Are There Recession-Proof Industries for Small Businesses?


Are There Recession-Proof Industries for Small Businesses?

Recently, a lot of reporters have been asking me if there are particular industries that are good for small businesses during recessions. I didn’t really know so I took a look at the data.

I examined the performance of different industries during the last two recessions (1990-1991 and 2001-2003) using data from the Census Bureau’s County Business Patterns.

My definition of “doing well” during a recession was pretty strict. All of the following measures had to have increased by 20 percent or more: the number of establishments; the number of employees; the dollar amount of payroll; the number of establishments with 20 or fewer employees; the number of employees at establishments with 20 or fewer employees; and the dollar amount of payroll at establishments of 20 or fewer employees.

I also looked at whether businesses in the same industries grew during the previous recession (1990-1991). There are many fewer industries that did well during both of the last two recessions, but there are some:

  • Functions closely related to banking (SIC code 6090), which corresponds to mortgage and non-mortgage loan brokers (NAICS code 522310); financial transactions processing, reserve, and clearinghouse activity (NAICS code 522320); and commodity contracts dealing (NAICS code 523130).
  • Accident and health insurance (SIC code 6321), which corresponds to direct health and medical insurance carriers (NAICS code 524114); direct title insurance (NAICS code 524127); other direct insurance (NAICS code 524128); and reinsurance carriers (NAICS code 524130).
  • Offices of health practitioners, not elsewhere classified (SIC code 8049), which corresponds to offices of physical, occupational and speech therapists and audiologists (NAICS code 541614).
  • Business consulting, not elsewhere classified (SIC code 8748), which corresponds to process, physical distribution, and logistics consulting services (NAICS code 541614); and educational support services (NAICS code 611710).

I think it is pretty obvious that the current recession is different than previous recessions and we aren’t going to see a lot of growth in mortgage and non-mortgage loan brokers and direct title insurance; and we may not see much growth related to other functions closely related to banking. But we might see growth in other areas. I suspect that the accident and health insurance industries; offices of health practitioners; and business consulting will show growth through the current recession.

To me, there are three interesting takeaways from these data.

    1. Even in a recession, some industries grow at a gazelle-like pace across a variety of different dimensions.
    2. Relatively few industries that do well during one recession tend to do well during other recessions.
    3. Insurance, health care, and consulting tend to be recession-resistant industries for people running small businesses.

 

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19 Comments ▼

Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

19 Reactions
  1. Interesting stats Scott. The conclusions you have drawn from analyzing the data seem like common sense in hind-sight, but it’s always great to have hard numbers to draw on to make assumptions and plan for the future.

  2. It doesn’t surprise me to see health related industries doing well. I can’t imagine that those will ever be services that we have no need for. I had actually considered a career in the health industry many years back for that very reason. I am somewhat surprised to see consulting in there though.

  3. The industries above didn’t surprise me infact i think the best industry to get into is the health industry. Charge what you want, its in huge demand and the supply is short in most cities.
    My company http://www.GorgeousGarage.com you would think would be greatly affected by the way the housing industry has been affected. In the last 7 months we have set up 25 new locations. Before that we only had 5 in 2007. The progress has been great.

  4. Chris, I think business consultants increase during recessionary periods because all of a sudden business owners are worried about their growth and are looking for ways to maximize progress. I know that in my business as a marketing consultant, I usually notice a “counter-cyclical” trend; in other words, when business gets bad for others, it gets better for us. It’s an interesting phenomenon…

  5. I’m quite surprised with Insurance as recession resistant, Scott however, I agree with the health care. It’s one industry that we can’t live without. No matter what, there will be an unending supply and demand for it.

  6. With the markup applied to healthcare services and medication, it does not surprise me that it is not affected by a recession. With those kinds of profits, it would take a lot to affect them negatively. It’s an industry that we simply cannot live without.

