The tsunami of 26 December 2004 killed over 35,000 people in Sri Lanka, made 400,000 jobless and damaged the economy by 6.5%. The physical damage was around U.S. $1.5 billion, with reconstruction costing $2 billion. Although entrepreneurs are opportunity seekers, take risks and thrive in uncertainty, the alignment of competency and institutional support was not fully realized for recovery. This problem is studied by revisiting inertia theory (to understand entrepreneurial inertia), network theory (for the interaction of environment and entrepreneur), and theory on disaster management (to understand stage-related issues). The objective of the paper is to provide insights into the current recovery process and future preparedness for small business management following natural disasters. The paper is based on a survey of 89 Sri Lankan small businesses affected by the tsunami which are now in the process of recovery. The procedures and techniques adopted by the Postgraduate Institute of Management in Sri Lanka, based on active participation combined with observation and systems design, proved highly effective in aiding entrepreneurs on their path to recovery. (Contains 6 tables and 3 figures.)