Today’s Pontificate – In a competitive free market world that Darwin quote would read… “IT’S NOT THE LARGEST OF THE BUSINESSES THAT SURVIVE, NOT THE MOST SUCCESSFUL, BUT THE ONES MOST RESPONSIVE TO CHANGE.” The trick is predicting, preparing, anticipating, implementing, and adapting. But a disease? Whodathunk.
Our economy is suffering and most likely is going to get far worse as a result of Covid. The media is reporting on stories of the death and dying, the soon-to-be-PTSD of our health professionals in the trenches, surviving families and loved ones, the unemployed trying to survive until someone, somewhere, gives them monetary help to make it to another day, kids staying home from school thus compounding parents’ ability to seek a job, and businesses failing because of lack of customers, generally the result of varying degrees of stay-at-home policies…. the sadness is compelling on all levels. Add to all this general suffering the usual crisis naysayers that simply itself adds to the political divide that is Trump. This is what a pandemic of this magnitude does. So let’s assign my complete empathy with all that is happening… and my own concern about catching this damn virus given I’m on the vulnerable list to get hospitalized and/or die. What we are going to chat about here is the seemingly ruthless free market economy following the rules of all capitalism… supply & demand.
The eye opener here is that our entire economic problems as a nation centers on one element... a huge loss of people like you and me not having a desire to spend money.. either because of fear of going outside or public policy mandating limitations in leaving the home. Add to that a general fear of an unknown future making for reluctant spending because of the pandemic and our politics. If we purchase anything it tends to be things required for our immediate survival, ala food.. and of course, toilet paper. In essence, we favor the local supermarket and fast food over the movie theater and restaurant these days. With ANY business, if your customers dry up so does your ability to stay in business.
Let’s not stop there. Few people spending money means less tax revenue.. which in turn affects local budgets and local and state governments in having the ability to provide services to all people. Some of those services are policies and programs that provide financial aid to certain elements of the population in need. Our free market does not seem to be all that free these days given the national duress of the pandemic. The federal government can print more money but that generally causes inflation. Having said that there are some economists of the opinion that it might be worth a short term inflationary economy to get help to a struggling free market. But rest assured, the federal government is losing tax revenue as well.
A few weeks ago a viral social media expression has been from a young lady named Angela Marsden, owner of the Pineapple Hill Saloon & Pub in Los Angeles. As with most businesses during this pandemic, her’s certainly has suffered nearly this entire year as well. She did manage a loan from the last Congressional “benevolence” to make safer updates to meet the virus threat to her patrons. Recently, between the Mayor Garcetti and Governor Newsom making mandatory closings of businesses that attract crowds, things for Angela have gotten much worse. But the real beef came when a number of tents appeared on her street, allegedly a caterer.. nearly 50 feet from the front of her building, popped up as crews set up equipment to make a movie or some documentary or something along those lines. The movie crews meandering about in numbers she could only wish would walk into her front door. It wasn’t so much that she was closed but more along the lines of why are they making a movie with lots of people milling about not exercising covid safeguards and she can’t open her doors? Apparently she sued the city but that’s not likely to go anywhere since the movie company had obtained the required city permits.
This is just but one of the thousands of businesses around the country out of business or nearly out of business. Each has their own tale of personal loss and suffering in this pandemic. But I’ve noticed a couple things in all this that made me recall my own past when the retail store I had started and managed decades ago had to close for similar “outside” reasons. We all know small business is the heartbeat of the nation but we also know that even in a good economy many businesses simply fall victim to shifts in population demographics, public spending patterns, and flat out mismanagement. Not everyone who starts in business has the knowledge, business acumen, or discipline to manage a business and keep it going. Thousands of small businesses close each “normal” year within a year or two of opening up and it has little to do with national emergencies.
As I have been watching the stories told in the media about family businesses on the verge of collapse, or people who have put their heart and soul into the business only to see it go in the tank… and then being upset at some local mayor or governor for imposing “unfair” closings and/or stay-at-home restrictions…. I have gotten a bit, well, perturbed is a good word. Why.. with all this human disappointment and personal suffering at their loss of business would I feel that way? Good question and let’s dive into that.
First off here I highly recognize that much of the predicament we are in as a nation is because of haphazard pandemic mediation policies and nothing uniform or centralized through the federal government. It’s been abysmal the national response (although I should note the success of the scientific community in creating a vaccine so quickly). So as a nation we pretty much got crap leadership. Sadly we had to delay a proper response for nearly an entire year until the election. As a result of this national mismanagement people suffered, people died, people lost incomes, and businesses have closed and will close before any of this improves. Going further, we have had a President that politicizes everything.. downplaying the pandemic and dismissing any personal protection as some loss of a personal freedom. Ok… we all know that story. But this becomes the environment over the last 12 months that adds to the calamity in our economy and with small business. Let’s continue….
