Lessons on Small Business Resilience from the Global Pandemic
Small businesses have contributed nearly half of the U.S. gross domestic product over the past 25 years, a period characterized by extreme challenges to this key sector.1 The COVID-19 pandemic’s large-scale disruptions constituted a massive stress test for small businesses everywhere, exposing their vulnerabilities and also their strengths. More than a million small businesses in the U.S. shuttered for good in 2020, according to the Federal Reserve. More than four years since the pandemic’s inception, we examine the essential elements that build small-business resilience, emphasizing the importance of personal fortitude and intangible resources in ensuring business survival.
Understanding Resilience
Resilience is the ability to cope with adversity and adapt to unexpected events.2 Operating in an environment of unpredictable existential risk, resilient small-business owners need mental fortitude to handle the heightened uncertainties of business and life. For the small businesses that thrive, this strength is found throughout the business lifecycle as owners adjust and adapt to frequent, unexpected challenges.
To properly examine and evaluate small-business resilience requires us to focus on key characteristics at each stage: ideation, formation, maintenance and business cessation.
Stage 1: Business Ideation and Formation
The American entrepreneurial spirit flows from the wellspring of small businesses formed every day. Successful small businesses are built on solid concepts, psychosocial strengths and a supportive environment. The COVID-19 pandemic disrupted the decision-making environment for many aspiring entrepreneurs.
From the outset, business owners must have an entrepreneurial mindset, awareness of the business ecosystem, drive, and the personal fortitude to launch their ventures.3 Entrepreneurs must exert cognitive tenacity at the ideation phase, believing in their ability to become profitable despite uncertainties. This mentality involves focusing on expected returns, understanding competition and leveraging existing knowledge to achieve their goals.
Recognizing entrepreneurial opportunities and operating from an internal locus of control helps cultivate resilience, or “grit.”4 Experience then refines resilience by allowing owners to identify patterns and adapt to environmental changes that can lead to new ventures.5
Stage 2: Business Continuity
The Role of Entrepreneurial Support Organizations
Stressful events force firms to confront their inherent deficiencies, including issues of staffing, technological capabilities and finances. These constraints can lead to small-business failure. For entrepreneurs at the concept stage, the pandemic presented a clarifying opportunity to decide whether to persevere and pursue their business ideas. The radically altered business environment actually made it easier to evaluate the viability of many concepts.
Despite the pandemic’s disruptions, entrepreneurs still had access to expert advisers through federal business programs from the Small Business Administration, the Economic Development Administration and the Minority Business Development Agency, as well as other state and local programs. Collectively, these entrepreneurial support organizations provided critical business development knowledge and other resources during the pandemic.
This robust system of support organizations is foundational for the country’s culture of entrepreneurship. Created in 1953, the SBA is a central institution among them, aiming to counsel and assist small businesses in strengthening the U.S. economy by providing development resources, including business plan templates, business structure advice and information on accessing capital.
The Role of Access to Capital
The disruptions caused by the pandemic did not affect all businesses equally.6 Restaurants, the tourism industry and personal services were most heavily impacted.7 Accordingly, small-business capital needs shifted rapidly. Support organizations and government agencies responded to the sudden high demand for capital, addressing the distinct needs of a variety of industries.
Access to capital is a key component of small-business resilience, a factor often closely linked to an owner’s resources and credit capability. Access to resources, financial and otherwise, is a critical factor in small-business resilience at business formation and throughout the business life cycle. Availability of slack resources allows a business to endure turbulence with a buffer that helps support its survival or advancement in uncertain and difficult conditions.8
The SBA Paycheck Protection Program was crucial for many small businesses during the pandemic, by either supporting their success or mitigating losses. Despite its flaws, including distribution challenges and delays, the program provided roughly $800 billion in small-business funding in unsubsidized and forgivable loans,9 sustaining millions of jobs. With access to this urgently needed capital, small businesses leveraged their agility and responsiveness to navigate the evolving challenges of the pandemic, exhibiting a flexibility that large corporations lack.
The American Rescue Plan Act of 2021 provided an additional $350 billion in relief funding to states and local governments seeking to mitigate the damaging effects of the public health and economic crisis.10 The package allowed local and state governments to creatively respond by increasing funding for support organizations, including incubators, accelerators, maker spaces, coworking spaces, and science, research and technology parks to stabilize the economy.
Government systems and support organizations provide supportive assistance to small-business owners at various stages of the entrepreneurial process.11 Resource availability and access are credited with increasing small-business owners' understanding of how to participate in local and regional entrepreneurial ecosystems within their communities,12 which was critical to their survival during the pandemic and also relevant in noncrisis environments. These organizations create supportive communities in which small businesses are equipped with the tools to remain resilient in economically adverse conditions.
The Role of Innovation
Public discourse on small businesses and entrepreneurship often implies that all businesses must innovate and scale to be successful. This, however, is not always the case. While business owners with successful operations, strong technical skills and favorable environments may seem poised for growth, they may not aspire to expand. Some businesses focus on maintaining stability, while others view challenges like the pandemic as opportunities for rapid growth and innovation.
Entrepreneurship and innovation are interconnected, with entrepreneurship identifying opportunities for differentiation and innovation, helping organizations reinvent themselves amid disruption.13 Resilience encompasses more than merely entrepreneurship and innovation – it involves the ability to face challenges and adapt to emerging opportunities, demonstrating that perseverance creates value in dynamic environments.14
Artificial intelligence can enhance small-business resilience by helping create strategically efficient business models. AI can refine customer data and reduce human capital needs, improving productivity across several areas, from customer engagement to supply chain management. Yet deferring too much to AI can lead to very poor choices. For small-business owners, AI is a high-risk, high-reward proposition, and in many realms, using AI technologies is crucial for businesses to remain competitive in times of economic adversity.
The pandemic stress test revealed which businesses were in a strong position and which were vulnerable to disruption. The upheaval forced businesses to critically examine their operations and assess their viability. Business owners had to ask key questions: Is our product still in demand? Will demand persist or change? Have changes in the environment rendered our business model insufficient? Are there new technologies that could improve efficiency?
Stage 3: Business Cessation
Running a small business is challenging, as evidenced by failure rates: 20.7% of businesses fail within their first year, 50.1% by the end of the fifth year, and 65.8% by the end of the 10th year.15 Having an entrepreneurial spirit and psychological resilience will take a business owner only so far. Support organizations and similar networks, the availability of financial resources and a strong enabling environment are critical during times of crisis, and yet the threat of failure is ever-present.
Resilience after a business failure presents a multidimensional challenge, affecting financial, emotional, physiological, social, professional and entrepreneurial aspects of life.16 Consequences of failure can include diminished self-esteem, a loss of social status and a decline in the owner’s self-view or how others perceive them.17 Failure, however, also offers valuable learning experiences that can enhance an entrepreneur’s readiness for future ventures.18
Closing a business provides an opportunity to learn from mistakes. This learning nurtures resilience and helps entrepreneurs apply their newfound knowledge to new projects.19 Observing how other entrepreneurs handle crises can also develop resilience.20 Failure also helps entrepreneurs eschew feelings of invincibility and naive optimism.21 This mental shift can lead to more careful and strategic decision-making. Reflecting on the reasons for failure and practicing mindfulness22 can help individuals improve self-concept by focusing on processes rather than just outcomes.23
Business failure is a reality of entrepreneurial risk-taking, but it does not necessarily signify the end of business venturing for small-business owners. When a business fails, applying lessons learned to future experiences demonstrates personal resilience and grit. Moreover, not all business cessation should be characterized as failure. Carefully planned business closure is also a demonstration of resilience. Entrepreneurs set themselves up for future success when they have the skill and foresight to know when to exit business operations and to do so in a way that protects personal and business assets. When an owner closes one business, they are poised to open the next.
Conclusion
An analysis of small-business resilience brings full attention to the crucial psychological factors needed to start and sustain a business. Small-business resilience relies on the owner’s command of self-identity and belief in the venture’s potential from creation to end. Resilient small-business owners face daily challenges and must manage through economic downturns and navigate operational constraints with creativity and determination. While the pandemic highlighted key aspects of small-business resilience, it may be impractical or impossible to plan for the next black swan event. Instead, it is essential to develop strong individual characteristics like resilience and grit, bolstered by a supportive entrepreneurial ecosystem. By focusing on resilience-building efforts, small businesses will be better equipped to adapt and succeed in the face of existential challenges.
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10 Text - H.R.1319 - 117th Congress (2021-2022): American Rescue Plan Act of 2021 | Congress.gov | Library of Congress
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