"The Moping Is Over"
Welcome to the first monthly Small Business forum. A panel of small-business owners, managers and, advisers from around the country has been invited to kick off this discussion.
This month's topic is:
The Impact of Sept. 11's Terrorist Attacks on the Small Business Economy
The U.S. economy was teetering on the edge even before the terrorists struck the World Trade Center and the Pentagon on Sept. 11. But the confidence of small-business owners and managers was high, with surveys taken before the attacks indicating that they felt the economy had hit bottom and things were about to improve.
The question now: Will the terrorist attacks result in a short-term slowdown or a full-scale, small-business recession? How are you preparing for the economic fallout -- for the long term and for the short term? What help would you like to see coming out of Washington?
The following are excerpts from the panel discussion. Read the full transcript in BusinessWeek Online's new Small Business Forum and add your comments to the discussion. You will need to register if you are not already a forum member.
The Impact Of September 11's Terrorist Attacks On The Small Business Economy
LISA BERGSON
President/CEO
MEECO, Tiger Optics
Warrington, Pa.
Forum Member Name:
Tiger Optics "My business was already in a downturn, starting in August. Because we tend to gyrate, my people know the drill. We had a modest layoff of some marginal employees. We cut budgets and froze salaries and hiring. I'm trying to avoid further layoffs of my highly skilled workforce and pay cuts, which really rankle people.
Strange to say, since September 11, our business has begun to pick up. We've yet to see a revival in our core semiconductor equipment business, but our industrial sales (industrial gas and natural gas markets) are solid and steady.
At the same time, morale since the bombings is very strong. People seem more committed than ever to their work. For the first time today, we hung a flag outside. "We should have had it all along," said my purchaser. He's organizing a dedication next week, with one of our production guys, a real R&B crooner, singing 'God Bless America'."
(Lisa Bergson is also the "Factory Days" columnist for BusinessWeek Online -- Small Business.)
JIM BLASINGAME
Host of radio/Internet talk show:
The Small Business Advocate
Forum Member Name:
SBAdvocate "I would like to address one of your questions: "Will the terrorist attacks result in a short-term slowdown or a full-scale, small-business recession?"
On my talk show, I've asked every economist in my brain trust if they know of another scenario in our history that approximates the shock-effect our economy experienced following the attacks. The answer from every one is no. Unprecedented.
Short-term, we're experiencing a slowdown as a result of the shock effect, even though we are currently somewhat buoyed by business we put into the pipeline months ago, but just now being delivered.
The shock effect will go away in a few weeks, but the long-term residual will be an economic pipeline that is not full, because we didn't put work in during the shock-effect period. That's why I'm bearish about next year.
When air gets in a water pipe, the flow is interrupted and faucets sputter down the line until flow is revived. Our economy is like that pipe. When we don't put work in, as happened recently (and to some degree is still happening), business will sputter a few months down the line. The sputtering will continue until the pipeline is full again, and the duration of the sputtering is in direct proportion to the length of the shock-effect period.
As an entrepreneur, it's my nature to focus on the possibilities rather than the negatives. But unprecedented circumstances call for brutal honesty - the answer to your questions is yes: both a short-term slowdown AND a "full-scale recession." Probably through 2002."
PAUL COOPER
CEO, Perceptual Robotics
Chicago, Ill.
Forum Member Name:
TrueLook "To the extent that recessions can arise from, or be made worse by, a reinforcing cycle of negative events causing other negative events, it's likely that September 11 will reinforce the economy's downward spiral. Layoffs directly due to travel drop-off pull money from the economy, which ultimately cause other layoffs. Which is unfortunate.
Because good small businesses can be agile, quick adjustment to changing circumstances by small businesses may dampen this kind of self-reinforcing trend. Most high-tech businesses (ours included) have already been through some kind of restructuring, typically half a year to a year ago. So we are actually in strong positions for somewhat leaner times.
And we can, and do, continue to look for opportunities. Our particular kind of technology (remote imaging) looks to play a larger role in helping build the new future, and many businesses are finding similar "silver linings".
The moping is over. Small businesses and their employees have and will continue to adapt and be strong."
JIM BLASINGAME
Host of radio/Internet talk show
The Small Business Advocate
Forum Member Name:
SBAdvocate "You ask: "What help would you like to see coming out of Washington?"
