexander [00:12:54] Well, it’s remarkable that for the first 15, 16 years of your firm being around, you never had a layoff. And that’s an incredible track record. All of us eventually have to go through this. And hopefully this is the last time you have to go through it for some time. But we’re at our time window here. We try to keep these things short, but for members that are listening to this, a reminder that Sei-Wook will be on the Friday Q&A session, I’ve got about 25 more questions I’d like to ask him. I’m sure everybody else does as well. We will hold those for the Friday session, but Sei-Wook on behalf of the member community, I just wanted to thank you publicly for coming on the show and sharing your wisdom with us today.

Sei-Wook Kim [00:13:33] Thanks. Yeah. Appreciate you having me.

Greg Alexander [00:13:35] Okay. And for those that are listening. Couple of calls to action. So if you’re interested in joining our community and you’re a thriving boutique professional services firm, you want to meet interesting people like Sei-Wook, go to Collective 54.com and fill out the contact us form and a representative will get in contact with you. If you want to read more about this subject, pick up our book called The Boutique: How to Start, Scale, and Sell a Professional Services Firm. You can find that on Amazon. And if books aren’t your jam, you’re more interested in videos, podcasts and things like that, you can subscribe to Collected 54 Insights and there you’ll get three things. You get a blog on Monday, you get a video on Wednesday, you get a chart on Friday, and some really interesting content for days. But until next time, thanks for listening and we’ll speak to Sei-Wook on the Friday Q&A. Thanks again.