Anncr.:
As a bank that focuses on business, we work with business leaders all day, every day. We have a front-row seat to what's working, and what has potential. The First Business Bank Podcast is dedicated to sharing insights to help you work better, smarter, and faster to achieve your goals. Let's get into the show.

Mark Meloy:
Hello, I'm Mark Meloy, CEO of First Business Bank. I'd like to welcome you to another episode of the First Business Bank Podcast. Today we're covering First Business Bank's 2021 Economic Survey, and its results which focus on Dane County, Wisconsin.

Mark Meloy:
The economic survey has been underwritten by First Business Bank for more than 15 years. And the results this year are particularly relevant, with the obvious implications of COVID. But as always, the survey helps us answer the question our bankers most often get from other clients. And that is, "What are other business leaders saying?"

Mark Meloy:
Our conversation today includes business leaders from around the area who will offer their thoughts and reactions to the survey. I'm going to ask each participant to introduce themselves, and then we'll briefly describe the format of our discussion today. Tara, I'll start with you.

Tara Conger:
Hi, good morning. I'm Tara Conger, President of the QTI Group. We are a HR service firm. We specialize in staffing and recruiting, HR consulting, and HR outsourcing.

Mark Meloy:
Nate?

Nathan Herbst:
Good morning. Thanks for having me today. Mark, Jim, First Business Bank. Uh, my name is Nathan Herbst. I'm the CEO of Paradigm. We're a software company that does software for building materials, building construction. Uh, started in window and door industry.

Mark Meloy:
Okay. Thanks. Mike?

Mike Victorson:
Yes, I am Mike Victorson, CEO of M3 Insurance. We're a commercial insurance broker with seven offices around the state. We help with, uh, business insurance and employee benefits. Thanks for having me on.

Mark Meloy:
Thank you. Nancy?

Nancy Johnshoy:
I'm Nancy Johnshoy. I'm a vice president and market strategist for First Business Wealth Management.

Mark Meloy:
Thanks. And Jim?

Jim Hartlieb:
Jim Hartlieb, President of First Business Bank. I want to thank Nate, Tara, and Mike for joining us, uh, on such a busy day for them. So, I'll pass it back to you, Mark.

Mark Meloy:
Okay. Thanks, Jim. So Nancy's going to get us started by providing her summary comments about the combined survey results from across all our banking regions. And then she'll touch briefly on the Dane County area. And with that, we'll, uh, uh, roll into reactions from our guests today, too.

Mark Meloy:
So, Nancy, I want to get it started by asking you in terms of the overall results across our footprint, what were the general tone for the results for 2020?

Nancy Johnshoy:
Sure, Mark. Uh, obviously, businesses in all of our markets were very clearly impacted by the pandemic. In terms of overall results across the footprint, they were pretty mixed, with 36 percent actually doing better than they'd projected, uh, for this year. 21 percent about the same, and 43 percent did worse than they projected.

Mark Meloy:
Specifically in Dane County, um, what were some of the, um, outcomes for 2020?

Nancy Johnshoy:
Yeah. The takeaways from the Dane County report were that the challenges weighed particularly heavily in 2020. 56 percent of our respondents saw declines in sales versus their expectations. And 49 percent saw decreased profitability. Now, 31 percent saw increased sales and profitability versus what they had originally projected.

Nancy Johnshoy:
A little less than half, about 47 percent, kept their head counts about the same, and the balance was pretty evenly split between companies increasing and decreasing head count. And 42 percent reported that they increased wages in 2020.

Nancy Johnshoy:
But, not surprisingly, given the overall challenges, 47 percent said that their overall performance was below expectations. And that's a significantly higher number than the 27 percent that underperformed last year. 33 percent did better than anticipated, and that's slightly higher than the 29 percent that we saw last year.

Mark Meloy:
That's interesting. So we have both outperformers and underperformers-

Nancy Johnshoy:
Mm-hmm (affirmative).

