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Could COVID Kill Entrepreneurship? How to Make Sure It Doesn’t

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Could COVID Kill Entrepreneurship? How to Make Sure It Doesn’t

It’s no secret that the COVID-19 pandemic has left many existing small businesses struggling, and the continued economic uncertainty threatens to kill the ambitions of entrepreneurs who planned to launch new businesses but now must put their dreams on hold.

“This crisis will end up being much worse for small businesses than the 2008-11 sub-prime mortgage crisis,”  says Andi Gray, president of Strategy Leaders (www.strategyleaders.com), a business consulting firm. “That 2008 crisis mostly hit banks, mortgage, insurance, automotive – all of which were primarily big, publicly owned stock companies. The only small business dominant category was the construction sector which was devastated for years.

Today’s crisis hits and potentially harms nearly every type of small business.

“During that 2008-2011 period, for the first time, the number of business starts fell below the number of business failures. In other words, more businesses were killed off than were launched, and many people wondered whether we had killed entrepreneurship itself. It took five years or more for the small business community to recover from that. The COVID-19 pandemic impact is so much larger and deeper.”

And when a small business takes a hit, the country as a whole suffers, she says.

“Small businesses make up 50 percent of the gross-domestic-product and also employ half the workforce,” Gray says. “What happens to them determines what happens to the overall economy. We as a country cannot afford to fail them.” So, what steps should small business owners take to make sure they come out on the other side of the current crisis in good shape? Gray suggests a few questions for them to consider:

How is your online game? If business owners aren’t already thinking of themselves as all-virtual, e-commerce sellers, they need to be, Gray says. “That’s how your customer of today and the future is going to want to buy and receive products and services,” she says. “You may need to update your website. Evaluate how good you are at social media communication and promotion. Rethink how you can get orders, track delivery, and receive payments virtually.”

What’s happened to banking and access to capital? In recessions, banks shut down their credit lines, and reduce capital access if they have any concerns about a customer’s ability to pay down debts on time, Gray says. “This will get worse before it gets better. That means you may wake up one morning to find your business is facing challenges with access to capital,” she says. “To keep your credit lines open and approved, it’s essential that you put in the time and effort to work with your bank.” Without access to the proper amount of capital, she says, your business may not be able to function.

How have employees been affected? Businesses must be prepared for challenges that impact work production, Gray says. She points to a study by Microsoft that showed employees’ brains are measurably more stressed working remotely than in an office. It’s harder for remote workers to process information and they get fatigued more easily. “And that’s just one aspect of what our employees are dealing with as the world around them changes so rapidly and dramatically,” Gray says. Build in as many communication and interaction tools as possible.

Is your supply chain stable? “Get prepared for more disruptions as COVID continues to emerge and reemerge and some vendors fall away,” Gray says. “And with hurricane season followed by winter weather, many poorly funded state and local support structures could struggle.” Look at how your supplies get to you. If you’re part of the supply chain, look at how you deliver supplies to your customers. “Explore alternate shipping solutions and routes – trains, planes, cars, trucks, boats,” Gray says. “Now is the time to investigate all of them. Build-in redundancy.” Staying in business is difficult even without a major crisis, Gray says, as three out of four businesses fail in every 10-year cycle.

“The good news is that small business owners are known for being nimble, flexible, and resourceful,” she says. “Many of them are finding new opportunities by solving problems that didn’t exist, or weren’t priorities, at the start of 2020. If we can buy them some time, they’ll be able to retool, market their new services and products, and keep good people employed.”

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Andi Gray is president of Strategy Leaders (www.strategyleaders.com), a business consulting firm. Gray’s career started in sales, marketing and new business development at Xerox, American Express and Contel. Gray earned an Executive MBA from Columbia University while conducting research on success and failure drivers for entrepreneurial businesses. Gray writes a weekly column called “Ask Andi” in which she provides practical advice to business owners. She also authors a monthly column in Chauffeur Driven Magazine. Gray is also the co-founder of the networking group BOHCA (Business Owners Hemp and Cannabis Association), where she helps industry-specific owners grow their business through strategic planning.

small business

The Struggles of Small Business Don’t Bode Well for the Overall Economy

The year 2020 can’t end quickly enough for most small business owners.

