While most of the economy-related headlines in the aftermath of Hurricane Katrina have focused on industry shakeups and major corporations with a presence in the Gulf Coast, the storm has also dealt a devastating blow to small businesses throughout the region. And that, in turn, hurts the economy at large. Nationwide, small businesses account for half of all employment, more than half of nonfarm gross domestic product, and the majority of new jobs.
The exact number of small businesses damaged or destroyed remains unknown, but the toll could prove enormous. New Orleans alone has more than 105,000 small businesses (including sole proprietorships, the category into which most such outfits fall), according to the Small Business Administration. The Biloxi-Gulfport-Pascagoula region in Mississippi is home to more than 24,000. In Mobile, Ala., also rocked by Katrina, that number tops 41,000.
As recovery efforts gradually shift to reconstruction, small businesses trying to pick themselves up will serve as fundamental building blocks for cities and small towns alike. And as every small-business owner knows, there is no substitute for firsthand, from-the-trenches experience. "Been there, done that" is a de facto motto for the most successful of entrepreneurs -- a group always eager to impart some of the wisdom picked up along the way.
Who better to lend advice than small-business owners who have survived catastrophe in the past? We went to past winners of the Phoenix Award, created in 1998 by the Small Business Administration to recognize outstanding disaster recovery -- from fires, floods, and yes, hurricanes. All insisted that what they experienced was not as bad as what they've seen in TV reports of Katrina's horrors. Nonetheless, they have valuable advice to offer. We selected five of the best tips to help Gulf Coast businesspeople as they prepare for the rebuilding effort.
Communicate, communicate, communicate.
That was Step #1 for Jim Anderson, president and CEO of Republic Storage Systems, a Canton (Ohio) gym-locker manufacturer that suffered $11 million in damage after a nearby creek flooded and sent four feet of water crashing through its facility in July, 2003. By phone and eventually via a special section on the company's Web site, he delivered constant updates throughout the recovery to his roughly 450 employees -- and equally important, though often overlooked in times of crisis, to his customers.
"The key is to be as timely and truthful as you can," Anderson says. "Because at the end of the day, people will get angry." The U.S. has already witnessed such anger on TV, arising because of communication failure between officials and residents in New Orleans.
Enlist any help you can find.
Whether by providing startup funding or manning the register, family and friends serve as lifelines for most small businesses -- and never does that help take on greater importance than after a disaster. In March, 2002, Stefano and Toni Magro watched fire consume an entire city block that housed four buildings they owned, including a pizzeria and apartments, in Carthage, N.Y.
Afterward, "it was a parking lot," Toni Magro says. "There was nothing there." The couple leaned on relatives and longtime employees, and found unexpected help from members of a community for which the pizzeria served as both a lunch spot and employer of 20.
Likewise, Susan and Sherman Goldstein, whose Martha's Vineyard (Mass.) inn was destroyed by fire in December, 2001, experienced the type of community support already flourishing in Katrina's wake. "We didn't have to make dinner for a month," Susan Goldstein says. "Our friends, people we didn't even know, brought over food for us. Another company gave us space in their basement."
Many small-business owners joke that the best thing the government can do for them is leave them alone. Despite controversy surrounding the government response to Katrina, though, federal and local agencies really do have a good number of resources available to business victims. (For example, Phoenix Award winners are selected from those receiving low-interest SBA disaster loans).
"I've never really been a taker, always a giver, but in this case, I really had the sense that this is what the government is supposed to be there to do," Susan Goldstein says.
Get back on your feet -- as soon as possible.
The Magros used their cadre of volunteer help to salvage anything they could from the destroyed pizzeria, spent their own cash reserve, borrowed from relatives, and moved into a much smaller temporary location within three weeks.
"At the time, we had nothing else," Toni Magro says. But it kept cash flowing -- and that's essential to the long-term survival of a small business.
Of course, temporary doesn't necessarily mean short-term, which will hold especially true for entrepreneurs along the Gulf Coast, where it will take years for their cities to rebuild fully. The Magros have occupied the temporary quarters ever since the fire and will finally open a new flagship location in October (to go with another they opened a year after the inferno).
Similarly, the Goldsteins reopened the inn's restaurant first, in hopes of maintaining at least some presence in the resort community, rather than relinquishing their entire share of the tourist market.
Anderson says perhaps the biggest mistake he made was assuming the recovery would happen more quickly, which raised customer expectations and caused them even more aggravation when those expectations weren't met. And while the company was completely down for five weeks and did lose customers as a result, the operation managed to struggle along for a year following the flood. As the person ultimately in charge, Anderson says he found it helpful to reach out directly to customers and explain. "Don't be afraid to call anybody," he says.
The Goldsteins had to grapple with a heartbreaking reality many such entrepreneurs face: After the fire, they lacked the means to support their more than 60 employees. "The first couple of weeks, we had this romantic idea that we would try to keep people on," Susan Goldstein says, "and we realized we just couldn't do that."
However painful, letting go of employees is often a necessary step as a company rebuilds. In the Goldsteins' case, as with many others, a number of employees returned when the inn officially reopened in September, 2003.
"When life gives you lemons, make lemonade."
While admitting the phrase is a cliché, Susan Goldstein wrapped her destroyed inn with a giant banner declaring the credo during renovations. As she and her husband set out to rebuild, they used the fire as an opportunity to transform a "very modest" inn with small, old rooms, into a higher-end product targeting a whole new customer base.
"We were able to use all that we had learned over 20 years," she says. In August, occupancy at the renamed inn, Mansion House, reached 100%.
And while Katrina has brought back memories of Toni Magro's own painful recovery -- "I would love to go down there and help" -- she says the fire that nearly wiped out her business ultimately actually helped them expand it. "We just never had that motivation before," she says. "The fire gave us that motivation. It's devastating, but life goes on."