Are medium and small businesses more vulnerable to disasters than other organizations?

First: governments do not go out of business following a disaster. Certainly there have been changes to how a government entity is structured and managed following the post disaster analysis.

Second: I have not personally witnessed nor can I validate through research, any large cap company that did not survive following a disaster. The great ice storm of 1998 devastated businesses in upstate New York, Québec and Ontario but there is not a single piece of evidence of a large company ceasing operations in the short or long term following that disaster. The same applies to investigations of large companies following 9-11, Katrina and the Oklahoma City – Alfred Murrah building bombing. The only case that might have a remote connection is the devastating May 1988 fire at the First Interstate Bank in Los Angeles. The bank declared bankruptcy in June of 1998 and a part of the cause may have been debt accumulated following the fire but that remains speculation.

Third: Small and medium businesses are the most vulnerable to disasters because they often do not have the cash reserves or borrowing capacity to re-establish operations following a disaster.

How many companies go out of business following a disaster?

There are various numbers used by different public and private sector prognosticators but the source of the information is suspect. In other words; is the number of business failures presented used as a means of accomplishing the organizations objectives of obtaining attention to the issue or gaining a business advantage?

I believe that it is safe to assume that some small to medium businesses will not survive a large scale disaster such as Katrina or 9-11. However, will those same business owners and managers start another similar business? Will someone else create a new business to fill the void created by the failure of another? Does overall business activity suffer in the long term following a disaster? Many would speculate that, in the short term, business activity increases based on the need to rebuild and re-establish operations.

Small and medium businesses could, if motivated, go a long way to preparing for a disaster by examining four key aspects of survival:
1. People: who will do the work following a disaster?
2. Information: How many hours or days of data and associated changes can the entity afford to lose permanently and be unable to recreate? How quickly must the data be available for use?
3. Technology: What equipment, tools and supplies will be required following the disaster in order to conduct business.
4. Workplace or facility: Where will the business and it employees work from if the primary premises are destroyed or inaccessible for more than a few days?

There is, of course, much more to business continuity preparation than these four questions. Each business is unique and the details will be different. My advice to any small business is to have a good understanding and plan for the People and Information aspects as soon as possible and then work away at the Technology and Workplace issues over time.

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1 Comment

  1. The CEO of Coca Cola said that if Coca Cola lost every single one of its plants and capital assets overnight, they could borrow the money to completely rebuild — on the value of their brand alone! That is what most small and medium sized companies cannot do — and going out of business to restart a new business foregoes that brand value. There is a cost to planning for disruptions, and the return is not obvious — it’s like insurance. You pay the premiums while hoping that you never have to submit a claim. Small- and medium-sized businesses need to invest the time, effort and money in being prepared for “the world behaving badly.” The cost of not being prepared far exceeds the cost of being prepared.

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