Shamess Testimony

Summary

Written testimony of Joseph Shamess, co-founder and owner of Flags of Valor of Winchester, VA, to the United States Senate Committee on Small Business & Entrepreneurship, dated June 3, 2020, for the hearing Perspectives from Main Street: COVID-19's Impact on Small Business. He testifies on behalf of Flags of Valor and the U.S. Chamber of Commerce. The statement summarizes the MetLife and U.S. Chamber of Commerce Small Business Coronavirus Impact Poll, including that 55 % of small businesses expect six months to a year before the business climate returns to normal. It describes the company furloughing half its team, receiving a Paycheck Protection Program loan in the second round of funding and restoring its staff, and cites about 4.5 million loans totaling $511 billion. It closes by urging a safe harbor from lawsuits, PPP access for local chambers of commerce and simpler PPP rules.

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       Perspectives from Main Street:
     COVID-19’s Impact on Small Business

               Joseph Shamess

            Co-Founder and Owner




Committee on Small Business & Entrepreneurship
             United States Senate

                 June 3, 2020




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       Chairman Rubio, Ranking Member Cardin, and Members of the Committee: My
name is Joe Shamess and I am a co-founder and owner of Flags of Valor based in
Winchester, VA. Flags of Valor is both a manufacturer and retailer, and we are proud to
be members of the U.S. Chamber of Commerce’s Small Business Council. The testimony
I am presenting this morning is on behalf of the men and women at Flags of Valor and the
U.S. Chamber of Commerce.

        Since our start in 2015, Flags of Valor (FOV) grew from a two-person garage
operation to a nationally-heralded veteran manufacturing company. Founded by two
veteran special operations pilots, we specialize in hand built wooden products that
showcase American values. From the beginning, we dedicated Flags of Valor to being
American made, empowering veteran hands, and robustly giving back to charity. In less
than five years we’ve proven this commitment by employing more than 65 veterans,
raising $1,060,000 for veteran and first responder charities, and delivering over 97,000
hours of American manufacturing labor.

        We share a fundamental belief that our nation’s war veterans are one of its greatest
resources. Each of them entered military service lacking the technical skills of their
military specialty, however they learned quickly and adapted to diverse
environments. We’ve witnessed these strengths transferred to industry. A strong empathy
for the veteran journey led us to purposely pursue the most troubled veterans who are
dealing with Post Traumatic Stress or physical disabilities from their military service. The
environment at Flags of Valor serves as a sanctuary for them, a place where they can
convert raw materials into beautiful works of art. At Flags of Valor, we built a culture
where camaraderie, shared mission, and love of country resonates deeply with every
teammate.




Employing the nation’s heroes when they return home:

       Our strategic vision is to become “The” Veteran Powered American
Manufacturing Company, creating an increasingly broad spectrum of premium products
and solutions for both consumers and businesses. Since our beginning, we’ve expanded
from strictly wooden American flags, to a fully scaled operation that produces employee
recognition gifts, commemorative items, furniture, and even experiential event hosting.
We’ve been able to take on this level of expansion through the strength of our partnerships
coupled with the dedication of our talented team of veterans. To many of our supporters,




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our mission and products are a tangible expression of patriotism and service…a
communication of shared values.1

COVID-19’s Impact on Small Business:

         The Chamber publishes a monthly Coronavirus Impact Poll with MetLife, and the
latest report was issued this morning. I am including a complete copy of the report with
my statement, but will summarize the top-line findings here.

       The bad news is that 55 % of small businesses believe it will take six months to a
year before the U.S. business climate returns to normal. That sentiment has grown from
50% last month and 46% two months ago.2 The good news is that as more small
businesses re-emerge, they are relatively optimistic about the future even while still
dealing with many ongoing challenges. 50% of small businesses expect next year’s
revenues to increase, up from 47% last month. And, 19% expect next year’s revenues to
decrease, which is a lower than last month’s 25%.3

Small Business and the Economic Recovery:

        The importance of small business is not a mystery to this Committee, but it bears
repeating here. Data from SBA’s Office of Advocacy show that small businesses
accounted for 64.9% of net new job creation between 2000 and 2018. While most small
businesses (81%) do not have employees, employer firms like Flags of Valor employ just
under half (47.3%) of the private sector workforce and small businesses overall account for
43.5% of GDP. Last, but certainly not least, we are proud to be part of the 2.52 million
veteran-owned small businesses in the United States.4

        The positive attributes of small business are more than statistics and many of us
realize how important small businesses are to the fabric of our communities when we have
been prevented from visiting, frequenting, shopping, and experiencing small businesses
throughout America when quarantined at home over the past 3-months. As small
businesses are anxious to re-open, so too is the American public thirsty to experience
normalcy by walking into shops, talking with small business owners, and eating out at
restaurants again. Throughout our experience, there is a fear of what America would be
like without Main Street small businesses.




