Agency Triage: What to Do When the Business Is in Trouble

Sei-Wook Kim (00:05.198) Today's episode is about what to do when things go wrong all at once. A big client walks, sales dry up, reserves get thin. We're walking through triage, which means handling problems in order of what threatens the business most, not in the order they showed up in. Peter Kang (00:20.85) All right, so today this is about the emergency situation, the worst case scenario for a lot of agencies when you're in big trouble. And yeah, this gives me flashbacks to some instances where we've had to triage the business and really act fast and basically you're in this crisis mode. One example that pops out — a couple of examples, actually. The first was when COVID hit. There was that wave of uncertainty, a lot of clients starting to pause on their various projects or retainers, and we were having to act fast all of a sudden. And then the other was a few years later, about 15 years into the business, when we had to do our first layoffs. The mistake there wasn't having to make the layoffs — it was acting too late and the ramifications of thinking that the pipeline would eventually bail us out, only to realize we didn't act soon enough to control costs and make the necessary moves. So yeah, these are some of the lessons that we'll take into today's episode where we're gonna talk about what helps agencies make it through when severe situations hit — what are the things they need to do to make it to the other side. Sei-Wook Kim (02:02.579) Yeah. And that point is important — it's not necessarily the severity of what happens. It's more about the speed at which you face the reality and tackle things in order. All right, so let's go through the five phases, and the order here is important. Let's talk a little bit about why order matters in this situation. I'll jump in and talk about these situations. We've been there where, if you're in a stressful moment, oftentimes you run the sequence backwards. You'll do the hard things first — you'll try to sell harder, try to win more business, and you'll reassure the team it'll all be fine. But the whole time you might be avoiding looking at the numbers and really creating the spreadsheet on the actual financial situation. And then you're cutting only when you're really forced and you're really not in a position of strength. So it's all about speed. Peter Kang (03:08.928) Yeah, and this is a great concept to think about because when you understand cost cuts versus revenue from new business, they come at different speeds. Cost cuts are immediate. If you stop certain software subscriptions or cut staff costs, that's gonna materially impact the bank account. But new business — even if you win, there's the process of trying to sign. After invoicing, there's usually payment terms. There's certainly a 60, maybe even 90-day difference between when you actually win something and when cash hits your bank account. In an emergency situation, cash is king, and you're gonna be in a cash crunch that just puts you in a tougher spot. Sei-Wook Kim (04:14.214) Yeah. And when you're cutting costs, that's really the only lever you have under your control. Pipeline and winning new work depends on other people's budgets and other people's timelines that you can't directly control. You can obviously try to influence it, but it's not something you can fully control and predict when it'll happen. Peter Kang (04:36.938) Yeah. And you mentioned just selling harder when things start to go bad. The thing that has been the case for us is clients can smell desperation, especially when you're trying to sell too hard. Sometimes that'll either scare them away or you're gonna end up attracting bad-fit clients at discounted prices, and all of a sudden you're set up for more challenges down the line because you've walked yourself into a compromising position in terms of margin and your ability to do that work profitably. Sei-Wook Kim (05:18.074) Yeah, so when we talk about each of the phases, the sequencing is important, and each phase is really feeding the next phase. The numbers will tell you how deep to cut, the cut figures out what base you're protecting, and that base is what determines your tripwires and how you can rebuild in a realistic way versus being wishful about the future. Peter Kang (05:45.225) Yeah. So we should dive in. The big takeaway here is that under pressure you're really gonna reach for the lever that feels hopeful. But with this triage framework, we're hopefully gonna demonstrate which levers you should pull the fastest, because speed matters. Sei-Wook Kim (06:04.901) All right. So phase one is facing the numbers. Most owners skip this step because numbers are scary, especially in this type of situation. But everything — all your downstream decisions — really depends on you understanding the numbers. So what does that look like? It's building the near-term cash picture. Depending on the intensity, it could be a weekly view in addition to something that maps out further — three, four months out. That's an exercise of looking at every expected invoice, when you expect to receive the money, and then on the flip side, what are all the expenses leaving the account? It could even be a day-by-day analysis if it's really tight. It's really just that important to understand your cash position every single day. Peter Kang (06:59.104) Yeah. And this is something we did cover a bit back in episode six. At its worst, you're looking at single-digit days of runway sometimes, but having that clarity is better than trying to figure stuff out in the dark. Truth is in the numbers. You just gotta start there. Sei-Wook Kim (07:19.586) Yeah. And the other thing is just being realistic. You might have committed revenue — actual contracts signed that people have committed to contractually — and separating that from what you'd call hoped-for revenue. If you have contracts with a 30-day or 60-day out, that's committed up to a certain point, but you should almost plan for those churning. Mapping out what your future revenue looks like from that perspective. Peter Kang (07:53.116) Yeah, basically be very skeptical about renewals unless you have concrete evidence that they're gonna renew. And bring that same degree of skepticism — slash honesty — to the pipeline. How many times have folks tweaked the weights, like the conversations were great, they told us we're a finalist, and it's inching to 70 or 80% weighted, only to go back to zero? You really wanna be systematic about it — hey, if it's in this stage, it's probably gonna be this percentage, keep it there until maybe the lawyers are reviewing MSAs and SOWs, then you can move it up a bit, and only when they actually sign does it hit 100%. Just being very disciplined and honest about your weighting of the pipeline. Sei-Wook Kim (08:58.26) Yeah, and also the timing. You can say this is going to sign any day now, and "any day" could turn into two weeks, could turn into a month, could turn into two months. Having that honesty on when it will actually hit, and then mapping to when you'll actually see the money — being honest versus hopeful is so important at this stage. Peter Kang (09:20.419) Yeah, totally. And then on the existing client side — we talked a little about renewals, but also auditing at-risk accounts. Maybe some of your challenges, the reason you're in an emergency, is your largest client churned or you had a series of clients leaving or projects going sideways. Just make sure it's not just that. Make sure the others on your client roster aren't also at risk and coming at you in an unexpected way. Having clarity on who might cut spend or leave, who's unhappy and needs extra attention — yeah, never assume that the client who just churned is the last one, because that assumption can be very dangerous. Sei-Wook Kim (10:10.762) Yeah. And also if you're in this situation because a key person left your company, really do that inventory of understanding what just walked out the door beyond the person. Is it client relationships that left with them? Is it specific knowledge about how things are done? Is it the ability to deliver on a specific service line? Really understanding the downstream impacts from that situation and mapping that to numbers. Peter Kang (10:39.832) Yeah, exactly. And I think this just underscores what we're talking about for this phase — the numbers don't get better because you avoid looking at them. You just have to take that cold plunge and face reality before you do anything. Sei-Wook Kim (11:01.427) So phase two is cutting the cash strain. Cash is king and cash going out the door is the most immediate threat to the business. The way to think about this is sequencing the cuts. First is looking at non-personnel expenses — tools you're paying for, subscriptions, maybe your office, external vendors, discretionary spend. These are things you could cut fast and are low-pain for the business; most people probably won't feel it. Next is owner comp — before you cut anyone else's job, think about cutting your own pay. It may not be to zero, it may be a reduction, but understanding that is the next round. And then finally, people as the last resort. But if it's coming, the recommendation is to have one decisive cut versus several rounds of shallow cuts. When you have rolling layoffs, the morale of the team can get really poisoned versus if you just do it once and deep — it's over and you can all move on versus people fearing for their jobs. Peter Kang (12:19.233) Yeah, totally. We'll say it again — it's gonna feel terrible and you think making that shallower cut is the way to go to lessen the blow, but just do the thing that's tough sooner than later. I do wanna add — because sometimes agencies have quite a bit of a cash reserve — it's easy for some of those folks to get lulled into thinking, hey, yeah, there is cash strain happening, but we can absorb it and wait for the pipeline to come back because we've earned that right through building up this cash reserve. Maybe we should talk a little bit about why that's a bit of a slippery slope, and something we'll probably cover in a later phase — but for the purposes of cutting the cash strain, why is it important to think about the P&L more versus what you have on your balance sheet? Sei-Wook Kim (13:28.345) Yeah, it's being realistic about the state of the business, because just because you have the cash doesn't mean you should spend it — especially if there's continual decline. Let's say your revenues are continuing to decline but you're not facing the reality of the situation, and you hold onto team members just because you spent a lot of time hiring them, building them, they're part of the team, and it's a painful process to go through. You might feel like, you know, this cash — why don't I just spend it on them to retain the team? To a certain extent you can do that, and that's a choice you're making, but don't just automatically assume that