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Quick Take

Rising from the Ashes

Small businesses ravaged by Southern California's wildfires are getting help from entrepreneur friends. Those who escaped unscathed have donated the likes of clothing, food, water, and construction services to businesses that weren't as lucky.

In late October, Leon Santoro, co-owner of Orfila Vineyards, watched the fire approaching and thought the 36-employee, $3 million winery was doomed. "It was pitch dark and all you could see were the flames and the sparks," says Santoro. Luckily, only 200 merlot vines, about 1% of his growing stock, were consumed, along with company signs posted along the road. As Santoro rebuilds, the golf course next door has been encouraging clients to buy wine from Orfila. Event planners, Santoro's distributor, and competing vineyards have called to ask how they can help. "We tell them, 'If you want to help us, double your order or let me ship you a case of wine,'" says Santoro.

As of November, the Small Business Administration had approved 31 loans, worth $600,000, for small businesses that lost revenue or property in the fires. SBA Administrator Steven Preston says the agency is trying to personalize the process, assigning individual caseworkers to affected businesses. At Orfila, Santoro says the loss of the vines will lead to a $50,000 drop in revenue in 2008, and because much of his business comes from tourists driving by, the destroyed signs have already hurt sales. Though friends are great to have, he is thinking of applying for an SBA loan, too.

Insider Look

The Department of Homeland Security has found a novel way to peer into people's lives, courtesy of Optim, a 40-person medical devices company in Sturbridge, Mass. For the past year, DHS has used Optim's FreedomView endoscope—originally for doctors to gaze into the body's dark cavities—to search for contraband hidden in vehicles crossing into the U.S. The FreedomView, so called because it doesn't have to be plugged in, is nimble enough to peer into air-conditioner vents, gas tanks, and tire tubes. CEO Tom Root says that besides drugs, DHS so far has found rare birds and stolen jewelry.

Pioneering the West

Entrepreneurs have relied on low-cost manufacturing in China for decades. But times are changing. In January, 2008, the Chinese government will phase out so-called tax holidays long granted to foreign manufacturers that set up shop on the country's vast eastern coast. The move aims to correct a huge imbalance—98% of exports come from eastern provinces—and to lure foreign high-tech firms and companies that do more than basic manufacturing. "China wants to level the playing field [among regions] and is now focused on upgrading its manufacturing model," says Alexander M. Pan, a tax partner with PricewaterhouseCoopers in Los Angeles.

Currently, many manufacturers pay no income taxes for their first two years and are assessed half the standard 25% the next two. And although customs duty on imported materials is 9% and the value-added tax on exports is 17%, those levies are often waived or deferred indefinitely for foreign exporters.

Those waivers will end in the new year. And save for high-tech or other firms involved in research and development, companies in the eastern provinces will start paying income tax. One bright spot: The changes will not affect foreign-owned factories located in China's central and western provinces, or those that relocate there. Pan notes that inland cities Chengdu, Chongqing, and Xian have comparatively good infrastructure to support manufacturing.

A Notch Above the Rest

Fewer than 1% of small businesses ever make it to the $250 million revenue mark, but the ones that do often have a lot in common. Keith McFarland, a former tech entrepreneur, studied more than 7,000 fast-growing companies and boiled down his findings in The Breakthrough Company: How Everyday Companies Become Extraordinary Performers.

What are breakthrough companies, and what traits do they share?

They are businesses that have sustained double-digit revenue and profit growth over a 20-year period. Their CEOs are far more interested in and open to outside knowledge and ideas that can help reshape the company. They are not satisfied with what they were and are always upping the ante.

What surprised you about small businesses that never break out?

Everyone thinks that entrepreneurs are risk takers, but actually many have a dangerous tendency to play tight when the stakes increase.

What is the most important thing for small company CEOs to do during tough times?

Use their professional network, what I call scaffolding, to help them think clearly. They also must rigorously prioritize. This is an opportunity to figure out the 20% of activities that really make a difference, and winnow these to fundamental leverage points so they can emerge much stronger. They also need to increase communication dramatically.

The Stat

72% of Americans dream of starting their own company.

37% of small businesses do not recycle.

43% of small businesses have registered their trademarks with the government.

Data: Intuit QuickBooks Just Start survey, October NFIB National Small Business Poll, September NFIB National Small Business Poll

Back to BWSmallBiz December 2007/January 2008 Table of Contents

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