Mark Meloy:
... rising from last year. What were some of the key takeaways that you see in the survey data?

Nancy Johnshoy:
Well, that; not at all unexpectedly; that the pandemic was the primary disruptor in 2020. And the primary cause that was cited by the majority; almost every company that underperformed; uh, cited the pandemic as the primary, uh, cause.

Nancy Johnshoy:
Companies had to deal with a lot during the pandemic, including, uh, workplace modifications for, uh, people to work from home. And social distancing, disrupted travel. Supply chain disruptions and, and temporary shutdowns or operating below capacity. So, it was a lot going on.

Nancy Johnshoy:
But it also created opportunity for some. And about a third of the companies that outperformed cited, uh, opportunities created by the pandemic as the reason for those better results.

Mark Meloy:
Good, thanks. You know, this survey, as we've always talked about, it is really two in one. It, it asks about the, uh, past year. But it also asks business leaders to project into next year. So, shifting to the projections for 2021, what was the tone of the outlook for our, uh, respondents?

Nancy Johnshoy:
Well, I'm going to step back and put that a little bit into the context of the time frame, uh, when these are filled out because of the environment at that time. So most of these surveys are completed between mid-September and the end of October. And during that time, if you recall, uh, COVID-19 infections are trending higher; not just here, but across, across the globe.

Nancy Johnshoy:
The election is in full swing, and there's really, there's no news yet of a possible vaccine. So things ... six out of 10 of the respondents said that they felt that the pandemic was going to be a disruption that continued all throughout 2021.

Nancy Johnshoy:
Despite that, 60 percent of our respondents actually expect a better overall performance in the upcoming year than in, uh, 2020. Only 12 percent are projecting weaker results. So, all things considered, the outlook for Dane County is pretty strong and optimistic in 2021.

Mark Meloy:
Good. Well, as you put it in context, economic data is very fluid and as we continue to recover from the effects of the pandemic, um, and the recent news about the possibility of vaccines. So what, what are you seeing in terms of impacting businesses in our area?

Nancy Johnshoy:
Sure. I mean, the environment should continue to improve in 2021. Um, the economy is rebounding, although the pace of that recovery will slow. Um, we, the big numbers, the very big comparison numbers, are probably behind us.

Nancy Johnshoy:
But we do continue to see strong results in areas like manufacturing, housing, consumer spending, and employment. Unemployment nationally has improved to 6.9 percent as of today, from a peak in April of about 14.7.

Nancy Johnshoy:
That said, Wisconsin's numbers are always lower. And although our statewide data lags a little bit, the, uh, September data indicates that, uh, Wisconsin unemployment's 5.4 percent. So, significantly tighter already than the national averages.

Mark Meloy:
Good. Thanks. Okay, now, I'm going to turn to our panelists. And, uh, ask for your reactions to the survey results as Nancy's outlined them. Uh, and Tara, I'll start with you.

Tara Conger:
To be honest, I would say, uh, after I read it, I was relieved by the results and the overall does show (laughs) you the brighter future than I think what, um, I thought might be given. Uh, uh, considering it was such a turbulent year, uh, for everyone.

Tara Conger:
But, I mean, COVID has really hit each business industry and sector differently, just as Nancy was alluding to. And some are small organizations, especially, those deemed non-essential, struggled. While, while others thrived due to demand, um, for their products or services.

Tara Conger:
So, we've seen pandemics winners, you know, winners, and, and losers, uh, throughout this. But, I, you know, I feel for the retail and arts and entertainment, hospitality and, and travel industries. Uh, because they've, they have seen a huge impact. And we have, we've felt that with some of our clients as well.

Tara Conger:
But the winners is, uh, are, are doing very strong. Food manufacturing. Um, online grocery delivery services. Um, manufacturers that pivoted to making PPE. We had quite a few of those that we work with. Um, but, um, we, we've seen pandemic, pandemic win- winners and losers.

