Creative and painful destruction

Business owners need to know when to change — or to cut the cord

A recent Yukon News story by Jackie Hong highlighted at least eight Whitehorse businesses that have closed or announced upcoming closures.

Closing a business is a traumatic event. It can represent the end of a dream for the owner, the loss of a job for an employee and a gap on a community’s main street. Depending on how severe the final act, it can also mean major financial losses for owners, workers, creditors and tax collectors.

It is never much solace to people involved in a closure that turnover in businesses is an essential part of our capitalist system. Canal companies slumped when the railway was invented. Steam engine manufacturers were decimated by the diesel engine. Sternwheelers went the way of the Yukon’s Scimitar Cat in the face of competition from cars and trucks. The 8-track cassette tape didn’t stand a chance versus the iPod.

Even in areas without these major disruptions, competition is constantly steering capital and resources to businesses with even slight advantages in cost, product, management or other important factors.

Austrian economist Joseph Schumpeter called this “creative destruction.” He said that the “fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

Many loathe the pain and disruption this relentless process involves. Schumpeter himself called it a “perennial gale” that businesspeople have to face.

But whether you like it or not, you have to live with it unless your organization has a monopoly or some degree of government protection.

So what does all this mean for the Yukon?

There are three scenarios.

The first is that this is “business as usual,” since in any given year some businesses start up and some shut down. The most recent statistics on small and medium sized businesses in Canada show that in 2013, there were 78,430 business births — as Statistics Canada calls them — and 83,240 deaths.

The U.S. Small Business Administration has good data on small and medium sized business survival rates. After three years, only around 60 per cent of start-ups are still alive. Meanwhile, new businesses are getting started. Yukon Bureau of Statistics data from 2015 shows about 15 per cent of Yukon businesses were only one or two years old.

The second scenario is that the Yukon is going through some kind of economic downturn so that the death rate of businesses is particularly high. The U.S. data above goes back to 2004 and clearly shows the negative impact of the financial crisis on business survival rates from 2008-10 for example.

This seems somewhat unlikely in the Yukon, given booming government spending and the low unemployment rate.

The third scenario is that something fundamental is changing in the Yukon economy that is affecting the mix of our businesses. This would include things like a shift from physical retailing to internet commerce, or a shift from businesses that serve the resource industry to those that serve Whitehorse’s growing population of government and administrative workers.

Unfortunately, the Yukon is too small to have convincing data to pick between these options. If even a handful of businesses exit around the same time, or decide to hold on till next year, this can dramatically skew our ratios.

Nonetheless, I think it is a good time for Yukon entrepreneurs and investors to stop and think about some big trends and what they might mean for our businesses.

There are a number of big trends that could change Yukon business fundamentals, either for better or worse depending on your business. One is the rise of internet retailing, which is giving traditional retailers significant worry across North America.

Another is Air North’s cheaper flights to Outside cities, which brings new customers to the Yukon but also may involve Yukoners spending more of their discretionary budgets Outside. The next wave of mining investments present a major opportunity for some kinds of businesses, but the coming boom in demand for labour and housing may be less helpful for businesses in other sectors.

Then there are a bevy of cost trends that are worth looking at, including rising commercial property taxes, the so-far unknown impact of the incoming carbon tax on energy bills, and the cost of competing for labour with government.

The flip side of the last trend is that there are a growing number of well-paid government employees, particularly in Whitehorse, that form a large market for a wide range of goods and services.

The key thing to remember that creative destruction involves opportunities as well as pain. Competing with Amazon to sell widgets will always be tough sledding. But there are lots of things Amazon can’t do in the Yukon, like re-wire a kitchen, install solar panels, help Yukon organizations design cool websites or give hot yoga lessons.

If you’ve been having a slow year (or two), it is critical to assess whether this is permanent or if one of the trends above will help. Business owners are naturally deeply committed to their businesses; I have seen a number over the years burn up cash in struggling businesses for too long.

If the writing is on the wall, it is often better to move quickly to cut the losses or refocus the business rather than hoping for conditions to change.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.

Yukonomist

Just Posted

Sarah Walz leads a softball training session in Dawson City. Photo submitted by Sport Yukon.
Girls and women are underserved in sport: Sport Yukon

Sport Yukon held a virtual event to celebrate and discuss girls and women in sport

Main Street in Whitehorse on May 4. Whitehorse city council has passed a bylaw to allow pop-up patios in city parking spaces. (Stephanie Waddell/Yukon News)
Bagged meter fees could be discounted for patios

Council passes first reading at special meeting

The Kwanlin Dün First Nation’s business park planned in Marwell is among a number of sites that are expected to make more commercial/industrial land available in the coming years. (Submitted)
Council hears update on commercial land

Number of developments expected to make land available in near future

keith halliday
Yukonomist: Have I got an opportunity for you!

Are you tired of the same-old, same-old at work? Would you like to be a captain of industry, surveying your domain from your helicopter and enjoying steak dinners with influential government officials at the high-profile Roundup mining conference?

Clouds pass by the Supreme Court of Canada in Ottawa, Friday, June 12, 2020. THE CANADIAN PRESS/Adrian Wyld
Yukon government, B.C. company want Supreme Court of Canada appeal of Wolverine Mine case

Government concerned with recouping cleanup costs, creditor wants review of receiver’s actions.

The Village of Carmacks has received federal funding for an updated asset management plan. (Crystal Schick/Yukon News file)
Federal funding coming to Carmacks

The program is aimed at helping municipalities improve planning and decision-making around infrastructure

Paddlers start their 715 kilometre paddling journey from Rotary Park in Whitehorse on June 26, 2019. The 2021 Yukon River Quest will have a different look. (Crystal Schick/Yukon News file)
The 22nd annual Yukon River Quest moves closer to start date

Although the race will be modified in 2021, a field of 48 teams are prepared to take the 715 kilometre journey from Whitehorse to Dawson City on the Yukon River

Whitehorse City Hall (Yukon News file)
City news, briefly

A look at issues discussed by Whitehorse city council at its June 7 meeting

Letters to the editor.
This week’s mailbox: the impact of residential schools, Whitehorse Connects, wildfires

Dear Editor; Anguish – extreme pain, distress or anxiety. Justice – the… Continue reading

PROOF CEO Ben Sanders is seen with the PROOF team in Whitehorse. (Submitted)
Proof and Yukon Soaps listed as semifinalists for national award

The two companies were shortlisted from more than 400 nominated

The RCMP Critical Incident Program will be training in Watson Lake from June 14-16. Mike Thomas/Yukon News
RCMP will conduct three days of training in Watson Lake

Lakeview Apartment in Watson Lake will be used for RCMP training

John Tonin/Yukon News Squash players duke it out during Yukon Open tournament action at Better Bodies on June 5.
Four division titles earned at squash Yukon Open

The territory’s squash talent was on full display at the 2021 Yukon Open

Most Read