Inc. Quotes JumpScale Recommendations for Pandemic Response

Original article published on Inc.com

Businesses Face Existential Threats, Made Worse by Politicians

What happens when a second round of business closures hits on top of months of low to no revenue? It isn't good.

By Diana Ransom, Features Editor, Inc.

July 10, 2020

Heading into the summer, businesses across the U.S. were buoyed by the prospect of reopening. They renegotiated rents, retrofitted shops and equipment, and rehired employees. But as Covid-19 continues its terrible march across the South and West, many states and municipalities have paused or reversed their reopening plans--leaving small businesses once again staring at crushing uncertainty.

In Texas, Governor Greg Abbott shuttered bars and restaurants for a second time, as that state's early reopening strategy was overwhelmed by a rising number of Covid-19 cases. Los Angeles Mayor Eric Garcetti has threatened new stay-at-home orders in two weeks if Covid-19 cases don't subside. Arizona Governor Doug Ducey recently forced the closure of bars, gyms, movie theaters, and other businesses for 30 days. Florida Governor Ron DeSantis rolled back indoor dining. In New York City, the restart of indoor dining for the city's thousands of restaurants--scheduled for this week--has been indefinitely delayed by Mayor Bill de Blasio.

While health concerns are real and hard to argue with, businesses say the about-face on reopening guidance has been both jarring and potentially harmful to their long-term prospects.

"We're in limbo," says Frank S. Vellucci, the owner of five Sweetcatch Poke restaurants in New York City. While four of the five locations have remained open during the pandemic--offering pick-up and delivery orders only--the business was poised to see an uptick from the state's phase 3 reopening effort, which included a reinstatement of limited indoor dining. "We were ramping up with employees and inventory; then [local officials] decided to stop indoor seating ... now that they've scaled things back there will be losses."

Those losses add up. For Sweetcatch Poke, it's the sushi-grade fish that ends up in the garbage. It's the lost time and money spent on training employees, who may move on to other gigs. It's the marketing dollars spent advertising new menu items that customers won't be able to enjoy in person.

Making matters worse, these expenses tend to rest on top of the cost of retrofitting, which can involve everything from installing air purification systems, switching out HVAC systems, widening walkways, and creating new barriers between guests. A new survey from the National Small Business Association, a business advocacy group, pegs the cost of those kinds of workspace changes at $11,729 on average per location.

While it's true that millions of businesses have benefited from federal and local stimulus programs, which have provided grant funding or low-interest loans, for many that help either has run out or is about to.

Enormous Uncertainty

"This is the stuff that will make business owners completely nuts," says Mark Cohen, an independent retail analyst and adjunct business professor at Columbia University. He notes that the uncertainty caused by a lack of reliable guidance from officials at all levels of government puts businesses at a disadvantage. "All businesses, even very small businesses, have to be able to plan, if only to determine whether they have enough cash with which they can open their doors and bring people back," he says. Right now, he adds, "you've got enormous uncertainty--and uncertainty in life and in a business setting is extremely challenging."

For this reason, Allan Reagan says he spends at least 20 percent of his time lobbying local representatives on issues such as standardizing facemask usage and leveling the regulatory playing field for businesses like his. He's the co-founder and CEO of Flix Entertainment, a Round Rock, Texas-based small theater chain and microbrewery, which generated $54 million in 2019 revenue and landed at No. 2,162 on last year's Inc. 5000, a list of the fastest-growing private companies in America.

With 10 locations across Iowa, Wisconsin, Indiana, Texas, Oklahoma, New Mexico, and Arizona, Flix sits squarely in the cross hairs of the current path of the coronavirus, and as such, Reagan's contending with a patchwork of regulations and guidance that changes almost daily. "We'll have state governments say it's OK to go to church--because obviously there's political pressure--but not OK to go to the movies," he says.

Reagan has legally been allowed to open several theaters amid the pandemic. However, with the exception of a two-week trial run in San Antonio to test out the company's new HVAC system and safety protocols, all of Flix's theaters have remained closed since mid-March. "We're in a situation where essentially we have zero revenue," says Reagan. "That's definitely been quite a challenge ... [to] maintain an organization and be able to keep landlords at bay, keep all the wolves at bay, and still hopefully have jobs for people to come back to."  

Staying shut isn't an ideal business strategy, of course. Given the changing trajectory of the virus and the resulting guidance changes from officials and the lack of blockbusters--or any new movies, for that matter--coming out of Hollywood these days, Reagan says he doesn't see a way around it.

Covid Safe

Yet even businesses that can safely open may need to close down--confounding matters further. When the first stay-at-home orders hit North Carolina at the end of March, Doug Centola and Mike Shoniker applied for their business--the Charlotte franchise of sensory deprivation therapy brand True REST Float Spa--to be deemed essential. Their claim: People with active lifestyles rely on sensory deprivation as a form of therapy and thus need the wellness service.

Plus, the owners say, the business is inherently socially distant. People can book appointments online, which can be staggered so they don't coincide with other customers'; they go to a single-occupancy room where they float for an hour in a 180-gallon tank filled with 1,000 pounds of Epsom salt. They shower before and after they take a soak, adds Centola. "We're a naturally sterile business."

While the owners were initially denied essential-service status, they'll try again. "We'll be remaining optimistic," says Centola. "While we could never have forecasted something like Covid shutting almost the whole world down for a few months, it's taught us a lot in terms of how to plan for something like this ever happening again."

Still, that optimism is starting to wane. The partners had been looking at opening a second location in Charlotte just prior to the pandemic, and now they're not so sure expansion is a good idea.

It's probably wise to rethink everything at this point--even your business model, says Josh Knauer, co-founder of JumpScale, a [wellness-focused responsible investment consulting] firm based in Pittsburgh. Survival, for many companies, will involve shrinking the business down to its most basic parts and riding out this potentially prolonged period, he says. He recommends asking the following questions before reopening: Can your products or services be provided virtually? Can you operate virtually? What is your business model, and how does it need to change? How do your customers interact with you, and how can you make that interaction safe?

Knauer adds that under no circumstances should a business open if it can't operate safely for both employees and customers. "If it's not Covid safe, your customers won't feel safe and they won't come back, nor will your employees." Indeed, now's the time for tough calls, agrees Cohen. "Since you can't know when normalcy will reemerge, you're going to have to go deeper, whether you like it or not."

That's a harsh reality for Sweetcatch's Vellucci, who grew his business from a single location, which he bought in 2018. "We launched four more stores in 2019 on the premise of being able to operate a central kitchen and central catering." He adds that if he had to permanently shutter one or two locations because of the virus, the economies of scale won't work. "It becomes impossible to be successful in the remaining two locations," Vellucci says. "They're separate entities but they're all one business."

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