Tara Conger:
But overall, I was, um, pleasantly surprised with the brighter outlook, given that most people took this survey in Sep- September and October, when there was still, um, a lot of uncertainty in the economy.

Mark Meloy:
Good. Nate, anything that comes to mind for you?

Nathan Herbst:
Yeah, I agree with, uh, a lot of what Tara just said. I, I think it was surprising to me to see, um, the amount of growth that was in there. Um, obviously, everybody lived through that period of time, but there was pretty much everything shut down for a short period of time. So, just shows that, uh, the companies that are interviewed are very resilient.

Nathan Herbst:
Um, and then there's others that, that Tara mentioned, in hospitality, restaurants, um, that, uh, I think are still obviously struggling heavily. But, um, it, it definitely made me feel more optimistic with, um, how well the companies have done.

Mark Meloy:
Good. Thanks. Mike, I want to ask you. You, you've been a participant in our panel discussion about our surveys numbers of times in the past. And how does this year strike you compared to some of the more recent ones?

Mike Victorson:
Wow. You know, comparing it to other times, I think it's ... it's definitely more spotty in terms of how people are performing. And it's a lot to what Tara started with, and Nate doubled down on. And it's a lot of what you're exposed to in terms of your business.

Mike Victorson:
We spent a lot of time, or across the state, in manufacturing sectors, healthcare sectors, construction sectors. Um, and, and those businesses are doing very well. Uh, some of them posting record years, uh, very quietly.

Mike Victorson:
Um, (laughs) because I think, uh, in many ways, if we've all been in the marketplace, one of the things we want to be sensitive to is, we could be standing right next to somebody who's just been ravaged by COVID. [crosstalk 00:10:57]

Mike Victorson:
And so, I think, uh, when I look at the results, I definitely saw what we're experiencing as a business. The COVID winners and losers based on the industries that you're exposed to. Um, and then comparing it to your question to, to prior years.

Mike Victorson:
Not surprised that, uh, we saw some jumps, uh, as was reported at the beginning of the program about people having, uh, down years in terms of revenue, profit. Uh, seeing bigger struggle because, you know, we're still exposed to those sectors that Tara opened with. And if you have exposure to that segment of the economy, it's tough in itself.

Mark Meloy:
Yeah. Jim, you're, you're close to a lot of bank clients. Your team, day in and day out, is talking to people. Um, what were your thoughts?

Jim Hartlieb:
Well, I think Mike used the word spotty, and, and as, you know, we've had these conversations with clients over the last six months; it's been spotty. I mean, like, people have said it depends how closely you're impacted by face-to-face consumer-type businesses which were h- most heavily, you know, hurt by the, by the pandemic.

Jim Hartlieb:
But the other thing that came through is just the optimism of the CEOs and leaders in our community. You know, comparing it to last year, we were pushing almost 80 percent. We're expecting higher revenues and profits. Now, this year, it's a little more, you know, muted, a- at 60-ish percent for 2021. But again, that's pre-election, that's pre-vaccine, that's pre-everything.

Jim Hartlieb:
So despite all that uncertainty, the optimism really came through for me, which is, which is great to see.

Mark Meloy:
Mm-hmm (affirmative). Yeah, great comment.

Mark Meloy:
Well, resilience is something we see in entrepreneurs and business leaders all the time. And, and, uh, challenges create changes. And so, what kind of trends are any of you noticing in your industry or with the clients that you work with? Um, Jim, I'll start, I'll start with you.

Jim Hartlieb:
Yeah, I think the ability; you used the word resilient and adapting to, um, we, we've had some that never produced any PPE in their entire careers. And now they're producing that, you know, as another revenue stream, and a way to give back to the community all in one.

Jim Hartlieb:
So, I don't know that there's a single thread. But I would say keeping an open mind to other business lines. Uh, one of the statistics that comes through, it seems like every year is diversifying their customer base. We definitely hear that from our clients. Uh, which could be new revenue streams, but it could be, uh, new clients as well. Which speaks to the business development efforts they're putting forth.

