THE NEW NORMAL AND WHY YOU SHOULD START YOUR BUSINESS NOW

THE NEW NORMAL AND WHY YOU SHOULD START YOUR BUSINESS NOW

The Economic Impact of COVID-19

The COVID-19 pandemic has forced hundreds of thousands of small businesses to close. Early in the pandemic, economists projected that more than 100,000 small businesses shut permanently, according to a study by researchers at Harvard Business School, Harvard University, and the University of Chicago. Their latest data estimates that at least 2 percent of small businesses have permanently closed. In general, the data even worse for restaurants. According to the National Restaurant Association, 3 percent of restaurant operators have gone out of business. 

Case Study - Las Vegas

Places that thrive on tourism and hospitality, such as Las Vegas or Hawaii, have likely been hit the hardest. Academics at UNLV published a study in September 2020, estimating the impact on the Las Vegas economy.

In Las Vegas, the various tourism sectors' direct annual sales are estimated to be $44 Billion. These annual sales create and maintain 436,310 jobs and produce $15 Billion in salaries for Las Vegas employees. The direct contribution to the Gross State Product (GSP) of Nevada is $28 Billion, which is approximately equivalent to 15 percent of the forecasted GSP, or $184.9 billion in Nevada without any COVID-19 impact.

In addition to the direct impact of tourism, the demand for tourism-related services created by Las Vegas visitors creates ripple effects throughout other industrial activities in Las Vegas, and therefore, throughout Nevada. 

Nevada's net losses from the reduction in visitor volumes to Las Vegas due to COVID-19 will be significantly larger than the simple impact on tourism based on these ripple effects. The sectors that will experience the most extensive ripple effects are (1) Real Estate; (2) Owner-Occupied Dwellings; (3) Management of Companies and Enterprises; and (4) Wholesale Trade.

In a worst-case scenario (a 65% decrease in annual visitor volume), total output sales in the State of Nevada would only $25.1 billion compared to $72.8 Billion in a baseline scenario. Total employment would only be 214,651 jobs, in contrast to 623,382 jobs in the baseline scenario (considered direct, indirect, and induced impact). Under the best-case scenario (only a 25% decrease in visitor volume), total output sales are estimated at $53.5 billion and 468,171 jobs in the tourism sectors.

Negative Small Business Sentiment

Considering the facts on the ground, it is easy to understand why many experts, currently stuck in the middle of the storm, have negative sentiments about small businesses.

“We are going to see a level of bankruptcy activity that nobody in business has seen in their lifetime.”

said James Hammond, chief executive of New Generation Research, which tracks bankruptcy trends.

"This will hit everyone, but it will be harder for small businesses since they don't have a lot of spare cash." "It wouldn't be surprising if well over one million of these micro-firms ultimately fail,"

Mark Zandi, chief economist at Moody's Analytics, wrote in a recent note to clients, referring to firms with fewer than ten employees.

In the 1980s and 1990s, small businesses employed over half of American workers, but that dynamic has shifted over time. By 2017, only 47 percent of private-sector employees were at small businesses, and the pandemic appears to be reducing that again. In April, smaller firms had substantially more layoffs than larger ones, according to payroll processor ADP, an early warning sign. These facts lead some to conclude that big business is inevitably poised to take over an even larger share of the pie.

The Opportunity

At a base level, there is simply an opportunity where others have failed. The U.S. lost more businesses during the first three months of the crisis than it usually does in an entire year. In fact, experts estimate that more than 700,000 small business firms will fail in 2020. This is an unfortunate result of the shock of COVID-19. Revenue almost completely dried up for three months. Businesses that did not adapt for whatever reason while the world regrouped did not survive. It isn't the case that all demand has dried up.

What appears to be happening now is that spending is picking up as cities and states lift restrictions on everything from restaurants to retailers. This is leading to a rush of activity that had been on hold in the early months of Covid-19. Simultaneously, the virus's continuing spread has led to a more sustained shift in consumer behavior than in previous downturns. That has wiped out revenue streams for existing businesses while also opening up new markets for upstarts.

The intersection of these facts creates significant opportunities for the savvy entrepreneur: (1) Pent up demand for traditional goods and services that (2) must necessarily be serviced by businesses in new ways. Entrepreneurs have the opportunity to quickly roll out traditional goods and services in new and creative ways to meet this demand, where larger companies may stumble to take this action.