An ounce of prevention is better than a pound of cure. It will be much less expensive to help small businesses survive than to deal with their unemployed and those who have to declare bankruptcy. Plus the speed of the ultimate economic recovery will depend largely on the survival of our small businesses.
In the short-term, helping small businesses survive is all about working capital. Small businesses borrow most of their working capital, primarily from banks. In a normal year, loan proceeds go to purchase assets and fund growth in the form of financing accounts receivable, purchase equipment and inventory, and increased payroll expense. For the next 12 months, many small businesses will need to borrow more for survival than for growth.
Through the U.S. Small Business Administration infrastructure is already in place, the U.S. government should make zero-interest loans available for small businesses to borrow from local banks. Since banks can't pay their bills without some yield on loans, that's where the government steps into the breach with financial support.
This support is not because we're in a recession -- market corrections are to businesses what natural selection is to flora and fauna. But for the same reason airlines were given $15 BILLION -- the terrorist attacks created abrupt and unanticipated circumstances that put these businesses in jeopardy. I contend that America's small businesses, as a class, are just as essential to our national welfare as are the airlines, as a class."
ERIC SHANNON
CEO/founder LatPro.com
Plantation, Fla.
Forum Member Name:
LatPro "I'm not sure we can distinguish between a small-business recession and a general recession. If the Fortune 2000 suffer, so does small business. I restructured in September on the assumption that we're just now entering a recession that may last more than a year.
A real recession might benefit us in the long run, as my market is still cluttered with Internet companies that never should have been funded nor seen the light of day. I'd like to see the fog burned off the market to reduce the confusion and uncertainty, which only benefit the largest player.
From the U.S. government, I'd like it to get out of the online recruiting market. Believe it or not, it runs its own site, which competes directly with all the others. Most importantly, I'd like to see real security in transportation implemented rapidly, that's the first step in stimulating the economy."
ROBIN J. PHILLIPS BusinessWeek Online
Small Business
Forum Member Name:
RobinABW "Military Action: How do things change for small business now that the United States has begun attacks on terrorist targets inside Afghanistan? Does military action give you confidence for your business and the economy in the coming year? How does the fear of retaliation play into your day-to-day or longer term plans?"
PAUL COOPER
CEO, Perceptual Robotics
Chicago, Ill.
Forum Member Name:
TrueLook "I don't agree with SBAdvocate -- I do think the Federal government probably made a mistake with so much largesse for the airline industry, and although in some abstract sense it is probably true that small businesses deserve help as much as UAL, it seems clear that the government currently has enough on its hands without figuring out how to help the diffuse small-business community in some effective way.
As to the retaliatory attacks, it's doubtful that they will change the economic terrain for small businesses much. What does affect us is widespread changes in behavior, which 9.11 seems to have caused."
JIM BLASINGAME
Host of radio/Internet talk show
The Small Business Advocate
Forum Member Name:
SBAdvocate "The greatest impact of the attacks, subsequent military action, and possible retaliation is how these events hold the attention of consumers. The more our customers are worried about these events, plus things like anthrax, layoffs announcements, and the National Guard in the streets, the more they feel uncertain and insecure about their future. And insecure consumers aren't good at what they do best, spending money.
All of these concerns also impede employee productivity. Workers, like customers, are anxious. And anxious employees aren't fully productive.
Typically, our attitude is heavily influenced by how we feel about the future. Right now, we don't know whether to feel hopeful about our business, or job, for the next month or next year. It's almost as if our hope is on hold.
When the economy slows, as business owners we know how to deal with that. But this situation is not market or economics based, it's man-made, and in terms of the flow of the economy, is an artificial disruption that we have never had to deal with before.
For businesses to survive all of this requires staying power."
DONNA MYERS
President/CEO
DHM Group Inc.
Holmdel, N.J.
Forum Member Name:
DHMGroup "I've been amazed at what a strong influence September 11 attacks had immediately on my marketing business. We had been getting so much new business coming in over the transom with no effort on our part, in spite of the very slowed economy, that I had increased staff with senior people to handle it.
