Is the economic downturn striking fear into the hearts of entrepreneurs, or are small business owners laughing in the face of recession? Despite the fact that myriad organizations and corporations regularly poll small business owners, it's not easy to tell.
According to some first-quarter studies, normally optimistic entrepreneurs have exchanged their sunny outlooks for the depths of despair. Other surveys, however, paint a portrait of enterprising entrepreneurs already finding ways to capitalize on the recession (BusinessWeek.com, 4/4/08).
As with any polling, the reality probably lies somewhere between the extremes. Much of the discrepancy comes down to how the questions are asked and to whom, says Rhonda Abrams, president of The Planning Shop, a Palo Alto (Calif.) publisher of small business books and guides. She consulted with Intuit (INTU) on its March Get Back to Business survey, which showed 91% of small business owners see opportunities for their businesses in the current recession and 77% expect to grow as the economy stumbles. The online survey sampled more than 750 business owners with fewer than 100 employees.
Opportunities in the Worst of Times
"Some of the surveys are asking how small businesses are going to survive through this terrible time. There's always a natural bias as you're asking these questions, like 'Just how fearful are you?' or 'How will you tighten your belt?' What I've heard from small business owners is that they are realistic, they understand the broader context of the economic situation, but they're also looking around and seeing opportunities even in the worst times," Abrams says.
That attitude is borne out by the Intuit survey, in which 86% of respondents said they remain passionate about their companies and are not getting discouraged or giving up on entrepreneurship. Indeed, almost 20% of the survey respondents said they are thinking about expanding their businesses in 2008.
A different survey, done by PNC Financial Services Group (PNC), turned up a very different result. Despite lower interest rates and adoption of the federal fiscal stimulus plan, PNC's semiannual Economic Outlook showed small and midsize business owners at their lowest point since the survey began in April, 2003. PNC's survey results come from the responses of 500 U.S. business owners and senior executives of businesses with revenues ranging from $100,000 to $250 million annually.
Economic Confidence Down
Only 6% of business owners responding to the Economic Outlook survey said they are optimistic about the U.S. economy over the next six months, a record low, according to Robert Dye, senior economist for PNC Financial Services Group. An unprecedented 19% of respondents said they expect their profits to decrease in the near term. Their top concerns were the possibility of recession (36%) and higher energy prices (30%). The majority of respondents (63%) doubted the federal fiscal stimulus plan will boost their businesses.
Those findings are similar to a March survey commissioned by the Discover Business Card (DFS). Called the Discover Small Business Watch, the survey yields a monthly index measuring the relative economic confidence of U.S. small business owners. It is based on a national random sampling of 1,000 micro-business owners (those with fewer than five employees). In March, the index hit 77.8, the lowest point since its inception in August, 2006. That was a 13.1-point decrease from February and nearly 40 points lower than in March, 2007.
Key findings of the Discover survey show 77% of small business owners feel economic conditions in the U.S. are getting worse, an increase of 10 points over February; 53% rate the U.S. economy "poor," compared to 36% who said the same in February; and only 16% rate the U.S. economy "excellent" or "good."
Nearly half of the Discover respondents (47%) said they had experienced cash-flow issues during the previous 90 days, a finding that might be related to PNC's survey finding that 18% of respondents said it was more difficult to get credit now compared to the previous three months. Only 10% of PNC survey respondents reported a credit crunch the last time the survey was conducted in the fall of 2007.
Silver Lining Mentality
Although entrepreneurs clearly are aware of larger economic stumbles, they tend to remain optimistic about their own chances to stay in businesses. This may be due to their "silver lining" mentality. "Most entrepreneurs come out of situations where they've already faced tough times. Maybe they've been laid off or quit their jobs because they were dissatisfied. By their very nature, they are survivors," Abrams says.
Making opportunities for themselves—rather than waiting for them to happen—is another entrepreneurial characteristic. "I was talking to a friend of mine who owns a 35-person landscaping business," Abrams says. "She's about to acquire a competitor who is selling his company. I hear stories like that all the time."
Finding merger-and-acquisition possibilities, snapping up laid-off corporate executives, and luring away customers fed up with reductions in customer service at larger companies are all positive possibilities for entrepreneurs as the economy declines, says Rick Jensen, senior vice-president and general manager of Intuit's small business group. "Small business owners read the same headlines we do, but most of them have survived recessions and downturns before. They know how to take a risk, they believe in themselves, and when headwinds come up, they know they need to stand on their toes."