Disastrous Effects

How does a business survive when it's too close to a national crisis for comfort?
Magazine Contributor
13 min read

This story appears in the January 2002 issue of Entrepreneurs Start-Ups magazine. Subscribe »

One of the 115 employees of New York City architectural firm Gruzen Samton were injured in the attacks on the World Trade Center. But the company's offices, located in a building practically across the street from the doomed south tower, didn't fare so well.

"When the tower collapsed, it destroyed the facade of our building, and the offices were a total loss," says company principal Mike Kazan, 54, who was working in the company's Washington, DC, satellite office the morning of the attacks. In addition to millions of dollars in burned and broken furnishings and equipment, Gruzen Samton's losses included paper records, computer data, and thousands of irreplaceable photographic slides documenting the company's many projects.

Kristin Rhyne was nowhere near the twin towers, the Pentagon or the Pennsylvania field where hijackers crashed airliners on September 11. But the 31-year-old founder of Boston's Polished Inc.saw her business suffer damage nearly as extreme as Gruzen Samton. Rhyne, a Harvard Business School graduate building a chain of airport beauty spas, is dealing with new security rules forcing her to develop new manicure techniques that don't require sharp metal tools that would bar her from selling the previously innocuous-seeming manicure sets. In the immediate aftermath, potential customers stayed away from airports in droves, and those who did travel were snared in long lines at security checkpoints. "Our services have come back to 75 or 80 percent what they were," says Rhyne. "But it's a difficult scenario."

Post-Terror Business

These entrepreneurs, scarred but not destroyed by the September attacks, are exemplars of a new, post-attack business mind-set. They're using their survivor mentality to salvage what they can from the ashes, whether figurative or actual, so their companies can survive. Meanwhile, they're creatively seeking ways to rebound and generate more opportunity than even before the attacks.

Has anything good come of the tragedy? Perhaps one thing: Entrepreneurs have learned they have unexpected allies. Gruzen Samton was able to get partially back up and working by relocating some employees in office space lent by other architectural firms. "These people, who are our competitors on a daily basis, were very gracious in providing space for us, even working over the weekend to move people around to provide space for our teams," Kazan says. Other entrepreneurs have found the federal government a willing assistant, as the SBA moved quickly to declare businesses first in lower Manhattan and then the whole region eligible for disaster aid and low-interest loans.

In Manahawkin, on the Jersey shore just south of New York City, Travel Emporiumco-owners Ann Bell, 59, and Marianne Newenhouse, 39, were pleasantly surprised to find their customers going out of their way to help their small agency as it suffered major revenue losses due to travel stalling after the attacks. "One guy called up and said he already had his airline tickets but he thought we might be able to use a car rental," Bell says. "He didn't say he could use it; he said we could use it. A lot of people were worried about us not just because we're their travel agent but because we're their friends."

Putting the Pieces Back Together

Dealing with disaster is a multipronged project. It may involve everything from assessing immediate needs to planning for new facilities, counseling grief-stricken employees, locating insurance policies, hiring interim managers to fill positions vacated by death or injury, and, if all goes well, communicating the news that you're back in business to concerned customers.

The first thing to do is take stock, says Marian McGovern, president of M Squared Inc., a San Francisco consultant clearinghouse that provided pro bono assistance to organizations dealing with the aftermath of the terror attacks. Recovering from a disaster requires first that you know as precisely as possible what has been lost in the form of buildings, equipment, furniture, information systems, data and, of course, people.

"Go through every aspect of the business and understand what has backup, what needs to be repaired, what has been totally destroyed," says McGovern. Department heads should come up with their own damage assessments, then present them to the CEO, so he or she can come up with a companywide tally.

In the real world, that can get messy. Gruzen Samton's offices, which the company had just paid $2.5 million to renovate, were unusable, with the building likely to be condemned. Computers and the phone system were destroyed. All paper records, including marketing materials, customer lists and the photo library, were burned or waterlogged beyond repair. A fireproof safe full of backed-up computer files survived, but the CD-ROMs it contained had melted from the intense heat, and the data was unretrievable.

