Perspective from a small Finnish service business on the impact of recession - it's not an equal playing field
Sitting here and quessing.
Recession does not hit equally everywhere. Those who are doing fine now will probably do fine in a recession. The recession hit hardest the working middle class and those who struggled when the economy was hot.
Restaurants and other small service businesses already had massive problems with profitability during times before covid.
During times when interest rates are 0% and inflation 0-2%:
Not enough good workers
Small margins 0-4%
Fierce competition, new restaurants were constantly opening.
Big chain's predatory pricing.
Covid subsidies were also very unfair. Those who were already going bankrupt got even more subsidies, and big chains also suckled these as much as possible with their lawyers and accounting staff. What about small entrepreneurs?
Similar throughout the service industry in Finland.
What about when interest rates are +4%, inflation getting out of hand, and energy prices and raw materials keep rising?
Middle class losing purchasing power 200-600€/month (2).
→ Bad times ahead.
There are only a few Bankruptcies to date, but we have a few bankruptcies (zero during covid). Covid subsidies are running out, and sales are struggling. In addition, the middle class is struggling due to rising interest rates, declining purchasing power, and energy costs.
→ Demand plummeting for small services (massaging, beauty salons, middle-tier restaurants) "Middle-income services."Â
→ On the other hand, high-income earners are using even more services now than they used to (spending zero during covid).
Why bother?
Small service industry entrepreneurs lost motivation. Their lifework went straight to the toilet during covid. I build my business extremely hard to be the best, and phew, there goes everything. I also did not get any subsidies initially because I ran my business "too well," and the same happened to others.
Extremely hard to start over; I will puke just thinking if I had to do the same amount of work I did again. No holidays and +60h workweeks. For what? Costs keep going up, and taxes too. But, hey, be the best?
→ No thanks, let's be mediocre, focus where I am best, and focus on building one person business I can take to wherever I decide to live.
I can work hard solo, and I will. That's my obsession. But start to build in Finland again and employ +10. No thanks, I was stupid and crazy. This is stupidy and craziness in the third generation, and I will stop it. It was fantastic to be crazy for a long time, but now it is just idiotic.
Or enjoy life and do some part-time or max 7,5h a day.
We have already lost two Michelin-star restaurants. They now run a pizzeria and chicken wing restaurant. Awesome!Â
Still, what a massive waste of talent and life work. It makes me extremely sad to think what a missed opportunity Finland's restaurant industry was. It could have lured so much tourism and been genuinely one of the best in the whole world. We had/have the most underrated restaurants when considering the price/quality. Now it just dies slowly.
The same happens to many small service businesses, dying slowly, and massive chains will reap the market share.
Hopefully, I am wrong, but the outlook looks pretty bad for small service businesses. We would need more crazy and stupid people, but we are running out of them slowly. So let the big chains win, and mediocrity rule.
Anybody who can quit will quit or have done so already.
A few of my best customers quit right when covid started (brilliant people who ran their businesses very profitably).
A few better ones during covid since it looked so messy (remember the shitty ones just kept suckling the subsidies).
After re-opening more quitting, everybody realizes that running this service business and working 60-100h weeks is not fun. It is crazy and stupid.
Only those who have a massive amount of debt or a house as a pledge have to keep going and continue to be crazy and stupid.
I get the same story every time I meet my customer: I have work, but the expenses keep going up, and it is hard to raise prices. Or they are stuck in multiyear contracts with big corporations which barely cover the costs.Â
You work +10h days, barely can pay any salary to yourself. The only thing in Finland that has some flexibility is the salary that entrepreneur pays himself. I had to pay myself at the beginning less than even unemployment money was, or I did not pay anything to myself when covid started. This is normal in Finland. There needs to be more flexibility.
There is also zero respect for the service industry. Here in Finland, all the service workers were ridiculed and laughed at during covid, "Go drive wolt/uber fucking monkeys". No wonder so many quit or change careers. The vast majority of Finns also tolerate receiving subpar service. They are either apathetic or ignorant of what good customer service is.Â
There are also massive problems with incentives. Our beloved state tenders contract 99% based on price. Where does this lead? (1)
Dark workforce, abuse of immigrants.
Avoiding taxes and running business criminally.
Harms honest entrepreneurs.
Unless you are a friend of these state workers and get juicy over-the-top price contracts, but hey, we don't have corruption in Finland! We constantly have these "cases" in the news, but nobody still believes we have corruption.
We also have this weird culture where small services aren't respected. Go fit shoes in the city center's small entrepreneur shop, but order from Amazon. Then we wonder why there is no business in the city center. You reap what you sow.
We celebrate start-ups and the companies who are part of this "green transition", but fuck those who pay all this and do some actual work. My stupid little crazy service business has paid more taxes and employed more than 99% of those "leading" and celebrated companies ever will in their existence, hype up, be celebrated, and get a massive amount of subsidies and taxpayer's money, seems to be the best business model currently.
So why bother?
Positives for the service industry.
We need a deep recession to clean up the whole service industry from zombie companies that just suckled subsidies and stay afloat with only 0% interest rates. (These won't run forever. Something will break). These are the biggest abusers of the "free workforce" (unemployment training) and abuse our youth with shitty contracts and salaries or take advantage of immigrants.Â
The best of the best in the service industry will do just fine. The best already survived covid when selling services for 1-2 years was illegal. The recession won't kill this crazy and stupid punch. The shittiest ones got the most significant subsidies, not the good ones.
High-income earners keep using services. Sadly in Finland, low and middle-income individuals can't anyway afford that much on services even if the economy is going hot (I haven't seen this in Finland, though, since the early 2000s).
The Finnish economy is poised to enter a recession.
Sources:
https://yle.fi/a/3-11434461 (1)
https://www.hs.fi/talous/art-2000009409804.html (2)