Mark Meloy:
Good. Comments from anybody else?

Nathan Herbst:
Uh, you know, I just want to add: One of the things that I've seen from our customers is just a, a big investment and a big change over to e-commerce happening, uh, during this time. I think that's never going to change back. Um, but a lot of businesses from groceries to wherever, uh, a lot of people found themselves ordering online.

Nathan Herbst:
And, um, the building construction industry has also noticed that and working on, um, more and more e-commerce initiatives. So, I, I think that's the, one of the big changes as well over this, uh, period of time.

Mark Meloy:
Mm-hmm (affirmative). Tara?

Tara Conger:
Yeah, I, I ... um, our business really has ... I'm thankful that our business has diversified, right? So we, like Mike, we work across many different industries. And in the services that, that we provide.

Tara Conger:
And we see our clients that have learned from the, you know, 2009 financial crisis, uh, and they've learned from that. They're adopting a strategy that [inaudible 00:14:35] that cost cutting to survive today. Um, but also trying to invest to grow in the future. So positioning themselves for after, for success after this recovery.

Tara Conger:
Um, what, what I would say is the global skill shortage that existed pre-pandemic has not disappeared, um, with the arrival of COVID. So, you know, shedding people now in hopes that you're going to replace them with employees better suited to the future may not be a viable strategy for a company.

Tara Conger:
Because there's a clear worker challenge, and that's, that's helping our staffing business, as companies are shy to maybe hire permanent full-time employees-

Mark Meloy:
Hm.

Tara Conger:
... right now, given the uncertainty.

Tara Conger:
Um, I don't think I've ever remembered this many job orders that we have, especially in our light manufacturing sector. We're getting calls daily where companies need 30 to 50 plus employees. Um, and, and, we can't ... I mean, I, I wish we had enough applicants to fill positions. Um, but people are scared to work. Workers that start, they get exposed potentially to COVID. There's shutdowns. They have to quarantine.

Tara Conger:
And then the unemployment benefits; um, you know, I think there's about 20 million people in the process of collecting some kind of state or federal unemployment aid. Um, so, you know, there are, there are people that are just maybe aren't, uh, that would typically work, that are, that are not working right now.

Tara Conger:
So, it's an interesting time and dynamic. So it, it, it brings about employee retention and how important it is. Um, you know, to treat your employees well during these times.

Mike Victorson:
Yeah. Mark, the only thing I'd add, and it's probably going to come up later in questions is, workforce, workforce, workforce. Digital, digital, digital.

Mark Meloy:
Yeah.


Mike Victorson:
And-

Mark Meloy:
Yeah.

Mike Victorson:
... those things are, you know, to double down on something that Nate said. And, um, I'm, I'm including e-commerce in that, Nate. And, um, I- I don't care what industry you're in. Workforce, workforce, workforce. Digital, digital, digital. And we're not going back.

Mark Meloy:
Yeah. You know, the one thing that seems to, um, crop up in conversations a lot is, is, uh, a higher focus on safety. And for the obvious reasons, right? That it just ... and Tara, to, to your comments, that some people are fearful of going to work. They're [inaudible 00:16:42] willing to work someplace that they are unfamiliar with. And all of the extra efforts that, um, employers are making in terms of, um, making the workspace and the work area, um, COVID-safe, so to speak.

Mark Meloy:
And I don't think any of that's going to go away, either, in terms of, of how employers have to attract and retain.

Mike Victorson:
As, as we all know, you know, things are, are spiking in the state. Public health orders are coming out. Check out this stat. And I think businesses are going to have to become more and more vigilant; not just about providing safety, you know, being pro-science. But they got to be pro-data.

Mark Meloy:
Mm-hmm (affirmative).

Mike Victorson:
If you exclude assisted living facilities, skilled nursing facilities, healthcare facilities, sports teams, schools, and daycares and churches. So basically, healthcare and where kids are connected to sports. Workplaces only make up three percent of the cases over the last two weeks. Three percent.

