This is the continuation of my previous post, “How COVID-19 forced us to follow our dreams.”
At kreait, we always used to have a financial buffer that would allow us to survive at least six months without projects. After a more than just bumpy year, this buffer was gone at the start of the global crisis in early 2020. And with a steadily decreasing account balance and no new projects in sight, we were facing impending insolvency.
I had been mostly on my own in 2019 with the support of my team and a few outstanding lawyers. Still, through my experiences and training in critical situations in 2019, I was better prepared and knew what to do; now that it was clear that our problems would not resolve themselves.
Cash Management
Cash was everything. We started to bootstrap our company again and we knew it would take longer than when we started in 2012. We immediately stopped all spending, talked to our landlords, banks, and other creditors. We tried to be as transparent as possible to our team and informed them what measures and actions we were going to take. We knew that this period would be challenging for everyone involved, so everyone should be as up-to-date as possible.
We use mostly cloud-based services; it wasn’t easy to be forced to terminate or reduce the non-essential ones — they did help us do our jobs better or removed pain points after all.
However, what really hurt was that we had to give up our beloved office in Berlin. In this place, we used to work together, come together, and laugh together. I am sure a few of you can imagine how hard this was, as you might have faced these hard decisions as well. But we needed to survive and prepare for the worst.
Before taking the next steps, we reduced our monthly costs by over 50%.
Additionally, we applied every possible instrument that the German government provided, from deferring tax payments to sending most of the team on short-time work, to which, thankfully, all agreed to.
Unfortunately, all these measures were not enough. Our liquidity would be gone by June, and once again, we had to look at the real possibility of needing to go into insolvency.
Orientation
The thought that we perhaps wouldn’t be able to sustain our business model as a small, highly specialised agency has accompanied me for a while now. We were just too small to land a project large enough to get us out of the jam.
Not willing to give up, I started talking to entrepreneurs in my inner and extended circles, such as EO Germany. One model that resonated (and still resonates) with me is called “Das Kollektiv”. It describes multiple small businesses with different strengths and shared principles, forming a more extensive “collective” and thus being able to pitch for larger projects. Being a firm believer in collaboration, combining strengths, balancing weaknesses, and collective intelligence, I rolled up my sleeves and got picked up my phone.
Still, with the ongoing pandemic, large projects were hard to come by in general. Clients were reluctant to spend money, and potential partners were very cautious as well while overthinking their own strategy.
Instruments of Kreditanstalt für Wiederaufbau (KfW)
In the mid of April, on behalf of the company, I applied for a new, powerful instrument the German government had just announced: a pandemic-relief-loan for businesses to give a firm the chance to survive until the end of the crisis and to prevent employees from losing their jobs.
The loan was granted a few days after the application, and thus our salaries were secure for the coming months.
Re-Orientation
Thanks to a recommendation, we got a small mandate for a meaningful, pandemic-related project, and the promise of a more significant follow-up project — which was postponed multiple times. This was the tipping point for me personally: I’ve had enough of being at someone’s mercy for better or worse, and I wanted to take matters into my own hands again; and as I learned from 1:1 talks with my colleagues, this feeling was mutual.
We were eager to start something new, something impactful, something that belonged to us, not to someone else. Something we are proud of.
There were three paths in front of us:
- Continue as an agency
- Immediately transform into product development
- Crossfade from the agency model to the product model
You can probably see where this is going: we didn’t believe in the agency model anymore, and although we were eager to start something new, we were not willing to immediately drop everything and let our current, active project partners down.
Just after having received the confirmation that our application for the KfW relief-loan had been approved, in June 2020, we finally decided to crossfade our company.
This process consisted of different, consecutive stages, the first of which I want to outline in my next article: finding a challenge.
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