There was some good news, however. Fire-resistant file cabinets containing computer tapes with additional backups survived. "There is a certain amount of reconstruction of data because we don't back up daily onto those tapes," says Kazan. "But we've recovered a good portion of the work we had in progress."

Resourcefulness is often key to recovering lost data after a disaster. Gerry Nolan, president of disaster recovery consulting firm Eagle Rock Alliancein West Orange, New Jersey, recommends that companies ask clients, vendors, strategic partners and even employees to scan the disk drives of their undamaged computers to see if useful files may have been stored on them. Gruzen Samton did just that, retrieving a number of computerized design files in the form of e-mail attachments that had been sent to consulting engineers. Some disaster survivors, Nolan adds, have been able to salvage damaged hardware as well as data by having useful information removed from damaged machines, then having the systems refurbished, reinstalled and reloaded with the data.

Another key ingredient helping Kazan and his company recover is adequate insurance protection, including business interruption coverage that helps pay salaries and otherwise cover the break in the normal routine. "The insurance companies stepped up right away and have been extremely cooperative," he says. "I believe we'll be covered for all our out-of-pocket costs."

Many firms' most serious immediate issue is how to return to efficient production. Kazan's people are used to working together but are now in seven scattered locations. "The inefficiencies [of] traveling and the lack of secure communications are a tremendous drain on [our] energies," Kazan says. While the company has located space farther uptown, it will take months to prepare it for occupancy, and Kazan is uncertain whether his employees will be able to return to anything like their usual efficiency in that time.

Planning for a backup physical location is one of the most frequently overlooked requirements of a disaster recovery plan, says Nolan. But, along with backing up data and arranging with telephone and Internet access providers to restore service as soon as possible after a disaster, it's one of the most important, he stresses.

Again, resourcefulness is vital to recovering in the event that your plans prove inadequate. You should make extra efforts to gain access to destroyed or damaged offices to see if there is a vital Web server or other piece of equipment or data you can bring out intact, Nolan says. Beyond that, he says, "you have to get creative." Consider any possible angle that could give you new space or more time to find it. For instance, you could ask customers to hold off on transactions you wouldn't be able to fulfill until you get into your new space. In addition, as many World Trade Center-area companies found, after a disaster is a good time to ask erstwhile competitors for a hand.

Market Disruption

Many industries are being harmed by the uncertainty following the terror attacks. Airlines, car rental companies, cruise lines, hotels, meeting planners, trade show companies, training firms and travel agencies are just a few of those reporting or expecting a falloff in trade. Ann Bell and her daughter Marianne Newwenhouse lost $30,000 in sales in just one mid-September morning, a hit that threatened to sink their three-person Manahawkin, New Jersey, travel agency. "It's a hell of a nut to crack," says Bell, who co-founded the company with Newenhouse 18 years ago. "It's almost like starting over."

Bell and Newenhouse soon reacted to the cutback by laying off their sole employee. Bell feared that wouldn't be enough, but soon cruise lines, hotels and airlines started offering sharply discounted fares and rates. The markdowns were enough to spur customers to begin calling again. Six weeks after the terror, she could report customers were coming in "like gangbusters."

Bell's experience highlights the importance of short-term cost-cutting and revenue-boosting, coupled with long-term patience. Mike Ross of the New York State Small Business Development Center (SBDC) in Albany says small firms should investigate the government-guaranteed loans--of up to $1.5 million on terms of up to 30 years and interest rates as low as 4 percent-that have been made available to small businesses in the impacted area.

But financial assistance may not be enough. SBDC advisors suggest many firms, especially those whose markets were seriously hit, look for new markets and even business models. "You could break out of the box you were working in before," Ross says, "and take a look at some new opportunities."

Down the Road

The experience of the terror survivors emphasizes the value of having insurance, backing up data, preparing for succession and, basically, having a plan. But merely putting the parts of a business back in place may not result in a fully functioning firm. Nolan says one study found that fewer than 7 percent of businesses that suffer a major disaster are still in business five years later. "They can sustain the loss," Nolan says. "But it changes the organization so dramatically that over time, surviving is tough."

