In this episode, Chip and Gini discuss what agency owners can do to weather the current climate of economic uncertainty and potential recession. They suggest preparing for different economic scenarios by creating best, neutral, and worst case plans, cutting unnecessary expenses, and keeping lines of communication open with team members.

Chip and Gini also touch on the idea of diversifying income streams and being flexible with the type of work taken on, while cautioning against overreacting to market changes. They share personal experiences and practical steps to help agency owners lead through economic downturns.

The following is a computer-generated transcript. Please listen to the audio to confirm accuracy.

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

Gini Dietrich: And I’m Gini Dietrich.

Chip Griffin: And Gini, I don’t know if you’ve noticed, but there’s a lot of economic uncertainty out there. In fact, some economists think that there’s a 50/50 chance or better of an actual recession.

Gini Dietrich: Yeah, it’s, that has gone up from 20%.

Right before the inauguration to now 50%. So, also, there has been mumble from the White House that they, he, they believe that the only way to curb inflation is to have a recession.

Chip Griffin: That would be an interesting, and as far as I know, never before tested strategy. This is not an economic discussion or a political discussion. So we’ll, we’ll veer away from the causes of how we may or may not get to that place. But the reality is that a lot of owners are coming to us and they’re, they’re concerned.

They’re, they’re very worried about what might happen. And they are wanting to try to figure out what they can or should do in order to be better prepared for leading their business through any potential economic downturn that comes about. Either because of a large scale economic situation like a recession, or it may be more targeted if you are in an industry that is being particularly hit by some of the policy things that are taking place right now, which had a disproportionate impact on certain agencies that that work in sectors that have, you know, major impacts by the changes in government funding policies.

Gini Dietrich: Yeah, I have a really good friend who in January started to say, starting to bleed. And then, and then a couple weeks later, she’s like, Oh, bleeding’s getting heavier. And now she’s commenting that they’re hemorrhaging clients because the tariffs are affecting them because of all the work that she does.

She does like robotics and B2B really manufacturing kinds of things, and it’s affecting them. So. She is definitely hemorrhaging, hemorrhaging clients right now, and it’s, it’s bad. It’s not good for her.

Chip Griffin: And, and I mean, there are a lot of owners who are either in that same situation or concerned that they might be sooner rather than later.

And so I guess, you know, and we’ve talked a number of times over the years that we’ve been having this podcast about, you know, various circumstances that have, have come about that have caused owners to fret. And so we’ve talked about handling recessions and that kind of stuff, but I think it’s, it’s important to revisit it, particularly because a lot of what’s going on right now is, is more large scale uncertainty as opposed to, you know, hey, we, we know exactly what’s happening. We may not know when it ends, we may not know how it ends, but we, we know what’s happening. I think the, the uncertainty adds an additional component, just as it did in the very early stages of the pandemic, right?

Where, you know, everybody’s like, well, we’ve never seen this before. We don’t know how to even react. I think the, the difference is that there was at that time, more of a sense that everybody was coming together to deal with it. And now we have the added component of politics and society sort of pulling everyone apart rather than marching together.

And so I think that does complicate it. At a minimum for psychological reasons, if not for actual practical business reasons. So, you know, if you’re running an agency today as, as you are, and as many of my clients are, you know, how do you think about this? what do you do to set the table for the best possible outcome for your business in the year ahead.

Gini Dietrich: Okay. So here’s what I suggest. And I’m, during the Great Recession, I was very naive. I had just started my agency. We were growing gang, like gangbusters. We were doing really, really well. And everyone was talking about it. The economists were saying a recession is coming. You know, the housing market just plummeted.

I mean, it crashed big and bad. There were all these signs. I remember sitting in a Vistage meeting, which was, which is a CEO organization and my fellow members- this is a longer, different story for a different time, but very quickly they would come into meetings and exchange gold bars because they believed that their money was going to go away.

And so they were, they were trading their cash for gold. And I remember sitting in there, my little naive, like. Maybe 30 year old self going, what is happening here? Like, I was so naive to how it would affect the business that I was not prepared. And so here are some things I wish I had done.

