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Confident -- but Not Spending

Most entrepreneurs are looking for a rebound in the economy this year, but they're hedging their bets by putting a firm lid on capital spending, the new Dun & Bradstreet Annual Small Business Survey reveals.

More than two-thirds of all small-business owners are optimistic about the outlook for the economy for the rest of 2001, and even more of them -- 81% -- are upbeat about their own company's future performance, says the survey, due to be released next week. It was based on interviews with 540 small businesses with 25 or fewer employees.

"In their own minds, small-business owners are not as susceptible to economic shifts, because they can shift their own priorities to focus on different aspects," says Joseph H. Langner, leader of D&B's Small Business Solutions initiative. Langner says the ability to modify priorities -- and independence from big-company-like bureaucracies -- drives entrepreneurs' optimism and keeps them from being at the mercy of the economy.

CUTTING BACK. So everything is rosy, right? Maybe not. About 20% described themselves as "leaders" in their field. And 20% called themselves "innovators," constantly seeking or investing in new opportunities. But some 30% -- the largest group -- defined themselves as "survivors" facing strong competitive challenges. "They're in survival mode because of consolidation in many industries and because of the Web, which means people don't have to shop locally," says Langner. "This has impacted the small-business competitive environment, and they're looking to keep what they have."

Despite the overall optimism about the economy and their own businesses, the majority of small business owners do not expect to make significant investments this year in any of the survey's nine categories -- including telecommunications, advertising and marketing, facilities, and new products. In fact, the survey reveals that more than half of all small businesses plan to increase their emphasis on cost control for the rest of the year.

What accounts for the disconnect between confidence and apparent retrenchment? "Small businesses are particularly responsive in how they adopt to the economy," says Douglas W. LaBahn, vice-president of D&B's small-business division. "If they see the economy cooling off, they can stop spending tomorrow. But the optimism comes from having more control over changing the focus of your business."

TAKING IT EASY. Even when it comes to technology spending, 74% of small businesses don't expect to make significant investments in Internet marketing or Web-site development this year. But Langner argues that small businesses understand how to use the Web to increase exposure, improve communications with customers, and make their services available for more hours each day better than their larger counterparts. "It's a complement to their offline efforts, not a substitute," he says.

Two-thirds of all small businesses now have Internet access -- up from 50% last year -- but just 27% are currently selling on the Web, according to the survey. About 60% of entrepreneurs expect to increase their use of the Web during 2001.

As the economy downshifted, so did some entrepreneurs. On average, a small-business owner works 45.5 hours per week, but 15% reported working less than 30 hours a week -- twice the percentage of last year's survey. "The success of last year's economy has afforded a small subgroup of small-business owners [the opportunity] to spend more time on their personal lives now," says Langner.

BUILDING SALES. Most entrepreneurs, however, don't have that luxury and plan to spend more time trying to improve sales. They see sales growth and gaining new customers as the key opportunities this year. "Small-business owners live off the profit of their businesses," says LaBahn. "So they have to be particularly focused on sales when things slow down, because their costs don't go down proportionally." Two-thirds of entrepreneurs surveyed said they would step up their emphasis on increasing sales and getting more contracts.

Maybe it's this aggressive managerial initiative to build sales and cut costs that gives them the confidence that their business will survive these turbulent times. Even though most believe the economy will eventually begin to show signs of life, they're not betting their bottom dollar on it. By Naween A. Mangi in New York

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