As the year winds down, one question that continues to pop up – be it on radio or TV or in conversation – for people in the small business world is: what constitutes a recession-proof business?
As we all know, there is no wishing away the economic downturn at this stage. It has quickly become part of our lives and the most opportune investers are trying to position themselves with the business most able to weather a bad economic stretch.
There are a lot of theories about which industries are recession-proof. It’s certainly a subject that we’ve discussed on this blog. The truth is, there’s no way of exactly saying, as each recession differs from the one that precedes it. Interestingly though, Scott Shane, who writes for the website smallbiztrends.com and teaches entrepreneurial studies, compared data from the last two recessions (1990-1991 and 2001-2003) in search of trends among the small business that succeeded.
Shane used pretty rigorous criteria to determine a recession-proof business. A company had to experience a 20% increase in each of the following categories to be considered recession-proof: the number of establishments; the number of employees; the dollar amount of payroll; the number of establishments with 20 or fewer employees; the number of employees at establishments with 20 or fewer employees; and the dollar amount of payroll at establishments of 20 or fewer employees.
Pooling all of his data together, Shane found only a handful of industries that experienced booms as the rest of the economy slumped: banking-related businesses, accident and health insurers, health practioners and business consultants.
The findings are highly interesting, indeed. One thing Shane admits is that every recession is different, and so it is rare to see a business thrive in two recessions. As for thriving in three recessions, banking-related businesses are facing into a tough few months given the collapse of Wall Street. The future may look brighter for business consultants and insurers, though.
Shane also makes two other points:
- Some industries grow at a steathfully during a recession.
- Insurance, health care, and consulting tend to be recession-resistant industries for people running small businesses.