Last week, Diana Mora and Dashiell Brody decided to close their Brooklyn, New York, music venue bar Friends and Lovers until New Years Eve. Artists kept cancelling at the last minute – sending their programming manager in a frenzy to find a replacement or get on the stage himself to fill in – and they wanted to make sure their employees could see their families without being exposed to COVID-19.
It wasn’t a decision they took lightly – they talked with their staff and crunched the numbers to see what the impact would be. They are paying them through the week and directing hourly workers toward unemployment for the weeks off. The two felt a moral responsibility to protect their 12 employees and community from the omicron variant.
“It’s ripping through our community like wildfire,” Mora said over the phone as she waited for her 15 minute period after getting her booster shot to be up. “Even the vaccine mandate at the door was not really making a difference.”
As evidence emerges from Europe that the omicron wave will cause a deadly surge in the health care system, many gatherings are being canceled, dealing another blow to already struggling small businesses in the entertainment, travel and retail sectors. As in the first wave of the pandemic, cities are being hit first.
The first two years of the pandemic killed many small businesses – an estimated 20% closed permanently, according to the Mastercard Foundation. They were likely the weakest, with the smallest capital reserves or uncertain business models. This wave of the pandemic may well be an emotional blow, as small businesses that had the wherewithal to survive the first two years struggle in an environment of uncertainty and rising prices with little support from the finance system or new aid from the government.
It’s a vital question for the U.S. economy because small businesses produce about 40% of the U.S. GDP.
“None of us can do this again, emotionally or mentally and also financially,” Brody said. “It’s just not feasible.”
Declining Consumer Demand
In the fast-changing recalculations around the pandemic, some conclusions are emerging:
- New large-scale federal aid to small businesses is unlikely, say experts. “I have not heard anything about a new round of PPP or any other assistance for small business because of Omicron,” said John Dearie, the founder of the Center for American Entrepreneurship “All the political attention and effort is on passing BBB.” Many states and municipalities are flush with cash after the infrastructure bill signed in November. .
- The pandemic may depress consumer demand. Economist Mark Zandi, chief economist of Moody’s Analytics, revised his estimate of economic growth in the first quarter down to 2% from 5%.
- The environment for small businesses and entrepreneurs will vary widely depending on geography. European businesses are facing restrictions and receiving some government aid. But President Joe Biden emphasized a federal lockdown isn’t likely. And after two years, it’s clear that some U.S. states and municipalities have little stomach for restrictions that mitigate transmission. In those places, small businesses will be on their own to make decisions about how to proceed – and the overall economic blows will be lighter.
Like many small business owners, the two owners of Friends and Lovers, which they founded in 2013, have had a turbulent two years. New York City has been hit hard with COVID-19, and the city has been strict on its vaccine and mask mandates. Without a large outdoor space, Friends and Lovers closed their doors for nearly a year. They reopened slowly – first with small suppers with 24 people instead of the usual 155. By the summer things were back to normal-ish.
The company was profitable before the pandemic, selling tickets for $5 or $10, and bringing in about $700,000 in revenue.
“It (the beginning of the pandemic) felt like a distant memory until the last couple weeks,” Brody, whose DJ name is Dash Speaks, said. “All of a sudden this gut feeling that we had, dread, was settling back in, kind of like this eerie, slightly traumatic, deja vu.”
Unlike March 2020, things are different this time around. Business owners now have foresight – how to pivot, how to host virtual gatherings, how to live in a pandemic-struck world. But they also understand what it means to be navigating everything – the day-to-day question marks, the waiting times for grants and loans (if any arrive at all), and the conversations with employees.
Entrepreneurs in states that have been more open about the pandemic – such as Texas – are less concerned about the variant, said Hal Shelton, who mentors more than 20 small business owners across the country from Herndon, Virginia-based entrepreneurship resource SCORE. Also, owners who offer primarily online services won’t be uprooted in the same way if the variant sticks around for months.
Brick-and-mortar owners are again faced with an impossible decision: remain open and risk their staff and customer’s health, or close and take the revenue cut. Amid this, owners are also navigating supply chain delays. But many are losing either way – Mora and Brody noted an NYC venue owner who made $250 the entire night. “That’s not even close to operating costs,” Brody said.
Entrepreneurs are often constitutionally able to shift strategy better than most people – it’s part of the makeup of a founder. But these years have been unprecedented. It’s like working on many dimensions, said Shelton,who’s also an angel investor at DC-based Blu Venture Investments and the author of The Secrets to Writing a Successful Business Plan.
“Many small businesses truly believe that [their team] is part of their extended family,” Shelton said. “So how is it that the business owner can help their staff receive an ongoing paycheck, but at the same time be safe, not only for other staff members, but for customers that they might interact with?”
