COVID Pivot - Small Business and Entrepreneurship

COVID Pivot - Small Business and Entrepreneurship

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(muffled speaking) - We're planning, hopefully many great events. Unfortunately, right now we're still in our lockdown environment. So we'll do the first few virtual, but as soon as we can get back together in person, we certainly will. So the first event here for tonight is gonna be, it's a great panel.

We started planning this actually last November, and around the theme of the COVID impact on industry and how industries have pivoted. So for January, we're gonna focus on entrepreneurship on small business. We'll do another one in February, on the impact on innovation, but we have a great panel lined up for tonight.

Before we jump into that, hang on, let's go back one LeeAnn, sorry. (laughs) Perfect. And by the way, for people who don't know me, I'm Michael Vermillion, I'm co-president of the Chicago Booth alumni of Greater Los Angeles. So we are really lucky tonight to have Professor Waverly Deutsch join us and she'll be moderating the panel and three alums of Chicago Booth, who have all accomplished some amazing things in their post Booth careers.

So Michael Montagano, Jill James and Kimberly Marsh. And we'll be meeting them in just a minute here. So, LeeAnn let's do the ad for February. Okay, so the next event will be the impact of COVID and the pivot around innovation. And that will be February 24th, at 5 p.m Pacific.

And Professor Lindsey Lyman is gonna moderate that panel for us. And we actually have four great panelists lined up for that as well. And we'll be sharing more of that information later. But to sign up for that, just google Chicago Booth alumni events, and then scroll down to February 24th, and you'll see the sign up there.

So that's the pitch for February. Just a couple of housekeeping items, and then I'm gonna turn it over to Waverly. So, we did get some questions in advance, you will be muted throughout the presentation. So the way we'll handle Q&A, is just submit that through the Q&A function, and then we'll handle those throughout the panel. And the format here was, Waverly will, has a couple slides to present around her research. And then she'll present, introduce the panelists and then it will be interactive from there.

So we really encourage you to ask questions, that's what really makes these things valuable. I'm going to turn it over to Waverly, stop my video, and then I'll be back here towards the end. So, Waverly, thank you so much for joining us tonight. And we look forward to a great conversation here. - It's my pleasure, Michael.

And I'm really happy to be here with our great panelists, Kim, Michael and Jill. All of them are startup founders whose businesses have been impacted by COVID-19, as has everyone's. I wanted to take just a second to talk about some research I did last summer, I wanted to see how COVID was impacting business relationships particularly because the pandemic forced us inside and isolating and away from our offices and away from our colleagues, away from our customers. And it felt very different than say, the financial crash of 2008, or the tech crash of the early 2000s, a very different crisis for startups and businesses. So I interviewed and surveyed a bunch of founders, and virtually every business relationship has changed.

LeeAnn if you wanna move forward one slide, you can see some of the data, only 13% of the entrepreneurs that I surveyed felt that their relationships really hadn't changed from this new remote world. But you can clearly see that, relationships with employees, with customers, with suppliers, with your executive team, these things have really, really shifted in a new way. Entrepreneurs talked about having to build relationships with investors and never meeting their board members. They talked about onboarding employees without ever being with them in person and without that employee being able to really spend, face to face human time with their team.

They talked about working out terms with their suppliers or their customers because everybody's finances were being sort of, if not impacted, certainly made more uncertain by the crisis. So, interestingly enough, the changes weren't all bad. So I asked all kinds of questions about, what has changed? Has this changed? Has this changed? And what I found is if I organized the companies around, sort of positive changes, negative changes, and people who were evenly mixed on experiencing both, I found that more companies were actually thriving in COVID, than were suffering.

So LeeAnn, if you wanna flip to the next slide, here's some data on that, we found 37% of the companies that I talked to this summer, were actually thriving in the midst of COVID. That they, many more companies had actually added offerings to their product mix than had discontinued them, more companies had gained customers than had lost customers. They found that they were able to access talent that they either wouldn't have considered for geographical reasons, or that wouldn't have been available to them in sort of a normal world. So the panel discussion for me tonight, which is six months later for my research is really interesting.

Because the question, that I'm gonna start with, with our panelists is, what happened for your business over this last year with COVID? I'm gonna go ahead and start with Michael. Michael, you're in one of the areas that has absolutely been hit by COVID. You're a restaurateur, tell us a little bit about what your last year was like. - Yeah, well, thanks Waverly. And it's a pleasure to be here.

And fascinating research that you've done. I would agree with a lot of the research, I think we would fall in the bucket of, things that have become more efficient in meetings that we have, and access to different folks that maybe want to engage with our business, whether that's investors, board members, new employees, new customers, etc. Regarding the actual mechanics of the restaurant industry, it's been a very tough year for restaurants, particularly independent operators, specifically, anyone outside of basically QSR, quick serve restaurants, that had actually done quite well through COVID.

But remaining restaurants, including some fast casuals that have really struggled, we've been fortunate that we were well positioned to be a tool for restaurant brands to not only survive, but thrive during these times. You known our offering is a, cutbacks, lights solution for restaurant brands to expand into new trade areas with leaner labor models built in consumer demand. But a easier way of saying that, we build and construct pickup and delivery centers for restaurants to move into where they can only operate a cubby instead of a full service restaurant.