Mike Victorson:
And what we are finding across our industries that we serve; and I mean, we're in the risk management business. Uh, workplaces are not superspreaders. They haven't been. They aren't. And because of the work that's been happening across the state and in this region, I don't predict that they ever will be.

Mike Victorson:
And so, we have to be good, uh, public health stewards, I think, as businesses, to help provide a great environment for people to flourish. But we also have to pro-data. And we probably have to spend more time as businesses making sure we're connected to that data so we can tell a story to our workforces, so they can feel comfortable to the extent that we need them to. coming in to the office.

Mark Meloy:
Great point, Mike.

Tara Conger:
I- I w- I agree with that completely, um, Mike. And, and if you look at the flip side of it for the employees, we're seeing a growing concern for employee financial well-being, right? Employees are scared to work, but, and they maybe need to work, and they aren't working.

Tara Conger:
Um, e- 78 percent of U.S. workers are living paycheck to paycheck. And, and nearly three in four are, say that they're in debt. And more, and more than half think they will always be. And, and one in three workers, uh, use a budget. And more than half save 100 dollars or less a month. I mean, those statistics are super alarming.

Tara Conger:
Um, so we need to, we need to coach employers and employees and have a safe work environment for them, so that we can get people back to work. Um, again, and a vaccine will definitely help with that.

Mark Meloy:
Good. Thanks. Great comments, too.

Mark Meloy:
So, what other information surprised you from the survey? Is there anything that, that stuck out or, or, uh, that you didn't expect?

Jim Hartlieb:
I can jump in on that. Uh, you know, as we're meeting with clients, one of the questions I like to ask is, around your office space. When's the next time you think you'll have y- all of your employees back in the office? And most, a lot of them have said, never.

Jim Hartlieb:
But then you look at the data, and one of the, a couple of the questions are around, what was your biggest challenge in 2020? And what is your biggest strategy for 2021? And the lowest response was reducing office space. And they also talked about how getting out of a lease is not a concern for them.

Jim Hartlieb:
So there seems to be a mismatch of what I'm hearing, and then the data suggesting that they do intend to be back. And, and not to reduce office space. So that was something that kind of jumped out at me.

Tara Conger:
That is the one thing that I actually, um, stuck out to me as well. Um, only seven percent reduced, reducing their office spach, space, which really surprised me because we already have clients who, um, haven't renewed leases and are not going to renew leases.

Tara Conger:
85 percent of our outsourced HR clients work remote. And, um, and a whole bunch of them are going to y- not have office space and just go to 100 percent remote workforce. Um, so I, I thought that statistic was, um, was quite low. Compared to what we're hearing and seeing.

Nathan Herbst:
I think that's very interesting. You know, the, um, in the factory setting you've got PPE and different sorts of safety mechanisms people have to take in the office spaces. It's, it's work from home today. And major companies are announcing that until next year, you can work from home.

Nathan Herbst:
I, I personally think that genie is out of the bottle. I don't know if it's, I'm not saying it's good or bad, the work from home effort. Um, but I think that's an interesting point, Jim, that you mentioned on the leases. One of the things that when you say that, that I think about is, a lot of companies don't have to sign a lease, or renew the lease annually.

Nathan Herbst:
So, in, in at least my company's position and thoughts are, it's not even on the front of our mind until we start to see staff come back. What percentage actually want to be in the office? Um, it's so hard to look in a cloudy crystal ball 12 months out and say what that will look like.

Nathan Herbst:
But, um, but that is interesting that that was lower on there.

Mike Victorson:
Yeah, I'm going to, I, agree 100 percent with the panel and to expand a little bit from our customers. Unless you've got a lease that's actually coming up, um, business leaders are focused on something else right now. And so I'm not surprised with that answer about seven percent getting out of leases.

