‘Suddenly we were like a restaurant with no diners’ – inside an agency's closure
It is every business owner’s worst nightmare to watch a company they have invested in over many years collapse before their eyes. However, this is the harsh reality many are currently facing, as the social and economic impact of the coronavirus pandemic has resulted in businesses folding across the sector.
One such business is the New York-based Drum Agency, which sadly closed its doors last month after being forced into administration. In the aftermath, The Drum’s own chief exec, Diane Young, sat down with George Wiedemann, who ran the (unrelated) agency, to discuss the chain of events that led to its downfall and the difficult decisions that many business owners are being forced to make as a result of this ongoing, global crisis.
Prior to the outbreak of Covid-19, Drum Agency was a profitable business with Fortune 50 clients: “It’s worth mentioning,” said Wiedemann, “that at our March board meeting we had Q1 and Q2 profits.
“We had this big million dollar feed in April from one of our Fortune 50 clients that was going to make April the most profitable month we had ever had. The new business funnel was full, and everything was cranked up to the max.
“One of the metaphors I use is that suddenly we were like a restaurant with no diners. It’s not that our clients weren’t happy – we didn’t lose a single client – but the clients cut budgets. Or they said ‘let’s move our budget into Q3’”.
Previously, Wiedemann told Young, Drum Agency worked on a combination of retainer and commission. Yet, while no client stopped paying their retainers as the pandemic worsened, the commission spending that topped up the agency’s income dropped significantly.
“It was hourly,” Wiedemann explained, “and it was daily. It was unreal.”
As a result, like many businesses, Drum Agency was forced to take action in an attempt to batten down the hatches. “During the period of time [from the meeting that took place on 17 March] which I think was a Tuesday… by the Friday, management took it’s first 20% pay cut.
“By the Monday we took some decisions and we had around six headcount layoffs, but that was just the first tackling of the issues. As it unfolded, management took another 20% pay cut and that next Friday there were 12 furloughs. It was terrifying.”
Wiedemann detailed the other avenues Drum Agency explored in an attempt to stay afloat, telling Young that “first of all we applied to get PPP (Payroll Protection Progam), which is part of the Cares Act.”
But, he explained, this proved fruitless, as only 5% of applications to the scheme were successful in securing the funding from a pool of $350bn allotted to help small businesses in the US. “It was all about connections.
“The big chains that got the money, they had bank connections. So we went to our banks but got no sympathy.”
Next, he said, “we went to people that buy agencies, and they were perfectly happy to meet with us. We told them ‘[my partner and I] want nothing in terms of compensation for our interest. We will give you our 50% of interest and you’ll own the company 100%, all you have to do is commit to the funding.”
Wiedemann told Young that initially buyers had seemed interested, but that proceedings were likely to take weeks. “We needed it in three to five business days”, he added sadly.
When asked if there were any warning signs he might have missed, Wiedemann said he wondered if, in hindsight, the team at Drum could have prepared better if they had pulled together more.
“It wasn’t the case that in February we said ‘oh there are signs of trouble and we should do [this or that]’ – there was nothing there.
“Once it hit, it hit so fast, and we were running here and there looking for help. But I think on the inside, we could have pulled together more, to consider more options."
Reflecting on the end of Drum, and his time as its chief exec, Wiedemann said “it’s way easier to start a business than it is to close one.
“As you can imagine, I’ve spent 13 years passionately building a company and when it goes up in flames in just a matter of weeks, it’s very sad. And I feel for the team, my heart goes out to the entire team.”
It has been reported that since the start of the pandemic, nearly 75% of small businesses in the US have sought help from the government via the Payroll Protection Program.
However, since Wiedemann spoke to Young, the House of Representatives has announced it will take another vote on extending the PPP, giving small businesses that did receive funding more time to utilise their aid. Consideration of a standalone bill is also due. It would allow companies more time to hire, re-hire and payback the loan, as well as including an amendment to a rule which stipulated companies must spend 75% of the loan on its payroll and only 25% on other costs.
Regardless of the outcome, this will be a crucial moment in deciding the fate of small businesses across the US, as many wait to find out whether they will be able to weather the storm or shut their doors.