The Changing Face Of Small Business

by m. steele brown

Small business has blossomed since the early days of the Reagan Era for a number of specific reasons. Among them are a lower tax rate, the continued infusion of women into the marketplace, the explosion in electronic technology, and the re-emergence of a business-friendly gestalt after the "malaise" of the 70's -- note, for instance, the positive connotations of the newly popular word, "entrepreneur."

While small business has been asserting itself, big business has become increasingly suspect. True, many of the same large companies still employ a good share of the labor force, but small businesses, hundreds of thousands of them, now employ over 53% of the work force in the U.S.

"Fortune 500 companies have been jettisoning jobs over the past few decades," says Burdette "Pete" Fullerton, Executive Director of the Platte County Economic Development Council. "That's changed the business landscape and made people realize that it's small business that's the engine driving the economy."

According to Dorothy Kleeschulte, district director for the Small Business Administration's Kansas City office, small business's share of the market has grown for a number of reasons: easier access to financing and venture capital; the rise of technology and the personal computer; the Internet; and the growing number of companies that continue to find new niches in the growing service industry.

The net result of this small business renaissance is the production of more wealth and the reduction of time in which to spend it. This phenomenon, in turn, drives the service industries with more force than they have ever been driven before and sparks anew the small business economy.

As always, however, there are potholes on the road to success. Most new small businesses still fail. Despite the risks, however, opportunities beckon and enlightened entrepreneurs have seized them, creating entire new industries through their energy and imagination.

NEW FACES

"Small business is the experimental laboratory of American capitalism," says Fred Goss, director of the Small Business Development Center at the University of Missouri-Rolla. "Small businesses are where we find the entrepreneurs who are likely to be the risk takers, those willing to push it to the edge and try new things."

It is at the proverbial edge of the envelope where the most exciting of the new businesses are created. Twenty years ago, for instance, who could have foreseen the stunning impact of the personal computer? Those bold few who did, and who persisted, were the ones who profited.

"When you look at someone like Microsoft you can see what technology has done to the world of business," Goss says. "You see the limitless possibility created for small businesses and the impact a small business can have on the world-at-large."

The advent of the PC in turn led to the spectacular growth of the Internet. There were but 50 web sites when Bill Clinton took office. Today, there are more than 50 million. Ironically, this was an explosion Gates himself all but missed.

Some local entrepreneurs had keener vision. Now companies like Kansas City's NetSales and PVI, once small businesses in their own right, are making profits and garnering venture capital as quickly as they can decide on a new project that needs funding. These companies simply could not have existed in 1980. But by using technology to their advantage, they have quickly risen to become part of Kansas City's technological leadership.

From basements and offices all over the region, dot-com companies and small businesses providing E-commerce solutions to their peers are reaching out and finding new clients. A company like MindLab Media, which had only four employees in 1999 but developed web sites for serious entities like Andrews McMeel Universal and the Kansas City Art Institute, is a perfect example of how much can be done with a few employees in this brave new world.

All over the city small businesses are using technology as the base of their business model or to expand their current structure to accommodate new markets. There are many tools now available that businesses a generation ago did not have at their disposal. According to Kleeschulte, to make a profit and succeed in world, businesses must now be prepared to use electronic technology like e-commerce to function.

"With technology it is much easier for small businesses to operate in a global market place," she says. "Customers are no longer just around the corner -- they can be from around the world. This produces more competition for a small business, but also more opportunities for that business."

A payroll outsourcing company like Paydata of Mission, Kansas which provides payroll processing services and human resource software solutions to businesses, is a perfect example of what a small company can do with the right technology in a booming business environment. With only 18 employees, this award-winning company increased its profits 113% in fiscal 1999 while increasing its sales revenue 45% in the same period.

And Paydata is hardly unique. As small businesses emerge and prosper in a highly competitive environment, they tend to outsource more and more of their core functions. Temporary staffing firms, like Grafton Staffing, also provide relief from the stresses of an overheated economy especially for those businesses that need to focus more on the future than the present.

