Where Do We Go From Here?

In the wake of the terrorist assault on America, experts are warning small businesses that no survival skill is more important than the ability to adapt

By Karen E. Klein

On Sept. 11, our nation suffered the unthinkable: a series of deadly, sneak attacks designed to cause unspeakable carnage and shatter the foundations of our very way of life. The terrorism that murdered some 7,000 people, destroyed the World Trade Center and damaged the Pentagon exposed a vulnerability and left many of us in shock.

Two weeks later, it comes time to ask: Where do we go from here? What happens to our country's backbone: the small business, the family-owned firm -- indeed, the entrepreneurial spirit itself? From tightened security to a flagging economy to reduced travel to sharply increased defense spending, how do entrepreneurs not only cope but prosper in these difficult days?

Smart Answers asked small-business owners and entrepreneurial experts for their thoughts, hopes, advice, and plans. This column discusses the challenges they identified. Our next installment covers the opportunities.

TRAVEL PINCH.

  The most obvious and immediate economic casualties of the terrorism were felt on Wall Street and in the country's airline and travel industries. The small companies that sell parts, supplies, and services to air carriers will surely feel the effects of possible bankruptcies and consolidation, though if they can shift gears to military applications there is a possibility of new market opportunities in that sector, experts say.

The travel industry -- not only travel agencies, but also trade shows and convention suppliers and services, small hotels and tourist attractions, amusement parks, restaurants, and the myriad companies that sell luggage and other consumer goods aimed at travelers -- will feel the pinch. Rather than the face-to-face meetings that have been the norm, the experts say we can expect businesses to make greater use of video-conferencing, telephones, and online interactions to stay in touch with contacts and even closing deals.

While airlines and hotels will offer special rates in an effort to lure nervous tourists and rental-car outfits may boom, continued disruptions in flight schedules, fear of flying, and longer waits and inconvenience due to increased airport security will have a significant impact in the near term, says Jonathan Goldhill, a Los Angeles-based small-business consultant who expects to see higher passenger fares and air-cargo rates. "It may ease up, but the time required for business travel will increase, and productivity while in the airport and on the airplane will decrease. Don't expect to be able to bring cell phones, laptops, or other wireless devices on the plane," he says.

Air cargo also will slow, while stepped-up security, in travel and shipping, will demand more time and effort from companies used to the ease of routine. Barry Allen, CEO of management consultancy International FieldWorks, says that returning a faulty copier took twice as long in the aftermath of the attack because of the additional forms and questions from his longtime freight carrier.

MEETING RESISTANCE.

  Among those taking the hardest hits is the meetings-and-convention industry. Michael Hughes, director of research services for industry journal Tradeshow Week, says about half of all major meetings scheduled to be held in the U.S. between Sept. 11 and the end of the month have been cancelled or postponed, with about half likely to be rescheduled for later this year or the first quarter of 2002. The good news, such as it is: "Most trade shows are well established," says Hughes, so "no shows have been put out of business completely."

Event organizers and their host cities are studying the feasibility of alternative transportation, such as rail and buses, developing smaller, regional shows (which may mean new opportunities for businesses in cities that are usually off the convention circuit), increased marketing to attract attendees, and enhancing security at venues to make visitors feel safer, Hughes says. Two high-profile shows that will be watched closely as indications of the industry's future are Internet World/Fall in New York and Comdex/Fall in Las Vegas, he says.

For the small companies that supply the trade-show and meetings industry, the future is uncertain at best. "We're frozen and scared to death it's going to stay this way," says Lilly Walters, of the Walters International Speakers Bureau (www.walters-intl.com). Her agency tracks more than 40,000 professional speakers who supply advice, humor, insight, and inspiration to conferences, business meetings, and association gatherings around the world. "People are asking, 'Should we have a meeting six months from now or will the world be at war?'"

Margit Weisgal, a Baltimore trade-show consultant, is glad she agreed to teach extra courses this fall, since she will probably have to rely more on teaching for income. "Business has been slow all year because of the economy, and my service, to some extent, is a luxury -- it's not critical," says Weisgal. "Businesses give this up when money is tight. I'm afraid the fears are going to be crippling for some time."

HUNKERING DOWN.

  The terrorist attacks on Sept. 11 may have pushed an already teetering economy into full-blown recession, some experts believe. Although increased military budgets could jump-start certain sectors and eventually fuel a rebound for the economy as a whole, the near-term outlook for small retailers is not promising.

"Consumers, I am afraid, will hunker down and stop spending. Increased advertising and promotion will help, but those that do spend will be seeking more value, so places like Wal-Mart, Target, and the like will do very well while those that have to compete -- the moms and pops -- will not," predicts Ken Keller, a Valencia (Calif.)-based consultant who counsels entrepreneurs at U.S. Small Business Development Centers. "My second thought is that businesses will continue to hang on to their cash. This is going to be a problem, especially in the B2B [business-to-business] segment. Cutting interest rates will help me as a consumer, but it does not do much for me as a business owner."

Small businesses, with shallow pockets and thinner capital reserves than their larger counterparts, are more vulnerable to economic downturns, experts say. Many entrepreneurs -- like Weisgal -- will solidify their business base, turn to secondary, supplemental sources of income, and pull back on expansion plans, which will inflict more pain on the economy. Says Weisgal: "The minute people get tentative, which is what's going on now, it hurts everybody."

The slide on Wall Street, already been hit by the faltering economy, won't help small-business access to investment capital. Martin Shum, CEO of engineering software company Aprisa (www.thecubicle.com), says the disaster and the resulting stock market nosedive dashed his hopes that the IPO market would open up again soon. "My concern is that I have always believed the strength of the U.S. tech market was driven by startups, and that new companies fueled a lot of growth," Shum says. "With such a tight VC market, we're seeing great companies with wonderful technologies go down." His own company is planning a merger with a company that produces software for asset analysis and financial projections. "It's a very bad environment for raising money," he continues. "We're hoping if we put small companies together, we can survive."

NEXT COLUMN: A light amidst the gloom -- opportunities, possibilities, and the resolve that living well is truly the best revenge.

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