In March 2020, the novel coronavirus outbreak ravaged small businesses as restaurants, bars, theaters and schools were forced to shut their doors indefinitely in cities around the country. A great test of resilience in small businesses across the country, the COVID-19 crisis is a great example of the chaos that a business owner can do his best to prepare for ahead of time. Almost every small business will, at some point, go through tough times.
Small businesses are often the first types of businesses to fail in the event of an economic crash, but there’s a whole wealth of traumatic events that can grind a business to a halt, from the illness of an owner or sudden resignation of a department head to natural disasters or terrorist attacks. The true mark of success is resilience, and though the world is wildly unpredictable, there are certain things you can do to help weather the storm.
What Is Business Resilience?
Business resilience is the ability to quickly protect the well-being of people and assets in the event of business disruptions. In other words, it’s the ability to roll with the punches when something bad happens, but this isn’t something that’s inherent. Strong businesses and the resilient people who run them can build resilience through protective measures and solid coping strategies.
What does resilience look like? Resilient individuals and businesses thrive on flexibility. A business must be able to rely on strong leadership to make quick decisions that may be out of the norm. There are three essential resiliency processes:
- Embrace: Think of it like swimming in the ocean. You can’t stop a wave with your hands, but you can dive beneath it or ride it to the shore. Embracing tough times can help you create realistic plans.
- Realize: It may feel comfortable to maintain a sense of control at all costs, but part of life is not being able to control everything. The road to resilience requires businesses to realize the full extent of the bad situation, asses how much they can actually control and proactively invest in problem solving.
- Adapt: This is the true mark of which businesses will survive in the face of adversity. You must have strong leadership which can bend at a moment's notice, even if it’s outside of standard operating procedures.
What May Happen?
It’s never nice to think about the tough times your business may face, but you can't create coping strategies in advance or even buy the right insurance plan if you’re not paying attention. There are a lot of things that can cause a corporate crisis, so it's best to prepare for the following situations:
- Illness and death: Illness and death can greatly damage business operations. This includes situations like if a business owner is sick and can’t work, if a business owner must take a leave of absence to care for a sick loved one or the sudden death of a key employee. You should always have a successor in the event that a head honcho is out for the count, even if it's temporary.
- Natural disasters: This isn’t in your control, but customers are looking at how you handle situations like hurricanes, earthquakes, floods and more. If you’re in the affected area, you may need to cease or limit operations. If you're in an area where this commonly happens, consider a bulked-up insurance plan.
Terrorist attacks: Terrorist attacks are another occurrence
that companies cannot predict, but they can affect an entire industry. For example, the terrorist attacks in New York on September 11, 2001 triggered bankruptcy and large-scale layoffs at airlines around the nation.
Cybersecurity: Cybersecurity breaches and hacks don’t just lose consumer trust. They can actually leave a business with a huge liability in the way of identity theft and theft of intellectual property. We saw this with the massive Equifax data breach in 2017 or the Target data breach in 2013, which forced the company to shell out $18.5 million in a settlement.
Economic downturn: The United States lost more than 200,000 small businesses during the recession that began in 2008. A stock market crash or even just an industry-wide downturn can have a huge financial impact on small businesses. You should have a contingency plan outlining how to limit costs in the event that financial resources are scarce.
Product recall: A product recall can be devastating to a business in lost profits, but it’s especially bad if consumers are injured as a result. Recalls decrease sales across all product lines, hurt a brand's reputation and may even hold a company legally liable for damages.
Environmental issues: Some companies pose more of an environmental risk than others. If you’re dealing with things like energy, hazardous waste, wetlands mitigation or pipeline construction, customers appreciate full transparency, especially when something goes wrong. For example, the BP oil spill that set the stage for the blockbuster flick "Deepwater Horizon" was largely due to human error and could have been prevented if workers consulted the engineer who was on board investigating unexpected pressure readings.
Employee misconduct: Anyone who has seen the Harvey Weinstein trial play out knows how misconduct can bankrupt even the most successful businesses. Of course, it’s not always on such a horrific scale, but employees may at some point violate company policy or the law. This needs immediate action, a good PR strategy and (probably) a good lawyer.
Conflict with interest groups: Sometimes, companies can be at odds with environmental, social or cultural interest groups. For example, animal rights groups have long been rallying against the aquarium SeaWorld, and as a result of public outcry, the company announced that it would stop breeding orcas in 2016. You must find a way to coexist even if you don't agree.
First, Get Some Good Insurance
A comprehensive insurance plan is often key to surviving tough times, but a huge swath of businesses are underinsured. In fact, 44% of small businesses have never had insurance, which is a bankruptcy waiting to happen (not to mention a lawsuit). Whatever the business insurance plan, it’s important to understand what your policy does and doesn’t cover.
According to the U.S. Small Business Administration, there are six common types of small-business insurance. This includes general liability insurance, which may actually be a legal requirement depending on where you register your business. This protects a business against financial loss in the event of bodily injury, property damage, medical expenses, libel, slander, defending lawsuits and settlements. Other popular insurances include:
- Product liability insurance: This is important for businesses that manufacture or sell products and protects against financial loss in the event of a defective product that causes injury or bodily harm. It does not protect against loss of income due to recalls.
- Professional liability insurance: This is like product liability insurance but protects businesses that provide services rather than products. This protects against financial loss as a result of malpractice, error and negligence.
