The Aftermath

How the terror attacks will affect small companies, and what they're doing about it

Meeting planner Janina Farinas' most pressing task right now is planning for her company's demise. With the travel industry in a free-fall since last month's terrorist attacks, her New Orleans-based company, Planit Right Inc., has lost $1.5 million in expected business, leaving her no choice but to shut down. "My business was my baby," Farinas says. "There's a part of me that is very sad and grieving."

In Fairfield, Iowa, Burt Chojnowski, CEO of the Internet telephony startup CoolCall Inc., is still hoping for a round of financing that's been postponed indefinitely. The deal was scheduled to close on September 11. To conserve cash, Chojnowski has imposed a 25% pay cut and has been frantically renegotiating with vendors.

Meanwhile, in Hayward, Calif., Lynne Leahy, CEO of AquaPrix Inc., has never been more bullish. Her company, which distributes distilled-drinking-water systems, has been flooded with inquiries since the attacks, and now looks forward to a jump in 2001 revenues. "This could be bigger than anything we've done in the past," she says.

And then there's Arlington (Va.) entrepreneur Michael Beirne, CEO of Novaforge Inc.--and a captain in the U.S. Army Reserves. He's pulled between his enthusiasm for his new company and his obligation to serve his country.

So it goes in post-September 11 America. Terrorism in New York and Washington has turned the world upside down for everyone, and small-business owners are no exception, no matter how far they are from the East Coast targets. "There isn't a small business that hasn't been affected," says Pamela Harper, a strategic consultant in Glen Rock, N.J., who has worked with entrepreneurs for 10 years. "Companies need to totally reassess the priorities they had before September 11. Everybody is going to find this to be a challenge."

It's a challenge not everybody will be able to meet. Robert Calvin, professor of entrepreneurship at the University of Chicago, predicts a flood of business liquidations in the next six months. "Every time there's a disaster, small companies are pushed over the edge," says Calvin. "They are not diversified, and so they suffer the most."

Entrepreneurs themselves seem to be feeling a rare moment of self-doubt. After a generally upbeat reading in August, the National Federation of Independent Business' index of small-business optimism plunged to its lowest level since 1993 following the attacks. Expected sales gains over the next three months turned negative for the first time in the survey's 15-year history, and the percentage of business owners anticipating better business conditions over the next six months dropped to 10%, compared with 25% in August.

The pain is not being felt evenly. Some companies have found themselves in the somewhat awkward position of benefitting from the tragedy, as demand for security and defense-related products rises. But most small companies are simply coping, stumbling through a new world of uncertainty in which spending decisions have been postponed until next year, and the objective is simply to hold on. The less lucky ones, in such hard-hit sectors as travel, financial services, and manufacturing, are finding their old business plans irrelevant. "Small business can't escape the pain," says Thomas Gray, president of the Center for Small Business Studies in Washington. "And in the short term, we're due for more pain."

TAKING A DIRECT HIT. After the September 11 attacks, Janina Farinas was among those who discovered that her entire business was obsolete. When she launched Planit Right, her international meeting-planning agency, in 1999, her prospects couldn't have been brighter. American corporations were big on incentive packages, and hired Farinas to plan vacations for valued employees. She closed 2000 with $1.2 million in revenues and expected to hit $1.8 million in 2001.

But as airports around the country sat idle after September's attacks, Farinas watched her company disintegrate. Her biggest contract of the year, worth $250,000, was canceled when an insurance company scotched a trip to New Orleans for 300 sales executives. Soon afterward, seven more deals worth a combined $1.5 million unraveled. "I took a really deep breath, shed a few tears with my staff, and sat in silence in my office," she says.

Ultimately, Farinas pulled the plug on Planit Right. But she has a plan. She intends to apply for a $75,000 bank loan to carry her over the next few months as she and her team reinvent the company to organize seminars on "spiritual uplift" for professionals. "After what's happened," she says, "what's needed is a journey inward."

Perhaps she's on to something. During the next few months, many business owners will be facing their toughest challenge ever--one fraught with personal, as well as economic, risks. "When a large company is hit, there is an infrastructure that rallies to its support," says Marilyn Puder-York, a New York psychologist and executive coach. Small-business owners, by contrast, are forced to rebuild their businesses alone. That's scary, Puder-York says. But it also presents an opportunity. "As an entrepreneur, you have a certain degree of freedom to reinvent yourself, to save or change your business," she says.

That's Roxanne Zavala's strategy. As CEO of Anoroc Precision Sheet Metal Inc., a Gardena (Calif.) manufacturer of aircraft components, she expected revenues to double, to $3 million, in 2001. But in the wake of the attacks, Boeing Co. laid off 25,000 people and halted the production of new aircraft--a big problem for Zavala, who gets 75% of her business from Boeing contractors. "After investing 23 years of my life in this business, I was wondering whether we would be able to survive," she says.

