The Covid pandemic has caused undoubted disruption for small businesses, with data suggesting around 200,000 small businesses shut due to the pandemic last year. Research from Florida Atlantic University argues that the best way to survive such disruption is to adopt more fundamental changes to one’s competitive strategy.
It’s an approach that researchers refer to as boosting the “dynamic capabilities” (DC) of the business, with analysis revealing that firms who adopted such an approach did better than those who didn’t, with the approach particularly effective for smaller businesses.
“Every day we would see new headlines documenting the plight of struggling small businesses, so we decided to study a strategic management theory designed to predict performance in turbulent settings and see if it helped during COVID-19,” the researchers say. “Interestingly enough, this theory of dynamic capabilities is normally thought to benefit large firms more, but we found that when turbulence is as extreme as it is during COVID-19, being small actually increases the efficacy of dynamic capabilities. No matter how small you are, this can help.”
Tough times
The data for the study was pulled from a survey of around 600 businesses from across the south of the United States during the summer of 2020. This was a period where the initial restrictions on non-essential businesses were lifted by the government.
The authors highlight that smaller businesses tend to bear the brunt of any fallout from economic downturns, and this was certainly true during the initial months of the Covid pandemic, in which around three times as many small businesses failed as they did during the whole of the Great Recession.
This is often due to the more substantial cash reserves larger firms have to weather the shock posed by the recession. During the Covid pandemic, the federal government did attempt to provide financial support to small and medium-sized businesses, which provided a degree of relief, but nonetheless, a great many businesses went under as a result of the pandemic.
It did provide, however, sufficient respite to allow the researchers to measure the effectiveness of the business strategy. The results show that when firms were able to quickly identify new customer needs and then pivot towards new business models without getting unduly bogged down by political or bureaucratic hurdles then they were generally more efficient at responding to the pandemic.
Such shifts are often possible in smaller firms because their small size allows decisions to be made more quickly, with the often personal relationships between internal and external stakeholders facilitating this nimbleness.
“This is not to suggest these changes will be easy,” the researchers conclude. “The owner of the flag-making company, for example, compared it to trying to build a parachute while falling to the ground. But the company also noted that it was ultimately worth it because it’s an entirely different business now. And all their furloughed workers are back working full time.”