We handle primarily food and outdoor lifestyle clients and consumer spending seemed to continue relatively solid for them. Though this was the first year that the barbecue industry did not realize major gains, clients were not appreciably cutting back on their marketing budgets, though they were keeping close track of them. About two weeks after the airplane disasters, however, in one week, two new clients announced they were going to delay the start of their campaigns, another changed their plans for national launch of a new product next spring, and an established client was told by his management that he had to cease all marketing activities as of the end of October. Collectively, that was a tremendous blow with no warning and it seemed to emanate from instant management panic over what the next 6 to 8 months portends in consumer spending.
These clients range from relatively small companies to very large ones, but the effect of their cautiousness has a substantial effect not only on my small business, but on my suppliers as well. I have made the decision not to cut staff as I believe it is difficult to find good experienced people, but it will definitely require a lot of belt tightening and scrambling for other new business, which we rarely have to do. I think business, in general is just extremely cautious now because everything in our lives seem so uncertain that it seems better to be safe than take risks without much data on which to make decisions.
With regard to what Washington can do to help small businesses, it is probably the same thing they need to be doing regularly...but it is more urgent now. Senator Kit Bond,, the ranking minority member on the Senate Committee on Small Business and Entrepreneurship has introduced "The Small Business Leads to Economic Recovery Act" designed to wage a three-pronged assault on the economic troubles threatening small businesses by providing three key provisions: tax relief, emergency loans for working capital, and increased opportunities to conduct business with the Federal Government. Small businesses aren't the ones laying off hundreds of workers or closing plants, but they are the constant in our economy and it is very important to economic recovery that they remain economically viable.
I doubt that the attacks will have much of an effect generally. "War" traditionally has had a somewhat positive effect on the economy. But this is not your usual war and it still brings a lot of fear and uncertainty that may cause consumers to continue to be very cautious about spending.
I think, by spring it is possible that our business could see some benefits because we are so strongly tied in to clients who are selling family values and stay-at-home entertaining, along with investment in your backyard as a respite from a hectic lifestyle. Now that has taken on new meaning as people are more fearful about travel, are looking for safety which staying at home tends to provide, paying more attention to the important "people relationships" of friends and family. If they are going to spend money on something, they may be more comfortable adding a deck, buying new patio furniture and a new grill, etc., than taking an exotic vacation, or even going to places that have big crowds and pose a possible risk of another retaliatory attack from fanatics.
This month's topic is:
The Impact of Sept. 11's Terrorist Attacks on the Small Business Economy
The U.S. economy was teetering on the edge even before the terrorists struck the World Trade Center and the Pentagon on Sept. 11. But the confidence of small-business owners and managers was high, with surveys taken before the attacks indicating that they felt the economy had hit bottom and things were about to improve.
The question now: Will the terrorist attacks result in a short-term slowdown or a full-scale, small-business recession? How are you preparing for the economic fallout -- for the long term and for the short term? What help would you like to see coming out of Washington?
The following are excerpts from the panel discussion. Read the full transcript in BusinessWeek Online's new Small Business Forum and add your comments to the discussion. You will need to register if you are not already a forum member.
The Impact Of September 11's Terrorist Attacks On The Small Business Economy
LISA BERGSON
President/CEO
MEECO, Tiger Optics
Warrington, Pa.
Forum Member Name:
Tiger Optics "My business was already in a downturn, starting in August. Because we tend to gyrate, my people know the drill. We had a modest layoff of some marginal employees. We cut budgets and froze salaries and hiring. I'm trying to avoid further layoffs of my highly skilled workforce and pay cuts, which really rankle people.
Strange to say, since September 11, our business has begun to pick up. We've yet to see a revival in our core semiconductor equipment business, but our industrial sales (industrial gas and natural gas markets) are solid and steady.
At the same time, morale since the bombings is very strong. People seem more committed than ever to their work. For the first time today, we hung a flag outside. "We should have had it all along," said my purchaser. He's organizing a dedication next week, with one of our production guys, a real R&B crooner, singing 'God Bless America'."
(Lisa Bergson is also the "Factory Days" columnist for BusinessWeek Online -- Small Business.)
JIM BLASINGAME
Host of radio/Internet talk show:
The Small Business Advocate
Forum Member Name:
SBAdvocate "I would like to address one of your questions: "Will the terrorist attacks result in a short-term slowdown or a full-scale, small-business recession?"
