Hurricanes, floods, earthquakes and other natural disasters can cause widespread failure in small businesses. But a new study finds that natural disasters actually can have a significant positive impact on entrepreneurs' perceptions of opportunities to make the most of the situation. It's not all rosy, however. Post-disaster entrepreneurs also, understandably, have higher fears of failure and weaker perceptions of their own abilities.
Business News Daily talked with researcher Javier Monllor of Chicago's DePaul University about how disasters affect businesses owners, both positively and negatively. We also discussed the practical implications for entrepreneurs and policy makers of the findings he and co-author Nezih Altay, Associate Professor of Management, also at DePaul, described in their article, "Discovering Opportunities in Necessity: The Inverse Creative Destruction Effect," published in the Journal of Small Business and Enterprise Development.
Business News Daily: What should readers know about your background on this topic?
Javier Monllor: I teach and conduct research on entrepreneurial opportunity recognition and creativity. I was born and raised in Puerto Rico, where getting hit by or warned of incoming hurricanes is very common — to the point where we become too nonchalant about it and start thinking they're all going to miss us or that we're blessed and they're never going to reach us, until one eventually does and the citizens are unprepared.
BND: Why did you decide to study how disasters affect entrepreneurial perceptions and actions?
Monllor: It's a combination of two things. First, my co-author is an expert in humanitarian supply chains and had done work in the past on how they're impacted by disasters. I was also interested on a personal level, as I had seen the creativity of individuals and entrepreneurs who alone or with others find ways to overcome the roadblocks and issues that are presented to them after natural disasters (hurricanes, in my experience) break their inertia and [they] are forced to act in order to survive and rebuild.
BND: It seems counterintuitive that disasters would have a positive impact. Did this surprise you?
Monllor: I was not surprised and was expecting it based on my experience and some of the research that had been done previously. Entrepreneurs are a creative and proactive bunch, and they're especially good at problem solving. I feel it is important to mention, though, that in our research paper, we're not arguing that natural disasters are a positive outcome. On the contrary, they're extremely destructive and cause much harm and suffering. But we wanted to show that they're also a force that can spark entrepreneurial action. This is important, as local governments and aid have emphasized their funding and aid to NGOs and other social ventures, and rarely focus on entrepreneurs as a viable force that can accelerate recovery and rebuilding efforts.
BND: What were some features of this positive impact?
Monllor: Our main finding was that entrepreneurial action increased after a disaster. We argue that this is mostly because of new opportunities that are created, but there are a lot of other factors that can come into play that need to be looked at in future research. For example, prior entrepreneurial experience? Did the person have intentions to start a business pre-disaster? How much did the individual believe he was capable of starting a business before the disaster?
BND: What negative impacts of disasters did you find?
Monllor: Although we didn't find any negative impact, that is more a result of the limited data we had to work with. One way we could look at our findings in a negative light was that some of the factors we looked at didn't change at all. For example, entrepreneurial intentions didn't change at all, which was contrary to our expectations. We wish people would want to start business after a disaster as this has been shown to be a strong predictor of future entrepreneurial action. Still, we found that action increased anyway, so that is one area that future studies need to look at to understand why that is happening.
BND: What are implications for policy makers and entrepreneurs? Should they see and react to disasters differently?
Monllor: Our results are especially relevant to policy makers. Policy that encourages entrepreneurial action can have a very positive impact on the community by accelerating recovery efforts. Entrepreneurs can work in tandem with NGOs and government entities to rebuild, reboot and bring normalcy to the area. Policy can also hinder entrepreneurs. If policy makers keep changing the rules of the game or directing funding and efforts into other areas, it can scare individuals from taking action.
BND: What were some limitations of your study? What other questions about this topic remain?
Monllor: The study is very preliminary, and most of the limitations are due to the data we had access to. Most of the data was at the national level, so making inferences about individual behavior is a bit of a stretch at this point. I addressed some of the questions that future studies need to consider but one I didn't mention was collecting data on less geographically broad areas and also conducting longitudinal studies that track entrepreneurs in an affected area for many months or years.
BND: What's your next research project?
Monllor: I continue to work on entrepreneurial opportunity recognition and creativity. I have a few papers I'm working on right now that I'm excited about. One paper I'm working on is looking at the impact that new desktop manufacturing technology (such as 3D printing and laser cutting) has on student entrepreneurial intentions. I'm also studying team creativity and innovation, and finally, expect to continue developing and expanding research on natural disasters and entrepreneurial opportunity recognition.