The intensity of the economy, and the absorption of women into it -- some 60% of new businesses are started by women -- has also sparked the traditional service industry and created an extraordinary amount of new jobs. According to figures provided by the Office of Advocacy for the U.S. Small Business Administration, between 1990 and 1995, 80% of the jobs created in this country were created by small businesses, of those, the service industry was the largest contributor.

"One of the ways a business becomes wealthy in this economy is by adding service to a product," Goss says. "Many products are commodities. By providing a certain level of service along with its merchandise, a company can differentiate itself from the competition."

Many of these businesses, however, provide a service that is unique to an age characterized by little time and lots of discretionary income. Locally, bijin salon & day spa and Plaza Personnel, Inc., come to mind.

CAPITALIZING ON THE MOMENT

Capital is now more readily available to small businesses, but companies must know where to look for it. Banks, credit unions, micro lenders, small business investment corporations and certified development companies are all out there looking for investments, but to acquire funds more sophisticated business plans are a must.

"10 or 15 years ago there were lots of small business people scrambling around trying to find the needed funding to start their business," Fullerton says. "Today it has flip-flopped, with the banks out there looking for good deals. This may be more applicable to second-stage small businesses, but if you've got a good product and a good plan then you've got a good chance of finding the money."

So how to find the funding and create that all-important business plan? Would-be entrepreneurs are well advised to go to the experts. Companies and organizations serving as assistance centers for people interested in opening a small business can be found all over Kansas City and the surrounding region waiting to help. The SBA currently operates several different Small Business Development Centers in and around the Kansas City area. The centers are available to help with business and marketing plans, conduct financial feasibility studies, pick out the right technology, and assist in any number of areas that a small business must have working to succeed.

On a private level, there are also organizations like the Kauffman Center for Entrepreneurial Leadership, that are not only helping existing small businesses, but are also preparing area students to be entrepreneurs.

"The support available for early stage businesses today vastly exceeds that of 20 years ago," says Bob Kolich of Johnson County Community College and the Small Business Development Center. "We see states such as Missouri and Kansas placing great value on support of their business community through economic development and training programs."

POTHOLES ALONG THE WAY

While there are many more tools and institutions available to help start-ups, there are also a host of new challenges -- and some traditional ones -- that face today's small business owner.

"In the 80s there was simply less competition," Kleeshutle says. "There was less technology with a more clearly defined customer base and an ample labor market. Employee benefits were less costly and manufactures were able to maintain inventory instead of the "just in time" philosophy they've now gone to, which has eliminated access to inventory."

The increased number of lenders willing to fund start-ups also has its downside in the present day business climate. With small business booming, there is simply a lot more competition.

"Money is just as difficult to get for a start-up business now as in the 80's but for different reasons," says Kurt Mueller, president of the Kauffman Center for Entrepreneurial Leadership. "Today's investors have more confidence that a new business will be successful, but there are many more opportunities for them to invest their money. There are a great many more venture capital firms, but they are only interested in where they can place a large amount of funds -- $5 million plus -- leaving it difficult for a normal startup."

Other problems include the shortage of quality employees in a tight workforce, regulatory laws which put the burden more heavily on small businesses, and the ever-present time constraints that small companies must face. According to the Office of Advocacy, small businesses employ 53 percent of the work force, but shoulder 63 percent of the total business regulatory costs. They are also faced with added pressure to increase salaries and provide better health benefits to compete with large corporations.

"If small firms continue to raise wages without receiving increased productivity, small firms' profits will decline, and inflation will increase," Kleeshulte says. "In addition, if small businesses are constrained by the lack of labor available, their output growth could slow or stagnate -- slowing the overall output growth of the U.S. economy."

Whatever the future may hold, small business has changed its profile in the last generation. When one thinks of small business, one no longer thinks of struggling "mom and pop" shops, but of bold start-ups, future franchises, and eventual IPOs. Success, however, is still not guaranteed. If anything, it requires a more focused, more strategic plan-of-attack than it ever has. "When I first started, businesses were run more by a "seat of their pants" philosophy," Fullerton says. "That just won't work anymore. It's all about a focused business plan and making the most of your assets. Without these, it's going to be a hard road."