Is Your Business Shutdown Proof?
Skip to content
Oct 3, 2013

Is Your Business Shutdown Proof?

By Jessica Love

Just about nobody is happy about the current governmental shutdown—not least the federal employees sent home without pay. But businesses, too, may be wondering how they’ll fare as the shutdown continues with no end in sight.

Short-term Pain
Most companies rely on government activities for at least part of their profits, explains Russell Walker, a clinical associate professor of managerial economics and decision sciences at the Kellogg School. For these companies, it may not quite be business as usual. Firms relying on, say, the Department of Agriculture to collect and disseminate crop estimates might find themselves short on valuable information. And even so-called “essential” government services may not continue at full speed. “Even though we’ve been told that critical operations will remain in place, I would imagine that permits, licenses, things like that are going to experience some delay. I would also imagine there are mechanisms to expedite that: generally they involve some amount of money,” says Walker. “Getting to the front of the line has a special price.”

In the short term, companies might identify which processes rely in some way on the actions of the federal government. They should also ask themselves some tough questions, says Walker: “Do I need these services? Can I get these services elsewhere? And even if it’s something as seemingly critical as duties or customs examination, can I buy domestically instead?”

Harder to work around may be the impact of all those lost wages on an already struggling local economy. Furloughed employees may cut back on family outings or other discretionary spending, leaving local businesses in the lurch. “Short of finding a replacement for a customer,” says Walker, “there’s no real alternative.”

Long-term Solutions
It is probable that, given the ominous threat of a default, the current shutdown will be short-lived. But long-term, should the political drama continue, businesses might consider protecting themselves from the risk of subsequent government budget battles.

Firms may be reluctant to service only governmental agencies, or restrict themselves to only geographic locations ripe with government work. After all, when you open a store in a given location, you’re taking an economic position on that economy. “If the local economy is dominated by employees from federal agencies, then you’re ‘long’ that business,” says Walker. “And if that business is now subject to this volatility in the political process, you might think about that. You might think, maybe there are other communities I’d like to have retail establishments in, simply wanting to diversify where the revenues come from.”

Alternatively, firms might choose to exercise a political option. “Who decides what’s a critical process in the federal government?” asks Walker. Industries may argue for their own essentiality—and persuade their representatives to make it official, he continues. “I think you may see some industries that are impacted ask for some kind of protection.”

Photo credit: Eric Drost

Editor’s Picks

A mentor puts capes on proteges.
Careers

Podcast: How to Be a Great Mentor

Plus, some valuable career advice that applies to just about everyone.

Kids decide whether to buy water or soda.
Marketing

A New Way to Persuade Kids to Drink More Water and Less Soda

Getting children to make healthy choices is tricky—and the wrong message can backfire.

Computational Social Scientists discuss solutions.
Innovation

How Can Social Science Become More Solutions-Oriented?

A conversation between researchers at Kellogg and Microsoft explores how behavioral science can best be applied.

An entrepreneur enters an established company.
Innovation

Buying a Company for Its Talent? Beware of Hidden Legal Risks.

Acquiring another firm’s trade secrets—even unintentionally—could prove costly.

Careers

Take 5: Tips for Widening—and Improving—Your Candidate Pool

Common biases can cause companies to overlook a wealth of top talent.

Drug innovation at a pharmaceutical company
Innovation

Everyone Wants Pharmaceutical Breakthroughs. What Drives Drug Companies to Pursue Them?

A new study suggests that firms are at their most innovative after a financial windfall.

Careers

4 Key Steps to Preparing for a Business Presentation

Don’t let a lack of prep work sabotage your great ideas.

Healthcare workers meet in a hospital corridor.
Healthcare

Video: How Open Lines of Communication Can Improve Healthcare Outcomes

Training physicians to be better communicators builds trust with patients and their loved ones.

A man tries to improve OR scheduling.
Operations

Here’s a Better Way to Schedule Surgeries

A new tool could drive savings of 20 percent while still keeping surgeons happy.

Voters who do not trust each other.
Politics & Elections

Why Economic Crises Trigger Political Turnover in Some Countries but Not Others

The fallout can hinge on how much a country’s people trust each other.

A clerk scans brand trademarks.
Marketing

Building Strong Brands: The Inside Scoop on Branding in the Real World

Tim Calkins’s blog draws lessons from brand missteps and triumphs.

two coffee growers harvest beans
Economics

How the Coffee Industry Is Building a Sustainable Supply Chain in an Unstable Region

Three experts discuss the challenges and rewards of sourcing coffee from the Democratic Republic of Congo.