Part one in a series of three guest columns
Our company serves the “little guys” of the Canadian economy — the restaurants, small retail shops, beauty salons and independent contractors that make our communities tick.
We’re witnessing first-hand the struggles of Canadian small business owners through this crisis. Their resilience and determination to survive inspires us every day. But we know that many will not make it through to the other side. Those that do will undoubtedly face a new set of challenges and will need to figure out how to bounce back in a changed world. How will they navigate?
Most textbook economic theories do not apply here, so we decided to take a first principle approach and start from a few simple questions:
What does the world look like for the small business owner in Shawinigan (or Kelowna or Mississauga or Lethbridge or Gander) as she begins to sweep the dusty floors of her shuttered business? What challenges will she face then, and what difficult decisions will need to be made? What support will she require at that time, and who will provide it?
Neils Bhor, the famous quantum physicist, said that “prediction is very difficult, especially if it is about the future.” Recognizing the risk of the exercise, we laid out our predictions in order to follow Wayne Gretzky’s prescription “to skate to where the puck is going,” and to prepare ourselves to be effective on the other side of the crisis, in a forever changed landscape.
In summary, we see five realities that will shape the post-COVID small business landscape in Canada:
1. Social emergence will be gradual, and small businesses will need to grapple with reformulating business models with lower revenue for at least one year.
2. Most small business owners will need to contend with a consumer base with considerably less purchasing power, and a case of depressed consumption across the board, even after the reopening.
3. Changes in consumer behaviour and altered supply chains will create disruptive pressures and opportunities for tomorrow’s small businesses, and a new wave of startups and transformed businesses will emerge to address new market paradigms.
4. Many small businesses that survive the crisis will face a daunting prospect of digging themselves out a mountain of crisis-accrued liabilities, and for many bankruptcy may be the only option.
5. Increased government intervention in the small business economy will be necessary for some time.
Small business through COVID-19
Our company’s internal data suggests small business payment terminal sales are off 60 per cent from a baseline week in early February. Already, one-third of small businesses in Canada are unsure if they will ever be able to reopen, according to the Canadian Federation for Independent Business.
It’s hard to overstate the calamitous impact such statistics forewarn for the Canadian economy. Canada’s 1.2 million small businesses generate more than 40 per cent of private sector gross domestic product. They employ seven out of 10 people in the private sector workforce, according to Statistics Canada.
We’re already seeing the staggering early effects of their shuttering, with millions of unemployment applications filed since the onset of the COVID-19 crisis.
Very appropriately, the government has enacted stimulus measures to buoy the small business economy in the near term, highlighted by the Canada Emergency Wage Subsidy, the Business Credit Availability Program, and the Canada Emergency Business Account. These programs are extending necessary payroll relief and ensuring debt capital is available to bridge small businesses through an indeterminate period of full or partial closure. They are among the best tools available, but the toolkit is incomplete.
The magic bullet to complete the arsenal is likely months or years out, and will come from the medical and research community, not the economic one. Consensus has not yet been reached as to the efficacy of potential therapeutics, and the best estimates for the timing of widescale vaccine distribution is sometime in late 2021.
In the interim, and assuming a gradual emergence from near-complete social lockdown within the next three to four months, governments worldwide will attempt to walk a delicate line. As outlined by Tomas Pueyo in his widely read Medium article “Coronavirus: The Hammer and the Dance,” governments will likely attempt to optimize a formula of allowable societal engagement that points the viral trajectory downwards, but the re-opening of the economy will not bring linear growth; rather it will be characterized by ups and downs for quite some time.
Tomorrow: what economic recovery might look like
Stéphane Marceau is the CEO of Thinking Capital, the largest non-bank digital credit provider to Canadian small businesses.