Dispatches

We asked dozens of CEOs and founders of fast-growth companies about how their businesses were faring in these uncertain times. Their stories capture the turbulence of today's economic climate - and reveal how entrepreneurs are weathering the storm.

Tweet

Special Report: State of the Entrepreneurial Economy

Reports from the Inc 500: Managing in the fast lane, surviving in the oncoming lane.

SALT LAKE CITY: At a semiconductor programmer that's fallen short on cash, the CEO takes an enormous pay cut, lays off employees, and turns to his bankers for help.

Eric Jenkins, founder and CEO of Teklution, says things started to fall apart in October 2000 and have only gotten worse. "We were shocked by how quickly the downturn hit us, since we were on a growth path," he says. Teklution, which programs semiconductors, recorded revenues of $7 million last year, "but this year we're down to $5 million," says Jenkins. Since October 2000 he has been forced to lay off 90 people. He himself took a 50% pay cut.

"We're struggling," he says. "We've been in negative cash flow for a few months. Six months without profit. We've been out there aggressively pursuing new business, but there doesn't seem to be business out there. Our sales have stabilized -- been flat -- but we took such a severe beating that we're digging ourselves out of a hole. We're very leveraged debt-wise with multiple banks."

So far his bankers have been patient. "They tell me they have many loans in default. They're willing to work with us to try to help us make it. It's in their best interest."

AUSTIN: A government contractor poised for expansion reverses course suddenly as state tax revenues plummet.

Allen Johnson's $1.5-million company, RAS Group, provides staffing, training, and consulting services. More than half of his customers are state of Texas agencies. The state's last fiscal year ended on August 31, and that's when its government contracts expired. "Normally, the state is pretty immune" to economic cycles, Johnson says. But this year sales-tax revenues were down, and eight of his nine government customers slashed their budgets and failed to renew their contracts.

Early last year Johnson took out some bank loans with an eye toward expansion. But when the economy began softening, he cut the staff from 20 to 11, and some of those left behind were forced to cut their hours from 40 to 30 a week. Now Johnson still has those loans, and he can't get any more financing. He and his partner cut their own pay to "negligible amounts," he says. The company is sitting on large bills. The worst-case scenario, the CEO says, is not making payroll.

Johnson has been out pounding the pavement looking for partnerships. He's struck a deal to resell courses from an E-learning company. He wants to line up at least $50,000 in new work so his bank will give him some more cash. Then he could tell his bankers, "Look, we can see light at the end of the tunnel."

"We were suffering well before September 11. Even though my business is not a dot-com, we were dealing a lot with dot-com businesses. And my clients are doing business with dot-coms. My customers' cash-flow problems get passed on to me. Customers are asking us to reduce our margins or they will take their business somewhere else. Business is down at least 50%. How have I responded? In addition to praying? We have reduced expenses as much as possible. We used to have Cokes and drinks in the fridge; now we've turned the fridge off. Our workforce has gone down by at least half, and everybody is spending as much time in sales and marketing as possible, trying to find work wherever we can."

PORTLAND, OREG.: A seller of chai benefits from consumers' continuing demand for low-cost luxuries.

Heather Howitt, president and CEO of Oregon Chai, is not particularly concerned about the economic downturn. Her company's sales have continued to grow at a double-digit rate, Howitt says coyly, since the company landed on last year's Inc 500 list, with sales of $11 million. Oregon Chai's steady expansion can be explained by the fact that it operates in a consumer-products niche that provides safe harbor while other businesses face declining sales and crunched cash flow.

What if her sales suddenly slide? Like many CEOs, Howitt will watch her advertising spending. This year she saved much of her ad budget for the fourth quarter for strategic reasons. Ads that run during the summer months never seemed to work; chai, a beverage served warm, is simply out of season.

Howitt plans to run ads throughout the fall, but she figures that if sales begin to drag, she can reduce advertising costs instantly, dropping consumer ads while keeping her schedule with the print trade journals.

There are areas in her business where she is already trimming the budget. For example, she'd heard that attendance at the Natural Products Expo East would be down by half, so she cut the Oregon Chai contingent from 10 to 2. "Whenever there's an opportunity not to spend, we'll take it," she says. The surprise ending: the conference was packed.

LAKEVILLE, MINN.: A manufacturer of snowmobile parts suffers a 25% decline in revenues.

Contract manufacturer QA1 Precision Products makes parts for off-road vehicles like snowmobiles. Its revenues dropped suddenly last year when the company lost one large contract. No matter, says CEO Jim Jordan, QA1 is adaptable and expanding. He's trimming away the marginally profitable parts-broker work and ramping up private-label production for his cost-conscious U.S. customers. He figures that those manufacturers will need to use his affordable overseas factories to keep their prices low. "When things get tight and profits get squeezed, midsize and large U.S. companies tend to look more at cost savings," he says. Thus, the company has been on a building binge -- it just constructed the first of four planned factories in China. Jordan plans to grow his staff by 15% to 20% next year.

 1 | 2  NEXT 

Read more:

Sign-up for our Technology Newsletter

Email Address: