Small-Biz Owners Struggle to Stay Upbeat

Amid all the attention in the past year to mega-corporations deemed "too big to fail," it has been easy to overlook the travails of small-business owners. Surveys typically show entrepreneurs to be a confident bunch, but are their spirits holding up as the recession drags on? Drawing on some data and some commentary from people who deal with small-business owners, we take a look at the current psychology of this cohort.<br clear="none" /> <br clear="none" /> In polling last month for the latest edition of the monthly Discover Small Business Watch, 44 percent of entrepreneurs said economic conditions for their own business are getting worse, vs. 30 percent saying conditions are getting better. (Most of the rest said things are staying about the same.) Fifty-one percent reported having experienced "cash-flow issues" during the previous 90 days. The 27 percent who expect to boost their spending on business development ("such as advertising, inventory and capital expenditures") were outnumbered by the 43 percent expecting to reduce such outlays.<br clear="none" /> <br clear="none" /> Moreover, these uncheery findings dovetail all too well with the figures in the latest Small Business Economic Trends report, issued last month by the National Federation of Independent Business (NFIB). One example of these: In polling fielded in July among small-business owners, the proportion whose earnings had declined during the previous three months was 45 percentage points higher than the proportion whose earnings had increased during that period. "Reports of earnings declines are at record-high levels because of weak demand and widespread price cuts," says the NFIB in its analysis of the data.<br clear="none" /> <br clear="none" /> There has been much discussion in business circles about the likelihood that this exceptionally severe recession will have a lasting effect on consumer behavior, even after the economy has recovered. Having learned some lessons the hard way, small-business owners may also display long-term shifts in some of the ways they do things.<br clear="none" /> <br clear="none" /> "I personally know small-business owners whose revenue is up 40 percent in 2009, and, sadly, I know others who have gone out of business this year," says Bill Collier, author of How to Succeed as a Small Business Owner . . . and Still Have a Life and principal of Collier Business Advisors in High Ridge, Mo. "We can only hope that those who have survived and even thrived don't think they are invincible.<br clear="none" /> <br clear="none" /> "Regarding the entrepreneurs who have had a tough time in the last year or so, most blame the economy -- and rightfully so," Collier continues. "But at the same time, many of these folks lacked one or more of the following: a solid business model, a well-thought-out plan, good execution, or a Plan B in case things start to go south. Another common element is living week to week, both in business and at home. That's where I think and hope a permanent change will take hold: Be prepared and have a cash cushion."<br clear="none" /> <br clear="none" /> Being prepared isn't the same as being risk-averse, though. Playing it safe may be an option for consumers, but not for entrepreneurs -- in part because the window of opportunity for making a profit doesn't stay open indefinitely. "Small-business owners are opportunists, so when there's opportunity, they strike," says Alice Bredin, small-business adviser to American Express Open, the unit of AmEx that focuses on small businesses. That can mean staffing up quickly, getting more space and spending in order to grow.<br clear="none" /> <br clear="none" /> Or, it can mean altering the focus of the business. Pamela Slim, a business coach and author of Escape From Cubicle Nation: From Corporate Prisoner to Thriving Entrepreneur, points to what she terms one of the "fundamental things" entrepreneurs have learned from the struggles of the past year: "You can never settle and get comfortable with one market or niche. When the market shifts, small businesses have to adjust rapidly, often selling products or services a different way, or coming up with entirely new offerings."<br clear="none" /> <br clear="none" /> Jonathan Fields, whose entrepreneurial experience in New York includes opening a yoga center (Sonic Yoga) and a marketing/entrepreneurship-catalyst firm (Vibe Creative), says that "at least for the near term, a lot more small-business owners will try to build and maintain a stronger capital reserve as a backstop for future dips, knowing that easy access to lines of credit is a thing of the past for many." But he doesn't see entrepreneurs' "risk tolerance" going into permanent decline. "Survival as an entrepreneur is about taking risks and being perpetually immersed in the process of creation and evolution," says Fields, who has also authored a book titled Career Renegade: How to Make a Great Living Doing What You Love. "The moment those qualities cease, so does growth."<br clear="none" /> <br clear="none" /> For all the struggles they've had during the recession, small-business owners think it has honed their skills. In American Express Open Small Business Monitor polling of entrepreneurs conducted in late February and early March (i.e., when many of the economic numbers were at their most bleak), 77 percent of respondents expressed the belief that the downturn has made them better business owners.<br clear="none" /> <br clear="none" /> That finding reflects the basic resiliency of this population. "As a general rule, breaking the spirit of entrepreneurs in the U.S. is not easily done, and I don't see this downturn doing it," says John Venhuizen, vice president of business development for Ace Hardware Corp., whose stores are owned by independent entrepreneurs.<br clear="none" /> <br clear="none" /> Earlier this summer, Ace released a report (based on polling in March) that queried small-business owners on some of their basic attitudes about the life they've chosen. One question asked them to cite the "most important attributes of a successful small-business owner." Winning the most mentions was "hard-working," picked by 60 percent, with "drive or motivation to succeed" a close second (57 percent). "Perseverance" (42 percent) scored better than "intelligence/knowledge" (31 percent), "good instincts" (29 percent), "passion" (29 percent), "creativity" (22 percent) and "innovation/vision"(20 percent). At the bottom of the standings were "leadership" (14 percent) and "educational background in business or finance" (7 percent).<br clear="none" /> <br clear="none" /> And what, according to the Ace survey's respondents, are the "greatest rewards" of owning a small business? Not "income" (cited by 26 percent), "power" (10 percent) or "prestige" (9 percent), which scored most poorly. Atop the list (each mentioned by 73 percent of the entrepreneurs polled) were "independence" and "flexibility of schedule." In the middle of the pack were "sense of fulfillment and/or achievement" (49 percent), "increased personal time" (41 percent) and "chance to live out a personal passion or dream" (34 percent). As for the "greatest challenges" of owning a small business, "generating a profit" easily outpointed all other factors (57 percent), with "balancing work and personal life" the runner-up (47 percent).<br clear="none" /> <br clear="none" /> "Generating a profit" has, of course, been more easily said than done as the recession has continued. That's something to be borne in mind by marketers wishing to sell goods and services to small-business owners, many of whom are pinching every penny.<br clear="none" /> <br clear="none" /> When asked to say what sort of marketing message would be most effective these days in getting through to small-business owners, Ryan Scully, director of Discover Business Card (which commissions Discover's Small Business Watch polling), pointed to their struggle to win new business. "I would draw my message back to helping them with new-business leads." And he mentions a couple other topics that marketers could usefully employ in trying to sell to entrepreneurs: "flexibility" and "control." "If you focus on some combination of those three things, you'll have a chance of breaking through," he says.<br clear="none" /> <br clear="none" /> With small-business owners working even longer hours than usual, it's especially important that a marketing message not waste their time. "First and foremost, get to the value proposition quickly," advises Collier. "Why should a frantic, worried entrepreneur who was already short on revenue and cash before the recession take the time to pay attention?" But that's not to say it's a lost cause for marketers who aim at the small-business audience. "If the vendor has a product or service that genuinely offers concrete help -- increase revenues, reduce expenses -- they'll listen," Collier adds.<br clear="none" /> <br clear="none" /> That's consistent with Venhuizen's outlook on the matter when he says marketers' messages must be "painfully pragmatic" in addressing the urgent concerns of small-business owners. "What they're selling has to be effective, and there has to be demonstrable ROI," Venhuizen remarks.<br clear="none" /> <br clear="none" /> Fields notes that he's seeing "a strong move toward relationship building and conversation-based selling, rather than one-offs. When there's less money to go around, people generally look for more value and more assurances that what they're buying really does what's promised."<br clear="none" /> <br clear="none" /> While also stressing the importance of a "value" message, Bredin cautions against misinterpreting this mandate. "I don't think a cheapest-on-the-block message will work," she says. "Most small-business owners have learned the hard way that the cheapest is not the best value." She adds that a we're-the-cheapest message might sway owners of startup companies, who haven't learned the ropes, but it's likely to fall flat with owners of more-established small businesses -- which, of course, tend to be the ones more apt to stick around and become recurring customers for a business-to-small-business vendor.<br clear="none" /> <br clear="none" /> It's likely tempting now for a marketer to try creating a rapport with small-business owners by alluding to the recession that besets them, but a little of that can go a long way. "The message of gloom and doom, or heavy use of 'recession' language, is very tired," suggests Slim. "Small-business owners want to know that they are part of a growing trend toward recovery and will be instrumental to getting our economy back on track. I think they will respond well to advertising that helps them see how acting now to grow, innovate, conquer new markets, etc., will position them for great success when the economy turns around."