The Big Picture for Small Businesses: Recent Data Suggests Small Businesses Remained Challenged

On June 14th The National Federation of Independent Businesses (“NFIB”) released its monthly survey of Small Business Economic Trends and there were a few interesting insights that I wanted to share. The NFIB is a member organization that represents more than 300,000 small businesses in the United States, ranging from sole proprietors to businesses with hundreds of employees. It is important to understand the economic conditions for small businesses because they constitute such a large proportion of the employment base of the economy.

The NFIB survey of Small Business Economic Trends, as reported through the month of May, yielded the following insights:

  • Sales: 25% of all small businesses reported that their top business problem was having weak sales. It’s not simply a question of slow growth, but rather a matter of continual decline. There are still more small businesses that are reporting declining sales than those reporting growing sales, so the trend is still negative.
  • Credit Availability: Access to credit is not one of the most pressing problems for most small businesses. In fact, only 3% reported that credit access & financing were their top problem, and 92% responded that they had no credit problems or additional financing needs of any kind. (In a survey last year, most business owners stated that they wouldn’t borrow money even if it were free because they still wouldn’t have the end demand to justify the increased headcount and new equipment.)
  • Employment: On a seasonally-adjusted basis, there are more businesses that intend to reduce their workforce over than next 3 months than those that plan to hire new workers. This is a disturbing change in the trend, as this is the first month since September of 2010 that there were more small businesses planning to lay-off employees than to hire them.
  • Inflation: 10% of small businesses reported inflation as being their biggest problem, the highest percentage of businesses reporting that inflation was a problem since before the credit crisis. Even more interesting, 31% of all small businesses reported that they are raising their average selling prices for their goods or services, with only 16% reporting that they are lowering prices. This is another change in the trend as small businesses had been cutting prices during the previous two years.

So, putting this all together we see that the average small business has declining sales, is laying-off employees, and is raising prices for its goods & services. These are interesting and unusual business dynamics. A business that is facing declining revenue generally doesn’t resort to price increases to solve its problems!

Sadly, this may be a reflection of the fact that many small businesses are facing significant cost pressures and declining revenues at the same time, but since most small businesses have lean operations to begin with, they may be left with no alternative but to finally pass rising cost pressures through to the end buyer, even in the face of declining sales. Additional recent data is consistent with this view. On June 15th the Bureau of Labor Statistics reported that its measure of “core inflation” had risen more than expected, suggesting that inflationary conditions may be moving beyond food and energy prices and are now spreading to the broader economy.

During the past few years of recession and crisis, the government response has relied on 4 basic strategies: maintain extremely low interest rates, maintain high levels of deficit spending to fill the gap in private demand, create tax incentives for consumers to buy goods, and provide tax incentives for businesses to hire employees and buy equipment. However, it’s readily apparent that most businesses don’t want to borrow money or hire employees because consumers don’t want to buy more goods or services. In fact, many consumers are trying to save money for the first time in many years. Also on June 15th – one day after the NFIB survey – a poll from NBC News/Wall Street Journal indicated that almost half of all Americans believe the U.S. economy is headed back into recession. Regardless of whether or not these respondents turn out to be correct, their own behavior is no doubt one of the reasons for our continued slow economy. People who fear recession are likely to save more and spend less, so to a certain extent the fear of an impending recession has a self-fulfilling effect.

It’s fair to question if our government’s policies have exceeded their usefulness and may be working in a counterproductive manner at this point. For example, if low interest rates do not stimulate credit growth, but do stimulate asset price inflation and higher commodity prices, then it’s certainly reasonable to question if we are deriving a net benefit from current monetary policy. I’m not sure that we are.

At a broader level, the recent small business survey continues to support a rather pessimistic outlook for the remainder of this year. The economic recovery is anemic, small businesses are under extraordinary pressure, energy and food prices are higher, government stimulus is expiring, quantitative easing is coming to an end, state and local governments are cutting spending and laying-off employees and now the federal government appears poised to implement some fiscal restraint of its own. Two years into the recovery, the economy may be approaching a stall point.

Alpha Dogs: How Your Small Business Can Become a Leader of the Pack (Book review)

In an economy that takes pride in being led by large companies and strategic consulting prescribed by academia, like the Harvard Business School, 10% of the small businesses fail every year and 60% close after six years.

