EVEN as oil prices surge, the housing market contracts, Wall Street reels
and multibillion-dollar deals falter, small businesses are flourishing
and, in fact, are helping to buoy the economy, experts say.
(article continues below useful links)
Last week, for example, a monthly report released jointly by Automatic
Data Processing Inc., the nation’s largest provider of payroll services,
and Macroeconomic Advisers, a St. Louis consulting firm, showed an increase
in private sector employment in October of 106,000. That included a surge
of 63,000 at businesses with fewer than 50 employees, a gain of 50,000
at businesses with 50 to 499 employees — and a loss of 7,000 at
companies with more than 500 employees.
“I travel a lot and speak to a lot of small business groups,”
said Joel Prakken, chairman of Macroeconomic Advisers. “What I hear
is much more upbeat than what you read in the financial press. Small business
owners know about the worries hanging over Wall Street. But they are doing
well. Interest rates are low, the stock market is high. They can raise
money. The global economy is very strong. They can expand their global
reach, and they are doing it.”
The latest numbers marked an acceleration in job growth from an average
of 43,000 over the previous three months, Mr. Prakken said. During that
time, small businesses were also the main engine of job creation, he added.
Carl Schramm, an economist who is chief executive of the Kauffman Foundation
in Kansas City, Mo., and author of “The Entrepreneurial Imperative,”
said the figures indicate that the role of small businesses as an engine
of job growth is gaining force, especially in troubled economic times.
“In the last recession, young and small businesses created fewer
jobs than they do today,” Mr. Schramm said. “In the next recession,
the power of small businesses to create jobs counter-cyclically will be
stronger,” in part because of the inroads they have made over the
last decade into the services sector and the global economy.
Mr. Prakken said the latest A.D.P. report, the only large-scale national
study that breaks down results by company size on a monthly basis, “answers
the burning question of the day: are the housing crisis and the August
seizure of the credit markets spilling over into the broader economy?
The answer seems to be no.”
Richard Enos, co-founder and chief executive of StudyPoint, a Boston tutoring
company, says he believes he has found a niche neglected by the big companies
in the industry. “We want to build the nation’s most successful
private in-home tutoring services company,” he said.
Mr. Enos said he had just hired two people, bringing his full-time staff
to 32, from 23 a year ago, and planned to hire two more soon.
He projects revenue growth of 31 percent this year, to $4.2 million, and
66 percent next year, to about $7 million. He said he hoped to expand
to 30 or 40 cities, up from 10 today. “We’re really trying
to ramp up our growth,” he said.
So is Paul Borgman, co-founder and chief executive of the Smoothstone
IP Communications Corporation, a business communications services company
in Louisville, Ky. He said he had doubled his work force to 100 over the
last year and expected to add 40 more employees by this time next year.
He said he also planned to open offices in 12 more cities in 2008, up
from 7 today.
Meantime, he expects revenue to continue doubling every three years. “Our
sales funnel has never been more robust,” he said. “The prospects
coming into our funnel have never been more dynamic. We see no effects
of an economic slowdown.”
Another report released last week suggests some decline in confidence
among small-business owners, but it also contained encouraging signs.
The Discover Small Business Watch, based on a monthly survey of 1,000
business owners with fewer than five employees, showed modest declines
in the percentage who thought economic conditions for their businesses
were improving and who planned to increase investments. The survey also
found a bigger drop in the number who planned to hire more workers.
The numbers, though, were “not as sharp as one might anticipate
given the overall gloom” about the economy today, said Sastry Rachakonda,
director of Discover Financial Service’s small-business credit card
unit, which publishes the poll.
Moreover, the most important indicator, the portion of respondents who
reported cash flow problems, declined to 42 percent, from 46 percent in
September, he said. While that was higher than 34 percent a year ago,
Mr. Rachakonda said, it showed that the sector was weathering the current
economic storms well.
“If the cash flow numbers continue in the same trend, the small
business economy will be fine,” he said.
The latest jobs report from Challenger, Gray & Christmas, an outplacement
firm in Chicago, also pointed to a more buoyant economy than headlines
about depressed housing and stock declines would seem to augur.
The number of planned cuts by employers declined for the second consecutive
month in October, to 63,100, from 71,700 in September and 69,200 in October
2006, the survey said.
“This is definitely a positive report,” said John A. Challenger,
the firm’s chief executive.
Similarly, last Friday, the online payroll service SurePayroll released
a survey showing that both hiring and salaries at small businesses were
up in October.
One reason small businesses may be outpacing big corporations in the uncertain
environment is that they are run by entrepreneurs who are known for their
knack of spotting money-making opportunities and acting quickly on them.
“We’ve thrived on a formula for medium-sized enterprises that
nobody else has come up with,” Mr. Borgman, of Smoothstone, said,
which he said was to provide and manage customized phone equipment and
telecommunications systems for his clients at all their locations.
“We save our clients more money than our competitors could, and
we save them headaches because we offer a single solution,” he said.
“This resonates even in this economic environment, when companies’
budgets and hiring are not as robust as they were one or two years ago.”
John-Claude Hallak, vice president for sales and marketing of Hallak Cleaners,
an upscale dry cleaner founded by his father, recently spent $250,000
to refurbish his store in Manhattan, $100,000 to upgrade the exterior
of his 12,000-square-foot plant in Hackensack, N.J., $60,000 for a Green
Earth Cleaning machine and $40,000 to add a truck to his fleet. He plans
to invest $100,000 for an automated assembly and bagging system and $100,000
to $500,000 on improvements at his Hackensack building.
He said he had expanded service in Manhattan and planned on hiring at
least two more people. He foresees steady revenue growth of 10 to 15 percent
a year for the rest of this decade, a modest rate, by his reckoning. “I
believe strongly in the tortoise and the hare,” he said.
Mr. Hallak pursues an age-old business strategy of aiming at the highest
end of the market, which by definition is limited but, he says, is also
very loyal. “For most of the industry, it’s a commodities
business, very price sensitive,” he said. Not so for people with
$12,000 dresses or $30,000 wedding gowns that need cleaning.
“I track everything,” he said. “I can tell you every
time you had your powder blue suit cleaned and what other items you brought
in with it. I can see whether accounts are lapsing and what kind. You
can gain all sorts of insights. If the percentage of high-end products
we get slips to 50 percent from 60 percent, but overall business increases,
that means more people are doing one-stop shopping.”
