What ‘resilient’ entrepreneurs can teach us about thriving in a downturn

November 12, 2011

The big idea: The search for growth is a constant for entrepreneurs in any economy, and an apt description of the current economic cycle could be ambiguity. Stock markets swing up and down as ominous then optimistic news comes from overseas. We are told regularly that small businesses are core job creators, yet many cannot find the capital to sustain growth. The urgency in finding the path upward is the Holy Grail for today’s small business owners. There is the sense that each of us is hoping to secure a slice of an ever-shrinking pie of opportunity.

The scenario: In this context, as in all economic downturns, some firms can grow and even create uncommon wealth. We’ve been studying these firms over the past few years, especially those located in low-income, high-poverty areas. Our hypothesis is that entrepreneurs who have learned how to grow in metaphorically poor soil, without valuable but rare supports such as venture capital, might provide strategic knowledge many firms could find useful. We call these firms resilient and have been studying the best of these here in the United States.

One is in our own backyard; Todos Supermarket in Woodbridge. This firm has had 89 percent compound annual profit growth rates over the past five years. Many elements underpin Todos’s strategy, but three we have found in Todos and other successful firms are edifying: quality service to an underserved market niche, careful management of overhead and close ties to the community.

Todos has a rapidly diversifying customer base. The firm’s name is illustrative — it means “everyone” in Spanish. The growth in Latino and other immigrant populations in the area has been explosive. In 1990, Prince William County was 4.2 percent Latino. Today this group represents 20 percent of the area’s population. The disproportionate growth of this and other immigrant groups has contributed to increased market demand for customer-desired goods and services. Even during the current economic downturn, the sales of Latino foods are anticipated to expand 6.3 percent per year to $9.5 billion in 2014 (according to Packaged Facts magazine). And the growth in this category is not just in primarily Latino-serving establishments.

Todos’s management has been attentive to overhead expenses that are not closely tied to sales. Since the downturn, they have carefully managed their inventory and head count. Having the proper product mix is no small task when your firm serves an area in which 41 percent of residents are Latino, 27 percent are white and 21 percent are black.

The resolution: Leveraging fast-growing, underserved markets and managing overhead are both key elements but are insufficient without community commitment. The firm has been involved in issues that go beyond grocery retailing. They have gone beyond corporate “responsibility” to “engagement” in issues relevant to themselves and their customers. Carlos and Gladis Castro, founders of Todos, are naturalized citizens who emigrated from El Salvador. They are leaders in local business groups and speak passionately about the opportunities and freedoms they have in their chosen nation. When a set of policies was enacted by county supervisors to deny services to illegal immigrants and step up police enforcement, Carlos Castro advocated that Latino business owners and civic leaders find ways to address what he felt was an unfortunate set of policies through lobbying and research, rather than boycotting merchants who would not oppose the policies. Castro’s notion was that the path to change was found in education and discourse within the system, rather than in attempting to economically punish those that disagreed.

The lesson: Marumsco, an Algonquin Indian term meaning island rock, is the name recently given to the area in which Todos is located. The area’s diversity might deter many from locating there, especially those in thin-margin industries such as grocers. In this area from which some would quickly exit, these entrepreneurs have built something beyond rock-solid returns. They are helping to build community in their store and beyond.

Greg Fairchild

Fairchild is a professor of business administration at the University of Virginia Darden School of Business and the executive director of the school’s Tayloe Murphy Center.

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