1
  Flags of Valor has been honored with: US Chamber of Commerce Veteran Business of the Year
(2019), Washington Business Journal Veterans in Business (2019), Small Business Veteran of the Year:
Virginia Small Business Development Center (2019), Hiring our Heroes Chamber of Commerce -
Capital One Small Business Award for Veteran and Military Spouse Employment (2018), Company of
the week: ABC World News Tonight: David Muir (2017).
2
  MetLife & U.S. Chamber of Commerce Small Business Coronavirus Impact Poll (June 3, 2020),
available at: www.uschamber.com.
3
    Id.
4 Frequently asked Questions, Office of Advocacy, U.S. Small Business Administration, (September
2019), available at: https://advocacy.sba.gov/2019/09/24/frequently-asked-questions-about-small-business/.

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        The Paycheck Protection Program (PPP):

        Let me begin my summary of the PPP by thanking this Committee. It is my
understanding that you and your staff carried an overwhelming responsibility for the PPP.
Additionally, I want to thank the White House, Treasury, and the SBA because we know
that had it not been for the combined efforts of all of these departments we never would
have experienced the rapidity and scope of this vital funding. In the first 9 weeks of the
coronavirus small business lending program, about 4.5 million loans totaling $511 billion
have been made, utilizing over 5,500 banking and lending partners. Data from the U.S.
Census Bureau estimate that over 69% of small employers have received PPP funding.5
That is amazing. I will explain the difference a PPP loan has made for Flags of Valor, but
I think it is valuable to understand that our experience can be multiplied by several million
small business owners.

          At Flags of Valor, we sell into three primary channels: direct to consumer online,
retail, and business-to-business sales. In early May we lost 2 of these channels overnight.
Stay at home orders coupled with the massive uncertainty for business buyers left our cash
flows devastated. We took very aggressive actions early on based on the assumptions that
the pandemic may be long term and that zero help was coming from the government.
Every year we experience seasonality in our business and most recently we’ve seen our
headcount fluctuate between 12 and 24 depending on the season. Circumstances from
COVID-19 forced us to furlough half of our team of veteran craftsman and all remaining
staff took 50% reductions in compensation. This experience was gut wrenching and also
inspiring. Our team understood what needed to be done and supported the necessary
decisions for the good of saving our company and preserving our mission. We stayed in
close contact with the furloughed members, helping them through the process of filing
unemployment claims, and keeping everyone up to date on the status of prospective
legislation.

         In the following weeks, I personally participated in every conference call I could
with political leaders, the Chamber, banks, and media outlets. We were supposed to be
first in line for the Paycheck Protection Program through our primary lender, but due to
internal confusion on their part (understandable due to the unprecedented nature of this
time) and the rapid exhaustion of funds, we did not receive aid in the first round of
funding. Thankfully we had good counsel through the Chamber that additional funding
was likely. Sure enough, when the second round of funding was delivered, we were one of
the many fortunate recipients.

        Immediately upon confirmation of our PPP loan approval, we restored our entire
team back to work (minus one employee who chose to become a stay at home parent who
we replaced with a new veteran hire). Additionally, we were fortunate to restore staff
salaries and become current with some of our landlords who we were previously unable to
pay. The feeling of restoring the team was beyond up lifting. Despite additional looming
uncertainties, our business is alive and we are able to continue our mission of creating
opportunity for veterans, making it in America, and giving back to charity. I cannot

5
  Small Business Pulse Survey, United States Census Bureau, (May 28, 2020), data available at:
https://portal.census.gov/pulse/data/.

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express enough the significance PPP had on our business. Early on it gave us hope when it
was simply being discussed. Since becoming a reality, it’s allowed us to keep fighting.
We had slight concerns that some of our team may elect to forego a return to work due to
increases in unemployment benefits. These concerns were unfounded. Every member
returned eagerly. I am incredibly proud of them and the character that embodies our
shared ethos of hard work and serving others.

        There has been a lot of criticism in the media aimed at perceived deficiencies in the
PPP, from stories of big companies that were approved to frustrations with the lending
process. I want to dispel some of these criticisms. The PPP would have been impossible if
it had to be perfect. From the perspective of a small business owner, this was an all hands
on deck, build the parachute on the way down, whatever it takes time in our history. The
fact that the federal government, led by this committee, was able to construct this program
and get it into action so quickly is nothing short of commendable.

        Another Small Business Council member, The Communication Center (TCC),
which specializes in media training, executive communication, and training, based here in
Washington, D.C., had a similar experience, but was lucky to have received a PPP loan in
April. Our annual Small Business Council meeting occurred on March 10th and TCC’s
President & CEO, Dean Jones Hinchey, left our meeting knowing her business would
suffer when COVID-19 spread across the United States. Sure enough, all Dean’s contracts
planned for April through June (their busiest months) cancelled in the next 2-weeks. Her
bank, Sandy Spring Bank headquartered in Olney, MD, already had The Communication
Center’s financials because Dean had inquired about a line of credit immediately after
returning from the Small Business Council meeting. Dean’s application was submitted on
April 3rd. Sandy Spring Bank received an SBA loan number on April 8th, and TCC
received funding on April 24th. Because of the PPP loan, TCC has been able to keep all of
its 11 employees on payroll. One trainer who decided to be a contractor instead of an
employee in January was able to obtain her own PPP, aided by Dean’s team who helped
prepare the financials and make the banking connection.