On my talk show, I've asked every economist in my brain trust if they know of another scenario in our history that approximates the shock-effect our economy experienced following the attacks. The answer from every one is no. Unprecedented.
Short-term, we're experiencing a slowdown as a result of the shock effect, even though we are currently somewhat buoyed by business we put into the pipeline months ago, but just now being delivered.
The shock effect will go away in a few weeks, but the long-term residual will be an economic pipeline that is not full, because we didn't put work in during the shock-effect period. That's why I'm bearish about next year.
When air gets in a water pipe, the flow is interrupted and faucets sputter down the line until flow is revived. Our economy is like that pipe. When we don't put work in, as happened recently (and to some degree is still happening), business will sputter a few months down the line. The sputtering will continue until the pipeline is full again, and the duration of the sputtering is in direct proportion to the length of the shock-effect period.
As an entrepreneur, it's my nature to focus on the possibilities rather than the negatives. But unprecedented circumstances call for brutal honesty - the answer to your questions is yes: both a short-term slowdown AND a "full-scale recession." Probably through 2002."
PAUL COOPER
CEO, Perceptual Robotics
Chicago, Ill.
Forum Member Name:
TrueLook "To the extent that recessions can arise from, or be made worse by, a reinforcing cycle of negative events causing other negative events, it's likely that September 11 will reinforce the economy's downward spiral. Layoffs directly due to travel drop-off pull money from the economy, which ultimately cause other layoffs. Which is unfortunate.
Because good small businesses can be agile, quick adjustment to changing circumstances by small businesses may dampen this kind of self-reinforcing trend. Most high-tech businesses (ours included) have already been through some kind of restructuring, typically half a year to a year ago. So we are actually in strong positions for somewhat leaner times.
And we can, and do, continue to look for opportunities. Our particular kind of technology (remote imaging) looks to play a larger role in helping build the new future, and many businesses are finding similar "silver linings".
The moping is over. Small businesses and their employees have and will continue to adapt and be strong."
JIM BLASINGAME
Host of radio/Internet talk show
The Small Business Advocate
Forum Member Name:
SBAdvocate "You ask: "What help would you like to see coming out of Washington?"
An ounce of prevention is better than a pound of cure. It will be much less expensive to help small businesses survive than to deal with their unemployed and those who have to declare bankruptcy. Plus the speed of the ultimate economic recovery will depend largely on the survival of our small businesses.
In the short-term, helping small businesses survive is all about working capital. Small businesses borrow most of their working capital, primarily from banks. In a normal year, loan proceeds go to purchase assets and fund growth in the form of financing accounts receivable, purchase equipment and inventory, and increased payroll expense. For the next 12 months, many small businesses will need to borrow more for survival than for growth.
Through the U.S. Small Business Administration infrastructure is already in place, the U.S. government should make zero-interest loans available for small businesses to borrow from local banks. Since banks can't pay their bills without some yield on loans, that's where the government steps into the breach with financial support.
This support is not because we're in a recession -- market corrections are to businesses what natural selection is to flora and fauna. But for the same reason airlines were given $15 BILLION -- the terrorist attacks created abrupt and unanticipated circumstances that put these businesses in jeopardy. I contend that America's small businesses, as a class, are just as essential to our national welfare as are the airlines, as a class."
ERIC SHANNON
CEO/founder LatPro.com
Plantation, Fla.
Forum Member Name:
LatPro "I'm not sure we can distinguish between a small-business recession and a general recession. If the Fortune 2000 suffer, so does small business. I restructured in September on the assumption that we're just now entering a recession that may last more than a year.
A real recession might benefit us in the long run, as my market is still cluttered with Internet companies that never should have been funded nor seen the light of day. I'd like to see the fog burned off the market to reduce the confusion and uncertainty, which only benefit the largest player.
From the U.S. government, I'd like it to get out of the online recruiting market. Believe it or not, it runs its own site, which competes directly with all the others. Most importantly, I'd like to see real security in transportation implemented rapidly, that's the first step in stimulating the economy."
ROBIN J. PHILLIPS BusinessWeek Online
Small Business
Forum Member Name:
RobinABW "Military Action: How do things change for small business now that the United States has begun attacks on terrorist targets inside Afghanistan? Does military action give you confidence for your business and the economy in the coming year? How does the fear of retaliation play into your day-to-day or longer term plans?"
