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What’s next? Experts in economics and entreneurship look ahead for startups, small businesses

Reopening

Clockwise from top left: Jerome Katz, Matt Morrow, Jeffrey Hornsby, Matt McCormick, Cliff Holekamp

Ask Matt Morrow what the next six months look like for startups and small businesses, and the answer comes back loud and clear.

“If I could tell you that, I’d probably be the most in-demand person in America right now,” said Morrow, president of the Springfield Area Chamber of Commerce.

Persistent uncertainty continues to grip businesses coast to coast as well as here in Missouri, where rising COVID-19 case numbers leave entrepreneurs in an ongoing limbo about everything from the availability of government assistance to the looming prospect of future lockdowns. As the nation and the world wait for word of a vaccine for a pandemic that has paralyzed much of the planet since March, the entrepreneurial universe seems frozen while trying to somehow plan for the unplannable.

Half a year into the most acute health crisis of the 21st Century, there are still few answers or blueprints for how to proceed.

“I don’t know if we are through the worst of it,” noted Matt McCormick, Morrow’s counterpart at the Columbia Chamber of Commerce, “but I think we are through the initial part of it figuring out how to work through.”

‘Running on fumes’

For Morrow, the most prominent fear is the one on seemingly every business owner’s mind.

“Are we headed to a Round Two shutdown of some kind?” he said. “I cannot overstate how devastating that would be. Almost anything that is done right now is OK if it is done to prevent that from happening.”

He said that a lot of small businesses find themselves back at square one. Others are operating at partial capacity or in ways for which they weren’t originally designed.

“Many of them are going back to startup mode, essentially reimagining their models a little bit,” he said. “But that’s not what anybody came into 2020 planning to do.”

Morrow said he believes that many enterprises calculated that things might return to normal after the first six months. Instead, the pandemic that erupted late last year shows no signs of abating.

“One of the good things about this is that innovation is kind of baked into the DNA of entrepreneurs, so small businesses have it in their makeup to innovate, and many of them have done so in pretty creative ways,” he said.

Jerome Katz, the Robert H. Brockhaus Endowed Chair in Entrepreneurship Management at Saint Louis University’s Chaifetz Center for Entrepreneurship, noted that many businesses have pivoted in encouraging and inspiring ways to offer new products and services or address new markets.

“They really thought through what they were offering and how they were offering it to find ways to do it cheaper, faster, better and more automated in terms of using internet services and things like that,” he said. “All of those things, as the economy gets better — if and when it does — will make for stronger businesses and stronger balance sheets.”

The problem, however, is what to do in the meantime. Katz said he believes the greatest uncertainty may lie in the depth and nature of government support and what could occur in a second-wave lockdown that could further cripple businesses already reeling under unprecedented strain.

“They’ve been running on fumes, waiting for the economy to kick back into drive, and if that’s not happening, they are getting more and more stretched,” he said.

That means a lot will depend on when the economy can rebound — especially for retail businesses dependent on the physical presence of people in stores.

“I would say the main thing is the unknown of what COVID is going to be doing,” said McCormick. “The other main thing is working to make sure that customers feel comfortable coming out shopping and doing business with them.”

Personnel and PPP

Katz said one of the things that makes government help so important is the employment situation.

“What has been really remarkable is the extent to which small businesses in St. Louis and across Missouri have bent over backwards in order to keep as many people employed and active as possible,” he said. “We’ve seen examples where businesses have their employees helping out in the community.

“For many of these small business owners, their business is their family,” he added. “They don’t want to part with them, but if the government doesn’t provide enough support and if the economy doesn’t snap back, that’s the biggest challenge they are going to be facing.”

That . . . and perhaps paperwork. Katz said that while larger businesses might have tons of help negotiating red tape — with some banks even calling them to offer assistance with government loan applications — small outfits often must go it alone.

“Big businesses literally have people to throw at all sorts of problems filling out papers,” he said. “Most small businesses don’t, so there is always a disproportionate impact from those sorts of programs.”

Jeffrey Hornsby, executive director of the Regnier Institute for Entrepreneurship and Innovation at the University of Missouri-Kansas City, said government help carries with it a multifaceted question.

“All the money that small businesses were able to get kept them afloat, but now the rubber hits the road because there might be another shot of some money. but I doubt it will be the same infusion as before,” he said, noting that employees receiving unemployment may even be reluctant to return.

Cliff Holekamp, cofounder and managing director of Cultivation Capital in the St. Louis area, concurs that federal help can be a double-edged sword.

“Government assistance, such as through the PPP program, has certainly kept many small businesses afloat and has incented them to retain employment,” he wrote in an email interview. “You can have too much of a good thing if lower-wage employees are finding that unemployment benefits are more attractive than working.”

