2020 was a big win for corporations and more than tragic for small businesses. The lockdowns forced small businesses to close (some permanently) as corporations continued to make profits.
The Fall of the Little Guys
Close to 200,000 businesses closed in the US. Retailers, restaurants, and bars were some of the hardest hit, and 60 percent of them are unlikely to recover. Most small business owners just opted to permanently close, burdened by accumulating overhead costs and seeing very little hope for the future. Only the largest establishments were allowed to open, particularly groceries and hardware stores.
Small businesses with barely enough savings to cover two months of non-operation were struggling through the lockdowns while the largest corporations barely felt the impact, even earning billions during the period. Corporations involved in information technology, consumer goods, communication services, and healthcare saw decent growth, putting them on a better footing for 2021.
Corporations fortify themselves by growing bigger. Acquisition is the name of the game, and companies with their merger/integration consultants are always on the lookout for the next buyout or merger. Bigger companies will swallow smaller ones, and large corporations will integrate big companies into their holdings.
The largest conglomerates own hundreds of brands under their umbrella, increasing profits and reducing their chances of losing money. Even if one brand goes underperforms in a year, it will not affect the corporation significantly. Diversified portfolios are like pillars holding up a ceiling. Losing a single pillar won’t affect the structure, especially if it has hundreds of them.
Nestle is a good example of a conglomerate. It has more than a hundred brands under its umbrella (bottled water and ice cream account for 102 brands), and it has diversified its portfolio to include beverages, coffee, water, cereals, chocolates, frozen foods, frozen desserts, nutritional supplements, instant foods, seasonings, pet care products, and many others. Nestle also owns 30 percent of L’Oreal, a corporation in itself with over 50 cosmetic brands.
Surviving a Hostile Environment
For small business owners, survival is all about expansion and diversification. Putting all your eggs in one basket can lead to disaster, especially when unforeseen circumstances occur. Having more than one branch or center makes your business more insulated from unexpected market forces unless it is an all-encompassing event like the one in 2020. Weigh whether to put your money on expansion or savings.
Having enough money to cover 3-4 months of overhead should be enough to keep your business running. Spreading your interest in various areas will also ensure a steadier cash flow. While you can funnel money from one business to another to keep it afloat, it is considered bad practice and inevitably leads to larger problems. You can do so once or twice. However, you should also know when to let go of a struggling business and focus on your more successful ones.
Facing a Buyout
If your business is successful enough to attract the attention of a larger business or corporation. It can be a dilemma. Since your business isn’t likely to be listed, you are either the sole proprietor or own it with one or two partners. A corporate buyout can seem overwhelming, especially if money is being thrown around. Hold-off selling until you get a clear valuation of your business. Call in experts and lawyers who can go through the paperwork and see if other parties may be interested in acquiring your brand.
In the end, the world of business is governed by one rule: survival of the fittest. Mergers and takeovers are inevitable, and small business owners need to adapt to survive.