Online Extra: When the Only Sure Thing Is Uncertainty
It's been said that September 11 changed everything. That's certainly the case for many small businesses. Many have found that their old business plans are suddenly irrelevant in the postattack world. Others are struggling to survive by slashing costs and finding ways to wait out the hard times until business returns.
A lucky few are seeing business increase as demand for security and defense-related products rises. "The level of angst is extraordinarily high," says Mark Zandi, chief economist at Economy.com. "Small businesses are pulling back and retrenching -- but they really can't understand what they should do."
Here are stories of how some entrepreneurs are coping with an uncertain world.
Before September 11, Matt Deline was bracing for "a banner year," for his company, SaveCash.com, a San Diego hotel-reservation service. Since he started the company 10 years ago, his business, which had expanded beyond its San Diego base to Phoenix and Palm Springs, saw solid average annual growth rate of 20%.
When the attacks sent the travel industry reeling, Deline couldn't escape the devastation. In the days after the massacres, the 40-year-old entrepreneur watched the number of incoming calls drop by half. His 21-person staff spent the bulk of their time taking cancellations -- $450,000 worth of them -- instead of booking new business. "No matter what we do, it will be a struggle to be down just 20% from last year," Deline says. "We will lose money and I will have to borrow." In 2000, Deline's outfit racked up sales worth $1.3 million. Up until September 11, he had been expecting to hit the $2 million mark this year.
Deline has spent the last several weeks cutting costs and adjusting his business plan. His first step was eliminating overtime, which immediately slashed 15% from his payroll. He cut his advertising budget by 30%. But Deline is also investing in his business, sending 10 employees for more training. Says Deline: "Retraining them now could mean increased business later."
For the moment, more business remains wishful thinking. And Deline seems to know that. He is also considering utilizing his well-equipped call center for other purposes, at least so long as demand for travel services remains thin. Deline says he sure about only one thing regarding his company's prospects: "I know we'll survive."
If it weren't for a quick shift in strategy after September 11, Leza Raffel would be seriously concerned about the future of her business, a public relations firm with a client roster made up of restaurants, technology firms, and heating and air-conditioning companies. The attacks "really changed our business model," says Raffel, CEO of Communications Solutions Group, which is based in Jenkintown, Penn., and has six employees. "We've had to completely change the types of clients we're pursuing," she explains.
Raffel, 34, has started targeting the healthcare industry by chasing pharmaceutical companies and going after government contracts. "We're not charging ahead with business as usual," she says. "We're making changes early...I feel comfortable that we're not looking at the world with rose-colored lenses."
REVIEW AND REFLECT.
But before she could focus on reshaping her strategy, Raffel had to cope with the reality of a sudden slowdown in new business. She did that by taking a 15% pay cut in an effort to save her employees from layoffs. And she decided not to replace one of her public relations specialists who left the company for another job. Rather than annual growth of 20% to 30%, which has been her norm, Raffel expects to end this year with no growth. "I'll have to deal with the ego-bruising of not seeing that for a year or two now," she says.
When Damon Gersh got over the immediate shock of watching the World Trade Center's towers collapse on September 11, he knew he had his work cut out for him.
Gersh is CEO of Maxons Restorations, a 40-person disaster-restoration business in New York City. After the attacks, his usual workload jumped from less than 10 projects a day to around 200, forcing him to hire 1,000 contract workers to help cope with the deluge of demands for emergency clean-ups in downtown Manhattan residences and office buildings. "This is our best year ever," says 34-year-old Gersh, who adds: "But I feel bad that our business is benefiting from something so horrible." The company's projected revenue for 2001 has been revised from between $15 million and $18 million to between $30 million and $50 million.
Just as ramping up to cope with the surge in demand has presented Gersh with a challenge, downshifting to normal levels of demand six months or a year from now will be equally difficult. But for now, Gersh has had a handful of proposals from angel investors interested in his company. Although he has opted instead to expand his credit line to cope with the increased business expenses, Gersh says the increased attention his outfit is getting can only be a good thing. In the long term, he expects to benefit in the form of greater market share.
The CPR-Group in New York is one of nine companies Stephen Spoonamore has founded in the last 12 years. The 22-person operation, which specializes in designing broadcast studios and multiple-location corporate events, had grown rapidly since its inception in 1998. Now, just a year after his business became a $5.8 million operation, Spoonamore is preparing to take a serious hit.
Immediately following September 11, CPR-Group saw 40% of its on-going projects canceled -- including a $1.4 million training session for 1,600 auto dealers scheduled to be held in Munich on Oct. 26. Another $3.5 million training session for telecom dealers that was to have been held in Las Vegas in November was put on hold indefinitely.
BLEAKER AND BROADER HORIZONS.
"I was projecting $7.8 million in revenues this year," Spoonamore says. "But now we're in a questionable cash-flow situation, and I'm down-grading expectations. I think the economy is tanking."
Going into debt for the first time, Spoonamore negotiated a $500,000 line of credit with his bank. He's cut his freelance budget, too. At the same time, he has also shifted gears to focus on live streaming video as a replacement for in-person corporate events. And he's branched out into high-end architectural lighting for residential and commercial projects.
Spoonamore says that while tough economic conditions will continue for some time, what worries him most is the uncertainty. "Most years, I know exactly what's going to happen," he says. "Now I'm in a situation where I have no idea. It's terrible."
By Naween A. Mangi in New York
Edited by Larry Kanter