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Looking ahead: What’s next for small business?

It’s an understatement to say that the coronavirus has caused the largest public health crisis in generations.

The speed at which this tiny organism — a 10th of a micron across — brought such upheaval will have lasting effects on the way people behave and plan for the future.

Early efforts to contain or limit the spread of the virus in the spring indeed made a difference, but the disease flared up and attempted to breach our defences yet again.

Even so, experience with this first and second rounds provided valuable lessons and have given us glimpses of what may lie ahead. COVID-19’s impact on the economy has been widespread, but also unequal.

Effect on small business

Small firms and their employees have been disproportionately affected.

It is not surprising — small firms tend to be more labour than capital intensive and people in labour-focused activities will naturally be more exposed to the risk of pathogens.

How, or whether, these small firms bounce back will shape much of what the business landscape will look like in the future.

Turnover has always been a feature of the small business sector, with roughly 10 to 15 per cent of firms entering or leaving the marketplace every year.

This past year saw considerably more exits, particularly in sectors that had extended shutdowns such as hospitality, recreation and personal services, and those businesses overexposed to debt.

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Canada has lost more than 15 per cent of active employers in these sectors and nine percent in the economy as a whole as of August 2020. Their closures will, at least initially, leave gaps that will be filled by larger, more formulaic and better-capitalized competitors.

Some of the influence will come from the demand side — consumers altering their spending habits away from activities more prone to close human contact.

It’s hard to believe that sit-down restaurants, concert events and other high-touch activities will be able to operate the same way they had in the past.

Supply-side influences will also show up, with shortened and rejigged supply chains seeking efficiencies through scale and the removal of some intermediaries.

Online sales will be pushed to a permanently higher plane now that both customers and vendors have grown more used to them.

Entrepreneurial rebirth ahead

This isn’t necessarily all bad for small firms, though. Despite the deep cleanse, we will see a rebirth of entrepreneurial activity.

Joseph Schumpeter’s “creative destruction” concept of business innovation will pick up momentum when consumers tire of limited choices or they yearn nostalgically for purchase experiences of the past.

Some will grow bored with cookie-cutter shopping formats and seek out more experiential opportunities. Younger consumers and entrepreneurs will probably lead this trend.

There will be a great deal of talent who, by no fault of their own, could not push their businesses through the COVID-19 crisis.

The hope is that some of that talent can be reapplied to new ventures — their skills and experience would be too valuable to lose. If the work-from-home trend sticks, the implications for administrative staffing, downtown property use, urban planning and transportation could be profound.

Navigating business relief during a pandemic – and beyond

More broadly, the role of government is becoming more hotly debated.

The federal, provincial and municipal governments committed hundreds of billions of dollars to prop up personal incomes, business payrolls and corporate credit during the crisis — all of it borrowed from the future.

The bill will indeed be steep and managing it will alter the path of government spending and likely intergovernmental relations well into the future.

It will be important that human capital is treated appropriately.

Getting people and businesses weaned off the emergency relief benefit and wage subsidy, and encouraging workers to resume paid employment, will be the most important next steps in the recovery — not just to preserve their work skills but also to help them earn enough to help pay the bill.

Work incentives, therefore, will matter a lot. Canadian immigration and child-care policies have proved effective in the past at helping get people into the workforce.

More serious efforts will be needed to retrain people in mid-career and to discourage others from retiring early. Expect vigorous policy debates on these subjects soon.

One cannot ever be certain of the future, but judging from past events, adjustments and improvements will happen faster and more broadly than most people expect.

It will be the entrepreneurially minded who will lead the way. The changes we will see in the medium-term will likely be the ones we would have seen eventually.

While we weren’t looking, the novel coronavirus stealthily sped up the clock.

Ted Mallett is the former vice-president and chief economist of the Canadian Federation of Independent Business (CFIB) in Toronto.