David Robinson, James and Gail Vander Weide Professor of Finance
“As scary as it is (COVID-19) from a medical perspective, and it certainly is scary. We’ve heard horrible things on the medical side. It is unprecedented in economic scope. We have never seen an event of this magnitude. It’s especially hard on the small business sector for a couple of reasons. First of all, the small business sector is a huge part of the U.S. economy. To kind of put it in perspective, you might have heard people talking about there being 30 million small businesses. Let’s break that number down a little bit. Of those, there are 24 million people who have no employees. They are just sole operators. And then you have about six million businesses in the U.S. And of the six million businesses out there, only about 20,000 of them, far less than one percent, are businesses that have more than 500 employees. So like 99.5 percent of the U.S. economy is made up of organizations that have fewer than 500 employees. Taken together, this is about half of U.S. employment. It plays out across the supply chain, and across industries. Small businesses are especially prevalent in areas that are hit hardest by this recession, namely retail, restaurant and hospitality. The toll there is just difficult to exaggerate just how big of an impact it’s taking on the small business economy.”
“It’s hard to know how to do things better by doing them differently. But I do think it’s worth bearing in mind that 24 million number I gave you just a minute ago. 30 million small businesses. 24 million of them have no other employees. If you want to think about supporting the small business sector you have to take small businesses and put them into two groups: small businesses that are providing paychecks for other people and then people who are just getting their own paycheck by doing something solo. When you think about our policy response, you think about, for example, the Paycheck Protection Program that’s aimed at helping all of small business. We are sort of doing two separate things with that program. Part of the time, we are protecting someone’s paycheck. And another part of the time, we are helping people who are writing paychecks for others. We use the phrase payroll protection program, we think more about this later group. We think about supporting businesses that are trying to keep their staff employed and try to keep their payroll going. That’s a relatively small fraction of the overall eligibility group for this program. So you might think that maybe a better way is to reach out to the 24 million entrepreneurs who are solo operators is just to provide some kind of direct household assistance.”
“It really comes down to just a question of magnitude. How large are the groups of people you are trying to help and how much help do they need. The magnitude of this problem is perhaps most easily expressed by the fact that it took us less than two weeks to exhaust the first $350 billion dollars of aid. The next tranche of money coming down the line is expected to be exhausted in the same amount of time.”
“I actually think this is great time to go to business school, partly for just the sad fact that we are entering a recession. It’s a relatively easy time to exit the labor market for a period of time. But also, every recession is a little different than the last one. The last time we had a recession, it was a global financial crisis. And we spent lots of time and attention thinking about reconfiguring the financial sector.”
“Coming out of this, we are going to spend a lot of time and energy thinking about reconfiguring supply chains, reconfiguring relationships between businesses and customers. And so it is an incredibly good time to go to a school and acquire sort of cutting-edge technology, cutting-edge human capital that will help you enter an organization that is rethinking how it does business. I think that is true across the board, whether you want to join a large firm or a small firm or a new firm or an old firm.”
“But then if you also think about opportunities in the small business sector or with start-ups with young businesses, I think it’s a really good time. And there are a couple of reasons for this. One is just in the last six months, 12 months, there’s actually been an enormous amount of venture capital funding that’s been committed to VC funds that has not yet been deployed. And so that money is going to be looking for a home. And they’re going to be reluctant to spend the money right now because things are still crumbling. But you’ve got a lot of un-deployed capital that is going to be eager to be put to work once things start to come out again. So that means that it should be an interesting time to join a startup in a year or two years from now.”
"I think it’s a wonderful opportunity for people who are interested in what sometimes is called entrepreneurship through acquisition. This is when you leave business school and rather than starting a business of your own, you find a business that’s existing and you buy it and you possibly reconfigure it, combine it with other businesses to create a new business. This is a great time for that opportunity because, frankly, so many businesses are under financial strain. And you combine that with the fact that the population is aging. You have a lot of small business owners who are approaching retirement who are looking at intergenerational transition questions. The time is really ripe for this activity. I think you are really going to see a huge flurry of activity in kind of the lower, middle market through this entrepreneurship through acquisition channel goving forward."