  7. Scott sites three inelastic propensities that each deserves specific review. Point 3 for me is controlling. The good PhD points out several important constraining scenarios. With respect to health care opportunities, I suggest you listen to Ken Weakley (I.I.) at Credit Suisse. This is a guy who has 20 years experience in the health care industry and “takes no prisoners”.

  8. Hi Scott,

    I am really wondering about the Insurance industry. When the recession hits, one big insurance company here in the Philippines(PhilamLife whose mother company is AIG) had to sell the company to other investors and have laid off vast employees too. I can’t actually believe they are recession-proof industry here in this article.

  9. Interesting list. The manufacturing industry has a tough time in Sweden right now.

  10. Your third take away makes a lot of sense to me, with respect to healthcare, consulting and insurance being resistant to recession. People will always get sick, making insurance critically important or we’ll get totally wiped out. And when we get laid off (and lose our health benefits) we don’t need much to hang a shingle out and start a consulting business.

  11. On the other hand, The businesses listed above may well be having the hardest time ever going forward; Insurers are Melting Down (think AIG); and many Banks are fighting to stay off the FDIC troubled bank list.

  12. Although I agree with you Scott and your conclusions – you did a great job in the analysis – I wonder how each industry breaks down – what I mean is – not EVERYBODY in health care is going to do well. Those that do not now have an organized practice and have the ability to MARKET their services may feel the crunch as their counterparts market and tell what they do to the people that need health care.

    I believe that businesses in general and the healthcare industry specifically can MAKE their success by educating, promoting, and marketing their sevices in a variety of NEW ways – including the social media – which was NOT a factor in the previous recessions. I have a chiropractic office – in practice for 29 years – I do not intend to do anything but prosper during this time. http://www.sheelychiro.com I also have a business website development and hosting and consulting company which is doing well also. http://www.sheelywebsites.com I intend to prove you right by growing in both my practice and my buisness consulting. Yep – you are a smart one. 🙂 Dr Rob Sheely.

  13. Scott, I always appreciate your insights and numbers (and the analysis thereof). I would have missed this post, though, if Anita hadn’t put a link in from her recent piece about the Top 30 Most Profitable Small Businesses.

    In this recession, as a consultant (and I now view myself as a contractor as biz owners want idea people who can execute), I see more business owners wanting help, but having less funds to do it with. So a $10,000 project might now get shrunk to $4,000. I don’t think it is owners trying to nickel and dime another small biz owner, but simply a sign of lean times and people really having to do more with less, as the saying goes.

    And I’ve heard from many consultant colleagues that they have lowered their hourly rates.

    https://smallbiztrends.com/2009/02/top-30-most-profitable-small-businesses-2008.html/trackback

  14. Recession Proof Industries

    I can’t believe you’re not even mentioning e-commerce.

    Internet marketing has grown SOOO much over the past decade! My company grew about 250% last year!

    (heck, even THIS is a blog.. 😉

    Adam Holland

  15. Humm insurance industry well not as good as once thought, I do paramed exams for the insurance industry and saw a big drop in the applicants coming through as compared to 2008 really really slow. The last thing on people’s minds is paying life insurance premiums. I myself as a consumer had to tighten my belt so to speak and dropped my hospital indemnity insurance to free up money in my budget.

    And in regards to storage garages well some people who get foreclosed on just leave their stuff behind. It depends where you live that people would pay for storage and how much storage is available in the town that people live in we have 7 or 8 storage garages in our county so it all depends where you live that people would need to pay to store their stuff, but it is a good business idea if there is a need in one’s local. Non of the storage businesses here have ever gone out of business and some have been there a long time, competition doesn’t seem to affect their business.

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  18. I wonder what types of consulting? I know consultants in agencies that saw a stagnation of activity after Obama’s election, and men that had been consultants go back to school to get their PhDs due to the lack of work. However out of my MBA class of 2010, we had quite a few IT and managerial consultants placed by Accenture, etc…

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