Special Report

One week into the war with Iraq, Inc.'s staff gathered with a record number of America's elite entrepreneurs at our annual Inc. 500 conference in Rancho Mirage, Calif. World events were top of mind as CEOs clustered in front of TVs to catch the latest news. And given that their companies make up the most dynamic sector of the economy, we were eager to measure how these CEOs view the future. In a survey we conducted, 67% of respondents believe the war is hurting the economy -- yet 65% think their company's profits will increase in the next six months.

Seven Inc. 500 CEOs and one CFO also joined us for a roundtable discussion. The group generally supported the war: "President Bush has been a pretty damn bold leader," said Scott Burt, CEO of Integro, a Denver consulting company. Looking forward, the participants predict:

  • Start-ups will lag as long as the war persists. "Really good ideas are not getting funded and that's the scary part," said Ralph Kelmon, CEO of Kelmoore Investment in Palo Alto, Calif.
  • U.S. control of Iraqi oil will stabilize the global economy.
  • Entrepreneurs will be cautious financially. Mark Comiso, CEO of San Francisco marketing agency Maus Haus, said that he reduced debt to zero. Steve McKee, of Albuquerque marketing agency McKee Wallwork Henderson, has focused aggressively on collections. And Sean Montgomery, CFO of Integrity Staffing Solutions in Newark, Del., said his company only spends money on resources that will improve cash flow in the short term.
  • The group was split over what the war will mean for American companies doing business internationally. Kelmon predicted that money will leave the country, "and that will cause inflation." But Niraj Kumar, CEO of Nu Info Systems, a software company in Jacksonville, Fla. -- which has a subsidiary in India -- believes that anti-American sentiment abroad has been overhyped by the media.
  • The CEOs also fear that prolonged conflict will delay implementation of the Bush tax package, which they favor.

Only one participant suffered immediately as a consequence of hostilities. That was Mary Naylor, CEO of VIPDesk Inc. "We had a client in a travel-related industry that was ready to go last week with a significant seven-figure contract, but they decided to wait once the war started," she said. In contrast, McKee and Comiso experienced a surge in business. "A week ago Monday we were working on contingency plans if our cash keeps dwindling," said McKee. "Today, we're having conversations about maybe looking to staff. I can't say there's a connection, but it's an amazing coincidence."

Kelmon stood out as the one participant who feared a long war with painful economic consequences. "We'll probably have a market rally out of the war," he said, but it will be short-lived. "The military painted a rosy picture that this would be fast, and now it is trying to throw up the roof and get the foundation under it quickly." He added: "When we started our businesses and wanted to get people enthusiastic about them, we maybe embellished." The generals, he believes, did the same in selling the war.

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