By Deanna Cioppa
Although opening up a small business is a risk in itself, it takes additional risk-taking to grow that business. Small business owners in the past would swap risk for reward, betting their livelihood on personalized customer service and deep community roots. In the wake of the most recent recession, however, small business owners have been reigning in their risk-taking and are not as focused on growth.
Although the majority (77 percent) of small business owners feel successful, more than half of them (55 percent) say they are more financially conservative in how they operate their business due to the most recent recession, according to The Hartford's 2014 Small Business Success Study.
While the country's 27 million small businesses employ about half of all private-sector workers, more recently, owners have been reluctant to hire, citing flat growth and lack of funds. The Hartford's study found that 67 percent of small business owners have not hired anyone in the past 12 months. This reluctance was not limited to struggling businesses; even among those who claimed to be operating "highly successfully," 57 percent made no hires in the last year.
Not Sweating the Big Stuff
Interestingly, while owners' hiring behavior may be indicative of significant anxiety over macro-economic factors, fewer are concerned about certain uncontrollable risks that can impact their business compared to a couple of years ago, according to The Hartford's study. For example, there was a decrease in the number of owners who said healthcare costs represented a risk to their business—39 percent down from 53 percent in 2012. Similarly, significantly fewer owners consider slow economic growth and taxes as risks that could impact their business.
So how can small enterprises continue to reduce anxiety and begin taking the necessary risks for growth, while still protecting themselves from the unforeseen? First, says entrepreneur, author and small business expert Mike Michalowicz, pay attention to the big guys. Where large businesses go, small businesses will follow within six months to a year. It takes about that long, he says, for cutbacks at the giants to trickle through the medium businesses and down to the small businesses.
This doesn't mean that small business owners need to follow the same risk mitigation and recovery tactics as large businesses. Actually, the fact that they don't is to their advantage. "For small businesses," says Michalowicz, "if they get just one or two more [customers] or only lose two, that's a huge impact...Their goal should be to fight harder to keep those two customers, and that will help them navigate through."
Change It Up
Unlike large businesses, small companies can be more flexible, pivoting as each of those macro variables warrants. Unfortunately, "small business owners are so gut-driven and reactionary," says Michalowicz, which makes them prone to throwing on blinders in the face of big change. Instead, owners should be seeing each change as an opportunity, he added.
Research and forethought are critical for small business owners. One example is financing: What if a small business owner's bank jacks up interest rates? There's no reason the owner shouldn't investigate rates at other banks, says Michalowicz, or even look to alternative sources of investment, like crowdfunding.
As much as they try, when it comes to risk mitigation, small business owners just can't do (or think of) everything. That's why it's absolutely vital, warns Michalowicz, that they surround themselves with experienced, trusted advisers and meet with them regularly. Create a standing quarterly meeting with your accountant, for example, and get debriefed on what's happening in the economy and how his other clients are preparing for changes up the road. Lawyers and investors are built-in sources of insight, so why not consult with them on broad economic issues?
The bottom line: Small business owners shouldn't think small when it comes to preparing for big change. To encourage growth while mitigating risk, they should leverage their size, stay flexible, and research outside-the-box options.
Deanna Cioppa is a New York City-based freelance writer with a focus on travel, culture, fitness and lifestyle. Her work has appeared in ESPN the Magazine, Westchester Magazine, Fodors.com and other publications.
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