- Commercial liability insurance: This protects your business location if it’s damaged by fire, smoke, wind, hail or civil disobedience and vandalism. It does not typically cover flooding, especially if your building is in a flood zone, nor does it cover natural disasters.
- Home-based business insurance: You may work at home, but things can happen. This provides protection for a small amount of equipment as well as liability coverage in the event of a third-party injury.
- Business owners' insurance: A business owners' insurance policy is typically a mix of all of the above in a cost-saving bundle.
- Loss of income insurance: Loss of income insurance is often used as a backup plan to help pay employee wages and essential expenses in particularly bad situations. This includes plans that cover extra expenses, which is particularly important to 24/7 businesses that can’t shut down in an emergency; civil authority coverage, which covers a business in the event of a natural disaster; and dependent property coverage, which protects your business if other businesses in your supply chain temporarily cease operations or go bankrupt.
In addition to common business insurances, you can also purchase crisis management insurance, which can get pretty serious. This type of coverage can protect against financial losses as a result of a cybersecurity or data breach, product contamination or recall, terrorism, political violence, workplace violence, adverse media exposure (like employee misconduct), natural disasters and even kidnapping and ransom. In this type of plan, the exact scenarios are usually narrowly defined, so learn the ins and outs.
Assess the Situation Objectively
From the minute a tough situation happens, you need to start objectively assessing what's going on — objectively being the key word. This is easier said than done, especially if you’re in emotional pain or are prone to anxiety. You need to calm down because research shows that emotions don’t just cloud judgement and influence decisions regarding a particular event — they can also affect other unrelated decisions.
Enter the concept of locus of control. This concept splits people into two categories based on how much control they believe they have over outcomes:
- People with internal locus of control believe they are the architects of their own fate and can control outcomes with their own effort and ability.
- People with external locus of control believe they are not in control of their lives. They make decisions in response to external situations.
It’s true that some things are out of your control, but it’s important to nurture an internal locus of control for your mental health and your business's health. Research shows that those who have an external locus of control are more likely to experience anxiety, but beyond that, nobody wants to be that person who throws his arms up and says, "There’s nothing I can do." In tough times, resilient people have the self-confidence to know they can always do something.
Address the Media
The key to weathering tough times is maintaining transparency, especially if it’s in the wake of a widespread disaster or worse — a widespread disaster that's your fault. Consumers are likely scared and suffering, shareholders are nervous about their investment and they’re all looking toward you for relief.
If you are the party at fault, you must work hard to maintain company reputation and trust. One way to do this is to validate consumer objections and reservations. Always stay sympathetic to the parties who are suffering rather than conceal factual evidence to make your situation look better. The media (even if it’s just the local paper) has a way of finding dirty laundry sooner than later.
Whatever your response, it must outline steps to do better or to solve the problem. This will put consumers at ease.
Create a Crisis Plan
You may want to create a crisis plan before a crisis even happens, but once a situation does finally arise, you definitely need to create a crisis plan as soon as possible. If rough times have led to financial loss, this may mean contacting landlords and creditors to work out deals. It may also mean pulling money out of your 401(k) or making unfortunate layoffs, like many small-business owners have done in the wake of COVID-19. In some cases, the Small Business Administration may be able to offer financial assistance in the form of a loan, or you may want to reach out to certain government or community programs.
Resilient businesses should build a network of social support, and a crisis is the best time to reach out to that network, especially if it’s something affecting a whole industry or geographical area rather than solely your business. For example, the mass layoffs during the COVID-19 lockdowns have triggered a “business saving business” movement that brings together local business owners to offer advice and brainstorm innovations. The hive mind can better adapt to brand-new challenges and learn from each other’s failure and success.
Adapt and Rebuild
Once you have your crisis plan, it’s time to enact it. This is not one and done; some situations are completely unpredictable, and you will have to improvise and make adjustments. At this stage, flexibility is key, and you have to rest easy knowing you just don't know what's actually going to happen. Don’t be afraid to change your plan if things aren’t improving or the situation worsens.
- Reuters: BP Workers Could Have Prevented Rig Accident: Commission
- ABC News: Small Business Owners Tapping Into Personal Savings, 401(k)s and More Amid Coronavirus Crisis
- Tucker/Hall: Corporate Crisis Examples
- Politico: Coronavirus Layoffs Surge Across America, Overwhelming Unemployment Offices
- Los Angeles Times: 18% of US Workers Have Lost Jobs or Hours, Poll Finds
- USA Today: Target to Pay $18.5M for 2013 Data Breach That Affected 41 Million Consumers
- Fox News: Economy Lost More Than 200,000 Small Businesses in Recession, Census Shows
- USA Today: The Effects of 9/11 on the Airline Industry
- Next Insurance: 44% of Small Businesses Have Never Had Insurance: A Risk to Businesses and Their Customers
- Investopedia: Crisis Management Coverage
- U.S. Small Business Administration: Get Business Insurance
- Nationwide: How to Protect Your Business with Loss of Income Insurance
- Harvard Business Review: Don’t Let Emotions Screw Up Your Decisions
- Psychology Today: Locus of Control
- American Psychological Association: Locus of Control
- The Seattle Times: Seattle Small-Business Owners Rally to Help Others So Coronavirus Crisis Is ‘Not Just Doom and Gloom’
- Business.com: How to Manage Your Small Business Through a Crisis
- Investopedia: Crisis Management Strategies for Business Owners