What goes wrong? Often, it's loss of people. If the founder of a small company dies in a disaster, chances are good that the company will die as well. Take the case of Judith Larocque. The 50-year-old founder of Market Perspectives Inc. in Framingham, Massachusetts, was on American Airlines Flight 11, which crashed into the World Trade Center. After the attacks, Market Perspectives' phones were disconnected, its Web site taken offline, and its handful of employees dispersed.

When death unexpectedly claims any employee, expect to go through a significant grieving process. "It's almost the same as the loss of a family member-the stages of bereavement, the terrible sadness, the getting of support from others," says Rhoda Frindell Green, a New York City psychologist specializing in small-business issues. It's important to recognize that both entrepreneurs and employees will be distracted for a period after such a loss. "To expect ourselves or others to be producing just like we were before the catastrophe is not very realistic," Green says. She adds that each person affected by a loss grieves on an individual timetable, so entrepreneurs can't arbitrarily decide that in, say, three months everyone will be over it and business will be back to normal.

Many people and companies in the New York City area are seeking counseling to cope with the aftermath. But even with expert help, dealing with the loss of an employee requires levels of flexibility and sensitivity that many entrepreneurs find challenging. There are no simple, universal or quick solutions, Green says. "It's a question of being willing and able to entertain the massive amount of change that has to occur."

The attacks are reminders of the importance of planning for someone to replace you or other key executives in the event of a sudden need, says McGovern. But they are also gut-checks for entrepreneurs deciding where-and whether-they are going in the future. If the company's founders were just you and a few others, and one or more is dead, do you continue? Many companies are still making that decision and will be for months to come.

A Shot in the Arm

"Sold out" signs went up on flag stores everywhere as Americans, suffused with patriotic spirit and sadness, snapped up symbols of their country for display. Sales were also booming for such businesses as survival supply distributors and wedding chapels. Security companies, business aircraft dealers and insurance brokers may all get more business in both the near and intermediate terms. Still, it's hard to forecast how customers will respond over the long haul. As director of the Pace University Small Business Development Center in lower Manhattan, the closest SBDC to Ground Zero, Ira Davidson says he sees few permanent opportunities emerging from the attacks. "I don't think anything is in short supply," he says, "except large-scale commercial space in midtown."

Summing Up September 11

For Rhyne, new airport security regulations have forced her to speed up searches for nonairport expansion spots. "We've always had opportunities outside airports, but we're moving more aggressively on those fronts now," she says.

At Gruzen Samton, Kazan says his concern is for the intermediate term. "I'm not worried about six months down the road," he says. "But the general slowdown in business climate, our lack of focus on developing new business, and the diversion of our energies to solving this crisis will have an effect on us for a long time to come. It's going to be a real challenge going forward."

Almost as haunting as his worries about the future are Kazan's regrets for the past-specifically, the past Gruzen Samton lost when its trove of photographs of past projects was lost forever in the ashes. "We're forced to look into the future now," he says. "Because we don't have a past."

Hate Crimes on the Rise

Some businesses had a different kind of fallout from September 11. Within weeks of the attacks, the FBI was investigating more than 40 alleged hate crimes against Arab Americans, people of Middle Eastern descent and Muslim-owned or -operated businesses. Incidents ranged from broken windows and boycotts to arson and homicide.

"It's a tragedy for all Americans, but it's a double tragedy for Arab Americans," says Fuad Sahouri, owner of Sahouri Insurance & Associates in McLean, Virginia, and chair of the Arab American Business and Professional Association, a Washington, DC-based business group. The rash of reported crimes isn't the only outrage, says Sahouri. Many of his new customers are business owners who have been refused insurance service by other agencies. '"[Insurance agents] can tell by their accents that they are recent immigrants, and they don't even return their phone calls to give them quotes," Sahouri says.

The backlash is the worst in Sahouri's 31 years as an Arab American business owner. But it's not the first. Based on experience, he says the best thing entrepreneurs of any ethnic background can do to prevent similar occurrences is to build personal relationships with their local business communities. He acknowledges that it's difficult for busy entrepreneurs to find time to join service organizations, volunteer for social causes and contribute to local charities. But doing so makes it harder for people prone to quick judgments to lump you in with undesirables who share a similar background.

Mark Henricks is Entrepreneur's "Books" and "Smart Moves" columnist.


More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur