Taking care of business

As I indicated in an earlier post, my job at the moment is to think through the implications of what's happening financially in terms of our business, which is a small retail plant nursery in a country town with a population of about 1500. Small businesses are highly volatile at the best of times, and a sharp and prolonged downturn will quickly shake out the weak and probably a lot of the strong as well.

There are a number of salient features of small business which need to be kept in mind. One is that small business people are generally hard workers and when things get tough, they tend to think the solution is to work even harder. The old adage of when you find yourself in a hole, the solution is not necessarily digging deeper should be on the wall of every small business person's office. And there is no better way to find out your weak points than to work for yourself, where every mistake you make rebounds to hit you in the face. undamped and unexcused by the presence of co-workers who can conspire with you in a normal work place to cover your tail or engage with you in mutual fantasies of victimhood and blaming others.

The easiest way for me to think about how we might survive the coming shakeout is to imagine a future beyond the immediate crisis. There will be small businesses in that future — in fact, there may well be very few large businesses which survive, but where human life exists so does small business. So what will these businesses doing, and how will they be doing it?

My guess is that the main changes will be in no particular order:

1. The end of highly leveraged finance and the types of business which need to carry a lot of debt
2. A retreat from franchising and from standardised centrally administered branding
3. A shortening and simplification of the supply chain with more localised sourcing of goods
4. A retreat from extreme specialisation
5. Less reliance on the complex, fragile business systems with short useful lives spawned by the IT revolution
6. Less reliance on outside specialists of all kinds
7. More stable work forces and more reliance on skills within the organisation: these two necessarily go together
8. More close co-operation between businesses in particular communities and less reliance and oversight from government above the local level
9. The disappearance of luxury goods and service businesses except from the larger urban centres
10. The radical shrinkage of small businesses such as financial advisors, travel agencies, vehicle dealerships of all kinds including recreational boating and recreational vehicles, computer repair and sales businesses, long distance trucking, businesses dependent on contracts to government or big business
11. A re-emergence of vanished businesses such as shoe makers and repairers, blacksmiths, seamstresses, local furniture makers and upholsterers, tinkers, potters and brewers
12. A changed security environment which will entail new ways of thinking about how to protect business assets. In some communities this will result in the emergence of standover men from local Mafias selling "insurance" but in more forward thinking places, traders will pre-empt this development by banding together and making their own private security arrangements, as the State is forced to contract from its traditional role because of shrinking tax revenues

This list is by no means exhaustive. If you are a small business person, what I've outlined here will give you a rough guide for thinking about your own strengths and vulnerabilities, and how you might bridge the gap between now and then.

As an initial step, think about your debt levels and general vulnerability to financial constriction. Do you have an informal line of credit which the bank could call in at any time, leaving you high and dry? Are your customers vulnerable to financial crises? Is your business essential or optional? Are your suppliers reliable or diverse enough for you to cope with interruptions? How long and vulnerable is the transport chain to your business or community? Are you dependent on government or big business for your work? Are you dependent on distant technicians and experts for your viability? Is fuel a major component of your enterprise? How close are you, geographically and logistically, to your market? What vital inputs or components sourced from elsewhere could make your business vulnerable should they become hard to get?

Then think about what your strengths might be and how you may take advantage of a retreat from big business and a general reduction of manufactured imports. Not to mention that people (in communities which have remained viable) will tend to shop more locally. Can you cultivate local suppliers? And remember that no matter how hard times are, people still need their entertainment and escape from their immediate circumstances (music and movies were HUGE in the Great Depression): their little luxuries and indulgences. Young people fall in love, get married and have babies. Food, clothing and shelter are always needed.