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STRATEGY

The State of Small Business: Editor's Note
 

In today's rapidly changing economy, growing companies face both uncertainties and possibilities. Whoever emerges victorious, one thing is clear: Those who refuse to recognize the new realities will be buried by them.
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Editor's Note

Changing times mean new challenges. What doesn't change is how we deal with them

Imagine radio as a dirty word. Once, when radio was a hot new medium as exciting and unpredictable as the Internet is today, it was cursed by the very company that should have most embraced it -- the Victor Talking Machine Co., of Camden, N.J. Victor was then one of the greatest entrepreneurial success stories of the day, but its owner didn't understand how the world was changing. So, ironically, in 1924 the company shunned one of the richest opportunities of its age. Just as the home radio set was fueling the greatest consumer technology revolution in decades, a new employee at Victor was warned not to even utter the word radio while on the premises.

Victor's founder, Eldridge Reeves Johnson, was originally an inventor and a key figure in the growth of the phonograph industry. Yet by the time he was running a world-class manufacturing company, Johnson had ceased to innovate. His inability to adapt brought the company down. He just couldn't deal with all that change.

Sound familiar? It should. Here we are today, after five years or so of the Internet revolution, wrestling with a challenge not terribly unlike the one Johnson faced. We're still talking about change, still trying to figure out how to deal with its faster-than-ever pace. By the time we get up to 33 1/3 rpm, the world is at 45 -- and accelerating.

It's only human to struggle with new realities. It seems like only yesterday that we were wondering if there was such a thing as a new economy. Now we wonder what remains of the old one.

We all know this is a time of massive change. In fact, we've talked that one to death. If we want to better understand the state of small business today, it's time to shake off all the brave-new-world hype and take a closer look at the real world. If the rise of the digital economy is the key force for change, where is the ripple effect in our daily lives? What are the changes that are happening now, the events that we can touch and see and smell as we go about our business? How are we dealing with it all?

We need to understand what really changes -- and what doesn't change at all. Like human nature, for example. As it is now, it was in 1919, when Victor was enjoying a massive boom. The company's acoustic phonograph was a feature of every smart home in the country, so ubiquitous that the product name -- Victrola -- would be synonymous with record player for decades to come. It was a company that had $38 million in assets and was rolling in cash at a time when a buck was really a buck.

But Victor's CEO simply wasn't ready for radio. Johnson's 1921 phonograph was practically the same as his 1906 model, even though radio and other new technologies were about to revolutionize the home-music industry. The Victrola, a nice, quiet machine, had long been sold as a genteel parlor fixture. But the 1920s were the jazz age. Radio and electric phonographs were on the way, and they could play the hot new music nice and loud.

Victor didn't get the message until Christmas, 1924, when sales tanked. The company scrambled to retool in 1925. It even made plans to include -- gulp -- radio sets in some models. But it was too late. By 1929, Victor was swallowed up by RCA -- the Radio Corporation of America -- which despite assurances to the contrary had very little interest in the phonograph. RCA mostly wanted Victor's manufacturing plant and national dealer network so it could make and sell more radios. Radios were the future.

Johnson made a fortune from the sale of Victor, but he lived with regret for the rest of his life. His is the classic lesson of history, the one that shows that those who refuse to recognize new realities will be buried by them.


To master this Internet economy, we must shake off the hype and take a close look at the real world.


Which brings us back to our premise: the more we understand what is really changing, the better we can cope with it. As Yogi Berra once said, "You can observe a lot by watching." So we have broken this issue out into four sections, the better to show you where to look.

In our first section, " How It Feels at This Moment," we investigate change shaped by the now -- by this moment in history. "How I Learned to Stop Worrying and (Almost) Love eBay," by Anne Marie Borrego, follows a small-business owner who was at first threatened by the rise of E-commerce and then enriched by it -- but who still worries that his work may lose some of its soul. "Young Dot-Com Millionaires in Love," by Nancy K. Austin, offers a peek into the world of television soap operas, where producers struggle as we do -- OK, it's Hollywood, so maybe they struggle in a weirdly different way -- to adapt to the rise of the digital economy.

The stories in our second section, " How It Looks from This Place," study how the cities and towns in which we live and work define the ways in which we experience the rise of the digital economy. In "Barbarians at the Watergate," by Samuel Fromartz, we observe the social elite of Washington, D.C., as Beltway society struggles to adapt to an influx of dot-com millionaires. In "Portland Plays Perception Poker," by Leslie Brokaw, we see how an entire city fights to bring in just such an invading horde.

Our third section brings us back to " How It Works in the Real World," where CEOs of not-com, traditional businesses fight to grow in a rapidly changing world. Edward O. Welles's "The Greenhouse Effect" tells of a CEO who got caught up in E-commerce and grew his company beyond his wildest dreams -- or desires, truth be told. In Joseph Rosenbloom's "Snap, Crackle, Pop!" we find out whether building a better mousetrap -- and we do mean mousetrap -- will make a dot-com world beat a path to your door.

In the last section, " How It Ties to the Future," we examine what might be one driving force for change: big ideas. "The Profit-Minded Professor," by Donna Fenn, looks at what happens to the ivory tower in a time of golden dreams, as business professors start launching into dot-com careers on the side. "The Sacred and the Mundane," an essay by Jeffrey L. Seglin, asks whether the Internet revolution is changing the icons of business and the values they represent.

Throughout the issue, we have sprinkled conversations with savvy observers of the world around us -- including historian David McCullough, Mike Wallace of 60 Minutes, Ms. magazine editor Marcia Ann Gillespie, Nobel-prize-winning economist Gary Becker, and an eighth-grade teacher from Indiana.

Those interviews, along with the other stories in this issue, offer views on change that are anything but theoretical. They're personal. They're immediate. They're true. They show us what really changes. And what does not.

Michael Warshaw is a senior editor at Inc.


Please e-mail your comments to editors@inc.com.

Last updated: May 15, 2000




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