Across the country, the pandemic forced many of them to close their operations temporarily – or permanently – and the continued economic uncertainty threatens to kill the ambitions of entrepreneurs who planned to launch businesses but now must put their dreams on hold.

None of that bodes well for the overall American economy, says Andi Gray, president of Strategy Leaders (www.strategyleaders.com), a business consulting firm.

“Small businesses make up 50 percent of the gross-domestic-product and also employ half the workforce,” she says. “What happens to them determines what happens to the overall economy. We as a country cannot afford to fail them.”

Gray points to the 2008-11 banking crisis as a disturbing example of how a national crisis can sabotage entrepreneurship. In 2008, for the first time, the number of business starts fell below the number of business closures.

“In other words, more businesses were killed off than were launched,” she says, ”and it wasn’t a one-time event. The problem continued on for years.”

The ripple effects? By 2009 small business contributions to GDP fell rather than grew. By 2010 the economic contribution gap between large and small businesses widened four-fold as small businesses struggled to keep up with their large corporate competitors. People lost their jobs, exports dropped, taxes fell and economic opportunity disappeared as entrepreneurs fought to recover. It took over five years for the small business community to get back on track, Gray says. But the damage was already done. By 2015, the U.S. was ranked 12th among developed nations in terms of startup activity.

She worries such lingering effects could happen again – and be significantly worse this time.

“Today’s COVID crisis is far larger and deeper than the 2008 crisis,” she says. “I would not be surprised if it takes far longer than five years for the small business community to get back to producing GDP and employment numbers we took for granted at the beginning of the year.”

In the meantime, small business owners hit hard by this latest recession must find ways to weather the storm. Gray offers a few suggestions for how they can do that:

Stay energized and focused. The single biggest determinant for survival of any small business is the commitment, ambition, and drive of the owner, Gray says. “If you are feeling worn out, take time off to recharge,” she says. “Keep your eye focused down the road, on what’s way ahead, and don’t waste too much energy and sweat trying to control what’s happening right in front of you day-to-day.”

Take care of the finances. If money is in short supply, investigate sources of capital. Put together a bankable plan that justifies increased investment and provides guidance on how best to use funding to recover, expand and weather future challenges, Gray says. “Talk to your banker, the SBA, reputable SBA lending consultants, and private investors to find out what kinds of capital might be available,” she says.

Figure out how to play the hand they were dealt. Small business owners need to get creative and innovative, Gray says. “Rebuild as you protect cash flow,” Gray says. “Find suppliers to replace the ones struggling to perform. Rethink your business model and evaluate customer viability.” In addition, look for new markets to add size and profits, implement processes to cut out waste, and transition more and more customers to internet communication and ecommerce buying solutions. “Decide what size business will be right for you in the future and layout a plan to get there,” Gray says.

Pay attention to employees. As scared as small business owners may be about what the future holds, many of their employees are even more frightened. “After all, you have the resources of your company to use to build solutions,” Gray says. “Employees who live paycheck to paycheck may be running out of options and wondering how long they can hold on – or how long you’ll be able to let them hold onto their much-needed jobs.”

“The good news is that small business owners are known for being nimble, flexible, and resourceful,” Gray says. “Many of them are finding new opportunities by solving problems that didn’t exist, or weren’t priorities, at the start of 2020.”

_________________________________________________________________

Andi Gray is president of Strategy Leaders (www.strategyleaders.com), a business consulting firm. Gray’s career started in sales, marketing and new business development at Xerox, American Express and Contel. Gray earned an Executive MBA from Columbia University while conducting research on success and failure drivers for entrepreneurial businesses. Gray writes a weekly column called “Ask Andi” in which she provides practical advice to business owners. She also authors a monthly column in Chauffeur Driven Magazine. Gray is also the co-founder of the networking group BOHCA (Business Owners Hemp and Cannabis Association), where she helps industry-specific owners grow their business through strategic planning.