According to author Donna Fenn, there are seven reasons for this, from the backlash of big business to consumer lust for luxuries. In ” Alpha Dogs: How Your Small Business Can Become a Leader of the Pack” the author consults with eight small businesses situated in different regions of the USA that have used certain strategies to outshine their competition and thrive, and she passes those strategies on to her readers. These eight businesses have flourished despite their sometime stories of failure and they have learned to get ahead in the highly competitive business world.

In the book, Fenn has focused on these eight businesses: Zane’s cycles, a bicycle shop; Dorothy Lane Market Inc., three grocery stores; Auction Systems Auctioneers & Appraisers; Amy’s Ice Creams, 12 ice cream parlors; THOR.LO Inc., manufacturer of sport-specific socks; Dancing Deer Baking Company (Boston); PR Consultants Group Inc., an alliance of 34 public relations firms; and Mike’s Famous Harley-Davidson Inc.

The majority of the tips from these leading entrepreneurs deal with employee training, creating a workplace that appeals to the workers, getting new customers while retaining existing ones, being bold and fearless, giving good service, forming alliances, adapting to the new technologies of the times, continually re-inventing, tweaking innovations and keeping them close to home while upgrading wisely.

In the book, there is a section for each company that ends with ten tips from its entrepreneurs. At the last chapter, the author summarizes the very valuable marketing lessons from the entrepreneurs, which she names as the alpha dog DNA.

Fenn’s writing style is direct, clear, conversational, and sprinkled with quotes by the entrepreneurs: “‘When you are comfortable, you’re never performing at 100% says Dave Barr. It might be Schwartz’s mantra. Mike’s Roadside Rest had earned him press accolades…”

The author, Donna Fenn, has been writing as a contributing editor about entrepreneurs and small business trends in Inc. Magazine for more than 20 years. In 2001 she was a co-recipient of the Women’s Economic Round Table Entrepreneurship Prize, sponsored by the Kauffman Center for Entrepreneurial Leadership. Her work has appeared in The New York Times, Newsweek, The Washington Monthly, Working Woman, and many other publications.

“Alpha Dogs: How Your Small Business Can Become a Leader of the Pack” is in hardcover with 224 pages and ISBN: 0060758678. After the foreword and introduction, it has ten chapters followed by acknowledgements, sources, and an index.

If you already know how to succeed in business or own an MBA, but especially if you don’t, “Alpha Dogs: How Your Small Business Can Become a Leader of the Pack” should be the book to pick because of its valuable tips worth several years of serious study. The information inside this book can give a serious boost to any enterprise.

The Up and Coming Small Business Trend for 2006 – Teleconferencing Networking

According to the U.S. Business Administration in 2003 of the 5.7 million American businesses, 99% are considered to be small businesses with less than 500 employees. Small business owners continue to grow at a phenomenal rate.

Many business strategies are employed to grow sales including: Search Engine Marketing, Internet Marketing such as online newsletters and traditional marketing such as radio, television and print. Another popular marketing strategy is business to business (B2B) networking through numerous vehicles such as Chambers of Commerce, formal networking organizations and professional associates.

However, in 2006 a new trend emerged. Business networking experienced a complete transformation through the concept of teleconferencing networking. This type of online networking was very new.

One of the earliest companies who offered this type of networking was Fast Pitch Networking. This innovative company developed networking teleconference sessions where you had just 5 minutes to “pitch” what you do to 25 other prospects.

Just think about the advantages that this type of networking provides the small business owner:

  • Geographic flexibility — If you have numerous locations or wish to expand to a new market, you can telephone into a conference and share what you do with others no matter where you are at that moment.
  • Reduced costs — No costs for driving, parking to that weekly or monthly meeting. Also, there is no annual commitment as each meeting has a flat cost. Yes, there is a telephone charge, but many small business owners have flat long distance fees.
  • More time — Since you can network from your office or home, you now have more time for additional appointments. You don’t have to allow additional time for traffic, road conditions, etc.
  • Convenience — If you live in the northern states, you can avoid winter’s bad weather since you are calling from your office. Again, you attend when you can and pay for only those meetings that you attend.
  • Additional Opportunities – You will have fresh individuals to connect with instead of the same faces that you see weekly or monthly who still haven’t become customers.
  • Focus — In traditional networking environments, there are always distractions from people interruptions to food being served. With online networking or teleconferencing networking, the focus is on you. Now is YOUR time to shine.
  • If you are a small business owner who is an excellent communicator, has developed a strong “Elevator” speech and can quickly establish a rapport using online technology, then on-line networking can only catapult your business to that next level. Watch for this up and coming small business trend in 2006.