Dominance of ‘nano-firms’ leaves Metro economy vulnerable: analyst

Proliferation of one-person companies will intensify fallout from pandemic unless aid is swift and significant, says Andy Yan

Andy Yan, director of Simon Fraser University’s City Program: “it’s going to be critical that these programs that are suppose to provide economic relief have the sensitivity and the sensibility of acknowledging and engaging [small] businesses” | Jen St. Denis/BIV files

Metro Vancouver’s economy is so dominated by “nano-firms” – businesses with no employees on the payroll – and small companies that the region may be facing “dire” consequences from COVID-19 if government aid does not come in a timely and strategic manner.

That is the analysis of Andy Yan, director of Simon Fraser University’s City Program and one of Vancouver’s highest-profile urban planners. 

A study by Yan, obtained exclusively by Business in Vancouver, of data from Statistics Canada’s 2019 Business Register showed that 58.3% of Vancouver’s businesses fall under the “nano-firm” category, without any formal employees – although they may maintain a workforce through contractors or an owner’s family members.

That percentage is consistent across four other major Metro Vancouver centres – Surrey (60%), Burnaby (52.7%), Richmond (54.5%) and Coquitlam (56.6%). The percentage across B.C. is also within that range at 56.1%.

In fact, under the Canadian and U.S. definition of small and medium-sized enterprises (SMEs), with companies qualifying if they have fewer than 500 employees on payroll, only 112 companies in Vancouver (0.31%) do not qualify as SMEs. 

Yan said the data is especially worrisome when combined with analysis from JPMorgan Chase (NYSE:JPM) this month showing that of the SMEs in the U.S. market, which profile reasonably close to Canadian counterparts, as much as 75% of such businesses hold a cash buffer of less than a month. It means that Metro Vancouver companies, if they hold similar amount of cash buffer, will quickly go out of business if Ottawa and the province do not provide tangible aid before mid-April.

“It’s going to be critical that these programs that are suppose to provide economic relief have the sensitivity and the sensibility of acknowledging and engaging those types of businesses,” Yan said. “In Vancouver, you have these self-employed firms. Within that, there’s also a very sizeable immigrant population. So I think it’s safe to say that the economy here is heavily connected towards immigrant entrepreneurship, and … we have to make sure whatever program we are developing is providing economic relief for these small business entities.”

Yan got the idea to explore Metro Vancouver’s business demographics from his previous work in neighbourhoods surrounding the destroyed World Trade Center towers after 9/11. He said that the 2001 terrorist attack provides the closest example of the type of economic fallout one might see locally after COVID-19 caused the local economy to grind to a standstill in mid-March.

That businesses in Metro Vancouver so dominated by nano-firms and SMEs means that regardless of what aid packages Ottawa and the province announce, it will do very little unless the federal and provincial governments take specific steps to make these programs accessible to ordinary business owners.

“If you take one person out of a four-person firm, that’s 25% of your workforce,” Yan said. “That means that companies of that size really don’t have the scale to deal with some burdensome, complex application process…. That is the economic space for the province. You have these nano-firms that, in my experiences after 9/11 and the recovery afterwards, can really fall through the cracks. It’s important to acknowledge that.”

Yan added he is especially concerned about immigrant entrepreneurs who may not have the language skills or familiarity with Canada’s digital systems to even begin looking for aid, let alone file applications through the proper channels.

That means the federal and provincial government need to go actively into Metro Vancouver’s communities within the one month cash-buffer period that most SMEs will be working under.

“The JPMorgan study gives us this framework of the need for speed that these types of businesses are going to require,” he said. “One of the lessons I learned in New York is that they had an active small business administration that very much worked at putting boots on the ground. They were walking the sidewalk and connecting businesses to get them the help that they needed.”

A small sample of local businesses appears to indicate that such efforts are not happening. Peter Butler, co-owner of Vancouver running footwear retailer Forerunners, said he has tried everything to access aid programs from Ottawa and the province in March but has been unsuccessful every time.