Mike Victorson:
Uh, i- if you had asked the question, "Are you considering expanding office space?" Uh, my guess is you'd have gotten a, an answer, un- unless you're a manufacturer. But if it's pure office space, what we've heard, "No way. I'm not expanding."

Mike Victorson:
And I think that's potentially more of the canary in the coal mine, as it relates to the tr- uh, changing work environment of how what historically has been office, Jim. Is now inclusive of home. And so, when I looked at, uh, some of the questions, uh, I, I was, you know, struck by just how many of them are related to both COVID, and how COVID's impacted how we work and where we work. And when we work.

Mike Victorson:
Um, and I think most of us, uh, that are running businesses want to find ways to get our teams back together in a safe way, in a more regular way than they're, they're experiencing now. While at the same time, leaning in to the fact that it's new. Uh, this, this is, to your point, Nate, the genie's out of the bottle. And I don't think what was pre-COVID will ever be again.

Mike Victorson:
But I also don't think what we're experiencing today is what's going to last forever. I think it's going to be some type of a hybrid.

Mark Meloy:
Good. Good. Good point.

Mark Meloy:
Um, one last question: Is there anything in the results that you expected to see that you didn't? Jim?

Jim Hartlieb:
Well, I, you know, just because we've been living this Paycheck Protection Program, PPP Loan Program for the last seven months, I expected something to come out about that. Um, and really didn't see any kind of a, a feedback around that.

Jim Hartlieb:
It does continue to be on the tops of a lot of business owners' minds. As a bank, we have now received forgiveness on about 20 percent of the applications. Um, so that process continues to, uh, continues to move forward.

Jim Hartlieb:
I kind of liken it to, the whole process to, like, a Thanksgiving meal where at the beginning, everybody's fired up to make the meal. We were excited to get loans out. Well, now we gotta clean up the dishes on the back end. And I think we're doing a good job of cleaning up the dishes. But it's still on everybody's mind.

Jim Hartlieb:
And, and that was kind of something that I thought would kind of come through in the, in the data, and I just didn't see much about that.

Mark Meloy:
Good.

Nancy Johnshoy:
Can I tag onto that real quick? As Jim, I think what we did see, though, was a reduction in the number of companies who cited cashflow as a challenge for them. And the reason for underperforming. So I think it was in there in kind of a roundabout way, in that that was not one of the top reasons that people underperformed. And it, and it often is.

Mike Victorson:
Mm-hmm (affirmative). Some of you who have been on the panel with me in the past know that I've cited other economists about the fact that there's such cheap money. And because, uh, First Business Bank is so willing to loan you, loan you cash, uh, that you shouldn't pass on the opportunity to leverage cheap money and grow your business and make strategic investment.

Mike Victorson:
And I'm pretty sure, I, I can't recall ... I was just kind of quickly scanning some of the charts in front of me. Um, but I'm pretty sure it came out that, that you had a fair number of respondents who said, "No, we're leveraging cheap debt, uh, to be strategic about how we grow the company." And that's, that was a little surprising to me.

Mike Victorson:
Because I think there, there can be a hunker and a bunker mentality when you go through a pandemic. When you have such a sharp recession that we had in the second quarter. It's been an amazing rebound, obviously.

Mike Victorson:
Um, but a lot of times [inaudible 00:25:24], I think can produce more of a scarcity mindset and to see that included in the results; that gives me a lot of optimism and hope about the abundance mindset of the business owners and looking to grow their companies into 2021.

Mark Meloy:
Thanks, Mike.

Mark Meloy:
Well, I want to thank our guests today for taking time to share their thoughts and their experiences with you, our audience. And to all of you, as our audience, thanks for listening to our conversation.

Mark Meloy:
I want to remind you, that the full 2020-2021 survey can be found at our website. We hope you found it helpful and applicable to your company, as well as your planning for 2021. And let us know if there are any other topics or information you'd like to learn about. And join us next time on the First Business Bank Podcast.

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Anncr.:
First Business Bank. Member FDIC.