Recession, downturn - whatever you call it, the recent economic slowdown may be one of the most confusing in recent memory. Results of a recent Inc 500 survey suggest that even seasoned company builders are struggling to figure out what's going on.
Special Report: State of the Entrepreneurial Economy
In past recessions, growth companies have absorbed shocks to the economy. A new survey of Inc 500 CEOs suggests that might not happen this time around.
Recession, downturn -- whatever you call it, the economic slowdown of the past year may be one of the most confusing in recent memory. It didn't start for the usual reasons, and it isn't obeying customary dynamics. Particularly for growth companies, the signs and portents were mixed even prior to the attacks on September 11, and since then they've grown only murkier. Even seasoned company builders are having a tough time reading the omens -- and determining how the downturn will affect their businesses.
Take Phillip Mosely, who founded his IT company, OnSphere, in 1988 and managed it through the recession of the early 1990s. Then, says Mosely, "it seemed like there was an end in sight. It wasn't depending on whether someone was going to blow something else up or not." Not so today, he says. "Now, primarily because of the events of 9/11, there's still not a sense of when we're going to come back out."
Another source of confusion is the employment picture. Well before September, job cuts at large companies had been announced in record numbers. Add in the postattack layoffs, and the total number of job cuts announced through the third quarter of this year came to nearly 1.4 million, more than twice as many as in any full year in the past decade. (See chart, below.)
A Shock to the System? JOB LOSSES MULTIPLY: By the end of the third quarter, U.S. companies had announced record job cuts -- more than twice as many as those announced in any full year in the past decade.
* Through August 31. Source: Challenger, Gray and Christmas.
Cutbacks of that magnitude ripple through the economy, sapping confidence and ultimately eating into spending. The unemployment rate, however -- at near-historic lows for the past few years -- has been creeping upward only slowly and is still well below the levels traditionally associated with a recession. That suggests either that most of the big-company cuts haven't gone into effect yet or that entrepreneurial businesses are picking up the slack.
The latter hypothesis fits with past experience. "Keep in mind that in the early 1980s [recession] and again in '91, the small-company share of job generation was 100%," says David Birch, president of Cognetics, perhaps the world's leading authority on small-business demographics. "This population of small growing companies acts as a shock absorber for the economy as a whole." The trouble is, right now the entrepreneurial sector may not be exhibiting the resilience you'd expect. Indeed, the signs from growth companies are as perplexing as those coming from any other sector. For example:
So nobody knows quite what to expect from this recession, particularly since it isn't following any recent scripts.
Do you have serious concerns about the viability of your company? No: 77% Yes: 18% Don't know: 5%
FROM OUR PARTNERS