The bleak result: you'll be dependent on kids, part-timers, transients, and other not-always-reliables, and you'll turn your employees over regularly. "There's no loyalty in a small business," says Don Rielly, who once ran a restaurant and now works as a management consultant. "People take the job for as long as they have to; then they're gone. It's expensive for owners -- they're constantly hiring and training people."
Prognosis. Poor. For one thing, the pool of low-wage (read: young) employees is shrinking. For another, traditionalists are now up against sophisticated and deep-pocketed competitors. In Cambridge, Mass., David Johnson expands his self-service laundry by adding a postal and business-services center, only to see a Mail Boxes Etc. franchise open up across the street. Suddenly, Johnson is competing with a well-financed, highly visible national company; it has tie-ins not only with UPS but with the likes of Nintendo. (Parents bring busted Nintendo sets to a Mail Boxes, which sends them out for servicing.) Of the 1,600 outlets it has franchised in the last 10 years, only 3% have failed.
Then, too, most traditional companies are selling goods and services to consumers. That's a market, Birch argues, that won't grow even after the recession. The big baby-boom generation has cut back on consumption in favor of saving for college and retirement. The generation following isn't nearly as big. "If you're trying to sell automobiles or houses or flowers or food, well, the growth rate in new-household formation is dropping like a rock," says Birch. "If you're going into a business like that, you're bucking a countertrend."
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"The name of the game nowadays for a small-business person is just survival. Especially when you're in retail or service." -- David Johnson,
Icon Postal Center
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Most promising variation. Well-managed franchises. Also, any expertise or specialization that sets you apart from the crowd -- and that you can communicate to your employees. Your knowledge of horticulture won't help you with customers if your ill-trained gardeners butcher the camellias. But a landscaper known for careful work and a knowledgeable staff can prosper where others fail. Ed Laflamme of Laflamme Services Inc., based in Bridgeport, Conn., regularly sends his 16 key employees to training seminars and has involved them in six quality teams. Such tactics have kept the landscape company profitable despite a harsh New England economy.
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Type Two: The Job Creators
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Who they are. The ambitious. Those who want to build a business, not just buy a job. "I had a lifelong desire to have my own company," muses TL Care's Tim Leister, who nonetheless spent 12 years climbing corporate ladders. What company builders like Leister are doing as a group, of course, is putting people to work. Small, growth-oriented businesses produced most of the 18 million private-sector jobs added to the U.S. economy during the '80s. Recent government estimates say they're now accounting for 90% of new jobs.
To read the newspapers, you'd think all job-creating companies were like giant Microsoft Corp. or computer maker Gateway 2000 (which topped last year's Inc. 500 list), technowizards capitalizing on brand-new markets. But forget the stereotypes. Apple South Inc., of Madison, Ga., has nothing to do with computers; the 14-year-old company owns and operates Applebee's and Hardee's restaurants. Yet it now employs some 3,500, up from only 146 five years ago. Most such companies, to be sure, aren't rocket ships like Apple South; they're Piper Cubs, growing from 5 workers to 25, or 100 to 300. The Harmony Schools Inc., for example, a Princeton, N.J., company that operates three child-care centers, has grown from 20 to 105 employees since 1986.
And though the central characteristic of job-creating companies is an ever-expanding payroll, there's more than one way to measure employment. Valerie Skonie of the Skonie Corp., in Sausalito, Calif., has only 6 full-time staff members. But she works regularly with some 80 independent customer-training specialists, brokering their services to corporate clients nationwide. Jim Carpenter's Wild Bird Unlimited Inc. employs only 12 at the corporate headquarters, in Indianapolis. But Carpenter has spun off 93 franchised stores in the United States and Canada. That brings Wild Bird's "jobs created" figure well into the hundreds.
What you'd better be good at. Nope, it isn't hiring -- that's easier than it might seem in a fast-growing company. Opportunities abound, so you'll attract good candidates. Also, we'll take for granted that you're good at selling; otherwise your company won't ever make it into this category.
The missing ingredient: managing cash. You may not need a lot of money to get started -- surprisingly, most fast-growth companies do not -- but a growing business's money tends to flow out faster than it flows in. Reflexite Corp., the company whose CEO and employees won the Inc./Ernst & Young/Merrill Lynch Entrepreneur of the Year award in 1992, has seen revenues quadruple in five years and has enjoyed margins so high that (as the chief financial officer puts it) "financing isn't really a problem." Even so, money is rarely far from president Cecil Ursprung's mind. "When you're growing at 34% or 38% a year, you'd better manage your balance sheet, or you're going to run out of cash," Ursprung says. "You'll be profitable. But you'll have no cash."
Prognosis. Good. On the entrepreneurial supply side, the recession has brought the corporate world a new round of layoffs, thus producing yet another generation of high-powered business-starters with savvy, contacts, and severance pay. And though both banks and venture investors are still skittish about backing small companies, enterprising company builders have found a variety of alternative avenues to financing. (See "How to Finance Anything," No. 04920501, April 1992.) On the demand side, large companies are once again pulling back from new markets and new technologies. That opens up more niches for growth-oriented companies to expand into.
