Good Economic Recovery Does Not Mean Bringing Every Business Back

May 13, 2020
by Jeremy Stone

After Hurricane Katrina, I worked with a lot of businesses who were trying to reopen from the storm. At the non-profit I worked for, our whole goal was Bring Every Business Back. We wanted to ensure that every business owner who wanted to reopen and could qualify for support would get packages of small grants, loan debt, technical assistance for reopening, and general encouragement and enthusiasm. Where we fell short in making businesses whole, they made up the gap with personal savings, second mortgages, informal borrowing, and a whole lot of sweat and tears.

However, the problem is that not every business can or should come back. The thing we found over the years was that after major economic disruptions, markets change. People change. The customers who used to buy candy from the sweet shop, or get their nails done for Saturday night, have different priorities. In extreme cases they move away entirely. Businesses that were “on the bubble” before the disruption, or who are just not agile enough to adapt to the new conditions, can become what Daniel Alesch and colleagues call “Dead Business(es) Walking”. The businesses no longer fit the local market and will eventually close, but the owners mistakenly continue to prop them up until the money runs out.  

So the mantra of Bring Every Business Back has unintended consequences. It fosters a mentality amongst the business and economic development communities that our resources should be focused almost exclusively on reopening, even though this may magnify the disaster impacts for business owners through increased debt, depletion of personal assets, and the consonant psychological and social fallout from failure. Moreover, it ignores an important opportunity of individual and community reflection on what business mix might be better suited for local needs, and new economic development trajectories that could make the local economy stronger and more resilient.

In the midst of Covid-19 this is an especially important point to make since the typical resources that soften economic impacts will likely not be available. In disasters like earthquakes and hurricanes which create physical destruction, there are generally “recovery booms” that come from increased spending on rebuilding and replacing damaged personal items. Similarly, there is generally an influx of philanthropic purchasing in which surrounding communities (or global communities online) shop at impacted stores to show solidarity. In the current situation though, there’s no destruction to fix. Everyone across the world is impacted so the opportunities for cross-community solidarity purchasing are reduced. And the sheer enormity of the needs will also thin the amount of resources that governments can apply to any single community. The result will be more businesses at risk of closure and less supports than typical economic disruptions.

Doing our best to help local businesses is obviously important, but a sole emphasis on Bringing Every Business Back may be even more problematic for our economies than usual. To balance our efforts in community economic recovery and resilience, we need to seriously consider alternatives to business continuity and retention. Specifically, these recommendations can help individuals and communities get to a stronger economic position in the long term than current business retention efforts alone will achieve.

1)      Support and validate business closure. Rather than exhorting every business to succeed, create safe spaces for businesses to wind down and exit the market. This includes providing business technical assistance on selling assets, dissolving corporate structures, succession planning, etc. It also involves developing a culture and messaging that normalizes business closure (like “business wakes”) and explains the potential benefits of closure such as preserving savings and avoiding additional debt. Business closure is an exceptionally emotional and scary decision for owners, so they can also benefit from personal counseling services and career support that can help them transition back into the workforce or into retirement.

2)      Help businesses pivot or develop new business models. Even though businesses may have reached the end of their life-cycle, entrepreneurs with great ideas and tenacity often remain. Disasters and major economic disruptions offer spaces for reflection and retooling that can enable entrepreneurs to change course into stronger and healthier business models. A butcher might want to reopen as a barbecue restaurant, or a furniture store might want to become an interior design firm. Although the primary business advice at the moment is “Get Online”, we should also be providing business planning and financing for entrepreneurs to update and change their business models.

3)      Invest into new business start-ups and innovation. Despite the prevailing wisdom that risk avoidance should rule the day, this is in fact a critical time to be investing in new businesses and new economic approaches. Simply focusing on business retention will not fill vacant store-fronts as businesses close, nor will it produce the next generation of business ideas and values. If we look out one to two years from now, the healthy and vibrant economies will be those that took this opportunity to invest into entrepreneurship, innovative technologies and ideas, and values-driven business model like social enterprises and environmentally sustainable companies. It is high risk and there will be losses along the way, but planting the seeds of entrepreneurship now will yield greater economic resilience in the long-run.

It is worth repeating that business closure and transition can be traumatic for business owners and communities, so supporting our current businesses with buy local campaigns, business retention services, and just general emotional care is absolutely necessary. But we can’t be myopic about business closures and their economic impacts. Some businesses will close no matter how much money we pour into them, so we have to be real about what is necessary to help those businesses close in the best way possible. We also need to take the opportunities to help new and existing entrepreneurs fill market gaps as soon as we can so they can maintain the community well-being we all depend on.