Number one, I wish I had talked to my team about it and been really, really honest about, Hey, this is what everybody’s saying. I don’t know what to expect because I’ve never experienced this before, but if we were to quote unquote, read the tea leaves, it could require layoffs. It could mean we’re going to lose some clients.

So let’s talk about sort of what our plans are. That’s number one. I would have talked to my team.

Number two, I would have had plans for best, neutral, and worst case scenarios so that I knew exactly what needed to happen in win and what those triggers were. So if, you know, we lost one client, what I would do in that case, if we lost two, what I would do in this case, if we lost them all, what I would do in that case, right?

That’s the worst case scenario, which is actually what happened. I would have started cutting expenses immediately. You know, there are, I think all of us get flush with expenses and we don’t necessarily pay attention to what’s on our credit cards all the time. And we’re not super vigilant about it. And I think that that’s one of the things that I would have done differently as well.

But I think the biggest one really was the first thing, which is talking to my team, because I think we would have come up with some creative solutions. And I think you said this last week too, but there are opportunities for you to do things like where employees may have said

you know, I’m happy to go part time, as long as I don’t lose my benefits, or something like that. We could have come up with some creative solutions, and instead, we came back from Christmas break and I had to let everyone go, and it was terrible. It was horrible. So, I think just being open and honest, talking to your team about what’s coming, what they’re feeling, how they’re feeling about it.

And what those creative solutions might be, and then really think through, okay, this is best case scenario. This is like 50 percent case scenario, and this is worst case scenario.

Chip Griffin: Yeah. I think, I think one of the things that you have to really assess on a case by case basis is at what point and how much do you talk with your employees, because You can easily err on the side, as you mentioned, of, of not raising the issue with your team and not giving them the chance to be helpful in, in a myriad of ways.

But you also run the risk of unnecessarily spooking them if you jump in too soon. And so you, you know, I think there’s… At the point where you have uncertainty, I think it’s fine to voice some degree of uncertainty. I think, in general, as the owner, you need to exude a certain level of confidence. It can’t be irrational, it can’t be like, you know, your employee’s looking at you like, what is this guy smoking?

How, how is he, I mean, he’s clearly not in tune with reality. But at the same time, you know, if, if you start sharing everything that keeps you awake at night, as far as potential things that might happen, you know, you can get them wound up in a way that’s not healthy. I would say certainly, as soon as you start to see an actual impact on your business, as opposed to a theoretical one, you absolutely need to be talking with your team then.

You know, if you are starting to have conversations with clients about potentially downsizing their relationships or leaving, and you can clearly see that this is not just something hypothetical, but this is turning into something that is, has real potential to impact the business. Now, you do need to be having some more conversations.

Again, you still need to be careful how you do it because you don’t want to scare everybody away and have everybody start looking for jobs and now it sort of becomes a self fulfilling prophecy. Yeah. But, but in general, I would endorse talking with your team more rather than less, as long as you’re keeping in mind how you do it and how much you share.

Gini Dietrich: Yeah, and I serve on the board of a couple of organizations and we just had a quarterly meeting for one and he shared, their CFO shared their best, neutral, and worst case scenarios from a financial perspective. And so they, and in that they had triggers built. So if this happens, then we’re going to do this.

If this happens, then we’re going to do this. If this happens, good. And I thought it was really smart, but they, Oh, it’s only the executive leadership team who’s in on that, which is the two, two owners and the two board members and then, and the CFO. But, and they haven’t had those conversations with their teams yet.

So the five of us know, right. But it hasn’t trickled down to their, their team yet. So there are things that you can do as the owner to start to prepare. And I know it’s not fun and I know it’s not, it’s scary. And I know you don’t really want to prioritize it, but I really, having made the mistakes that I did, I think it’s a really smart exercise to go through.

Chip Griffin: Yeah. I mean, I think anytime you can play a what if exercise for a lot of different aspects of the business, not just related to, you know, how the economy may impact you, but just playing what if scenarios out. You know, what happens if we were to lose our biggest client? What happens if we were to sign a new client?

What happens if this key employee leaves? Just thinking it through, it can help you, you know, when and if those things come about, you’ve at least started to give it some thought. And so it takes away at least a percentage of the panic that, that normally sets in. And so you can start acting in a more rational fashion to address the problem.

