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Forecast: Here Comes the Sun

Optimism is on the rise as companies look ahead.
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Forecast

When the stage lights dim in the middle of a play, the crowd hesitates. Do we clap? Is the show over, or is it just the end of a scene? The audience waits a little anxiously -- no one wants to applaud out of turn.

So goes the state of the entrepreneurial economy. Even though the Inc 500 CEOs who responded to Inc's most recent quarterly survey say the worst is over, many are still cautious, wondering if the economy has truly moved on to the next act.

As in Inc's March survey, a majority of respondents are forecasting sales growth for 2002. "We're starting to see a lot of people with budgets again," says Rodney Kuhn, CEO of Seattle-based Envision Telephony, a $10-million software company. "Six months ago we sometimes had to go as high up in an organization as the CFO to get an OK to buy [our] product, but now we're starting to see companies come to us with requests."

Even those CEOs who are still struggling see positive signs. "We are feeling pretty optimistic," says BlackHawk Information Services CEO Jason Yi, who has laid off half the staff at his $5.5-million company during the past year in an effort to stay afloat. "Our pipeline looks pretty decent. It's just that people are not signing on the dotted line today." Pete van der Harst, CEO of Portable Church Industries, a $3-million consulting business that provides equipment and operational advice to churches, faces the same uncertain situation. "A lot of people are saying, 'I'm going to wait for the fall.' Normally, in the first quarter we are beating people away because we can't handle all the business," he says. But even those admittedly stressed-out CEOs are hopeful that their business will pick up by the end of next quarter.

With characteristic grit, 51% of survey respondents acknowledged that times were tough but said that they loved the challenge. Another 37% expressed even more enthusiasm. When asked how they felt about their job as CEO these days, they checked off "Good. I'm having fun." Aaron Kennedy is one such happy-go-lucky CEO. His Noodles & Co. restaurant chain has had another banner year, and he's reaped some rewards from the down economy. "We can get real estate faster, get things built faster, and hire management sooner. All of this should culminate in accelerating growth," Kennedy says. He is forecasting an 87% leap in sales for 2002.

Many CEOs report that things are getting better, but is that just wishful thinking? After all, the fact that they started companies in the first place means that they are people who tend to focus on the upside. These CEOs, however, are backing up their predictions with real steps toward renewed growth. Nearly 70% hired new full-time employees in the first quarter. Jason Denmark, CEO of Intermedia Group, a New York City-based IT consultancy, says he is swamped with 200 to 300 résumés a week from experienced technical consultants who are fleeing his competitors. He increased his staff by 8% in the first quarter. "I've been sitting here with a big broom," says Denmark, who works three blocks away from the site of the World Trade Center and has been cleaning up as many nearby companies have downsized. The CEO credits his solid footing to his diversified client base, which ensured that he still had revenues coming in from around the country while New York suffered through the end of 2001. "Two years ago, three years ago, we were losing a lot of employees to big firms that were giving smaller salaries but tons of stock options, and I couldn't compete," Denmark says. "We've seen a lot of them come back."

In addition to hiring, the survey respondents have plans to increase sales in 2002. Selecting from a list of possible top priorities for the year, 63% said that they aimed to boost sales, 15% hoped to launch a new product or service, and 10% planned to improve the company's infrastructure. Only 3% cited cost cutting as their top priority for the year. Compared with Inc's December and March surveys, fewer respondents expressed concern about the viability of their companies, although at 12% the number still remains high. Typically, the annual failure rate of Inc 500 companies is about 2%.

Still, even BlackHawk's Jason Yi, who's been through a very tough year, says the mood at his California office is positive. "Everybody agrees that the worst is over," he says. "Staying optimistic right now is the best thing we can do."


Survey of Inc 500 companies for the three years 1999, 2000, and 2001

What is your top priority for 2002?
Boost sales 63%
Launch a new product or service 15%
Build infrastructure 10%
Cut costs 3%
Other 8%
How do you feel about your job as CEO now?
Fine
Times are tough, but I love the challenge
51%
Good
I'm having fun
37%
Stressed out
I can't sleep at night
10%
Other 3%
Did you hire any additional
full-time employees in the first quarter?
Yes 69%
No 31%
Did you have any layoffs
during the first quarter?
Yes 19%
No 81%
Do you have any serious concerns about the viability of your company?
December 2001
Yes 18%
No 77%
Don't know 5%
March 2002
Yes 14%
No 83%
Don't know 3%
June 2002
Yes 12%
No 85%
Don't know 2%

Note: Numbers may not total 100% because of rounding.


For this project Inc teamed with Inquisite?, the survey product group of Catapult Systems, an Inc 500 company. Inquisite (www.inquisite.com) provided the survey technology, reporting, and hosting for the on-line survey.


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Related links:
Extended Forecast

Last updated: Jun 1, 2002




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