And so this allowed restaurants to capture new consumer demand, has gone beyond millennials for delivery and pickup more towards a more wide array of demographics. And so we've been really well positioned to help. And as a consequence, we've done pretty well in the process. So our restaurant brands and our facilities are up 700% prior to pre-COVID. So they generated more volume and our revenue is up 200%. So, as a consequence, I think this has given us an opportunity, where we were built for the time, and I think you see certain others market segments that are the same.

So, we would fall in the bucket I think of thriving during this time, because our solution, is helpful to others that have had a harder time, so. - Thank you. Kim, I really respect your willingness to be on this panel because I think your story with your business is a little different than Michael's. Do you wanna tell us about Ezza? - Sure, yeah, happy to share. So we started, my co-founder and I started Ezza at Booth as part of the new venture challenge.

Waverly was actually one of our earliest and most helpful advisors. And we are a nail care experience for working professional women. So we are actually a brick and mortar, retail nail salon venture backed, and we had scaled from one to three locations between 2018 and 2020. And that all came to a screeching halt in March.

We started to see a drop off in traffic just in a couple of days before we closed because office buildings near us were starting to, the traffic in the office buildings were starting to disappear. Our customers 80% of them visited us from their workplaces. So we were, our genius real estate strategy, is that we were located really close to, very right downtown Chicago, of urban, professional, commercial real estate. And we were targeting women with a higher willingness to pay, and those women started working from home.

So we saw a real significant drop off in revenue. We actually closed before we were mandated to do so because we had somebody get sick with COVID like symptoms and had an absolute panic moment of, oh my god, what do we do? We better just close. I actually had to call my co-founder who was out on maternity leave.

We had had a conversation I think one day prior, where she was like, have you heard about this Coronavirus thing? And I was like, yes, yes, I've heard (laughs) it's gonna be bad, it's gonna be really bad. So yeah, we closed in March, we did not even have an online store at that point, we really quickly pivoted and started thinking about our inventory and selling kind of that through set up distribution centers in our locations, started doing at home gel removal kits for women who still had this kind of gel on their nails that they couldn't get off in a salon. And kind of grew that ecommerce business until we were gonna reopen.

We did reopen over the summer, when we were able to do so. We knew we were gonna be capped at 50% utilization. We also knew that was right around where our breakeven was in terms of profitability. And we found that, our customers were still not in the area. So we were at about 25% pre-COVID revenue. And that is just untenable.

So we had to make the difficult decision to close again, over the summer, which, yeah, one of the hardest things we've had to do. And we did continue with ecommerce, we still have the online store, but my co-founder and I had to have a really difficult conversation about like, are we gonna totally pivot to be an online nail care brand? Is that what we're passionate about? Is that why we started this business? Is that our superpowers as founders? And the answer is no. So we are really exploring options right now and thinking about what the best thing long-term is gonna be for all of our stakeholders. - Yeah, I think it's really important for entrepreneurs to understand not every pivot is gonna work. We're really lucky that we have Jill with us tonight, because Sif industries works with a lot of small businesses.

And so you've seen everything that's happened across the board, tell us what your last year has been like. - Yeah, thanks Waverly. COVID started for me about this time last year, when I had four customers that were like, hey, China is not coming back from Lunar New Year.

And so we were like, we don't, you know that whole great plan we made last fall, we don't have stuff, right. All the services businesses were cruising along but any businesses that had products and products that came from China, this started, it started now for us. And in my own business, I work exclusively with self-funded small business owners, mostly women, who are anywhere in size from about $150,000 in revenue all the way up to, my largest is about 15 million. So a pretty wide range, some as solo entrepreneur with services, others that have thriving ecommerce businesses, or even brick and mortar. So I am agnostic at this phase of business of who I work with and what they do, as long as they have some type of mission base to what they wanna do with their business.

So on my end, we started to see in probably in April, like when shutdown started, those product business had just gotten stuff in from China, we were just starting to be able to sell again and then everything closed. And the conversation that I had with everybody is, how long is this gonna be and I'm I okay? Because as you as Booth alums, you know how to make a cash flow, right? You understand, how much runway you have in the bank. My entrepreneurs sometimes don't. And that's some of the work that we do together is like helping them understand CEO level finance and operations because they're really good at sales and they're really good at finding customers, but a lot of them don't have business backgrounds. So just helping them figure out, hey, am I gonna be okay? Before they panicked and laid everybody off or started to, like, put everything on sale, that was a big first step. We just went into their financial plans and said, what if we put three months of zeros in here? What if we put five months of zeros in here? Like and those who were okay, took a step back and said, okay, we've got runway, like, what can we do to support our customers and be of service in this time, so that we can help them make it through, so when we can reopen, we're right there for them.

So I didn't have any that, very many of that had to do address pivot, there was one client that I had in film and television production that just basically has not been able to do anything this year, everyone else has found something or a continuation of their business. So what we focused on with a lot of these businesses in April and May was how do we be of service to these other people that we serve who are shut down? And one way we did that was, we did, and I personally did like hundreds of, how do you get federal stimulus, you qualify, you can get this, like this money is for you, right? Like, let's get you in there and get it. So we just really focused on helping them pivot, helping them find revenue sources, helping them get grants and funding. And that was basically for me, like April until July was just how do we get this money to the people who really need it the most, and make sure that they understand how to use it. But the interesting phenomenon out of that is most of them had never had any kind of outside capital, a few bank loans maybe, but just by freeing up, 20 to $50,000 in payroll that they didn't have to pay, it was the first time they'd ever had some kind of infusion of extra working capital.

And that really powered those companies that were in good financial position to accelerate their growth in the second half of the year, right, they kept their customer relationship strong, and they were ready to go. So at the end of the year when we added it up, all but one of my clients beat their original 2020 goals. And that was that, that one business that wasn't allowed to reopen, but everybody else like they kind of realized like, hey, we could be using money in a smarter way. And I think that was like my big takeaway for like small business owners of, they're often afraid of debt or any kind of loan, and then they saw what it would do for them to actually borrow some money and push for growth. - Yeah, also, since you brought up the challenge of the supply chain shutting down from China.

And since all of you deal with supply issues and supply chain issues, I'll start with one of the questions from our audience, which is, what kinds of pivots happened around supply chain in the real world? How did people make up for the complete shutdown of China for a while? Jill, do you wanna go first? - Sure. On my end for anybody who was in apparel, it was actually pretty interesting to see them rediscover Los Angeles and North Carolina as local possibilities for supply chain, I saw a lot more people explore sustainable options with that. So figuring out by the time they had a delay, or had to pay the extra shipping charges, which started to come into play like June, July, August, and the extra time to get things off the dock. You know, it made American manufacturing a lot more palatable, or Central America. So supply chains that just, they hadn't looked at in a while, it just let them kind of pick up and say, okay, we have another resource here, like we could still do this. And so in some cases, it actually strengthened what they were doing by saying, like, yeah, we have a great relationship with our Chinese supplier, but we should have some diversity here, in who we work with.

So I saw that for the most part, the shipping delays, that kind of started this summer and the extra shipping costs, we just can't do anything about, we kind of round robin and tried a lot of different providers, and it is what it is. So we had to take a little extra working capital and get extra inventory because our delivery times are just longer and it's more expensive. - Kim, Michael, did you guys see any shake up in your supply chain? Because both of you work in industries that are supply dependent, and a lot of that does come from overseas? - Yeah, a couple points here one probably less obvious and the other more obvious. On the overseas part of it, we work with large and small restaurants.

So you know we have from the chick-fil-As and the Portillo's and the White Castles, the Wendy's all the way to the local independent operators like the Rick Bayless and the Cantor's delis of the world. And as we were expanding, over the last nine months, we were opening new kitchen centers and they were, the supply chain on equipment was stymied, it was tricky in a lot of areas. And so particularly, for some of our larger members that have a mature supply chain and they get, they walk from the same spot or etc. And so we had to, help innovate and looking to, existing restaurants that had closed down on either used equipment or looking to other domestic providers that we could lean on, and it turned out, because of the dynamic in the industry, it turned out not to be a problem. But there were extensive delays from China as a consequence of that.

The second part, which is probably more obvious, and that's the food supply chain, as we all had kind of read about and heard about. Interestingly enough why, grocery stores were, had plenty of empty shelves, restaurant depot and the restaurant supply chain didn't, it was robust. And a lot of it was because many of the restaurants were closed down. And so there was no supply chain issues, if anything it helped provide some tailwinds to the restaurants, you know in the first, I painted a real nice picture in the beginning, but the first couple months of the pandemic was actually quite tough because everyone was running to the grocery stores and weren't sure if, what about my driver, can my driver give me COVID? You know, that's delivering the food, is the preparation safe in the kitchen centers, (muffled speaking) there was a lot of uncertainty.

And then eventually, everyone realized that that probably is not the way that it works. At least not likely to what we know and then business picked back up, but it was, interesting, during those times, there was actually overflow of supply coming into restaurants, it was the opposite, where the broad lines were back up with supply and you had spoilage at the same time that you had a lot of the supply chain, to the grocery stores where there wasn't enough. So a dynamic for sure, not one that necessarily impacted us in a negative way, but an interesting one that I'm sure someone at the school will write about someday on supply chain issues, somebody very smart. - Yeah, it never occurred to me that there would be sort of excess in the restaurant supply chain, because their end customers were not functioning. Yeah.

- We did not. We didn't really experience this that acutely. PPE in the beginning, it became clear before kind of, before the peak, that it was gonna be a problem just because prices started going up.

But we didn't experience it in the same way. - Kim and Michael, you're also dealing with venture backed businesses, right? So how did things shift with your investors? And obviously, when there was a lot of uncertainty about making our milestones, making our numbers, how did those conversations go at the board level? - I can start there, I guess. I would say on a whole, very supportive. We had, I think people really showed their true colors, and we are lucky enough to have some really incredible folks on our cap table. So everything from one of our, he's a Booth alum actually, Jim Dugan from OCA volunteered to call landlords, he immediately wanted to know kind of where we were at in lease negotiations.

And we had one lease landlord in particular, who gave us really favorable terms right off the bat. And he asked for his contact information so he could reach out to him and thank him directly on our behalf, which was like really nice (laughs) and unexpected. So there, we did have one pretty sizable investor who has just kind of gone quiet. We just haven't heard from them which seems strange, but I guess they trust that we're managing it to the best of our ability.

So. - You know, ours is an interesting experience, and overall very, very positive. And we've been blessed to have a great group of investors from Google Ventures to Fidelity, large real estate funds on the east and west coast, like ARCs Realty in New York City and DivcoWest from the west coast. And then an interesting spattering of food strategics, like Rich's Food Products, which is one of the largest $4 billion food distribution company.

And so, a lot of interesting insights is there was turmoil in the real estate industry to be able to rely on folks that have huge real estate positions in both urban and suburban areas to understand how that will affect our business and what opportunities potentially could be. Same as on, obviously the food supply issues that we already talked about and how that could potentially impact our business, and then continuing to lean into, how we further tech enable our business to make it more efficient as throughput continued to pick up. For example, in Chicago, our throughput went up, principally because Chick-Fil-A closed their area stores in downtown and routed it all through our center, which has stayed open every day since the beginning. And you saw throughput go up eight x overnight.

And so how do you handle that type of volume coming through the facility. And so, very smart people that are helping kind of solve those overall issues. So, you know, I think a lot of people think about whether it's private equity or venture that it's a check, and you get checked in on quarterly. In a lot of cases, that's true, I've been a part of a lot of venture backed companies over the years.

But in this case, you found a lot of people leaning in and figuring out how they can be strategic partners to help with their areas of expertise. And that has added considerable benefit. You know, on the flip side, it's also a layer of extra scrutiny and that the business is doing well.

So everyone wants to look at the portfolio company that should have tailings in the market, your delivery and pickup business, in cities and states that you can only do delivery and pickup, naturally, your business should do incredibly well. They're fortunate, they've done pretty well this time, but everyone wants to know what's going on. So that idea of checking in quarterly is turned to checking in monthly, not because you're in a distressed situation, but because they're excited to see what's happening. So, all of those have been kind of interesting dynamics, and shifts in the business.

But overall, I would say people have been very helpful, wanna lean in and, be part of kind of the larger community. And we've seen that in our company too. - For all of the panelists, a critical aspect of entrepreneurship, a critical aspect of building a business is networking. And the way we network has changed radically. How have you been able to use your network during this process? And what do you think are some best practices for networking in a COVID, and even a post COVID world? - Well, I've been remote 100% for four years already. So with that, I started my business when I was seven months pregnant.

So I couldn't go to anything for quite a while between LA traffic and daycare pickup, I just couldn't go to anything in person. So the pandemic has actually made networking a lot easier for me, because, you had to physically go to stuff, right. So I've done a lot on LinkedIn over time. And in particular, right now, LinkedIn has been great for business to business relationships, I find that people are really engaging and offering like, high quality conversation.

So if you have any kind of LinkedIn strategy or you don't, LinkedIn is really, really good, I get a lot of leads from LinkedIn. And then on the flip, being able to participate in events like this, I think, even when we go back, I was just talking to a client today, like even when we go back to the regular world, or you can go in-person, like, we still need to give people for inclusion an opportunity to not have to physically be there, right? We're gonna have to do this for a while. But I think with my network in general, that everyone just has a mindset of like, how can we be of service, right? They wanna be of service to their community in the way they run their business. And so, I just see them step up and say, like, how can I help? Like, what can I do? Can I provide some information? Can I talk to a client, can I like, just tell me what I can do.

And they've been great about taking those calls, and kind of, really, unfortunately, we've all like dropped our boundaries of like, what our business hours are (laughs). So we just kind of are doing everything when we need to do it for other people. - I would say that, it's been interesting, because a lot of networking that I guess I've done in the past is going to whether the restaurant conferences or their banking conferences, whether it's in New York, or here on the west coast. And a great way to obviously meet people, and it's fun, to glad hand and do the dinners, and I miss all of those things, particularly someone that grew up in a restaurant family, and we call that touching the table. And you know you can't do that anymore. Which is challenging, but these virtual conferences, why I think we all rolled our eyes in the beginning, it's incredibly efficient, you're able to participate in a lot of different ways, they set up, potential investor calls or customer calls, and you're going through one after another every 20 minutes (muffled speaking) like I would have never had, unencumbered, not in some lobby, with all the distractions in the background, to engage with someone virtually now, is it as meaningful as spending time face to face? Probably not, but it's definitely efficient.

So I think there's still ways to have, make the most of it. And I've, found it to be interesting that way, a good kind of learning experience, and they'll learn to use these platforms, a little bit better than maybe what we did in the past, but I think we're all probably anxious to have that face to face human interaction again. And I guess speaking of that, it has been, the majority of our employees don't work from home, right? The majority of our employees are frontline, our team members are on the front lines every day. And so, we lead by example, and so we're spending more time not necessarily in the house and settings like this, but when it comes to networking and so forth, this is kind of the way that it is. - So, I have actually relocated to the west coast from Chicago during COVID. My partner is here, I was doing kind of long distance flying back and forth constantly, and that wasn't gonna work during COVID times.

So I am building my network of entrepreneurs here in San Francisco. And it is, I really am enjoying the one on one nature of kind of meeting someone and connecting directly. I echo kind of the efficiency of it.

I do find that at the end of each conversation, especially if we're like, really vibing like, you're somebody who I could be friends with, we should hang out, it gets to the point of like, so when and how can we hang out? Could we go for a hike? Because it does, yeah, like scheduling the next Zoom hangout feels kinda leaves you feeling a little. But yeah, I am weirdly enjoying it. - So I just wanna encourage the audience to keep asking questions. It's really important that the panelists are addressing the things that interest you all the most.

So keep the questions coming. One of the questions that we got was, and I think this will probably be for Jill, are you seeing any, advantages for small businesses, particularly in health care? Because I know you work across a variety of industries. At this time, is it a good time for small businesses in some sectors? - Oh, yeah, absolutely. Yeah, like I said, almost all my clients made or beat their goal from pre-pandemic.

So, I think they've been able to be nimble. If you kind of know your business, you know where the gaps are and larger companies have so much on their plate right now, the advantage of having fewer employees is, you don't have to figure this out as much, right? We're not constantly hiring, we're not onboarding people, right? You have a few people, maybe you've added one more, you're used to working virtually. And so some of that drop off that I've seen, with people figuring out, like how do we not be in an office, a lot of my small businesses didn't have that, because they needed flexibility. Anyway, a lot of them didn't have offices, they maybe had co- working spaces where they met up from time to time.

So from that respect, like they kind of got a head start of knowing how to use the technology and how to establish relationships with people. On the healthcare front, I would say, there was just, a ton of pivoting into making hand sanitizer and masks (laughs) at first, right? Like just everybody, everyone in my neighborhood like there was half a dozen people sewing masks, and like in their living rooms. So that was like a big demand moment at first. I think the thing now that we're seeing more is, there are more opportunities, because we're moving into a more science-based administration. And what I'm seeing people do now is make bets on the next four years of where do they think healthcare is gonna go? Because again, large companies right now are solving for big problems in big spaces. And there's a lot of white space there that needs to be filled.

There's a lot of grant money, there's a lot of research money, there's the R&D tax credit. So if you can figure out something to do in healthcare, there's a good chance that you will have a good space of runway before a big company gets interested and gets into your space. - Michael, we have a question for you on particularly the concept of ghost kitchens, and whether you see a future for food brands, restaurant brands, without sort of a brick and mortar location that are going purely through the delivery market that is being so expanded by COVID. - Sorry, I muted myself. That's a really good question.

And it piggybacks, it dovetails a little bit with the last question on, like I think most innovation that we know of comes because you have to figure something out, not necessarily because you do it because you wanna figure something out. I think it comes both ways. But a lot of it is when you have your back to the wall and you kind of have to lean in and figure out a situation, we've heard a lot about that already. In our restaurants, or in our facilities, it's been amazing, restaurants that would never have considered operating out of 300 square feet, are now doing a million, 2 million, 3 million, 4 million, $7 million of volume out of an area they would have said, I can't operate out of that, that makes absolutely no sense to be in an area that's that small.

Or I can do all of that with two people? As opposed to this, full front of house and back of house and all these different things. And so it's innovation and it's trying new things and giving things a try that maybe they would have been otherwise adverse to particularly larger bureaucratic organizations. I think the same is how folks are innovating on cuisine types. You see this on the delivery platforms, for sure it's like, well, do you have to have a brick and mortar in order to serve food? And can the consumer tell the difference between one and another? You know, our commitment from the beginning. And so I may be the wrong person to ask this question to shockingly, but our commitment from the beginning is helping existing restaurant brands expand and grow into new trade areas. And that's where I think we've been the biggest tools that we're trying to help existing, whether entrepreneurs or established brands or mid market brands looking to expand, to have a way to enter a new trade area without maybe spending, a million and a half on a brand new facility or having this full labor force, that you have to spend 30% of revenue on instead, it's like, well, maybe it's only 15% of revenue that I have to spend with labor and maybe I don't have to spend any money to get up and going.

And I can actually run a better business and do similar volume in ways that I've never thought of. Now I have seen really interesting things powdered, but they're mostly from existing brands. So there's a mid market brand, fast expanding brand in Southern California called Doghouse they have about 40 units, they actually have a couple in the Chicago land area too. They decided that, well, I have this menu and I've always had a great chicken sandwich, and I've always had a great burrito, but my name is Doghouse, so if someone's looking for me on one of the delivery apps, they're never gonna find my chicken sandwich or my breakfast burrito. So instead, I'm gonna come up with a chicken concept, and I'm gonna have four sandwiches and some chicken fingers and call it something different, that has to do with chicken.

And then I'm gonna have a breakfast burrito kind of stuff and I'm gonna call that something that has to do with burritos, and have four or five versions of that. It turns out, they didn't change the ingredients stack, they didn't have to change the supply chain, there's very little culinary innovation, although some meaningful stuff tastes great. But they were able to really increase buying 25%, same as store growth, simply by just rethinking their marketing, and their kind of underlying operation.

And so I do think things like that will continue to work in ghost kitchens where you can be more innovative, because you don't have a lot of those fixed cost structures that prevent you from kind of thinking outside the box. On kind of coming up with your own kind of concept, and it's very hard, right? So, in the US brands matter, they do, I think we, you've probably learned that, in several of our classes and so forth at Booth and since then. But overseas, it's different, brands tend to matter less in food, but here they really do matter.

And so you still are gonna have to lean into marketing and figuring out how to position yourself in the market and how to get found in the marketplaces and so forth. And it can be relatively challenging, so. - To Kim and Michael. You know, Kim, your customers had gone home, they were out in the suburbs. And you've said that the nail salons in the suburbs are thriving.

And Michael, you've dealt with restaurants that have reopened. How are businesses overcoming consumer fear about COVID so that people feel comfortable going into businesses again, how are you seeing businesses overcome that fear? - I mean we were really thoughtful about this, before reopening over the summer. We were looking at just strong examples, other states reopened before Illinois so we were looking at strong examples in Georgia and other states. And I think the biggest thing for us honestly is we already had the trust of our customer base that was important for us, right? We were a super clean, hygienic high end option. So they, cleanliness was not a concern, our technicians wear gloves and masks already. We advertise very clearly the extra precautions we are going to be taking.

