Not fully sure this is that, but it reminds me of something an American friend explained about their business under the Trump regime (as a rant about how laypeople were deeply under-reacting to the tourism decline):
If it takes 100 tourists to pay his bills, taxes, staffing, and other expenses for the day, the next 5 tourists represent the profit. A tourism decline of 10% doesn’t mean 10% less profit, it means the catastrophic inviability of the whole business as it’s currently structured.
In reality most business can do things like cut hours for staff, postpone upgrades or long term maintenance, cut amenities, raise prices etc…
If most businesses were structured in a way that a small decline in customers immediately puts them out of business, any minor economic downturn would be an unrecoverable positive feedback loop for the economy.
I’m not saying a 10% drop won’t put a lot people out of business, but it’s not as much of an existential crisis for the economy as a whole as that story makes it seem.
That’s not what I was saying. I’m saying that we have small downturns where consumer spending drops yet those drops don’t result in crisis levels of small businesses closing. Which it would if most of them were structured like that.
I was going to say that curring hours just offloads the problem onto their employees, but the reality is it does that and creates new problems for the bbusiness.If the employee cannot afford to keep the job, they will be forced to search for a new or additional job. The business is either hiring and training inexperienced people, or dealing with staff who have reduced availability.
They also cannot do much about fixed costs; postponing maintenance typically increases long term maintenance costs; postponing upgrades, cutting amenities, and raising prices may deter even more customers (keep in mind, nearly everyone is feeling the pinch these days). That is assuming that the business isn't doing that already.
All of those things are true. There are downsides to any of the levels they can adjust. I’d there weren’t, they’d already be doing it.
But it’s wrong to model businesses as if they have no ability to increase profit per customer and predict catastrophe from minor reductions in customer traffic.
They can and do figure out how to do more with less.
Sure that’s one of the argument for why they do it but the money doesn’t directly to most small businesses, we do have small downturns, and they don’t result in the majority of small businesses going out of business.
Most small businesses fail because they were never serious businesses to begin with. A business closing down after running for a year with no profit isn’t relevant.
You can’t always tell the difference, but you can filter out businesses that lasted less than a year, temporary businesses that were setup for real estate transactions, and business that never made a profit.
If it takes 100 tourists to pay his bills, taxes, staffing, and other expenses for the day, the next 5 tourists represent the profit. A tourism decline of 10% doesn’t mean 10% less profit, it means the catastrophic inviability of the whole business as it’s currently structured.