He also noted the possibility of later costs.

“It would also be problematic if more assistance now leads to increased tax burdens later,” Holekamp wrote. “A recovering economy won’t be able to handle the uncertainty of increased taxes while trying to come out of recession.”

Other personnel questions are equally vexing as the months wear on. Some companies, especially technology firms, now have far-flung staffs that have grown used to doing their work from home.

“How do you keep your culture when they are dispersed?” said Hornsby. “It is hard to maintain a strong culture that breeds loyalty and satisfaction and those types of things for the long haul.”

The lack of watercooler connections to coworkers and the company itself could yield higher rates of turnover.

Also, Holekamp predicted that some may come to rely on certain perks.

“I believe that people are learning new habits,” he wrote. “Many employees will have expectations for greater flexibility and will demand options to work from home when practical.”

Local companies, local suppliers

But as COVID has made clear, human resources aren’t the only resources that worry American businesses. Shortages for both commercial and retail supplies have caused people to think in detailed terms about the intricate links in the supply chain that make the economy possible.

“Even if you have customers, if you can’t get the raw materials that you need to make your product or provide your service, then you are essentially getting hit on both sides,” Hornsby said.

He noted that some companies have found themselves reliant on inferior items just to get orders filled.

“You have to diversify your suppliers because if one dries up or goes out of business or they have their own problems supplying you, you have others that you can go to,” he said.

The same rule goes for customers. Businesses that are captive to only one or two large accounts may find themselves in deep distress if that client suddenly cuts back — or vanishes entirely.

“Building a business isn’t just about increasing sales,” Hornsby said. “It is about expanding the customer base.”

SLU’s Katz said he is optimistic about supply-chain issues.

“At this point, most of our shelves are pretty well stocked so I’m hopeful that, if we do have a second wave of lockdowns, the supply chain will be a little older and a little wiser from that first-round experience.”

At the Columbia Chamber of Commerce, McCormick commended the state’s Department of Economic Development for helping to publicize Missouri suppliers.

“I think one of the things that has been talked about a lot in a number of meetings I’ve been in, and listening to some of the things that [the University of Missouri] has been working on statewide, is the need for diversification in your supply chain,” McCormick said.

Many companies are too dependent on Chinese products, and diversification isn’t simply a good idea but a matter of survival, Holekamp wrote.

“We have learned the hard way why it is important,” he wrote. “Hopefully, firms will have a greater appreciation for the benefits of a more domestic supply chain.”

Opportunities on a tilting ship

Hornsby said he believes that a “weeding out” already has happened for many businesses. Like people who live paycheck to paycheck, there are businesses that live invoice to invoice. Many of those already have gone under, he noted.

“It doesn’t take much for the ship to tilt just a little bit to really impact them,” he said.

The lesson for the future is clear: Keep reserves on hand. But the lesson for the present may be of more concern at the moment: How do businesses survive the next six months in a COVID-19 world?

Hornsby advises minimizing overhead and fixed costs as much as possible.

“Maybe as the economy gets better and customers are returning, don’t go out and hire a bunch of people full-time,” he said.

He recommends bringing back key employees and supplementing other positions with part-timers. Square footage also may be an area where cuts can be made. A living room-based workforce may be tough on a company’s culture, but it can save the enterprise a lot of cash.

“We are realizing that we don’t need as much space as we thought we needed,” Hornsby said. “If you were a technology firm and have 40 employees, yeah, you might want to have a central location for some meetings and client things and demos and all that. But you don’t need to rent 40 offices.”

But if Zoom meetings replace the traditional 9-to-5 cubicle shuffle, that could have its own consequences in the coming months. Hornsby predicts the corporate real estate market may struggle. For the right business, that can provide an opening to get good deals on space.

“With disruption comes innovation,” Hornsby said. “We will see a whole lot of new things come out of this. Hopefully, that will spur entrepreneurship into the future.”

Holekamp agreed.

“Disruption always creates a window for new entrants into a market,” he wrote. “Reimagining business models that are designed and optimized for a changed world will have an advantage over those which are anchored by their old ways.”

Where the opportunities lie will probably depend on the type of enterprise, he added.

“The landscape of business markets has changed,” he wrote. “But, many business ideas are better suited for the new landscape than the established competitors might be. Digital-first businesses have never had a better time to start. I would hesitate before starting a restaurant or other bricks-and-mortar service business.”

No matter what you do, there is one rule all businesses must obey.

“Innovate,” Holekamp wrote. “Be creative about how to best serve your customers in these extraordinary times. Your adaptations and innovations will likely prove to be a continuing advantage even after the pandemic hopefully passes.”

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