Opportunity in uncertainty: small business response to COVID-19

1. Introduction

“Navigating uncharted waters” was the repeated phrase used by businesses, policymakers and the government as they devised plans to survive the onset of COVID-19. The pandemic and shutdown of businesses generated an unprecedented amount of uncertainty and fear. Government-imposed restrictions, shutdowns and other measures were taken. “Social distancing” was advocated, originally to keep social gatherings to 10 individuals or less and recommendations to stay at least 6 feet apart from others not living within the same household. Many businesses closed their doors temporarily unless they met government-imposed criteria as “essential”. Because businesses were struggling to operate due to COVID-19, this unfortunate circumstance allowed a unique opportunity to understand small business responses to crisis and uncertainty.

The current study sought to identify patterns of small business owner responses to COVID-19 across a variety of business types in a nonurban setting. The study results produce both a qualitatively rich and detailed description of themes and patterns of small business response to heightened levels of uncertainty and crisis, and an emergent process model summarizing those themes that may be valuable in understanding potential future business crises and small business strategic responses. Through careful review of detailed open-ended interviews with small business owners, informed by principles suggested by scholars of grounded theory qualitative methodology (Strauss and Corbin, 1998), the current study was undertaken with a fresh mindset unburdened by prior theory and research framework expectations. Hence, this article presents the study methodology and results in detail and provides linkages to prior research mostly in the results and discussion sections. Yet readers may find a brief consideration of some relevant past work informative to approach and orient the current study findings.

2. Small businesses facing uncertainty and crisis

Crisis adaptation among small business owners is a neglected topic in contrast with better established literature on existing and larger firms. Yet, prior literature does provide some logically relevant insight into crisis situations that may share some similarities with the coronavirus threat. Several classic treatments have highlighted uncertainty as a persistent multifaceted challenge to businesses. Various scholars have explained that businesses encounter multiple types and forms of environmental uncertainty (e.g. Milliken, 1987), and benefit from a forward-thinking approach when adapting to variation and chaos (e.g. De Meyer, Loch, & Pich, 2002). During recession, for example, entrepreneurs able to recognize opportunities or innovate are more likely to succeed. Opportunity recognition usually involves combining processes, technologies or products that are ripe for entrepreneurial exploitation (Devece, Peris-Ortiz, & Rueda-Armengot, 2016). Unpredictable crises such as COVID-19 likely accentuate the role and intensity of uncertainty and place special emphasis on responsive opportunity recognition and exploitation. Creativity and innovation in business are often improvisational, requiring frequent shifts in response to new information and changing conditions (Amabile and Pratt, 2016). During the initial stages of the shutdown, small businesses were forced to act quickly to remain competitive. The uncertainty of future sales placed additional financial constraints on small businesses. According to Ho & Wong (2007), such financial constraints can further limit entrepreneurship. Business plans should be able to accommodate alternate strategies opportunistically when faced with inflated uncertainty (Frese and Gielnik, 2014). Uncertainty is commonly discussed as a phenomenon affecting the design or configuration of business models (McGrath, 2010). Many entrepreneurs pursue new challenges despite their inability to attract new resources. This allows them to survive and even flourish by solving problems and exploiting opportunities when faced with resource constraints (Baker and Nelson, 2005). According to Penrose (2000), crisis can be perceived as both a threat and an opportunity. Yet, why some entrepreneurs and small business owners seek and pursue opportunity during times of uncertainty and change is not fully understood.

The COVID-19 pandemic offers a fitting context to analyze how uncertainty affects entrepreneurial actions. Entrepreneurs may adapt to the future by being opportunistic and implementing what is possible within the environment. As the coronavirus (i.e. COVID-19) made its appearance in the United States, small business owners recognized the possibility of future uncertainty, but many of them did not immediately foresee the extreme lasting effects. During initiatives to contain the virus, many small businesses were forced to come up with new ways to remain competitive. Some offered new products, while others found new ways to deliver existing products to customers or to identify new target markets.

Previous studies on uncertainty have generally relied on scale-based measures or on experimental design and control of environmental factors (Carver and Connor-Smith, 2010). The current study used an intensive qualitative interview approach to identify processes of adaptation during crisis among small business owners in smaller cities and rural settings in the Midwestern United States, with the goal of uncovering emergent themes of coping and response supported by rich and detailed descriptive and anecdotal information. Thus, the current study sought to gain a greater understanding of how these small business owners navigated such an ambiguous and turbulent environment.