And I think also in terms of our customer base, I think we benefit, you're not gonna try and I don't think that many people are trying a new nail place in the middle of the pandemic. If you're gonna get your nails done, you're probably gonna do it with the clean, safe place that you've been to before. So we had those things working for us. I mean, for personal services though, there's just, I think there are only so many people who are going to get comfortable with masking up. Even with plexiglass shield, and two people in the store, there're just are only so many people, regardless of where that nail salon is who are gonna get comfortable.

There are some suburban nail salons that have done a great job I think, of really prioritizing safety making that like very clear to their customers, and they are doing great because they're, if you're a woman who lives in the suburbs, and used to work in the city and you really want your nails done, you're going to a place near your home, you're probably not commuting 40 minutes in the city, even if you really, really loved Ezza, unfortunately for us. - And Michael, how do we get people to wanna go back to restaurants? - Clearly, like us, you have to take the strictest, cleanliness standards, a lot of what Kimberly was talking about, and going four steps further than what is probably even a reasonable standard. And we've been able to do in our facilities, and we haven't closed one a day because we manage that standardization efforts and so forth in our facilities and take all the proper steps, obviously, distancing, masks, hand washing and sanitization, etc. Restaurants, it's very, trade area is specific in this country, right? There are certain areas where I think many have gotten past a lot of those early fears.

And then I think others, we are a long ways away from that. Particularly I think the difference between we have centers in Arizona, Texas, Illinois and Chicago, and they all have very, very different underlying culture. And so I think it's challenging, the vaccine is obviously very encouraging.

I think in a lot of these trade areas, it's going to take wider adoption of the vaccine in order to get us there for restaurants. But look, there's signs of hope, particularly with outdoor dining. And I don't wanna overly emphasize this to our friends that are in Chicago, or in New York City that don't have, all year round outdoor dining, but outdoor dining, when it opened back up was robust, particularly in Orange County, I think both of you guys are in Orange County, it's like nothing changed, it all went back very quick. So I guess I said the beginning part with a little bit of a grain of salt. But I do think once things open back up, and our governments tell us that, it's safe to do certain activities, a lot of people do in fact do that.

And I think with the vaccine, things will change materially, and I would anticipate people getting back into dining rooms soon. I do see the comment that, there's outdoor dining here around in New York City as well. So I take that back, I guess, but a little bit warmer outdoor dining here. But. - We're a little hardier,

up here in the north east. (Michael laughs) Michael one of the audience members wants to know what you think the impact is on fine dining, higher end establishments. And, have you seen any of the Charlie Trotter's or those folks be able to pivot successfully so far? - Yeah, if you look at the trends, worldwide, in particular and even in our country, the interesting thing about delivery adoption for us is that we have lagged the rest of the world materially, we've sat somewhere in the vicinity of seven to 10 delivery, 7% to 10% delivery penetration in the US, the rest of the world, particularly parts of Asia, Europe, Middle East, have all sat at this 50% delivery penetration mark for a while.

And there's a lot of reasons for that. But as we saw the trends changing in retail over the last decade, restaurants were still behind that in the United States. And what we saw was jarring, certainly over the last nine months, but not entirely unexpected as a trajectory, the cargo of delivery was on a 20% cargo leading up to this. And so point is, many were already adapting. They had to adapt faster, but what we saw is probably a 10 year acceleration to adoption that we, were not necessarily anticipating to happen this fast.

But this delivery penetration of where we sit now at about 50% is what, Morgan Stanley projected was gonna happen by 2030. So I think this was an accelerant. Now, what market segments does that come from? Well, the ones that thrive during this, QSR, fast, casual, etc. Do I think that in store dining goes back to where it was for those segments? Maybe not, I think we've all gotten used to the convenience of that and I don't think, we're gonna come off of that 50% mark materially.

I do think the exception to that rule is, to the question, which is fine dining, I do think people long for that culture, that human interaction it is really the fabric of our culture and how we engage, how we sell, etc, is all face to face and a lot of it happens at a table where we break our bread. And so I think that's where you'll see the biggest rush back to dining rooms is in either that what we call kind of craft casual, or fine dining experiences. So I think there's big growth for them coming up. And I know they've been impacted really hard through this time.

Now you do look at folks that are super innovative, like Alinea in Chicago, use these takeout packages and all types of fun things and sugar fish in the Los Angeles area, and their unique packaging, and really trying to preserve food quality, and everyone's gotten way better at that, in packaging and understanding how we prepare items and which items travel better and paring down menus to the stuff that really makes a difference. So a lot of people have been able to, survive through this because they've innovated but I believe a lot of their future business will be because we go back to dining rooms, but a lot of the other parts of the market will probably stay where they're at. Would be my guess. - So let's talk less about industries now and sort of more about the tech stack that people have had to adopt in this new world. We're all aficionados of Zoom at this point, certainly at the University of Chicago, we're quite addicted to Zoom, I was called into a Microsoft Teams meeting the other day, and I was like, I don't, where am I? How do I change to see everybody instead of myself? - Just reminding you that that was with us.

- Yeah, I know, I know. I wasn't gonna say that, Michael Vermillion, I wasn't gonna say that. But, we've all gotten used to Zoom, but what have your small businesses done digitally, particularly around things like sales and marketing? What new tech has come into play? And do you see that continuing after COVID? Jill, do you wanna take that one? - I was on your seed con panel yesterday actually, where you talked to Zoom and Loom and the third one didn't rhyme, so I didn't remember the name. (Waverly laughs)

But Loom is actually a technology I have used a ton because you can copy your screen, you can copy someone else's screen, you can make little videos. So for sales for customer service, it's actually become for me a really easy way to have a one on one interaction but asymmetrically, so that I can solve a problem for somebody on my own time, and they actually get a clear set of instructions on how to do something, or how to solve a problem. So I think that's one that I didn't use as much before, I would just say like, hey, can I call you, but with disruptions with, homeschooling everything else, like it's just, it's really hard to just have those two minute calls.

So that's what I've come to rely on a lot. And the great thing is the videos get saved, so sometimes you can reuse them or put them on your website, and it saves you some time down the road. So I think that's a big one for me. I'm basically using what I did before. But I'm happy to, like there're a lot more people using more of these remote technologies, because I used to have to start the first 10 minutes of every call explaining how to get onto stuff.

And by April, we didn't have to do that anymore. So it gave a ton of time back with everybody kind of having a basic understanding of screen sharing and joining a call. - Having been remote for so long, have you had to help your clients learn how to be remote? Have you had to help them develop tech stacks around dealing with their customers remotely and things like that? - Yeah, when I first started out, I had been a COO at a venture backed tech company. And so we were doing a lot with remote video. And so when I moved into working with more companies as a fractional COO, there was a lot of work there on tech that would give them scale.

So that's definitely a place I think with, especially with small business owners, everything from automating invoicing and billing, and just getting them digital, more so than remote, that's a big step. And then things like, learning to use Amazon Web Services, right? I mean, it's not in their mind of like a big company offer something for a small company. So figuring out like, where are those opportunities to work with, a Microsoft, with an AWS, other things that will actually really help them out and give them a lot of tools, but it's not where they look first. - Michael I see you nodding your head, have you had to help digitize some of your clients? - I guess, we operate the intersection of kind of food technology and real estate. And I think the hardest part for us is that real estate is, you have to kind of touch it, see it, even yourself.

And, how do we kind of replicate that experience when it's not practical for a real estate team to fly from Los Angeles to New York, or Miami, or wherever the new site is, and vice versa for our customers wanting to see, well, this seems like a tiny space, how do I make this work? And how does the layout work? And how do I tour it? But we don't really want other people in our backup house, quite frankly, part of our sanitization efforts is no one goes back there, we moved to a lot of cameras, we don't have GMs as much back there particularly for our restaurant brands to limit the number of people in around food. And, so that's become tricky. So we've relied heavily on virtual software, and a lot of the real estate industry has as well, and being able to give, more meaningful virtual tours that have been much appreciated more than just the simple like iPhone video tour, but ways that, allow to really experience it as if you were there, and we think that's been pretty neat technology, and we experienced it with a brokerage, and then we kind of replicated ourself in our centers.

So I think that's been one of the, other than Zoom of course. So, yeah. - Kim, you launched a new consumer brand, in the world pre-COVID, where you could go out and actually do pop ups and meet people and test the product.

Do you have any advice for entrepreneurs for starting something in the consumer product space, in this new world? How do you do customer discovery? How do you, do you have any advice for starting a consumer brand now? - Yeah, it's gonna be really hard. I was on a call with an entrepreneur in business school right now who's looking at starting a brick and mortar, similar concept to us not in the nail industry. And I was really, I was telling her kind of all of our best practices, and I was like, oh, that's not gonna work. That's not gonna work (laughs). I mean, real estate strategy, obviously is fundamental, so we were kind of just talking about how to get really specific for us, tabling at residential and professional buildings nearby, and getting people in the door was the most critical thing. I don't know exactly what that looks like post-pandemic.

- I think about food products. We had the University of Chicago brand Quevos on "Shark Tank", sampling in grocery stores. What does that look like in the future, you know? - Yeah, I mean, that is a great question. This woman I was talking to is talking about doing like a makeup start up, it's like Ezza but for makeup. And I was like, so many (muffled speaking) first of all, she's launching a pop up this summer, and I was like, where are these women going with their makeup done? (laughs) We (laughs). - To Zoom (laughs).

- It's a potential problem. Also, like just like proximity of somebody without plexiglass and that level of personal services. I think there are some real questions, and honestly, some tough, there are gonna be some tough realizations, I think. Just around like, what businesses are gonna thrive or not post-COVID. We are facing a difficult kind of reality around what is the commercial real estate market gonna look like? In right downtown Chicago, we have three locations, clustered within a half mile of the Gleacher Center, which is behind you (laughs). And, half of our members at our loop location, were from the Facebook office on Wacker and Facebook non-renewed their lease.

So I think, Michael mentioned that the chick-fil-As downtown Chicago are all closed, they're all closed. So I think there is gonna be, I don't know what its gonna look like, but in terms of brick and mortar businesses, there's gonna be a real shift in terms of real estate strategy. And I wish I had more answers. I have more questions than answers.

- You've all worked in industries that have non-traditional not nine to five, not everybody come to the office and you've worked in industries that have a different structure of work and one of the questions from our audience is, everybody has to had to shift to this smart working, flexible, I'm gonna work mornings while my husband takes care of the kids, I'm gonna work evenings, how does that shift in working, how do you see that moving forward? And how do you build a strong culture with employees who are working from home? - I would say that communication becomes, is always critical to like any company culture, but even more so now, where you're not seeing each other every day, there's no water cooler conversation, there's no in-person connection, and that makes things certainly more challenging. And they get, you take for granted how much information is shared and how much collaboration occurs outside of meetings in organizations, when you are just at the water cooler, you are out to lunch, and there are things you take for granted on how information free flows throughout an organization, so everyone can operate more cohesively. Towards the beginning, and for the first six months of these work from home, or more work from home style environment. You know, we had all hands meetings weekly, across team members at the centers, as well as corporate employees that, were working in different parts of the country or in some cases working from their house, to try to enhance more communication and all, seeing each other as humans all the time, because it's easy to just to get into emails and phone calls, and so the importance is that, not only are we congregating on all hands meetings, we're also doing it socially.

And it is, I know, we've all done these, in some cases, painful, social gatherings, but they shockingly are important, those, whether it's, cocktail hour remotely, or whatever it may actually be as cheesy as it is, and painful as it's probably come to be after 12 months of doing it, it's important to all see each other as humans, and so we try to keep, eliminate as much as we can phone calls and pushing them on to Zooms, having all hands meetings more frequently to the extent that it's safe, having more corporate members in and out of our stores, to engage in more meaningful ways with our team members, etc. But it's tricky, I think it's probably the hardest thing of the last year, at least in my opinion. - So I'm gonna end the, give the last question to each one of you. What's one thing that you learned and applied because of COVID-19, that you think is a best practice that you'll take forward, even once the vaccines have gone through, and we're not worried about pandemic anymore? Jill, do you wanna start for us? - Sure, I'll give it a try.

I think for me, there is an element as being like a small business CEO of professional loneliness. A friend of mine coined the term, I'm professionally lonely, where you're already somewhat isolated as a CEO, but you don't have colleagues or your colleagues are remote. And one thing that I'll take away from this, that I'll keep doing is, having time for me with other peer executives, and then also with the people that I work with, where we're not talking about work.

You know, I created a Slack channel on my company with all my clients, where like, they can drop in and just be like, hey, I had a baby, or we made a great sale, right? Because they're not getting that cheering on from other places. And I think, as small business owners, we need each other, like, we need that community. Because we're not always getting that at work. So I think in that aspect, the overcoming of (laughs) and you know, we've been really isolated in LA with strict lockdown. This is like, the second day, we haven't been in lockdown, in like nine weeks, right? I haven't been to the grocery store, I haven't been to a playground, right? It's just my family. So, it's become to actually have, healthy outside relationships, my professional network has become my friends, like, and I would love to see that continue that we don't just go back to having business conversations.

- Great, Kim. - So, part of what makes Ezza really special is how serious we are about our employee culture and retention, we really value our team, especially our nail specialists. And we had to make some really hard decisions (chuckles) at multiple points over the course of this year. And I think, bringing our team in on those conversations, when and how are we gonna reopen these locations once we were able to do so over the summer. Half of our employees were scared to come back to work, and were not interested. Some of them had previously, works kind of in the gig economy and maybe didn't file their taxes in the perfect way, and so were not eligible for benefits and were struggling, they were dying.

And so creating a forum to hear from them, I think we did a lot more listening. And I learned a lot as a leader about how, yeah, how to get input on those really difficult discussions at all levels of the organization. - That's great.

Michael. - You know I grew up in a law firm environment as my, kind of first part of my career in a very large law firm. And, my day started, at some point, it had to be before my boss arrived, and my day ended at some point after my boss left, right? And those were kind of your working hours. And I think, and so I grew up in the climate that, and of the theory that, if you're not at the office working, you're not working, work from home and not work. And it was like, okay, that person needs a day off, that's why they're saying they're working from home.

I think it proved to be radically incorrect. I think there is, in some cases efficiencies, particularly in major metropolitan areas for certain folks that are traveling an hour and a half to work each day and can be far more efficient with their time for those that have desk jobs. And just the way that you kind of structure your day. And so I've become a lot more open to alternative work arrangements for some. And so I think that's something in some cases that I would carry forward. So I found that to be kind of an interesting byproduct of this whole thing.

So, for what it's worth. - Great. Well, really appreciate all of your thoughts and insights on this really tough time for small businesses. And I'll turn it back to Michael.

- Wow, that was amazing. Waverly, great job moderating, and Jill and Kimberly, Michael, thank you so much for taking the time and for sharing your stories. That was really, I think, impactful and very useful for everybody who attended.

So we also wanna thank everybody who attended the webinar tonight, the Chicago Booth alumni, also the LA MBA organization, and the alumni from the other business schools that we have here in Los Angeles. We had hundreds of people actually sign up for the event tonight, and we really appreciate that support. So just one more ad for our February event, February 24th, it will be at the same time, and the topic will be COVID and the impact on innovation.

And we'll have another great set of panelists and moderators. So we'll see you then. - Michael you'll really enjoy Lindsey Lyman. - [Michael] Yeah.

- She actually created the innovation practice at McKinsey in Chicago when she was at McKinsey. So she's got some very strong opinions about innovation and whether or not in-person collaboration is critical to that. So it should be a good discussion. - We're really looking forward to it. So we have Lindsey, we have somebody from the innovation strategy team of Salesforce, who's gonna be on the panel and some other really cool panelists. It's gonna be a great discussion.

So thanks again, everybody and have a good evening. And for those of us in Southern California, stay dry, it's raining at my house right now, but we're cheering that on as well. So, thank you for joining.

Thanks, LeeAnn. - Thanks, all. - [Lady] Thanks, everybody.

2021-02-14 05:38

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