<br clear="none" /> <br clear="none" /> That's in sync with the advice of Anita Campbell, editor of the Small Business Trends Web site: "A message that is more cautiously upbeat, that focuses on taking advantage of opportunities as the economy improves or managing your business intelligently and responsibly, will strike the most authentic chord." Fields, meanwhile, warns against an unduly cheery marketing message that flies in the face of a small-business owner's current realities. "It's critical to acknowledge the truth of any situation," he says. "Be realistic, but optimistic, and support any claims with as much proof as possible."<br clear="none" /> <br clear="none" /> Given all the challenges entailed in being a small-business owner in the best of times -- let alone in the midst of a recession -- it's not surprising that some entrepreneurs imagine bailing out and becoming someone else's employee. In the June edition of the Discover Small Business Watch polling, 36 percent of the respondents said they'd be willing to give up their own company in order to make a better living working for somebody else. The Ace survey got a similar response when it asked small-business owners whether they would "ever choose to work for an employer in the future." While 9 percent said "absolutely not" and 23 percent "probably not," 36 percent said "maybe," 18 percent "probably" and 10 percent "absolutely." (The rest were unsure one way or another.)<br clear="none" /> <br clear="none" /> Work/life balance, or the lack thereof, is plainly a factor in some entrepreneurs' willingness to join (or rejoin) the ranks of employees. In Gallup polling conducted last month, 26 percent of self-employed workers (a cohort that overlaps with small-business owners) reported working at least 60 hours per week. The crunch has naturally worsened during the economic downturn, particularly for owners who've had to let employees go and then take on more tasks themselves.<br clear="none" /> <br clear="none" /> Having "killed themselves to build a business," says Venhuizen, owners are "doubling down" in their efforts to keep it afloat. Nor is the wear and tear of this confined to the entrepreneur's workplace. "It's showing up not just in hours worked," says Collier, "but in worries carried home and in stress. I've seen it have a negative impact on the families of entrepreneurs."<br clear="none" /> <br clear="none" /> If more small-business owners aren't inclined to throw in the towel when faced with such challenges, it's partly because they're cognizant that being in the employed workforce isn't a picnic in its own right. As Slim puts it, "Recent upheavals in the corporate world demonstrate that there is no safe employment anywhere. The daydream of going back to a 'stable' paycheck by taking a job does not hold the same appeal to entrepreneurs, who realize that if they have to assume risk, at least they will be the ones in charge."<br clear="none" /> <br clear="none" /> Venhuizen notes that Ace has seen an uptick in the number of people inquiring about the possibility of owning one of its hardware stores. "It's not the conventional wisdom, but uncertainty and instability actually create more entrepreneurs," he says.<br clear="none" /> <br clear="none" /> One out-of-the-ordinary source of uncertainty has some small-business owners on edge these days: a move toward healthcare reform that could include an "employer mandate," requiring them to make healthcare coverage available to employees and to help pay for it. Scully notes that the vast majority of entrepreneurs are sole proprietors who don't have employees, so for them this isn't an issue. For those who do have employees, though, the possibility of having to take on significant new healthcare costs is one more big thing to worry about.<br clear="none" /> <br clear="none" /> "I think small businesses are very aware, and very concerned," Campbell says of the healthcare-reform issue. "If you look at the most recent NFIB optimism surveys since healthcare became a hot topic, optimism went down, even though signs in the economy have gotten more positive," she notes. Though Collier says he's heard little mention of healthcare reform on the part of entrepreneurs, he suggests this is partly because they're so immersed in keeping their companies alive that they "simply don't have the 'bandwidth' to worry about politics or current events."<br clear="none" /> <br clear="none" /> More broadly, Campbell sees many small-business owners alarmed by growing federal budget deficits, as they think this will inevitably bring increases in their own tax bills. "It's easy to say, 'Oh, Mr. Business Owner, you're making a profit and can afford to share some of that,'" says Campbell. "But that doesn't feel right when you've lived on less of a salary than some of your employees for seven years while you scrimped and saved and worked 80 hours a week, and are finally reaching a point of being able to justify all the sacrifice, only to have bureaucrats willing to spend your money for you. That's what bothers a number of those I speak with." <br clear="none" /> <br clear="none" /> <a href="" target="_blank">&#x2014; Nielsen Business Media</a>