Having ownership in two small businesses during the coronavirus crisis has given me perspective. Both businesses have their challenges but black swan events like covid19 favor some small businesses over others. The economic damage inflicted by government-imposed lockdowns is unequal. The tension building on when and how to open the economy has different degrees of severity dependent on the type of business. Any business that relies on close contact with consumers will face higher barriers to survival during and after the crisis.
Ownership in Stripe Nine Brewing and Appledore Research require a rethink on how to adapt each in a post covid19 era. Both are small – less than ten employees. Stripe Nine is local, blue collar, brick and mortar, low margin, high employee turnover, heavily regulated, and less than six months old. Being less than a year old means the balance sheet is weak and cash on hand is less than 30 days. The other is global, white collar, virtual, high margin, low employee turnover, unregulated, and six years old. The balance sheet is strong with a solid base of blue-chip clients.
The arrival of covid19 was a punch in the face moment for Stripe Nine Brewing. It hit us fast and hard forcing our hand faster than any previous economic calamity in the past. We went into cash conservation mode immediately including the painful decision to furlough all employees. Margins are tight in the restaurant business, but craft beer helps boost overall margins. The goal was to stop the cash bleed out. Moving to a takeout model was not part of the original business model. Take out sales amounted to less than 5% of total revenue. The consumer psyche has been damaged and we are predicting health guidelines will mandate strict physical separation reducing seating by half pre-covid occupancy load. For the backstory click here Stripe Nine Brewing. Going forward we must adapt to a takeout model to drive more than half of the previous top line revenue.
Appledore Research has been less impacted. Some clients held off projects, but others are redirecting budget dollars from cancelled conference events to sustain marketing campaigns. I left the safety of Analysys Mason six years ago to start Appledore Research. The first two years required the heavy lift. Brand awareness combined with a seasoned well-respected staff and strong client relationships gives us good predictability into the future. Working from home was our business model so other than restrictions in travel the impact has been muted from covid19. We are well positioned for a post covid19 era and have noticed increased business activity in the past month.
My advice to policy makers and government officials attempting to prop up the economy. Take care of the high touch small businesses first. Cash reserves for most is less than 30 days and relief funding like PPP is the only lifeline available. Credit line requirements will become more restrictive driven by economic uncertainty. Business debt-to-income ratio and a bias towards conservative pro forma income statements will lower availability to credit access for small businesses. Banks will inevitably withdraw credit lines and reject low interest loans. This will force many small businesses to shut their doors permanently if lockdowns extend out another two months. In the end much more government subsidies will be required if policymakers hope to limit the small business carnage.