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Small businesses thriving in pandemic share 'dynamic capabilities'

Researchers say “dynamic capabilities” shared by small businesses that thrived during the pandemic, hinged on the size of the businesses. It allowed them to be flexible and adaptable, in ways that larger companies could not.
Joe Shamess is a U.S. Air Force veteran who co-founded Flags of Valor, a small business that designs and manufactures wooden flags. Yet, the pandemic initially upended its business.
When sales of their larger wooden flags slowed down at the start of the pandemic, Flags of Valor pivoted to producing something else: a small, wooden flag-building kit, especially designed for kids, who were at home because of lockdowns and school closures.
Other small businesses also managed not just to survive the pandemic, but to thrive. Researchers at Florida Atlantic University decided to try and figure out not only how they did it, but what characteristics they all shared: researchers called it "dynamic capabilities."
Posted at 10:54 AM, Nov 17, 2021
and last updated 2021-11-17 12:54:55-05

WINCHESTER, Va. — Inside the woodworking shop at Flags of Valor, the employees are all veterans working on a new mission.

“We started the business in 2015,” said Joe Shamess, a U.S. Air Force veteran who co-founded Flags of Valor.

The company designs and manufactures these wooden flags at their facility in Winchester, Virginia. Yet, the pandemic nearly silenced that space.

“The pandemic was incredibly challenging, especially from the beginning where we lost roughly two-thirds of our revenue what seemed like overnight,” Shamess said.

Flags of Valor faced furloughing employees, but wanted to find a way out of it.

“We immediately started working on ‘How can we innovate our way through this?'” Shamess said.

If necessity is the mother of invention, then what they came up with may very well be one of its children: a small, wooden flag-building kit, especially designed for kids.

“As you can see, we're in a woodshop. We couldn't make a vaccine here. We couldn't make face masks based on what our manufacturing capabilities are,” Shamess said. “But we identified a tangential problem, which was suddenly all these children are home with their parents and they needed a meaningful activity to do as a family.”

The kit became a hit.

Flags of Valor has now sold 30,000 of them, earning a place as a permanent part of their product offerings, while helping save the company.

However, Flags of Valor wasn’t alone. Other small businesses also managed not just to survive the pandemic, but to thrive. Researchers at Florida Atlantic University decided to try and figure out not only how they did it, but what common thread they all shared.

“This was our initial attempt on starting to study this,” said Melanie Lorenz, an assistant professor at FAU’s business school and the lead researcher on the small business study.

They examined 600 small businesses, all with fewer than 20 employees, and found they all shared something called “dynamic capabilities.”

“When a company possessed these dynamic capabilities, they performed better during COVID,” Lorenz said.

Researchers say “dynamic capabilities” hinged on the size of these small businesses. It allowed them to be flexible and adaptable while leveraging their deep understanding of what their customers wanted and their employees could do in ways that larger businesses might not be able to.

“When we go back just in the literature and see ‘Our large firms can adapt better because they have more resources,’ right?” said Lorenz of the prevailing economic thought. “But during COVID, these small firms adapted better because they didn't have the hierarchies to worry about. There was less bureaucracy.”

That allowed for more innovation, like what happened at Flags of Valor.

“We brought the whole team together to try and solve what we thought we could do to move through the pandemic,” Shamess said. “We're in a better position today than we've ever been in the history of the company.”

It’s a company that, in the midst of a pandemic, found a silver lining in red, white and blue.