3. The method

Based on interviews with fifteen small business owners in communities with a population of less than 40,000 in Missouri and Illinois, this exploratory study identified compelling patterns of coping with the ambiguous and continuously changing environment. Careful analysis of interviews informed by principles suggested by grounded theory scholars (Strauss and Corbin, 1998) was used to understand the complex phenomenon. Grounded theory scholars suggest a systematic approach to data collection and analysis that also allows for some flexibility to uncover processes and inform theory. Specifically, although the study did not endeavor to following all the formal steps (e.g. multistage textual content coding and recoding) suggested by various grounded theory practitioners and instead used a more general open-ended interview approach, the study did adopt the principles of using an open-minded approach (to allow patterns to emerge in the qualitative data rather than seeking to test a specific theory) and paying systematic attention to the specifics of the interview responses over time. The exploratory nature of the study allowed for emergent patterns of response to be better understood without imposing preconceived expectations. The theoretical sampling strategy was to identify a range of small businesses that varied in industry type, number of years in business, owner gender and the extent to which the company continued to operate during the onset of the pandemic. Local chambers of commerce assisted with generating contact information for small business owners. Because most of the sample is from Missouri, a timeline of actions taken by both federal and state (Missouri) governments is shown in Supplementary File 1. We selected businesses in this region due both to feasibility of data collection and to allow comparisons of businesses facing very similar government-imposed constraints. Although the actions taken in Illinois were not identical to those in Missouri, both faced state-mandated shutdowns and stay at home orders of similar form and duration.

Interviews were conducted primarily via Zoom videoconferencing. Interviews consisted of open-ended questions, with follow-up and clarifying questions, as is often done in qualitative inquiry (Spradley, 1979). The study concentrated on in-depth interviews of a limited number of small business owners to more deeply understand the experience of entrepreneurs with a focus on local research rather than generalizability. Anonymity of interviewees was guaranteed to promote candid responses and open discussion. Interviews ranged from 30 to 90 minutes in duration and were recorded and transcribed for analysis. The fifteen interviews took place over a period of 57 days beginning on April 10, 2020.

Questions (shown in Supplementary File 2) were written to address several major areas: (a) business attributes and owner demographics, (b) operations prior to the coronavirus, (c) changes in business performance related to the pandemic, (d) perceived business risk, (e) precautions taken, (f) strategic responses, (g) community outreach, and (h) plans to take advantage of government financial assistance.

As interviews progressed, it became evident that the small business owners made significant and creative adaptions to their business strategy to remain competitive even under limited operations and continuous changes, and acted to strengthen relationships with business owners, customers, clients and the community. The two researchers periodically discussed the interview answers and used this feedback to identify potential converging themes and identify areas of special focus for follow-up and clarifying questions in remaining interviews. Although a formal coding/recoding scheme was not implemented, the exploratory nature of the study with open-ended interviews during the early onset of the pandemic allowed for real-time, in-depth conversations with business owners.

4. Results and linkages with prior research

The small businesses varied in a range of business features and owner demographics, including type of business, business size (range = 0–54 employees), owner age (range = 29–63 years), length of time as the business owner (range = 2 months to 35 years) and owner gender (11 women and 4 men; 73% female). Supplementary File 3 lists the key attributes of each business owner in the current sample. Subjective success was measured by asking “How successfully was your business operating to COVID-19 (Coronavirus) becoming a major concern in the United States?” and “How would rate this since COVID-19 has become a major concern?” using a scale ranging from 0 = not at all successful to 10 = extremely successful.

The interviews provided a better understanding of a range of adaptations and highlight the vital importance of flexibility and preparation for ongoing and future uncertainty. A number of clear and compelling themes emerged from the analysis. Table 1 provides a detailed breakdown of themes, subthemes and prototypical or representative interview quotes. The discussion below provides an overview of some especially noteworthy and representative points. These emergent themes are then summarized and integrated into a resultant process model of small business adaptation.

5. Discussion

The current study provides a wealth of qualitative information detailing the responses of a variety of small business in nonurban areas to the uncertainty and challenges of the COVID-19 pandemic. The results highlight emergent themes and lead to resultant process model providing a detailed summary of small business adaption that may also provide a road map for small business owners in adapting to future situations of crisis and uncertainty. Specifically, the business owner responses show the importance of assessing and reassessing strategies, identifying new opportunities in the face of uncertainty, and adapting strategies regarding processes, products, customers and relationships that contributes to a continual process of strategic reassessment.

Because the coronavirus pandemic is in many ways a novel situation with many external factors affecting small businesses, the study was intentionally developed using a fresh lens rather than being driven by previous theoretical works. Nevertheless, the resultant findings add more value when considered in relation to prior literature. Namely, in addition to offering new COVID-19 specific insights and a new emergent process model of small business adaptation to crisis and uncertainty, the current study findings also showed compelling linkages several important theoretical and research streams in prior work. Such linkages were discussed in detail in the “Results and linkages to prior research” section.

