Magazine

After The Chaos


Loretta Harrison considers herself one of the lucky ones. The owner of 12-person Loretta's Authentic Pralines evacuated from New Orleans to Folsom, La., where she has family, before Hurricane Katrina struck the Gulf Coast. Harrison's family and employees are safe. Beyond that, it gets murky.

True, most disasters pale in the face of Katrina. But small business owners trying to regroup after Katrina -- or a less destructive disaster -- may want to take a page from the playbooks of entrepreneurs who have successfully rebuilt their companies.

In 1992, Ann Machado's Miami-based employment agency, Creative Staffing, lay in Hurricane Andrew's path. Her staff had just minutes to grab lists of clients and temps before evacuating. "We set up in one of our employees' townhouses, because she was the only one who had power," says Machado. A few days later, the National Guard briefly let employees back into the building. The workers snatched PCs, invoices, and checks before being hustled out.

For three weeks, Creative operated out of the townhouse, where many staffers also did laundry. It was eight weeks before business began to improve. "We lost 60% of our business overnight," says Machado. Her house was condemned after the hurricane.

"WE KNEW WE COULD"

Yet today, Creative Staffing, at $12 million in revenues and 25 employees, is twice the size it was before Andrew. Machado says she never considered closing up shop or moving. "This is my home," she says. "I've been successful here, and I never thought of leaving. We knew we could rebuild."

Rebuilding after a disaster is more than a matter of grit and luck, although both help. The entrepreneurs most likely to rebound share certain traits, as do their businesses. They realize that rebuilding is more akin to starting over than expanding. They understand the dangers of accepting loans and don't endanger their nest eggs to keep their businesses afloat. Those with geographically diverse customers have a big advantage. But by far the most important factor when it comes to rebuilding a business -- one that many entrepreneurs never fully get their heads around -- is whether it makes sense to rebuild at all.

Small businesses are more vulnerable to disaster than large ones. Large outfits often hire dedicated staff to specialize in emergency and risk management, which most small companies can't afford. The majority of small businesses are in the retail or service sectors, with high rates of failure even during normal times. Businesses that depend on high-end discretionary spending are particularly exposed, because after a disaster this spending typically goes into housing. Finance, insurance, and real estate companies usually do better, because state and federal regulations governing them often require risk assessment and preparedness, says Kathleen Tierney, a professor at the University of Colorado at Boulder and Director of the University's Natural Hazards Center.

Entrepreneurs who cope most effectively see the aftermath for what it is: not a bump in the road, but a step back to square one. "In times of disaster, people fall back on what they know how to do, whether it's relevant anymore or not. That's pretty much the downfall of small business people," says Daniel M. Alesch, a professor at the University of Wisconsin-Green Bay and co-author of Surviving Extreme Events: A Guide to Help Small Businesses and Not-for-Profit Organizations Prepare for and Recover from Extreme Events.

When Robert Garber, owner of New York caf? and caterer Bits Bites & Baguettes, was barricaded from his office for nearly three months after September 11, he moved his business to midtown Manhattan rather than wait for downtown customers to return. "I built this place out of nothing," he says. "Why not do it again? I knew what I needed to do."

Garber rounded up $300,000 from a community development group, the Small Business Administration, and grant money. With his walk-in business gone, he courted corporate catering clients. Because he had only a temporary phone line, he had to call every customer individually to give them the new number. "Of all the setbacks, that was the worst," he says. It was three years before Bits Bites & Baguettes, now downtown with 70 employees and $3 million in sales, was making as much as it had before the attacks.

The odds of a small business surviving depend greatly on its customer base and the larger economic situation. Entrepreneurs need to consider what their customers will be doing while they're rebuilding. Finding other suppliers? Changing buying habits? Moving out of the area? If customers have sustained large losses as well, there may be little reason to reopen quickly unless the entrepreneur is providing a desperately needed product or service, such as groceries or medicine.

These questions, and more, are much on Harrison's mind. She has insurance, but the paperwork is stranded in New Orleans. She has tried to contact the Federal Emergency Management Agency but, she couldn't get through. She's been waiting in line with hundreds of others to get food stamps because banks are limiting cash withdrawals.

Harrison says there's "no way" she'll leave New Orleans, but she's realistic: "New Orleans has lost tourism. There won't be any conventions for a long time, and the last thing that local people have on their minds is candy." She's considering making her pralines, sugary pecan confections, in Folsom and selling via the mail and the Web. She may rent a storefront in Atlanta.

It's important for entrepreneurs such as Harrison to keep the larger picture in mind. Areas in decline before a disaster usually continue to unravel after a preliminary burst of repair work, construction, and optimism. Those that were doing well before are more likely to thrive. If big employers choose to stay around after a calamity, chances are their employees will, too, supporting the local economy.

KNOWING WHEN TO LEAVE

An entrepreneur who decides to rebuild should keep an open -- and pragmatic -- mind. There may be no reason to stay in exactly the same spot, especially if your business is a tenant in a space that has been damaged. "If you rebuild in the same location, it will probably be an extremely dreary and depressed neighborhood," says Claire B. Rubin of Arlington (Va.) emergency management consultants Claire Rubin & Associates. "The resident numbers are going to tank. You'd be hard pressed to think, unless you're selling lumber, that this is going to be a swell environment to do business."

The resources available to help probably sound familiar. Small businesses in need of loans can register with FEMA, which sends the info to the Small Business Administration. A business owner can get up to $1.5 million to repair physical damage or replace inventory; a decision may come in as soon as a week or two. The SBA also offers economic-injury disaster loans for up to $1.5 million for businesses that are not physically harmed but can't pay their bills because of the event.

Even at the 4% rates being offered to Katrina victims, loans can become a millstone. Daniel Marks, a project manager with the University of Delaware's Disaster Research Center, says that, years after a disaster, business owners with related loans generally view themselves as worse off than those without, because the debt is a burden. "If your business doesn't start making its money back soon, you can get underwater fairly fast," says Marks.

Business owners may also benefit from block grants awarded by the U.S. Housing & Urban Development Dept. to local governments. The money can arrive in weeks, and some municipalities have used the grants to set up revolving loan programs for small companies. Sometimes, if the business survives three or four years, a percentage of the loan will be forgiven. But the loans may require entrepreneurs to rebuild in the same place, preventing them from moving to follow recently relocated customers or to chase down new ones.

There are plenty of other places to turn. Machado got a rent abatement from her landlord: two months free and one at half price. "They don't want you to shut your business down and lose you as a customer," she says. After maxing out her $200,000 line of credit, she got her bank to double it. She asked clients to speed up payments, and most agreed. She even hired a therapist to meet with her staff. "I was shell-shocked," she says. "My employees were crying." But Machado, and all of her big customers, stuck it out.

Harrison is hoping, down the road, that she and her business do as well. Says Harrison: "I was born to make pralines."

Offer advice to companies hit by Katrina or tell your own story at businessweek.com/smallbiz/katrinahelpdesk

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