“It’s impossible to access all these programs,” Butler said. “I’ve been trying to do it, and honestly, if you can help me do it, I’ll be your best friend. I can’t even get through to Services Canada; the phone line is busy all the time, their offices are all closed, the website crashes every time I try to do things digitally. 

“I’m not sure what they are doing; they are promising all this stuff, but I’m not sure how it’s being delivered.”

Butler added that, with customer traffic already down 50% in the first weeks of isolation and social distancing efforts, the best case scenario for him in three months is “to still have a business.”

At a news conference last week, B.C. Finance Minister Carole James acknowledged the province is aware of the economic implications of the COVID-19-induced shutdowns around British Columbia, and may look at more support for small businesses.

“Right now, we are focusing on supporting individuals,” James said. “But we also have to start to look at the recovery end. No one can predict at this point how the pandemic will evolve … but I think it’s clear there’s going to be a large impact around the globe.”

Yan said that, even with optimal timing and strategic planning from now on, it is likely already too late to save some businesses from going under. Any aid programs that will be delivered, he said, will then need to also keep the future in mind – especially the consideration for quickly enacting polices such as tax breaks, loans and business pilot programs after the COVID-19 shutdowns are lifted.

“The harsh reality is that you will not be able to save every firm,” he said. “There will be firms that are already challenged for a number of reasons. At the same time, there is an after, if you will.

“We know there are certain obstacles, even in the pre-COVID period, such as the prolonged period of permitting, and difficult/complex bureaucratic processes. It’s not to say those things don’t have a role; we want transparency, accountability and safety. But let’s at least ensure that the environment afterwards is at least fertile for new businesses to flourish.”

The cost of government not succeeding with the proper support and market intervention, Yan added, is what he described as a potential return to “Victorian London” levels of wealth disparity, with extreme poverty spreading to more areas of the city and creating a more fractious social fabric.

“This is a call to action,” he said.

-----------------------------------------------------------------------------------------------------------------------------------------------------

Data: Businesses by the number of employees, by jurisdiction (2019)

A) Vancouver

    (SMEs)    

    No employees:     172,287
    1-4:                         21,083
    5-9:                           6,025
    10-19:                       4,271
    20-49:                       2,936
    50-99:                       1,022
    100-199:                      487
    200-499:                      254
    
    (Non-SMEs)

    500-999:                        62
    1,000-1,499:                  21
    1,500-2,499:                  10
    2,500-4,999:                  10
    5000+:                             9

B) Surrey

    (SMEs)    

    No employees:         89,415 
    1-4:                           11,445 
    5-9:                             3,671 
    10-19:                         2,158 
    20-49:                         1,209 
    50-99:                            390 
    100-199:                        131 
    200-499:                          64 
    
    (Non-SMEs)

    500-999:                             9 
    1,000-1,499:                       1 
    1,500-2,499:                       3 
    2,500-4,999:                       2 
    5000+:                                1 

C) Burnaby

    (SMEs)    

    No employees:            45,081 
    1-4:                                4,883 
    5-9:                                1,744 
    10-19:                            1,301 
    20-49:                               794 
    50-99:                               305 
    100-199:                           143 
    200-499:                             79 
    
    (Non-SMEs)

    500-999:                              13 
    1,000-1,499:                          3 
    1,500-2,499:                          5 
    2,500-4,999:                          3 
    5000+:                                   2

D) Richmond

    (SMEs)    

    No employees:               43,849 
    1-4:                                   5,689 
    5-9:                                   2,080 
    10-19:                               1,300 
    20-49:                                  842 
    50-99:                                  286 
    100-199:                              153 
    200-499:                                61 
    
    (Non-SMEs)

    500-999:                                10 
    1,000-1,499:                            4 
    1,500-2,499:                            3
    2,500-4,999:                            3
    5000+:                                     0

Analysis by Andy Yan, SFU City Program; data produced by BC Stats adapted from Statistics Canada’s 2019 Business Register