In addition to those previously noted linkages, consideration of some especially relevant recent research may add further value. Schneckenberg, Velamuri, Comberg, and Spieth (2017) unpack the coping mechanisms of decision-makers during uncertainty and reveal five strategies – customer centricity, value co-creation, capability evolution, ecosystem growth and adaptive pricing – applied by decision-makers when coping with uncertainty in business model innovation. Further, Reeves and Deimler (2009) discuss several strategies for competitive advantage: adjust customer offerings, new pricing models, rapid prototyping and partnership with competitors. Similar mechanisms for small business entrepreneurs were uncovered during the present study. Customers and clients were at the center of some of these adaptations, as businesses realigned to customer needs and behaviors and focused on remaining in contact with customers and clients during times of limited face-to-face interaction. By aligning with customer needs, firms are likely to generate higher profits (Schneckenberg et al., 2017). Previous studies have found that firms must experiment and fit resource allocation to new business models (McGrath, 2010; Martins, Rindova, & Greenbaum, 2015). Respondents in the current study adapted to evolve work processes by reallocating resources to meet changing needs. Pricing was discussed by some of the business owners, but mostly in terms of what to charge for limited-service availability. For example, the daycare owners (Participant 13) had to decide how to charge families when they decided to pull their children out due to recommendations or COVID-related absentees. Partnership with competitors was also discovered as the daycare providers collaborated to make decisions and consider how they could best serve the community and maintain trust of the families.

Because this was a sudden and ongoing situation, the pandemic provided a unique set of challenges. In their pandemic-specific research, Salamzadeh and Dana (2021) conducted interviews with co-founders of well-known startups and identified six principal types of challenges during the pandemic outbreak: financial, human resources management, support measures and mechanisms, marketing, crisis management and others. The current study reinforces the importance of those challenges and adds further richness. For example, the current findings and emergent process model highlight the importance of offering new products, creating new processes, changing target customers and continuously adapting in response to feedback and results. These results reinforce other COVID-19 studies that have identified the importance of communication and collaboration with customers and other businesses (Al-Omoush et al., 2020, 2022). For example, a study on e-business response to COVID-19 found that social capital and collaborative knowledge creation can play a significant role in response to the pandemic, confirming the importance of knowledge as a renewable resource (Al-Omoush et al., 2020). A later study found that social capital significantly impacts organizational sustainability during COVID-19 (Al-Omoush et al., 2022). Insights about business adaptation to the pandemic also complement studies on prior crises, such as Hurricane Katrina (in 2005) or the 2008 financial crisis. Although each crisis presents unique problems, they all add greater understanding of response to uncertainty. For example, research on the effects of hurricane Katrina found that small businesses were particularly affected as they were more susceptible to interrupted cash flows, lack of access to capital and difficulty accessing federal assistance (Runyan, 2006), challenges shared by many of the businesses in the current study. In summary, the current findings add rich qualitative insights into small businesses in rural communities during the pandemic and suggest a valuable emergent process model. Although the process model may well be applicable to many situations of crisis and uncertainty, the detailed study results also allow for a greater understanding of the specific cognitive and behavioral processes of small business entrepreneurs during the COVID-19 pandemic. This allows for both policymakers and practitioners to understand “why” and “how” small business owners might respond to crisis and uncertainty.

6. Conclusion

The in-depth interviews and detailed, qualitative analyses allow for a better understanding of how small business owners in smaller communities respond to a situation of intense crisis coupled with high levels of uncertainty. Findings highlight impressive resilience and creativity of small business owners in re-evaluating resources, identifying new opportunities and adapting to changing needs in the face of adversity. A key contribution of this study is the emergent theoretical process model for small business owners when coping with uncertainty. As businesses recognized uncertainty and assessed their strategies in terms of processes, products and people, they were able to identify new opportunities. Business owners discussed opportunities in relation to identifying changing needs of others, remaining relevant and being able to produce enough profits in the short term for firm survival. By identifying such opportunities, entrepreneurs adapted strategies and constantly reassessed during the most turbulent periods of the virus onset.

Much of the existing literature discusses entrepreneurial action at the beginning of the venture or success in terms of survival or profit. The COVID-19 (coronavirus) pandemic is a compelling context for analyzing how small businesses cope with and adapt to unexpected crisis, uncertainty and change. This study provides insight into entrepreneurial adaptation to intense and unpredictable crisis situations and highlights the importance of being able to assess and adjust business strategies and reallocate resources under fluidly changing conditions.

Existing limitations of the study provide opportunities for future research. Notably, a modest sample of fifteen small business owners was interviewed in similar communities in the Midwest. With a larger sample size and more variance in age and gender, interview responses may be more diverse and potentially more generalizable. However, the current research may provide unique insights with special relevance for younger entrepreneurs in smaller cities and communities regarding effective response to uncertainty and change.

This study may be used to inspire future empirical research on reactions to uncertainty, changes in business strategy, and strengthening and developing relationships during turbulent times. The emergent process model can be used in empirical studies to understand how small business owners process and adapt to changing environmental contexts. Future research could use quantitative analysis to understand when and to what level small businesses adapt during crisis and how they continue to adjust over time. Lastly, it is important to understand how strategy adaptations are assessed and revised. The model can be used and updated with the addition of new findings. Longitudinal data of small businesses could also provide a deeper understanding of the impact of crises. By learning from current and ongoing crises, small businesses may gain insight on how to better prepare for the future.