Nightmare on Main Street?
With all eyes on Wall Street over the past few weeks, it's understandable that business owners are feeling a little neglected -- and underappreciated. The nation's big banks may command the headlines -- and most of the direct assistance from the federal government -- but for small businesses, tighter credit and skittish consumers wrought by the excesses of a few financial market giants is a recipe for disaster, with far reaching impact on the economy at large.
Last year alone, companies with fewer than 500 employees accounted for 99.9 percent of the nation's 27.2 million businesses, including 20.4 million without any employees at all, Census data shows. Small employers pay 45 percent of private-sector payrolls, and over the past decade have created up to 80 percent of net new jobs every year. Together, these firms produce 13 times more patents per employee than large corporations, make up over 97 percent of all exporters, and generate over 28 percent of total export value.
All told, small businesses are responsible for more than half of private-sector gross domestic product.
Given their collective impact, the well-being of Main Street businesses -- from the corner barber shop, restaurant, and dry cleaner, to engineering firms, software makers, and online retailers -- offers the surest indicator of the overall state of the U.S. economy. How has the financial market meltdown affected them? Are banks cutting off lines of credit? Or is business better than ever?
In this, the first in a series of reports examining the toll the economic crisis is taking on the oft-cited Main Street, we put these and other questions to a cross section of America's entrepreneurs. Here's what they had to say:
Have the events of the past several months had an impact on your company? If so, what?
Sam Caglione, founder of Rehoboth Beach, Del.-based Dogfish Head Craft Brewery: Yes. We will be more conservative with our revenue growth and capital expenditure plans for the next three years, even though we are currently growing revenue 43 percent this year to date.
Carey Bretsch, president of Civil Design, a Brookings, S.D.-based public infrastructure project consulting firm: Absolutely. The impacts on us are people that use our services are not spending money like they were. Private developers, industry, they aren't spending money like they were and they're uncertain about the future.
Tom Magnuson, founder and owner of Magnuson Hotels, a Spokane, Wash.-based hotel chain: The U.S. hotel industry is only as healthy as all the other businesses. So, if corporate people quit or cut back on their traveling, or if other people cut back on leisure travel, or if associations end or cutback their meetings, that directly reflects on the hotel industry. It's going to be a tough couple of years.
How have you adjusted?
Caglione: We will hire fewer people than we originally assumed when budgeting for '09. We will also open fewer new markets than original planned and focus on organic growth in existing markets.
Bretsch: We've had to cut back, with our staff and our spending and things like that to compensate. Just like everybody else, we've been belt tightening. We've been marketing, to try to expand our client base.
Magnuson: Our hotel affiliates have to be successful, because we only make money if they make money. When the demand is not increasing, and perhaps decreasing, we are helping every one of our hotels stabilize, and in some cases grow well, through a market-share approach based upon making sure they have great distribution, excellent marketing and visibility, and sympathetic pricing. We're helping our guys push forward and stay visible. One of the most common reactions to downturns is for companies, whether small or large, to pull back on marketing and brand visibility. Our belief is to step forward.
Are you having trouble finding funds or credit?
Caglione: No. Thankfully, we are not in a heavy borrowing mode and we are profitable enough to grow out of cash flow with no new debt for the next three years, assuming sales stay strong. We shall see if that holds true.
Bretsch: No, not really. First, we haven't needed any. We're very liquid, so we haven't needed outside sources right now.
Magnuson: Not as of yet, because we're a privately owned company and we're not really capital-intensive, we're not really worried about the credit crunch as much as other companies might be.
If you had a magic wand, how would you fix the problem?
Caglione: Force politicians into term limits so there is less pork in Washington, and better regulate Wall Street so there is less rampant greed. All the while, keeping both entities off the backs of the small businesses that are the economic backbone of this dynamic, resilient country. It is still the land of opportunity, and I have great faith in the healing powers of ethical capitalism.
Bretsch: Where to start? Well, I think the government needs to be able to get itself out of debt, first, in order to stimulate growth and spur on the economy. I think that's going to be key to get things going again. The government is spending an awful lot of money in interest. And I think that the only way that business is going to want to expand and spend money is to see a certain future, and that future is not going to come about until the deficits start leaning the other direction. And I think you can see that right now, the crisis is attributable to practices that are somewhat unscrupulous, I think it's going to take some regulation to get things going again. Well, it's going to take an awful lot of taxpayer money first, and then regulation to make sure it doesn't happen again.
Magnuson: We're working really closely with all of our independent business affiliates to let them know that they're not alone. It's a confidence thing. People always talk about the consumer confidence level, it's amazing what happens when everyone starts talking negatively. People get tentative and pull up the drawbridge. There are a lot of troubles out there, but a little bit of confidence could help a lot.
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