As the Dow continues to drop and banks sit on their money, some entrepreneurs say they are cutting back on spending, while decrying a "crisis of confidence" throughout the economy. The latest in our series of reports on how small businesses are coping.
Policymakers and market watchers are now saying the federal government's $700 billion financial market rescue plan will take months to trickle down to smaller businesses. That could spell trouble for business owners, as well as 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 second 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?
Julie Sacriponte, co-founder and CEO of ChoiceOne Staffing Group, a Zelienople, Pa.-based staffing firm: Short answer, no. If anything, it's maybe helping our industry. We think that companies are cautiously optimistic about hiring people. They still need to hire people, but they're coming to us because they don't want to bring them on to their payroll full-time. I wouldn't say we've increased in business, but we've stayed consistent.
Steve Bachmann, CEO of Vinfolio, a San Francisco-based online wine store and cellar management services firm: A couple of ways. There has been weakness in fine wine prices that has been starting to emerge at auctions. And that's relevant because we buy a lot of wine from private individuals. So if prices in the market are falling, we need to stay on top of that so we're not overpaying for wine and being less price-competitive. There are also more people wanting to sell wine in a recession, because for whatever reason, they need money. They realize that wine is an asset they might be able to sell and make money out of it.
Will Pearson, co-founder of Mental Floss, a Birmingham, Ala.-based facts and trivia magazine: If anything, it has caused us to put more of a focus on outreach to our loyal customers. We've been doing as much as we can to make sure they're aware of all of our new projects. It's not that we were lazy on that front in the past, but we could always depend on new customers to consistently be coming in. We have seen a slight decline in that category although our business has grown, but we haven't seen as consistent a rate of growth with new customers as we might have during this time last year.
Mark Rukavina, CEO of iMemories, a Scottsdale, Ariz.-based company that converts home movies to digital formats: We've maintained good growth this year. We're fortunate, but we also planned for events like this. We built our business model around the notion of families and sharing. We've seen during this tough time, like around 9/11, that people look for comfort. They like to find themselves at home with loved ones, and our product line has played well with that adjustment in the market. The biggest jump we've seen is in shipping costs, because shipping cost increases are probably directly related to fuel costs. Other than that, we haven't seen a whole lot of cost increases. We're an internet based business and we have a lot of technology, and the technology cost has really been flat lined.
How have you adjusted?
Sacriponte: We have definitely cut back on our spending, and we are cutting down on our advertising and trying to reduce our costs just to be cautious, since we don't know what's going to happen down the road. We would hate to have any of our staff laid off, so what I've been telling them is that these are people companies want to hold on to, these are not the people that companies want to lay off. Our people are not the ones that companies are going to let go first. It would seem to make sense to go to the temporary employees first to get rid of them, but I think if you're supplying a good quality person they will be able to stay.
Bachmann: Like with anybody, expense control is more important than ever, just to be able to manage through what may be an uncertain environment. I could argue that people drink more wine when times are tough. It's a cheaper form of relaxation than taking a trip or going somewhere else. A major part of our business is about labor costs, and keeping an eye on that, and managing inventories to make sure our capital is being decently utilized. Some of these things should be done all the time anyway, so this is a useful reminder to pay attention to some of the basics.
Pearson: We've seen significant Web-growth as far as readership goes. We haven't necessarily monetized that traffic to the degree that we'd like to, but it's a growing loyal audience that we're trying to make aware of new products. This was the first time we've done a campaign push this way. It's really only been in the last year that we've seen significant growth in our online audience. If you go to our site right now, you'll see a breaking news announcement and you'll see some information about our book. We initially did it as sort of a joke, to poke fun at CNN and other news sites that say they have breaking news 24 hours a day. Now we've tried to make good use of it.