A Profitable Business – Before
This time, many businesses are left to make those decisions alone, without the promise of funding. “It’s like if we decide to close because we’re trying to do something for public health, what is the outcome of this? Is there any public support?” Brody said.
Before the pandemic, Friends and Lovers was on a path toward growth before it had to close during 2020. Then, the biggest concern was making the about $10,000 in rent and utility payments each month, Mora said, a hefty price tag for a closed business. She took out a line of equity and relied on pandemic relief grants and loans.
As they’ve reopened, their revenue returned, slowly at first. But with cancelled shows, they’re losing revenue again – especially when artists cancel last minute and food and staff are already scheduled.
Brody and Mora have been advocates for NYC venue operators since the early pandemic. They both were part of the founding team of NYC Nightlife United, which has raised more than $100,000 for operator grants.
Little Potential for More Large-Scale Aid
A bipartisan bill introduced in Congress aims to add $60 billion to the Restaurant Revitalization fund, meeting the more than $44 billion of need expressed during the first go-around that went unfulfilled. Those funds would come from the American Rescue Plan, said Didier Trinh, the director of policy and political impact at Washington D.C.-based advocacy group Main Street Alliance.
Main Street Alliance is also advocating for the restoration of the Employee Retention Credit, a program that aimed to help owners rehire and retain staff they had to let go because of the pandemic. It was halted for the final quarter of 2021 when the Infrastructure bill was passed. “[It’s] caused a major disruption to small business owners that were planning (and depending) on it,” Trinh said.
“Business owners are still digging out of a two year hole, barely scraping by,” he said. “[Another lockdown] could set them back another year.”
Trinh said he hopes the decision-makers will reflect on the lessons learned from these programs if more relief occurs.
The federal government aid in the first two years of the pandemic – there were multiple grant and low-interest loan programs – tended to reach the best-resourced small businesses and those with existing relationships with banks, and was particularly difficult to navigate for entrepreneurs who didn’t speak English or weren’t part of the formal economy. Some programs ran out of money: For instance, 3,000 women, people of color and veterans never received promised funds under the Restaurant Revitalization Program.
Under the grant programs for shuttered venues, the SBA is still processing applications, appeals of declinations and has offered grantees the opportunity to have their award amounts reconsidered, said a spokesman by email.
In addition, the SBA has $100 million in funding for projects in states that are designed to reduce barriers to finance for small businesses, including those owned by veterans, women, rural communities and people of color. That’s under a program called the Community Navigator Pilot Program, the spokesman wrote.
The most powerful entrepreneurial lobbies have been focused on stopping a proposed roll back of favorable tax treatment of gains on qualified small business stock contained in the Build Back Better legislation – an issue that affects successful high-tech ventures and their investors. Venture-backed startups represent about 1% of all startups in the United States, but the successful outliers are some of the fastest-growing companies.
“The upshot is, not only is there no new assistance being contemplated as far as I know, but the change in the tax treatment of QSBS will undermine new and small businesses by reducing the incentive for investors to invest in startups and undermining the ability of startups to attract the skilled talent they need,” Dearie said.
Dearie is working with groups such as the National Venture Capital Association and the Angel Capital Association to lobby against the roll back.
Playbooks Relieve Some Tension
For LA theater manager Edward Baney, the playbook created during the pandemic is a little comforting – he rented his spaces out to TV and film producers who filmed commercials and productions there. If another lockdown were to happen, he would pivot back to that.
But it’s not without risk. Baney got lucky, he said, because two historical films wanted to rent out the two theaters he manages for more than a month each. But the business still took a 30% revenue cut, and it’s not guaranteed he’ll be able to book the spaces for that period of time again.
“If this variant gets really out of hand – which I’m crossing my fingers it doesn’t – I think we’re gonna be in big trouble if people don’t step up and get vaccinated,” Baney said.
Jennifer Jones, owner of Cosmopolitan Plated in Arlington, Virginia, shifted her community-building cooking classes online when the pandemic hit in 2020, a move that attracted new customers from 20 states, Ireland and the UK, she said. She taught more of her classes, which aim to bond colleagues, friends and family through cooking.
The digital shift was a big one for the previously in-person-only business, but now she knows the ropes (she continues to teach classes in a hybrid model, offering some in-person and some virtual experiences). What she’s most concerned about is people’s spirits.
“I have to be mindful that we had no choice in 2020 and 2021,” Jones said. “Right now, people have gotten a taste of being together and hugging and shaking hands and laughing together.” Jones plans to continue holding small in-person classes with vaccinated people.
This story and others on New Builders Dispatch are made possible by a sponsorship from the Ewing Marion Kauffman Foundation. The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that provides access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity – regardless of race, gender, or geography. The Kansas City, Mo.-based foundation uses its grantmaking, research, programs, and initiatives to support the start and growth of new businesses, a more prepared workforce, and stronger communities. For more information, visit www.kauffman.org and connect with www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.