And I, and I do think that, that you do need to, to make sure that you are being careful not to overreact. To every little piece of information that you hear. And, and that’s true, whether you’re, we’re talking about, you know, what you see on the news, what you hear from an economist, what you hear from, you know, your cousin, who’s a stockbroker, what you hear from a client in passing. Take it all in, analyze it, but, but don’t go overreact because you can get yourself into just as much trouble, if not more, by overreacting, overreacting to things that might happen.

And, and I’ve seen plenty of agency owners who go make drastic changes to their business, thinking that it is going to prepare them for what’s coming. But then if what’s coming doesn’t show up, now they’ve got a dud on their hands. And so, you know, you want to be prepared, but you don’t necessarily want to implement all of these plans prematurely, because that, that could make things even worse.

Gini Dietrich: Yeah. I do think one of the things, and this is just a good exercise every year, regardless, is to go through your, all of your expenses. Go through your credit card statements. Go through everything that you’re spending money on and really determine is this something I need to, to spend money on and then start to cancel subscriptions and things like that.

You should do that annually anyway, but I think it’s especially smart right now.

Chip Griffin: Yeah. I mean, and, and, you know, these days where everything is a subscription, I mean, I know every time I, I go through that exercise and I try to do it more than once a year because I accumulate so many of them, you know, I’m going through, I’m like, what is this?

What is this? I got to like, you know, search through my inbox to try to find out what it was. And then I’m like, oh yeah, I’ve never used it. Oh, sometimes you go through and you’re like, Oh no, this is, I just know it by a different name because some of these tech companies like to bill things as one thing, but then the website is something totally different.

You’re like, Oh no, I use that every day. That’s fine. But you know, you particularly want to shed, ums that you’re not using. And, and the larger your team is, the more likelihood there is that you have either entire subscriptions or at least seats that are going unused. And you ought to be trying to, to pare back on that. No matter what the circumstances are.

I, the next thing I’d like to talk about in this context is something that –

Gini Dietrich: I’m taking notes myself.

Chip Griffin: I, I know you and I get asked this a lot and I think we’ve done a dedicated episode on this, but I, we would be remiss if we didn’t bring it up here, which is the, the idea that you can recession proof your agency.

Gini Dietrich: Right.

Chip Griffin: And this is, this is sort of the Holy grail that I get periodically from people. Not so much right now because, you know, it’s, it feels like we’re more in the muck in the mire, as opposed to, you know, someone who is asking this, you know, maybe a year ago. You know, and it’s more theoretical, but, but plenty of agency owners have this idea that they can somehow build something that is completely recession proof by targeting certain industries.

And, and one thing you see typically during periods like this of uncertainty and the potential for economic downturns is agencies doing wild pivots to different industries thinking, well, if I’m serving, there’s no way that they’re going to be hit by this. And so therefore I’m going to be fine. I would warn you to be really, really careful about A, believing that that’s possible and B, pivoting so much that you go somewhere where you don’t know enough to produce good results.

Right. Because that’s going to be really hard to generate business. And even if you do, it’s going to be really hard to produce results that help lead to further business. And, and you could end up damaging your reputation just because you thought, Hey, if I chase this, I’ll be safe.

Gini Dietrich: Yeah. I mean, everybody knows I’m a big fan of diversifying your income.

And instead of doing a wild pivot to a new industry, I think it’s things like creating passive income, or as somebody on my team calls it, the mailbox money, the check that just shows up, right? Because you’ve created something that people continue to buy. It’s servicing clients in different industries, for sure.

But it’s having different ways that you make money that are diversified enough that if one piece of the business goes down, like if your, your retainer clients go away or reduce their scope or their budgets because of a recession, you have all these other buckets of income that will, that will keep you, your doors open.

So I’m a big proponent of that versus trying to pivot. And certainly you can’t do all of that right now. Like that’s the big lesson I learned during the Great Recession is to diversify income. And I’ve spent all of that time between 2010 and now creating new sources of income. And we have several buckets of income in the business that help us, but it’s, you know, it’s taken all of this time to do it.

I didn’t do it just overnight. So think about the things that you can add right now. Do you have some intellectual property? Do you have a process that you can, you can teach others how to do? So can you do some coaching or consulting? Can you do project work instead of retainer work? There’s lots of different opportunities for you to have different buckets of income so that you’re not recession proofing your, your agency, so to speak, but you are allowing it to have different levels of income so that you can keep the doors open.