cash in the bank means cash you should spend and burn all the way down. Peter Kang (14:19.93) Yeah. And in a previous episode we did talk about how much cash you should keep on hand, and that goes with this — there are perils with having too much cash on hand because it leads to decisions that aren't quite disciplined. So let's talk about the spectrum of things. On one end you have super ruthless cuts — stop the cash strain right away, cutting super deep. On the other extreme it's, hey, I need to protect jobs at all costs, I wanna make sure everyone is taken care of. Both extremes are failure modes. If you're too ruthless, you're gonna lose key talent that you'll need for the recovery if the agency bounces back. But if you're overly protective of your team, you're gonna end up putting all your reserves in jeopardy. Sei-Wook Kim (15:18.905) Yeah. And that is the trap — trying to preserve the team that you built when times were good. There's a lot of pride tied to this: pride in having a team, and some of it is the cost you feel because you have all these specialized roles and this nice structure. But if the revenue drops, it's really hard to justify what you were paying for. The reality is you just have to go back to having people wear multiple hats. You as the owner or founder may have to wear more hats than you did previously when you were a smaller team. That's just the reality you have to face. Peter Kang (16:05.785) Yeah. And the last point on cutting the cash strain is on the receivables side with your clients. A huge part of this is don't let struggling clients run up a balance. You might be accommodating on scope, but on payment you actually do need to be a bit ruthless — hey, you guys have to pay on time, it's vital for our business. Being buttoned up on accounts receivable is gonna be huge in this situation. Sei-Wook Kim (16:38.935) All right, the next phase is protecting the clients and the team. The two things that cannot fail while you're working through this, while you may be doing these cuts, are current client delivery — making sure you're delivering for the clients that are paying you — and the trust of the people remaining on the team. If you think about existing clients, that's the surest, cheapest revenue you can rely on at this point. So it's things like over-communicating, over-delivering, being accommodating if they need flexibility on terms, because a client that needs to go on pause isn't necessarily a churned client. You may offer a three-month pause before they actually go away. This is the opportunity to really think about how you can accommodate the current clients you have. Peter Kang (17:44.59) Yeah, and it is so hard because — you know that phrase about building the plane while you're flying it? Here you're flying a plane and losing parts and you still have to keep the plane going. It's like, my god, I still gotta make it to the destination, but one of my engines is going out, I'm losing the navigation system. It's quite the juggling act. And part of this is being mindful of the second-order effects of cuts, especially when you're cutting key team members who were critical to certain capabilities. I remember when we had to make some cuts, we ended up sunsetting a whole capability team — an entire department. The second-order effect was that one of our clients who worked closely with that team ended up churning. We probably could have planned that better, communicated it better to the client, but given the situation with our backs against the wall — and like I said, we probably didn't act fast enough — it just had that second-order impact that we could have been better about mapping for. Sei-Wook Kim (19:05.939) And then on the team side, it's all about communication and being transparent, but not making empty assurances that things will be okay. When we had town halls, the question was always, are there going to be more layoffs? And the answer that worked for us was: if new business hits by X date and we hit these targets, then no, there won't be any more layoffs. But if we don't, then the reality is there may need to be more. Not sugarcoating the situation, not making false promises about what's going to happen — because the worst thing is you say there are going to be no layoffs and then you have to do a layoff. You're just breaking your promise. The other thing is maybe time-boxing it: all right, we can guarantee through the end of the quarter there will be no more layoffs, and that's a decision we're making, tied to a specific number. At least people have some assurance — I don't have to worry about this through the end of the quarter — and they're not always thinking about when the next layoff is happening. Peter Kang (20:22.666) Yeah. And when we talk about low morale on the team, this isn't a sports movie where a pep talk is gonna lift spirits. In business, the two things that matter most are clarity — being forthright about what's happening and what's going to happen — and then just the small wins. The accumulation of wins is what actually lifts morale. So just keep chopping through and don't spend too much time thinking about delivering a spirit-raising pep talk. Sei-Wook Kim (20:59.972) Yeah. And from a team and client standpoint, if a key person leaves, really redistribute all the relationships immediately — have a plan for it, don't take weeks. For the team members, make sure they understand you're not just dumping more work on them in a way that has a negative effect. And for clients — clients understand business situations and they can forgive a departure. But if there's silence, if there's no clear next person, if it seems like you don't have a plan, that could be a challenging situation that could lead to churn. Peter Kang (21:42.377) Yeah. The thing I want to add to this is: just like you might be auditing at-risk clients, as we talked about in the previous section, you should audit your team as well. When morale is low and the business isn't in good shape, there's flight risk — people are gonna be looking around because they're thinking, I don't know if this is a sinking ship. That's something to anticipate. It's not always apparent, but sometimes there are signals. Gaming it out is actually a good anticipation move because you ask: if this person leaves or that person leaves, how do we fill that hole? Inevitably maybe one of them will leave, and if you haven't thought about it at all you're gonna get totally blindsided. But if you've at least gamed it out, you have some options. Sei-Wook Kim (22:42.52) Yep. All right, so the next phase, phase four, is setting your tripwires in advance. This is the one we talked a little bit about in phase two around cash. It's a step that most owners never take, and one that could save you in this situation. There are two decisions to make while your head is still clear. The first is: what is your floor? How deep are you willing to go? Whether that's cash reserves — what are the minimum cash reserves you won't dip below? — or in this situation, would you tap a line of credit? Would you put your own personal money into the business? Would you take zero comp? These are situations you just gotta understand — what is the floor you would not go beyond? And then, deciding what the tripwires are. The if-then decisions and the dates attached. For example: we have three weeks to land $150K of new work. If that doesn't happen, we have to cut these five roles, give up the office, and this is how we'll move forward. Just having that: if this happens, these are the decisions we need to make. Peter Kang (24:11.737) Yeah. And how soon should agency leaders make these decisions? Like, is it at the very start of an emergency situation, or ideally before? How should we think about that? Sei-Wook Kim (24:32.192) Yeah, ideally you have some runway. You're looking at your next quarter at least from a projection standpoint, looking at your committed revenue and pipeline, and you can see if there's a drastic drop-off and foresee the actions coming. In general, it's probably a good thing to review on a periodic basis — understanding your cash position, whether you're in a state of building or whether you have it in a good place and know what you can tap. Quarterly is probably a good time to revisit and look at all the situations, even in good times. Peter Kang (25:15.02) Yeah. And it's interesting because you can have layers of tripwires, or at least things that make you scrutinize the business a bit more based on certain performance metrics. One might be pipeline coverage ratio — if your amount of pipeline dips below a certain level, you should start looking sooner. You might have had amazing prior quarters, but that should be a signal. We do this at Barrel Holdings with our portfolio: any time an agency dips below that 20% EBITDA when we'd projected over 20%, we really wanna dig into what's causing that dip. You can set these rules while you're clear-headed — way before there's a true emergency — and make more logical decisions. If you're an agency owner or operator, even having small rules like that: if my pipeline ratio is such, or if my margins dip below this, I'm gonna take a more serious look and treat it like an emergency before it becomes a real one. Sei-Wook Kim (26:37.597) Yeah. The flip side is also planning for the best-case scenario, which seems odd to do in a situation like this, but there might be a big deal that you land that saves the agency. If you're not staffed and ready to deliver, or you don't have a plan for how to execute it, you could botch the whole thing and it becomes its own kind of disaster. If you've cut the team and you win this amazing client and you can't deliver on it and you're scrambling to hire and pull together a team — so yeah, just plan for the opposite scenario if you do have to cut. Peter Kang (27:19.638) Yeah, that's a great point. And to round out this section on drawing the tripwires in advance, how about some more specific finance mechanics to dig into? Sei-Wook Kim (27:33.051) Yeah, the biggest thing to think about here is when you would use a line of credit. You often hear, "We have a line of credit, so we're gonna pull on it to get through." The risk there — the appropriate use of a line of credit — is a cash flow gap. Let's say you give a few clients looser payment terms just to retain them. You say, all right, we'll give you 90-day terms, but you know the revenue is coming. That's a good use: pull down the line of credit so you can get all your expenses paid, you know the cash is coming, and then you pay back the line of credit later. The dangerous thing is using your line of credit like a loan — just dipping negative with no outlook that you'll actually pay it back, and suddenly you're in a hole with a loan you have to service. That's a dangerous place to be. Having a cash reserve and making a deliberate decision on how much you burn is safer. And then if you've saved money for taxes, don't touch that. Be smart about your future obligations when deciding to use cash. Peter Kang (28:48.491) Yeah. Honestly, you don't want to be indebted to the IRS in a way that just puts you in a bad spot as a business. That's gonna hurt various ways, including other financing opportunities if you owe IRS dollars you haven't resolved. Sei-Wook Kim (29:08.567) Yeah. And one more thing about cash: a client could have prepaid you for a year. That might be on your balance sheet, but that's not cash for you to use when times are bad, because you have to deliver on that obligation in the future. Peter Kang (29:22.846) Yeah, it's a liability. Until you've done the work, delivered on it, and recognized that revenue, it's a liability. That's a great point. Sei-Wook Kim (29:33.925) Cool. All right, so phase five is rebuild, but different. Once your costs are stable and you have the core clients and team holding, you can rebuild. But the important thing is not to just build the same business back exactly the way you were running it. When you think about urgency for new business, spend your time on the fastest and cheapest dollar — your existing clients, your past clients, your referrals and partners, anything warmer. Cold channels are the slowest and most expensive, and when you need money in the next 90 days, focus your time and urgency on the warmer channels. Peter Kang (30:29.957) Yeah. And this is a good opportunity to revisit, especially as part of the rebuild, your positioning — the Foundation components that we always talk about. Beyond positioning, are you still tight with your ICP in terms of who you're targeting? Is your service offering going to stay the same given that you're rebuilding the team? Maybe you lost some key team members, so now you have to retool your service offering to match what you can reliably deliver. And then more important than that is how you go to market now with your positioning. If we're thinking about the easiest dollars, how do you activate account growth, but also maybe lean more into partnerships and warmer opportunities that are gonna get your new business engine going? And if you're gonna rebuild — maybe part of the reason you're in trouble is you never had a great pipeline, and a couple of client churns and a couple of bad months put you in this position — well, now's your chance to make sure that never happens again. That means putting in the time and effort to rebuild that motion. Sei-Wook Kim (31:46.87) Yeah. And on the team side, think about rebuilding in a leaner fashion. Roles that were full-time and that you had to let go — maybe those can come back in a fractional capacity, or contract, or some other more flexible way. The org chart is not a trophy that you're trying to fill. It's really about thinking: what are the actual needs of the company? And that person you let go — do you really need a one-to-one replacement, or can you think about everything differently? Peter Kang (32:26.435) Yeah. It's like with anything in business life — you take these setbacks and if you can overcome them, if you can survive, there's an opportunity to turn that into a lesson and something even greater the next time. Think of it as a reset for your business and how you operate, and how you might make fundamentally different decisions going forward. And we talk about this a lot across the 20-plus years we've been in business together: survival is key. You need to be in the game to have the at-bats. If you can't survive, if you become insolvent and have to shut down the business, it's game over. So it's so important to make it through and be resilient through these hard times. Sei-Wook Kim (33:26.271) All right, so some homework for people listening, whether you're in the situation right now or not. If you're in a healthy state, spend an hour writing the worst-case decision tree. What are the reserves you won't go beyond? What are the team cuts you'd have to make? And what are those tripwire conditions — how would you tackle them? Peter Kang (34:02.401) Yeah, and to that point — the owner comp, what you take home personally, that has a real psychological impact. Especially if you've got a mortgage, you have kids, you have expenses you need to continually pay for. You need to square away on what you're willing to tolerate. Maybe you have a lot of personal savings you're comfortable drawing down on, but not everyone has that. So it's really important to decide what your limit of tolerance is in a situation like this, and do it when times are good versus when you're desperate. Sei-Wook Kim (34:46.917) Yeah. And if you're in it — if you're not in a great place right now — build that weekly cash forecast. Daily cash forecast if it's that bad. Start there and get a clearer picture on what the situation looks like. Peter Kang (35:02.838) Yeah. And we've been laughing a little bit to ourselves — not because we think this is funny at all. It's more a reflection of thinking back on our own experiences, just reminders of, my goodness, remember when that happened, and we're grateful to have made it through those situations. Nothing about this is shameful. Every agency that's been around long enough has most likely had some kind of chapter like this. It's about mindset, about being resilient, but also about acting with speed and making tough decisions. If you're going through any of this, hang in there. Hopefully there are some lessons here that were helpful. Till next time, thanks for joining us. Sei-Wook Kim (35:55.984) Thanks.