How A Small Biz Called Transformation Is Evolving In Post-COVID America
I once heard someone say you’ve beaten the odds if your small business is still open after five years, profitably or not. If so, then my wife Grace and I did something right.
We opened a hair salon in 2002 just outside Austin, Texas. We’re still in business now, though a lot has changed recently.
We were a good team to start this business. She’d been doing top-level hair design for 20+ years. I had a few financial and marketing skills. We named it “Transformation” because change was our specialty. COVID-19 was a change we didn’t expect.
Small Business in a Pandemic
Because I watch the economic news and saw what happened in China and then Italy, we acted early in February to enhance our already-high salon hygiene standards. We made some physical changes to simplify cleaning and looked (unsuccessfully) for medical-grade protective gear. On the financial side, I started to build cash reserves and confirm our credit lines in case sales dropped.
Normally, the hair business is highly predictable. People tend to cut and color every 4–5 weeks. At a high-end salon like ours, they make reservations months in advance. So, when revenue slipped a little in late February then dropped more in early March—well before the local shutdown orders—we knew something serious was coming.
This confirmed what simple logic had told me to expect. Viruses spread until something stops them. We knew what this one was doing elsewhere, and there was no reason to think it would act differently here.
On March 16, Grace and I decided closing the salon was our only choice. Hair styling requires extended close contact—a factor that had drawn me to the industry years earlier. It was a service that couldn’t be outsourced to Asia. But now a virus from Asia was making that kind of contact hazardous.
We didn’t want to be part of making anyone sick. We also figured local authorities would order closures soon anyway (which they did, a week later), and felt it was better to do it on our own terms.
Temporary, We Thought
Closing the doors presented a financial issue: how to make payroll with no revenue. We had enough cash to cover everyone’s normal pay for a while. We also knew Congress was talking about disaster relief plans, though nothing had passed yet.
In cold business terms, we should have immediately laid off everyone, but our little team (all nine of us) was like family. We also had to think about the future, preserving our cash and credit for tough conditions when we reopened in a weak economy. We dug into savings to pay everyone for the rest of March while looking for better ideas.
About that time, Congress passed the Paycheck Protection Program. Our longtime bank filed our PPP application the second day the program opened. That turned out to be too late. The available funding got snapped up almost immediately… and we had payroll coming due.
We could either keep paying everyone out of pocket, burning through liquidity we would need later, or make temporary layoffs. That was a hard choice, but we stressed to everyone how we fully intended to reopen when possible. All this was going to be temporary, we thought. Meanwhile, the enhanced unemployment benefits were enough to keep everyone afloat.
Grace went to work planning exactly how we would reopen. That was a challenge because the rules seemed to change daily. She collected three huge binders of guidance from different agencies and professional organizations. All were trying to be helpful but the often-conflicting suggestions and requirements just added to our uncertainty.
The background news by that point was all about New York, where hospitals were filling and thousands dying. Nothing like that was happening where we are in Texas, but we knew it might be coming. We told customers we would reopen when two conditions were met.
The second point had both micro and macro levels. We would need to do certain things in the salon and know conditions in our area wouldn’t render them moot. But how to measure that?
I thought the Opening Up America Again plan the White House released on April 16 made sense. It had specific criteria to meet before reopening, including a 14-day decline in new cases. That became our guidepost.
About that time is when anti-lockdown protests began spreading around the country. I understood how people were frustrated, but I didn’t get the complaints about non-essential things.
As a hair salon owner, I think what we do is important, but not important enough to justify endangering public health. Yet that whole time, we were getting daily phone calls from people desperately wanting illegal haircuts. Some offered large amounts of money. We politely declined.
Nevertheless, the discontent had a political effect.
On April 27, with virus cases still rising in Texas, Gov. Greg Abbott announced a phased reopening would begin May 1. The initial phase didn’t include hair salons but Abbott said they would look at allowing salons to open in “mid-May.” That wasn’t great news to us, but it helped to know what to expect.
Then on May 5, Abbott announced at a hastily called press conference hair salons could open on May 8 instead of mid-May as he had hinted just days earlier.
More than Hair
Grace and I knew we couldn’t reopen that quickly. So, on the first day Texas salons could reopen, I drove around to see what was happening.
Top-tier salons like ours looked mostly still closed. So were some of the inexpensive “chop shops” that sell quick haircuts. But at one I saw about a dozen shaggy-headed males waiting outside. None wore masks (which weren’t required at that point) and they stood well within six feet of each other. I didn’t go inside but I could guess the scene: overwhelmed stylists with subpar protective gear, risking their own health.
As we thought through all this, safety and financial factors started to overlap. Running the numbers, it was pretty clear we couldn’t maintain our level of quality and make a profit.
The virus—and the measures to control it—had killed our business model.
There was more, too. We didn’t do quick cuts; we made people look and feel beautiful, in a relaxed and comfortable atmosphere. Our stylists did highly customized, precision work and we charged accordingly. That was now going to be much harder. Breakeven was the best-case scenario. Profit? Out of the question.
We started getting stories from industry colleagues. One salon in our area endured disaster. A customer who had been sick and was awaiting COVID test results simply lied on the screening questionnaire. Then, while she was in the salon getting color, she got a phone call telling her the test was positive. The salon had to close for two weeks while the entire staff isolated—a huge financial hit.
In the middle of all this, we finally got approved for a PPP loan. It would have let us reopen for a few weeks. But we still couldn’t see a safe, sustainable recovery path.
For me personally, reopening the salon would mean sending my wife into danger. We had employees and many customers with various health issues, too. The thought that we might spread this sometimes-deadly virus and hurt one of them was unbearable.
The final straw came when one of our longtime stylists was offered another professional opportunity, the kind he couldn’t turn down. We were excited for him and still are, but it changed our already-bad outlook for the worse.
At that point, Grace and I knew the business had to either close permanently or evolve into something different.
We decided to evolve.
A Way Forward
Our work at Transformation has always been about more than money. We walked with many cancer patients through the agony of losing their hair. We were there for countless graduations, weddings, anniversaries, and funerals. I think the refuge we provided probably preserved some marriages. That mission had to go on in some way.
Looking at this new world, we realized some things haven’t changed. People still want quality hair care, if they can get it safely. They still want connection and community. And now, they want to escape from this crazy new world, if only for a little while.
In the middle of all this, our salon lease had run out. Grace and I own another small house near our home, and we realized that little building could be a new salon.
It is a beautiful, secluded location where we can serve people safely, one or two at a time, far from crowds. There’s a natural area where we are building some meditation spaces, and a concrete pad we’ll use for outdoor yoga and wellness treatments.
It will be nothing like the bustling, high-energy salon we ran for the last 18 years. But we’ll still help people and create a few new jobs.
I hope that’s how the rest of the economy develops. Technology and other changes have been killing whole industries for many years. That’s nothing new. The difference this time is the speed with which it happened to restaurants, bars, hotels, airlines, and others for which personal proximity is part of the product.
We are among the lucky ones who are able to pivot in a new direction. In time, we hope that we will all discover that even the worst disasters can open the door to better things.
My partner John Mauldin predicts an unprecedented crisis that will lead to the biggest wipeout of wealth in history. Most investors are unaware of the pressure building right now. Learn more here.