Though the rain has moved on and the sun shines again over Houston, it is still much too early to forecast how much damage Hurricane — and then Tropical Storm — Harvey has inflicted on southeast Texas. But here's one prediction we can make: however dire the effect is on small businesses, it won't be as bad we've come to expect.
To be sure, among businesses, small companies will bear the brunt of the impact, at least relative to their capacity to absorb it. "Small businesses in general are more vulnerable in non-disaster times to downswings, so that would be the same in a disaster situation," says Kathleen Tierney, a professor who researches the effects of disasters on business and the former director of the University of Colorado's Natural Hazards Center. But in fact, the vulnerability is almost certainly amplified. Small companies are less likely to have prepared for a disaster in the first place, and when one strikes, she says, have fewer slack resources to turn to, like money on hand or alternative locations to operate from.
Compared to their larger competitors, small businesses concentrate their eggs in fewer baskets. Most operate out of just one location, and are entirely dependent on customers who live or work nearby. When those people leave, the effect can be devastating, says Tierney. "If there is large-scale population displacement, and you're a local business dependent on a local clientele, your customers aren't there any more," she says. "And I think we're going to see quite a bit of that" in Houston.
But here's the thing: the effect is usually temporary. To judge from all the commentary, when a hurricane makes landfall, the small-business ecology is irreparably damaged — experts throw out statistics that claim that 25 percent, or 30 percent, or 40 percent of all small businesses that close during a disaster never reopen.
Do not believe them, says Tierney. "Total urban legend — there's no data whatsoever," she says. "All it is is people citing other people. "I've looked at randomly selected representative businesses in Los Angeles, Santa Monica, Des Moines, Iowa, and south Dade County" — all scenes of natural devastation at one time or another. "And you know what? You can find those businesses — they're still there."
For example, a study of the companies (and government agencies) located in the World Trade Center complex at the time of 9/11 found that 95 percent of them remained in business. "And there were 1,100 of them," says the study's author, University of Southern California professor Adam Rose. Ninety percent of the businesses were able to relocate in two to nine months, and because of that, Rose says, they were able to avoid most of the potential sales losses that the interruption could have caused.
Rose is quick to acknowledge that the comparison between 9/11 and Hurricane Harvey is loose. The terrorist attack destroyed only a small part of a big city, so businesses could find new homes in other neighborhoods, or across the river in New Jersey. "That's going to be tougher in Houston," with flooding across thousands of square miles, says Rose. Moreover, in 2001, New York was suffering from the dot-com recession, so rents were lower and vacancies were plentiful. By contrast, Houston, as Tierney points out, today sits in the fastest-growing county in the US.
And this is an important point, according to James Kendra, director of the Disaster Research Center at the University of Delaware. "It's hard to find a 'typical' figure" for business failures, he says, "because disasters aren't typical. There are just a lot of local circumstances that can make a difference."
Both Kendra and Rose note that the companies that tend to ultimately go under, even after reopening, are those that were marginal to begin with. Calamities, Kendra says, have a culling function. "Maybe before the disaster they were sort of making it, but the disaster was the last straw," he says. "But that's what a disaster does to a lot of institutions: it shows where the vulnerabilities are. When things are functioning normally, we tend not to notice."
CORRECTION, Friday, September 1, 8:30 p.m.: An earlier version of this post misidentified Kathleen Tierney as the director of the University of Colorado's Natural Hazards Center. She is the former director. Lori Peek serves as the center's current director.