Chip Griffin: Yeah, and, and like you, I’m a huge proponent of diversification. At the same time, I will sort of build upon what you said to say it is a lot easier to diversify from success and strength than from weakness.

Gini Dietrich: Yep.

Chip Griffin: And so in general the best time to diversify is when things are going well, not when they’re already going bad. And so it doesn’t mean you can’t add new revenue streams at that point in time. But it becomes a lot more challenging to do it and to do it well. And as you know it it is a long term strategy, it is not generally something that has an immediate payoff.

There are exceptions to every rule, but in general, revenue diversification for your agency is going to take time before it has a meaningful impact. So, certainly be thinking about it, but if you already are feeling the pinch, that’s probably not where I would go first in order to try to, to achieve something.

Also, if you’re going to diversify, make sure you diversify one thing at a time. Right. Don’t, don’t say, well, I’ve got these seven great ideas. Let me try to implement all of them. Let me throw them all out there. Let me see what, what actually works. Yes. Pick one. Yes. Lean into the one. Yes. And see what happens.

Gini Dietrich: Yeah, absolutely.

Chip Griffin: You’re more likely to be successful.

Gini Dietrich: Yeah. Yeah. Yeah. Like I said, it’s taken us, you know, it probably took us a decade to get all of the buckets right. And understand what makes money and what needs to evolve and what needs to be tweaked and all that stuff. And we add new things every year.

So, you know, it, we’re, what, 14 years in now, so almost 15, geez. So it, those are the kinds of things that we’re thinking about. I always say the best time to plant a tree is 10 years ago. The second best is today. So start now, but you, you’re right, Chip, that you can’t come at it from a place of desperation.

Like, you have to be able to, to kind of think it through and be strategic about it.

Chip Griffin: You had also mentioned, you know, thinking about doing more project work, things like that as, as an additional revenue stream. What I would say overall is that I think, I think you need to be prepared to bend more than you usually do on the kinds of work that you take on.

That doesn’t mean that you should take on unprofitable work, or totally miserable clients, or go completely in a different direction just because someone asks you to. However, you should really look at each opportunity that comes across your desk and ask, Could I adapt to be able to do this, and would it be a stretch to do it?

Again, make sure that it’s profitable. So you, your bending shouldn’t be, I’ll just take on anything that produces revenue. Because if it’s not profitable revenue, you’re actually putting yourself behind. So it, it still needs to generate a profit. But if you’ve been targeting a 30 percent profit on projects, could you work at 15 to 20 percent and still be okay?

I would encourage you, particularly if you are worried, that, that lower profit margin as long as it’s still clearly profitable is probably a good thing. I’ve been ranting about agencies refusing to do project work and only wanting to do retainer work for a long time. That’s true in good times, but it’s doubly true in tough times.

If you’re having a tough time, take on project work. Don’t sit there and say, well, we only do retainer work. Also, consider your minimums. Do they need to be as high as they are? A lot of agencies aren’t charging enough, but there are some who, who charge a fair bit. And could you take on more clients at a lower number?

I’m not, again, telling you that’s the right answer for every agency, but you should at least ask yourself these questions, rather than sitting there and saying, Well, I can’t find anybody who will do 10, 000 a month retainer work with me. Okay. Could you get someone to do 5 or 6000 dollar a month retainer work with you?

Could you get them to do a 10 or 15, 000 project that maybe, you know, tides you over for a little bit and gives them an opportunity? I mean, there are, there are a lot of things that you can say yes to that might help you in the short term without taking you so far off track that you put yourself in a bad position.

Gini Dietrich: Yeah, I think that’s absolutely right. I think being able, being flexible, understanding what your best neutral and worst case scenarios are. And cutting your expenses are probably the three smartest things you can do.

Chip Griffin: So with all that smartness, I think we probably should wrap up before we start saying unsmart things.

Gini Dietrich: Oh, good. Okay.

Chip Griffin: We will draw this episode to a close. I’m Chip Griffin.

Gini Dietrich: I’m Gini Dietrich.

Chip Griffin: And it depends.