My “perturb-ness” falls into the idea that it feels as if business owners should somehow be guaranteed something simply for being in business. To explain it this way might help. Our Constitution guarantees no one a special break.. special favors, special considerations. What our Constitution DOES guarantee is an equal chance for any American to pursue their own road of choice toward whatever they wish to strive for… in other words, a level playing field toward personal achievement. No one is guaranteed a job, no one is guaranteed a place to live, no one is guaranteed a car to drive around… no one is guaranteed their small business will succeed, much less stay in business forever. It is up to each American to decide for themselves the path to take for our pursuit of happiness.
Because of the evolving affluence of our free market economy since 1789, through using the Constitution to create laws and programs, we have given ourselves a means by which to help fellow Americans who have suffered unexpected hardship during trying times and sudden events. If a basically successful business can survive a calamity then it helps the entire economy recover over time.
Where does Darwin come in with all this? Simply put, if your business cannot adapt to a changing revenue stream then your business dies. Sounds heartless as hell given the current pandemic but the government’s role in being a reason for your customer base drying up is simply just part of being in business.. admittedly at the wrong time of events. What do you expect the government to do… pay all your payroll and business expenses and you sit around waiting for people to walk in? For how long? Now.. this does not one bit mean that as an individual you would not, or should not, be able to get unemployment or any other social parachutes provided to anyone who lost a job. If you’ve noticed, some enterprising business owners in the devastated restaurant industry have gone so far as to provide take-out, curbside pickup, and even home delivery. Adversity spawns innovation. Obviously not great revenue generation by itself but maybe it’s something to help offset expenses and keep the business name alive in the community. What I am saying is that business owners who have the personal ability, tenacity, imagination, creativity, and wherewithal to adapt their business with creative ideas have a better chance to limp through this. In other words, it’s time to think outside the box.
Remember our girl from earlier, Angela and her restaurant in L.A.? She got that initial business loan to make her place more “covid friendly” for her customers. Well, that works only if your customers are willing to still go outside their front doors and travel to your place given all the growing fear. Even then, isolated groups wearing masks doesn’t mean the virus would not spread.. especially when you have to remove the mask to eat. Yes.. it’s all very complex.. especially when you have an uncooperative government in denial that doesn’t help in the mediation of the virus. Making your restaurant “covid friendly” does not guarantee paying customers are going to show up at your door in the middle of a pandemic. Like any business, there are fixed costs regardless of how much you make. Rent, utilities, etc. stay fixed expenses. You retrofit to covid spacing and you’ve already reduced your customer capacity, hence the number of customers you can serve in an hour. You’re lucky if you can break even in a month… and likely you will not… for months to come. The first government stimulus program offered forgivable loans to small business that didn’t have strong banking relationships.. in order to stay afloat. Many businesses used this money to retain employees.. as well as do the covid retrofitting. But that did very little to encourage customers to continue purchasing. It just helped businesses stay open. As the pandemic worsened, and as 50 different state governors made their 50 different policies on openings. closings, mandated hours, limits on capacities, stay-at-home orders… fearful and cautious customers simply dried up in all the confusion.
Now, to be perfectly fair… few people understood, or continue to understand, the virus itself and how it would spread, much less the impact on the economy and small business in particular… and the shifts in consumer spending. BUT.. having said that… we can look at Darwin and expect that unless a business owner can meet the changing consumer environment.. then businesses will close. It’s adapt, evolve, or die. It pretty much matters not the reason.. the fault… that forced you out of business. That’s for the history books.. and teaching your own ego lessons for the future. Think of the pandemic as the proverbial meteor that falls out of the sky and kills anything that can’t adapt to survive. No one’s fault.. it just happened, and the living things who perished had no technology to see it coming and to try and prepare for, or avert, the event.
I’m sure if you have been a business owner you likely had a conversation with someone who made a comment about how your business may or may not be “recession proof”. Let’s face it, not all business entities and industries are entirely recession proof. The average business, small business in particular, experiences revenue earnings peaks and valleys on their P&L graph in the course of a “normal” business year. Sometimes it’s seasonal given the use of your product or service falling inside certain climates. Midwest pool cleaners don’t do well in the Winter months.. yet can flourish in the Summer months. Funeral homes tend to be thought of as recession proof given dying people happen all the time. Some businesses satisfy a current fad and can become less popular over time. This is all part and parcel to doing your due diligence in researching the feasibility of your business idea. Restaurants in particular suffer a huge mortality rate after a couple years because their owners didn’t have a grasp of their target demographic and/or menu offerings, ambience, etc., falling victim to the “if you build it, they will come” mentality. This is why in the past many sports figures have opened restaurants and bars on their name-draw alone, showing up to sign autographs for hungry fans, only to have that novelty fade over time.
On the other hand… the average business owner can only “prepare” for those expected peaks & valleys that one might know about. The events that can turn business owners from boys into men, and girls into women, are the events we would have never predicted… like a pandemic that keeps everyone from spending money outside the home.. and also opens up another avenue for that money to be spent. For sure this pandemic is not hurting Amazon one bit, but it’s killing brick & mortar establishments all across the board. It’s Darwin in the free marketplace in action.
In PART 2 I’ll provide a case study of someone in retail who actually went out of business…. me, 40 years ago, as a result of changing customer buying patterns due to outside economic influences, that is no different than now.