PAUL COOPER
CEO, Perceptual Robotics
Chicago, Ill.
Forum Member Name:
TrueLook "I don't agree with SBAdvocate -- I do think the Federal government probably made a mistake with so much largesse for the airline industry, and although in some abstract sense it is probably true that small businesses deserve help as much as UAL, it seems clear that the government currently has enough on its hands without figuring out how to help the diffuse small-business community in some effective way.
As to the retaliatory attacks, it's doubtful that they will change the economic terrain for small businesses much. What does affect us is widespread changes in behavior, which 9.11 seems to have caused."
JIM BLASINGAME
Host of radio/Internet talk show
The Small Business Advocate
Forum Member Name:
SBAdvocate "The greatest impact of the attacks, subsequent military action, and possible retaliation is how these events hold the attention of consumers. The more our customers are worried about these events, plus things like anthrax, layoffs announcements, and the National Guard in the streets, the more they feel uncertain and insecure about their future. And insecure consumers aren't good at what they do best, spending money.
All of these concerns also impede employee productivity. Workers, like customers, are anxious. And anxious employees aren't fully productive.
Typically, our attitude is heavily influenced by how we feel about the future. Right now, we don't know whether to feel hopeful about our business, or job, for the next month or next year. It's almost as if our hope is on hold.
When the economy slows, as business owners we know how to deal with that. But this situation is not market or economics based, it's man-made, and in terms of the flow of the economy, is an artificial disruption that we have never had to deal with before.
For businesses to survive all of this requires staying power."
DONNA MYERS
President/CEO
DHM Group Inc.
Holmdel, N.J.
Forum Member Name:
DHMGroup "I've been amazed at what a strong influence September 11 attacks had immediately on my marketing business. We had been getting so much new business coming in over the transom with no effort on our part, in spite of the very slowed economy, that I had increased staff with senior people to handle it.
We handle primarily food and outdoor lifestyle clients and consumer spending seemed to continue relatively solid for them. Though this was the first year that the barbecue industry did not realize major gains, clients were not appreciably cutting back on their marketing budgets, though they were keeping close track of them. About two weeks after the airplane disasters, however, in one week, two new clients announced they were going to delay the start of their campaigns, another changed their plans for national launch of a new product next spring, and an established client was told by his management that he had to cease all marketing activities as of the end of October. Collectively, that was a tremendous blow with no warning and it seemed to emanate from instant management panic over what the next 6 to 8 months portends in consumer spending.
These clients range from relatively small companies to very large ones, but the effect of their cautiousness has a substantial effect not only on my small business, but on my suppliers as well. I have made the decision not to cut staff as I believe it is difficult to find good experienced people, but it will definitely require a lot of belt tightening and scrambling for other new business, which we rarely have to do. I think business, in general is just extremely cautious now because everything in our lives seem so uncertain that it seems better to be safe than take risks without much data on which to make decisions.
With regard to what Washington can do to help small businesses, it is probably the same thing they need to be doing regularly...but it is more urgent now. Senator Kit Bond,, the ranking minority member on the Senate Committee on Small Business and Entrepreneurship has introduced "The Small Business Leads to Economic Recovery Act" designed to wage a three-pronged assault on the economic troubles threatening small businesses by providing three key provisions: tax relief, emergency loans for working capital, and increased opportunities to conduct business with the Federal Government. Small businesses aren't the ones laying off hundreds of workers or closing plants, but they are the constant in our economy and it is very important to economic recovery that they remain economically viable.
I doubt that the attacks will have much of an effect generally. "War" traditionally has had a somewhat positive effect on the economy. But this is not your usual war and it still brings a lot of fear and uncertainty that may cause consumers to continue to be very cautious about spending.
I think, by spring it is possible that our business could see some benefits because we are so strongly tied in to clients who are selling family values and stay-at-home entertaining, along with investment in your backyard as a respite from a hectic lifestyle. Now that has taken on new meaning as people are more fearful about travel, are looking for safety which staying at home tends to provide, paying more attention to the important "people relationships" of friends and family. If they are going to spend money on something, they may be more comfortable adding a deck, buying new patio furniture and a new grill, etc., than taking an exotic vacation, or even going to places that have big crowds and pose a possible risk of another retaliatory attack from fanatics.
