Small businesses are the lifeblood of the U.S. economy.
It’s a truism oft repeated – small businesses create new jobs, drive innovation, and account for almost half of the country’s economic activity. In Connecticut, more than 360,000 small businesses make up 99.4% of the businesses in the state, employing more than 741,000 people.
But starting, maintaining, and growing a small business is far from easy. One in five businesses – about 20% – will fail within the first year. Thirty percent fail in the second year, and 50% fail by year five.
It’s a vitally important but inherently risky proposition for anyone looking to strike out on their own and launch a new enterprise.
“For small businesses, sometimes they don’t have second chances,” says Jeyaraj (Jay) Vadiveloo, a professor in residence with the Department of Mathematics in the UConn College of Liberal Arts and Sciences and director of the Janet and Mark L. Goldenson Center for Actuarial Research at UConn.
“If something happens that they have not been able to foresee or prevent, that could be the end of the small business.”
That’s where Vadiveloo is hoping to help – first in Connecticut, but later across the country and even around the globe – and he’s leveraging the talent and enthusiasm of UConn students to support vulnerable small businesses that are looking to manage their risks and pursue new rewards.
A Student-Driven Initiative
Melonie Jackson ’23 (CLAS) is an actuarial science student from Hartford. When she learned about the initiative Vadiveloo was launching to pair actuarial students with local small businesses to help them identify and manage risks – at no cost to the businesses – she thought about her own community.
“I thought of my neighbors,” she says. “I thought of the many, many small businesses up and down the street that I know got brutalized a bit during COVID. When I saw that he was specifically targeting those, it was like, hopefully we can get more Hartford businesses involved with this. Give back to my neighborhood, in a sense.”
Jackson was among the first actuarial students to join Vadiveloo’s initiative, called the Students for Workers Movement, or SWM. The program is modeled after an experience Vadiveloo had in his youth, when American volunteers with the Peace Corps came to teach at his school in Malaysia.
“I had a math teacher, an English teacher, and I was in secondary school – you’d call it high school level – and it was like a breath of fresh air to interact with them,” he recalls. “They were very good teachers, but there was also a camaraderie and friendship. They mingled with the students. I really loved what they were doing.
“All those people I met at the time when I was a kid, they seemed older, but they were like my students right now. That was the whole Peace Corps way. These were students. And how did they do these wonderful things?”
Like the Peace Corps, the SWM is designed as a student-driven initiative. Its participants are all undergraduates, and so far have all been actuarial students, but Vadiveloo hopes to partner with other departments at UConn in the future to also build more interdisciplinary teams.
Formally launched last summer, the goal of the SWM is to provide risk-management services specifically to vulnerable small businesses, including businesses owned by members of historically marginalized communities, women, veterans, and people living with disabilities, and businesses that largely employ people living with disabilities.
“Genuinely, these are businesses that need help,” says Vadiveloo, but managing risk isn’t always at the top of a small business owner’s to-do list.
“Small businesses, obviously they have a high failure rate, but it’s wrong to think that the small businesses don’t know where are their risks and where are their opportunities,” he says. “They know better than anyone else. They know the business. But knowing what risks are and knowing what to do about it are two separate things, and many times small business owners are completely swamped just running their business.”
That where UConn students can enter the picture.
Identifying Risks – and Opportunities
At no cost to the small businesses, teams of students from SWM come in to learn about how the business works, talk to the business owners and managers about their goals and their challenges, examine financial statements, conduct a formal risk assessment, identify opportunities for continuity and growth, and ultimately provide a final report of recommendations of how to mitigate the business’s risks while capitalizing on it’s potential.
Jackson and her initial cohort of fellow undergraduate actuarial science students started working on the SWM initiative during the fall semester, and while they had no shortage of enthusiasm for the project, they faced a big challenge right out of the gate – convincing small business owners to work with them.
“There was a high rejection rate,” says Vadiveloo. “They pick up the phone and call a small business, which is in the middle of things, and say, ‘Hey, look, we are students, we’re doing this, could you give us your data?’ There was a lot of rejection.”
“When we would get together for meetings, I am the person who comes to mind as the person who cold-called and got rejected the most,” says Jackson. “I just emphasized that this is something that’s free. It doesn’t hurt to have a risk analysis done. It may open their eyes to something new, that they haven’t thought of before. But still, they were just like, ‘No.’
“Another thing I heard was, ‘There’s somebody else who wants your help more than us.’ And you know what? You’re right. So, we just didn’t give up. I guess that’s how we got where we are today.”
Ultimately, the students convinced three small businesses to work with them from start to finish – a Chinese restaurant in Storrs, a bubble tea shop in Storrs, and a barbeque restaurant in Norwich. Six students worked in teams to do their assessments.
Jackson was on the team that evaluated the bubble tea shop, and she and her partner found the owners responsive and really engaged in the process. While a relatively new business in the area, the shop owners have big goals for expansion, which played a large role in how the SWM team approached their analysis.
“I think a big sort of overarching theme that we tried to connect to was that, if this organization has this ambition, we should make sure everything is more controlled so that they can pursue that,” she says, whether that means investing in new industrial-grade equipment, rather than kitchen-grade equipment that may be more prone to breaking down, or having a business interruption insurance policy to help mitigate the risk of a staffing shortage at multiple locations that might lead to a shutdown.
“A lot of it wasn’t mapped out,” Jackson says, “but it just came from thinking about how we needed to give the best suggestions for this business’s health so that it can last even longer in this Storrs Center storefront.”
Another student, Cathy Chang ’24 (CLAS), came into the program later than Jackson, but was quickly paired with another student already working with a business she knew a little bit about – her family’s Chinese restaurant.
But even with her close connection, she still faced challenges accessing and assessing information about the business.
“Restaurants, especially small business restaurants, don’t have the time, and it’s not their number one priority for risk management,” Chang says. “Nothing is given to you. You have to ask for it, or you have to find out ways to do it. For one of my data, I compared sit-in customers to take-out customers. That’s not something they’re tracking every single time, so I actually just had to sit at the restaurant for a day and count myself. It’s a lot of work.”
For the restaurant, the team identified potential competition as a risk – it’s not the only restaurant serving Chinese or Asian cuisine in the area – but also identified some of the restaurant’s unique dessert options as a potential opportunity to diversity their product offerings and stand out. They also identified labor force issues as potential risks, and suggested potentially using kiosks for check out as a way to reduce the need for a dedicated person running the front of the store.
“That’s the first step of risk analysis. You identify the risk, and as an actuary, I like to quantify the risk, actually project how much I think this will affect the restaurant’s revenue,” Chang explains. “After you do that, the biggest thing is just hedging, or planning a safety measure.”
Planning for the Future
At the end of the process, the small businesses receive a detailed report, and the students don’t follow where the businesses go from there – it’s up to the owners and managers what they choose to do with the information and suggestions.
But in past iterations of the program that Vadiveloo has test run – he’s been trying to launch a small business assistance program in some form for about 14 years – businesses that did follow recommendations saw some improvement to their operations.
“In a prior one-off trial, we did an analysis for a bagel chain, and they followed everything we did, to the letter,” he says. “They have one branch right where I live in Vernon, and if you go there, they transformed the whole place, and they were so thrilled with our ideas.”
This time around, he says, he’s learned from his past efforts, which is why he’s more optimistic than ever about the program’s future. He’s hoping to partner with local merchant associations, like the Metro-Hartford Alliance and the Hartford Chamber of Commerce, to ease the process of finding small businesses to work with. His goal is to build a pipeline of small businesses interested in the service and to have a team of 15 to 20 students working with two or three businesses each semester.
He’s enlisted the help of the UConn Foundation to make the case for funding to support the students while they work – right now, the students are all unpaid volunteers, but he wants to change that.
Vadiveloo is also hoping to partner with corporate sponsors, who he says have a lot to gain from learning about how they can meet the needs of a new customer base: the small businesses themselves.
“What we are proposing is that we’re going to create a database of all these completed risk management projects for all the small businesses we analyze,” he says. “If you are a company, you are The Hartford or Prudential or whatever, you want to sell your products and services, a very large, untapped market are small businesses.”
And while he’s starting in Connecticut, he’s already thinking about how the program could grow in the future. He’s shared the concept with actuarial science professors at other universities, and shared his ideas in a commentary piece in the industry publication, Contingencies.
He’s even spoken with international UConn actuarial students from Ghana about how the program might be applied to small businesses in their home country, through a partnership with the University of Cape Coast.
“There’s no reason why this kind of work cannot be done globally,” he says. “This is the dream. You build this so that it becomes a big thing, and we have just been there to start it.”
Closer to home, the SWM experience is one that Jackson says she’ll take with her as a well-rounded professional entering the actuarial field. She had done previous internships where she looked at large businesses and their sorts of risks, but she already has a job in place with a property insurer when she graduates in May, and working with small businesses is something that a property insurer would do.
“One of the things that Dr. Vadiveloo emphasized that really came through in this project is that the risks that small businesses are facing are completely different from what these chain and larger business franchises face,” says Jackson. “And I saw it when I went through the pricing files and the underwriters risk analysis for those middle-to-large-sized businesses, compared to what we’re really highlighting through this project. I feel like that that just helps me. Maybe I’ll get placed in a small business department when I graduate. This would be directly impactful.”
For Chang, the experience has been a great learning opportunity that helped her find the best ways to interact with a client – something classroom learning can’t always convey.
It also helped to reinforce just how important the awareness of risk analysis is for small businesses.
“You’re running a business now, and you’re running it every day, and you see the profits every day,” she says, “but you don’t always plan for the big things that might happen that could cause your income to go down. And you don’t want to be in a situation where it’s already happened and now you have to patch up the holes and fix everything. You want to be in a situation where, when it happens, you can still run your business smoothly.”
For more information about the Students for Workers Movement initiative and the Goldenson Center for Actuarial Research at UConn, visit goldensoncenter.uconn.edu.