There has been so much talk about the pandemic that another piece related to it is likely to draw out an “enough already” reaction. I get it. But there has never really been anything like this in our lifetime and the effects it presents have not affected all businesses equally.
To answer the question “What did the pandemic do to my business?”, let’s first travel back to the early 2000s.
2008-2009 economic crisis
The 2008-2009 economic crisis nearly killed my business. We had been in business for 8 years and had grown exponentially since our first year. Fogo specializes in making films of live concert events. Our work had won multiple awards, from Grammy to Emmy, but that did not really help when it came to how the economy works or how nature works. When we were starting out in 2000, DVDs had just started. They were a big deal because the record business was being decimated by piracy and revenues from record sales were being utterly destroyed. DVDs were the new profit centres. We were one of the first companies to see this and pulled off a few big moves and broke in big time, really quickly. Our revenues went from a few thousand our first year to a few million 18 months later. It started with live concert DVDs and was followed by Blu Rays and TV shows. Life was good.
In 2008, the economic crisis and asset-backed commercial paper crisis hit the USA harder than anywhere else. Fogo is based in NYC. This combined with the “high-speed internet” revolution and the 2008 Japanese tsunami created the perfect storm to kill my core business and I, nor other record companies, had any idea it was coming. The whole DVD and Blu Ray profit centre was about to instantly dry up.
2008 Japanese tsunami
What was the 2008 tsunami? No one was aware that the $400 high-end videotapes used to record and broadcast HD video were manufactured in only one plant. It was in Japan and it was right beside the nuclear plant that was damaged by the 2008 tsunami. The manufacturing of HDCamSR tapes was instantly halted. Everyone from NBC to BBC to CBC to much of Hollywood used these tapes and their machines. Each machine, used to play and record tapes, was around 150k and we used between 10 and 20 at a time for our productions. They were instantly relegated to “door-stop” duty. A whole planetary multi-billion-dollar industry was turned on its head. Suddenly there was going to be a complete transformation of how video was recorded and broadcasted, and it meant the use of hard drives. We all knew this was coming eventually, but the tsunami sped things up by around 10 years. The video formats that had lasted decades were forever changed. In addition, the advent of easily accessible high-speed internet right around that time led to the acceleration of pirating DVDs and Blu Rays, something that was unthinkable only a few years before. Our clients started calling to cancel bookings, sometimes last minute. This was difficult when we do only 6 productions a year and 3.5 productions are needed to break even with the current infrastructure in place. In an instant, the giant wave that destroyed a manufacturing plant combined with the high-speed internet that was rapidly enabling video piracy effectively killed the physical home video as a profit center. My whole life changed.
I can hear you saying “Gee, nice story but how does this relate to the current pandemic?”. Like most businesses, the pandemic has affected us. We specialize in upmarket filming of live concert events and at the moment there are not a lot of live concerts being filmed in an upmarket way. Sure, there are huge amounts of “Facebook live” events going on but those are not profit-driving activities and definitely not upmarket quality.
What the pandemic has done to my business is to reinforce the lessons I’ve learned during the last few crises. In a kind of a Fogo Business Farmers’ Almanac way, I have realized that one seems to only have between 7 to 10 years of relatively calm waters to function and grow a business before some really bad things happen that perturb the world. You could end up on the “good” side of it, like the grocery industry has in the pandemic, or the “bad” side of it, like the sit-down non-take out restaurants have. Last time I was on the bad side of it. This time I am as well, but I am built to wait out the storm.
If you look back in time, and especially since the 1970s, you will see that every 7 to 10 years there is a huge event or series of events that really perturb the business waters.
- 2020: COVID-19 pandemic
- 2008-2009: Mortgage and asset-backed commercial paper disaster
- 2001: September 11 and the internet bubble
- Early 90s: Savings and loans disaster
- 1981: High-interest rates disaster in Canada
- 1974: Inflation disaster, combined with the gas crisis
Each one of these had profound effects on people’s businesses and lives.
I profited from the internet bubble to launch Fogo and thought I would have blue skies for much longer than I did. I embarked on the world domination plan as soon as I realized Fogo was ahead of the curve on the live concert front. Then, as described earlier, our business was nearly killed. I had not paid attention to the empirical data of historical business disasters.
What transpired out of the near-death business experience in 2008 was that we completely changed the way we do business. We had only two choices:
- Pursue “world domination” and keep on the exponential growth trajectory
- Build a business that has less revenue but that keeps more profit and is self-reliant
We chose number 2.
Reorganizing Fogo after its near-death business experience
It was a complete shift in operations. It involved fewer capital expenditures, less payroll, less office space, but less revenues too. The shift also required better operation systems and processes and a different approach to sales and investment. The different approach to sales was really focusing on who we wanted to do business with instead of overexerting ourselves through the development of new markets and clients. We decided to grow what we had and empower our partners (our clients) to succeed in the new paradigm and ensure that we were Where Art Survives Technology®. The result became that Fogo became self-sufficient, meaning no loans and no investors. Our partners thrived. Our business has freedom.
The pandemic will destroy and has destroyed a lot of businesses. The ones that survive may not even be run by the best businesspeople as there is a measure of luck involved. In 2008, we were in the worst of positions because we had decided to make a huge push to grow the business without possibly knowing it was the absolute wrong time to grow and subsequently inherited those expensive door stoppers I spoke of earlier. The same is happening right now with the pandemic. Crises accelerate things, for instance the working from home and learning from home models. Some businesses decided to grow and started making moves without the benefit of knowing that this may not be the best time to spend on building new office space, for instance. They are in a bad position and I really feel for them.
Take Away Tips
So, what did the pandemic do to my business? It’s reinforced things I really believe in:
- Start a business that has a high barrier to entry. For Fogo, it is hard for others to enter our arena because of the nature of the upmarket clientele needed to operate a business like ours.
- Use differed gratification as a means of pre-empting disaster. Retained earnings are important. Don’t strip the company dry every year, especially if you want to borrow and/or attract investors.
- It is hard to avoid capital expenditures. If you need cap-ex, maximize the use of them quickly. In other words, make money quickly with the machines you buy. Fogo has developed systems, processes, and a network that enables us to function without future doorstoppers.
- Investors or loans or both? This depends on if you chose “world domination” as your goal or not. If you want world domination, then you need OPM (other people’s money). If you don’t want world domination, try and be self-reliant. In Fogo’s case, we went for world domination early on and it was a good decision as it allowed us to garner our reputation around the world and build a loyal worldwide pool of clients. We then retreated to self-reliance after the 2008 crisis and that decision is enabling us to let the pandemic storm pass by.
Business will always exist. In turmoil, there is always a lot of opportunities. We wish everyone well through these times. If you were thinking of starting a business right now, I would choose the area closely and actually go for it knowing you could have between 7 and 10 years to make it before the next disaster hits, as per the Fogo Business Farmers’ Almanac history discussed earlier. One thing is for sure, if you don’t do anything, nothing will happen. Go out there and be lucky. The world needs your creativity.
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