Innovating Through the Pandemic:

         It is important to explain that government resources and help have provided us with
a lifeline. However, there is a lot more to economic survival than grants, loans, and other
governmental assistance. At a conference call in March when we were sorting through the
impacts of the pandemic I said to our team “Stop talking about all the things we cannot do
and focus exclusively on the things we can still affect.” Incredible innovations began to
take shape. Our manufacturing process wouldn’t allow us to transition to making masks or
respirators, so we chose to focus on a different problem. With schools closed and millions
of American families living in isolation we knew there was a need for something
meaningful to do with children. Led by fellow co-founder and owner, Brian Steorts, our
team designed a brilliant solution, the “Kid’s American Flag Build Kit.” This product
allows us to bring families together, build something beautiful, and share stories of
American values. The response from our supporters has been overwhelming, with
thousands of families participating.

      Developing the product, building the manufacturing solution, branding,
copywriting, and marketing all had to be done while part of our team worked remotely and
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those in the workshop were following CDC guidelines. It was an immense undertaking.
While generating income, it’s not a perfect fix with added shipping challenges, decreased
margins, and supply chain uncertainty. However, it’s helped us stay alive and move
forward. To further our effort to bring families together we launched a daily Pledge of
Allegiance, delivered live every weekday at 9:00 AM EST from our workshop. It has
allowed our supporters to hear stories of service from our veterans, to focus on national
unity, and give children a small piece of daily rhythm. The innovation continues every day
as we strive to be a better version of ourselves. In many ways, the pandemic has forced
many businesses to dramatically expedite organizational change that normally takes years
to take shape. We are no exception. Survival requires more than grants and traditional
business practices. It requires the unmatched American ingenuity and zeal that has guided
our national history of facing challenges and achieving victories.

        Staring at a blank calendar, during her busiest season, Dean Jones Hinchey realized
TCC needed to pivot quickly to survive. She pulled her team together and began the
process of redesigning the organization’s face-to-face training sessions. All courses are
now adapted to accommodate a virtual format. WebEx, Teams, and Zoom are the most
popular platforms for coaching, but also the most exhausting. Dean’s company has
rebounded from what could have been total disaster to 40% of its typical training capacity.
The process has taken a toll on TCC employees. Face-to-face training sessions that were 8
hours in length are now reduced to 5 hours to reduce screen exhaustion. Dean’s trainers
have admitted that 5 hours of virtual coaching is much harder that a full day of face-to-face
training – but they feel lucky to have survived layoffs and furloughs.

Going forward, the future is more promising for TCC than expected, but their PPP loan
runs out on June 15th. Although, salaries have remained intact up until now, TCC is only
running at 40% capacity, so salary cuts and possible layoffs loom.

TCC’s executive team have committed to taking 20-30% salary cuts to try and save the rest
of the staff, but further cuts are coming if business does not return to normal levels. The
PPP loan was of great help for two months, but the effects of this crisis on small businesses
will last much longer.

Resources Needed Going Forward:

        Small business is hurting and while data from the MetLife & U.S. Chamber of
Commerce’s Small Business Coronavirus Impact Poll shows encouraging signs of
improvement, the same poll shows that more and more small businesses believe that we
will not be back to normal operations in 6-months.6 There will be additional need for
bridge funding for small businesses experiencing unanticipated costs during phased-in
reopening plans. When this Committee considers resources to help, please understand that
our focus on re-opening is to protect our employees and our customers while building back
revenues. That means that additional efforts should be focused on certainty and simplicity
so that we can proceed with confidence and without distraction.

6 MetLife & U.S. Chamber of Commerce Small Business Coronavirus Impact Poll (June 3, 2020),
available at: www.uschamber.com.



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        With regard to certainty, we need assurance that when we follow official advice on
protecting our employees and our customers from COVID-19 infection we will be granted
a safe harbor from lawsuits. Also, we need certainty that our support system will remain
intact. This Committee has done a good job ensuring that Small Business Development
Centers, Women Business Centers, Minority Business Development Agency’s
Development Centers, and Veteran Business Outreach Centers are well positioned to help.
However, hundreds of local chambers of commerce, that are connecting their businesses
with legislators, health officials, SBA officials, and others, are at the brink of shutting
down because they depend financially on large in-person events. They should be allowed
to access PPP loans.

        With regard to simplicity, sometimes well-intended government programs
experience diminished results because of the complexity that is often compounded by
government-speak. The PPP has encountered this problem and we encourage the Senate to
follow the House’s lead in simplifying the program. It makes sense to extend the time
period for spending PPP loan proceeds. And, it is a good idea to provide flexibility for the
percentages governing how much of PPP loans can be spent on payroll and allowable.
These straightforward changes would allow for the PPP to benefit more small businesses
and their employees.

       I want to close my statement by reiterating my gratitude for the efforts of this
committee and for your work in a bi-partisan fashion to help the entire small business
community get through the coronavirus pandemic. The U.S. Chamber of Commerce and
our Small Business Council is committed to working with you, SBA, the Treasury
Department, and other partners to make sure small businesses emerge from the pandemic
in a way that benefits our families, our employees, our communities, and the United States
of America.




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