The way Zavala sees it, she has little choice but to reinvent herself. Capitalizing on her status as a certified minority contractor, she plans to start bidding on federal contracts. She's also venturing beyond the aerospace industry to make parts for electronics and medical equipment. It won't be easy. For the first time in Anoroc's 23-year history, she's taking on debt, applying for an SBA-backed loan for $500,000 to $1 million. And although she has staved off staff cuts so far, they're inevitable unless business picks up. "I'm very worried about my business," Zavala says. "But I'm a survivor."

Survival instincts will only get you so far. What entrepreneurs need is cash, and while Washington has been working on rescue packages for the airline, insurance, and shipping industries, no one has rushed to bail out small business. The SBA is offering low-interest disaster loans, and several banks have rolled out similar products. As of Oct. 19, the SBA had approved fewer than 500 loans, and bankers admit that those most in need of assistance may go begging. "A lot of companies had weak balance sheets before September 11," says John McWeeney, executive vice-president and regional director for small-business services at FleetBoston Financial Corp. "We're trying to offer more favorable terms. But these still have to be loans we think will be repaid."

On Oct. 3, Senator Kit Bond (R-Mo.), the ranking Republican on the Senate Small Business committee, introduced legislation to provide entrepreneurs with tax relief, emergency loans, and greater access to federal contracts. But small-business lobbies say more help is needed, and right away. "So far, I would give the government a C. It's not a D or F yet, but it will get there in a couple weeks if nothing happens," says Karen Kerrigan, chair of the Small Business Survival Committee in Washington.

CAUGHT IN THE DOWNDRAFT. Entrepreneurs like Mike Wilkinson are just trying to hold on. There's nothing fundamentally wrong with Paragon Innovations Inc., a Plano (Tex.) electrical-engineering company with 18 employees in an industry not directly tied to the disaster. Still, the CEO has seen more than $1 million worth of business postponed since September 11. "Clients are saying that they're still on track, but that they've paused," the 37-year-old entrepreneur says. "It's driving me nuts." After seeing revenues grow 40% a year since starting the company in 1990, Wilkinson is bracing for no growth in 2001 and expects profits to plunge some 75%. He has frozen capital spending and travel and is chasing new deals like never before. "It's tiring and frustrating and aggravating," he says.

Burt Chojnowski, CEO of CoolCall, is just as frustrated. On Sept. 10, the 50-year-old entrepreneur's future looked brighter than ever. After limping through the tech downturn, slashing his payroll from 32 to 18, Chojnowski was poised to receive $3.1 million in new funding from an international investment group. Unfortunately, the cash had been sent to a broker in the World Trade Center, who was to send it on to Chojnowski the following day. When the towers collapsed, the stock market plunged. CoolCall's investors developed a case of cold feet and put the deal on indefinite hold. "It was a major setback," Chojnowski says. His employees faced a stark choice: either take a 25% pay cut, or risk being laid off. Then he began negotiating with his vendors. Though he still hopes that his investors will come through, he has begun exploring merger possibilities. Fortunately, Chojnowski says he's still experiencing strong revenue growth--about 20% a month--enough to carry CoolCall for now.

Few entrepreneurs are so fortunate. Since September 11, big companies have capped spending or started consolidating vendors to cut costs. For small businesses, that could spell disaster. "Within two to five days of no sales, small companies could be close to out of business," says Joe Scharfenberger, executive vice-president of small business financial services at J.P. Morgan Chase & Co. "They are so hand-to-mouth that if they lose sales and still need to pay their staff, they could be in a negative cash-flow situation."

UNEXPECTED BENEFITS. Crises also have a way of creating opportunities. Michael Beirne, a 29-year-old entrepreneur and army reservist, went from winding down his business to bracing for big growth within the space of one dizzying week. Beirne's company, Novaforge Inc., is an e-commerce and information-technology security consulting firm that he launched in August. He was expecting to end the year with sales of $250,000. Then, within days of the September 11 attacks, he was called to active duty and assigned to the newly-created homeland defense unit. Beirne decided he had no choice but to temporarily close shop and let his employees go until the Army released him from service. "It was disheartening and disappointing," he says. "But being an entrepreneur and an officer are both part of me."

A week later, everything changed again. Clients suddenly flooded Beirne with inquiries about beefing up their it security. He had more work than he could handle. In a matter of days, he was projecting $500,000 in revenues by the end of the year and had hired two new employees. And although Beirne admits it will be tricky to monitor Novaforge while on duty as an Army captain, he is confident his "top-notch" staff is up to the task. "I'll be tackling two tough missions," he says. "That'll be fun."

The trying times have been good for Lynne Leahy, too. Her 13-employee company, AquaPrix, distributes distilled drinking-water filtration systems to companies and has annual revenues of $2 million. Since September 11, inquiries have jumped 30%. AquaPrix' system attaches to the water supply inside of office buildings, reducing the risk of outside contamination. "All companies are looking at security now," says Leahy, 57. She just launched a new direct-mail campaign and expects to close 2001 with $3.5 million in revenues, 40% more than first forecast. She's pushing into the residential market and plans to add four or five new employees over the next six months. Expansion is far from a sure thing--especially if the nation's current state of alert should subside. But at a time when the only certainty is uncertainty itself, it seems as safe a bet as any.

By Naween A. Mangi

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