“After a Year of Change: The 2001 Small Business Environmental Scan”

1. “After a Year of Change: The 2001 Small Business Environmental Scan” Produced by the University of Missouri Outreach and Extension Business Research and Information Development Group November 2002

2. What is BRIDG? The Business Research and Information Development Group (BRIDG) is UO/E’s research and information analysis arm for entrepreneurship and small business. BRIDG enables UO/E's Business Development Program to use research as the foundation for information and training that is delivered to entrepreneurs and small business owners across the state.

3. What is BRIDG? Faculty on the University of Missouri campuses at Kansas City, St. Louis and Rolla work with UO/E statewide staff in conducting primary and secondary research projects that engage faculty, outside partner organizations and internal product development groups in their design and implementation.

4. Purpose of the Small Business Environmental Scan: “After a Year of Change” is the fourth in a series of reports designed to identify and address major issues driving change for Missouri’s small businesses and entrepreneurs.

5. Objectives of the Small Business Environmental Scan: • Provide guidance to those who create, deliver and administer programming designed to benefit Missouri’s small business community.

6. Objectives of the Small Business Environmental Scan: 2. Inform those who make and execute public policies relevant to the health and success of Missouri’s small businesses.

7. Objectives of the Small Business Environmental Scan: 3. Educate the public about the significant contribution of small business to the state’s economic and social health.

8. How is the report developed? Report is prepared by BRIDG researchers with the assistance of a variety of individuals and agencies who continuously assess the small business environment.

9. How is the report developed? “Industry watchers” include experts in public agencies, trade and professional associations, academics, corporations and other information sources. The study is performed annually to identify discontinuities and consistencies in the small business environment.

10. What did we learn? The time since the last report has been one of tremendous changes that serve as a reminder of the fluctuating cycles in which small businesses exist and the changing circumstances to which they must respond.

11. Dramatic forces A great deal of energy and resources was invested in the creation of the dot-coms. Their collapse had many ramifications for small business, forcing a more rapid examination by small firms regarding their ability to adapt to the changing technology.

12. Dramatic forces Small firms have gained a new awareness of the cyclical nature of the energy market and the marked impact it can have on entrepreneurial activity and growth. Entrepreneurs need to make adjustments in operations, processes and management to sustain the fluctuations.

13. Dramatic forces Many of the concerns expressed by small business in recent years dealt with the era of economic expansion. Now, in a time of downturn, the concerns have fluctuated and concern shrinking markets and falling prices. Small businesses should be prepared with contingency strategies for both sides of the economic cycle.

14. Dramatic forces The events of 2001 disrupted supply chains, damaged consumer confidence and created fluctuations in financial markets. Small firms should re-examine their risk management strategies, data system integrity, employee safety and health procedures and the robustness and redundancy of their supply chain.

15. Key findings Concern with regulation seems to have lessened, probably because of other key environmental factors: energy, economic slowdown and the war against terrorism.  Small businesses still absorb a disproportionate share of the regulatory cost burden, particularly in the areas of environmental regulation and tax preparation.  

16. Key findings Hiring and retaining quality employees remains a problem. Small firms are examining creative retention strategies, and owners and managers are working longer hours to compensate for gaps in employee skill base.   The mobility of personnel is an issue for small companies, particularly those in high-growth Internet-related firms. 

17. Key findings More small companies are offering health insurance in an effort to attract and retain talented employees. In addition, many firms are offering a wider array of informal benefits, including the option to telecommute, pursue personal growth opportunities and become more entrepreneurial within the firm.  

18. Key findings Employee management and training continue to be key concerns for small companies with the greatest needs in the areas of managerial or supervisory skills and computer literacy and applications.

19. Key findings More than 80 percent of small businesses employ some form of IT in their companies.   IT is typically limited to communication and business-to-individual transactions.  

20. Key findings If more companies engaged in such transactions, they would create another opportunity for more small companies to offer Internet-related services and products to support e-commerce strategies.

21. Key findings It is expected that mini-dots – small businesses engaged in dot-com enterprises -- will experience a tremendous growth in the near future.

22. Key findings Because of the aging of Baby Boomers, issues surrounding family business and transition have gained in importance.   60 percent of the U.S. GDP is generated by family business. Assistance efforts should be focused in this area rather than on attracting large firms.

23. Key findings Establishments with 20 of fewer employees constitute 75 percent of rural businesses.   Small, rural firms generally offer employees a wider range of job responsibilities than larger firms, fill leadership roles in the community and are seen as a key source of creativity and ingenuity that fuel entrepreneurial growth companies.

24. Key findings Rural entrepreneurship is challenged by a less developed infrastructure – both physical and virtual; the need for larger pools of highly skilled labor and the resources to offer employees high wages, better benefits and job training; and the shrinkage of locally available capital, due to major consolidations in the banking industry.

25. Key findings Small businesses constitute the majority of businesses in any supply chain, up to 80 percent by some estimates. Periods of economic downturn present both opportunities and threats to small firms in the supply chain. Reduced revenues, demands for greater efficiencies and local plant closings may squeeze some suppliers out of the chain.

26. Key findings On the other hand, small firms have greater flexibility, product specialization, personal relationships, quick local response times, specialized technical knowledge, readily available inventory, in-depth product knowledge and skills in problem-solving that give them an advantage in responding to supply chain demands.

27. Key findings Lending to small businesses is down, and start-ups and new ventures appear to be the least attractive to lenders. Light manufacturing and distribution businesses still have some appeal.   Traditional lending through commercial banks continues to dominate small business. Equity financing is down.

28. Key findings Overall limited access seems to be in response to the downturn in the economy; however, structural changes in the lending community may pose the greatest threat to small businesses.

29. Key findings Venture capital and non-traditional sources of equity capital are playing a key role, especially in IT firms. Owners of high-technology firms are not educated on the array of investment options available to them. However, demands and expectations among angel and venture capital investors are higher than in years past.

30. Key findings Planning and strategy development – or lack thereof – continue to be of concern to providers of small business assistance. However, a strong correlation exists between business success and the presence of clearly defined plans for the business.

31. Key findings Most small firms lack any formal mechanism for collecting and converting competitiveness information into knowledge that is useful in developing strategy. However, family-owned businesses tend to have more sophisticated planning processes and share information about performance and expectations more readily with their employees.

32. Key findings Outsourcing continues to offer two opportunities to small businesses – to be the recipients of outsourcing from larger firms and to outsource critical business functions themselves, particularly in the application service providers (ASPs) and business process outsourcing (BPOs) areas.

33. Key findings ASPs are found to be an attractive alternative to hiring and supporting an expensive IT department.  Use of BPOs – payroll, benefits, accounting and legal services – allows companies to focus on their core competencies and enhance competitiveness.

34. Key findings Income differences between male and female self-employed workers continue. The disparity is partially attributable to the types of businesses women start compared to those started by men. Women tend to start less lucrative retail and service firms, while men concentrate their efforts in the professional services and construction areas.

35. Key findings Availability of insurance for the self-employed is an enabler of entrepreneurship. More universally available coverage would encourage more self-employment.

36. For more information: Buz Sutherland, Director Small Business Development Center Harrison College of Business Southeast Missouri State University One University Plaza Cape Girardeau, MO 63701-4799

37. For more information: Business Research and Information Development Group Bloch School of Business University of Missouri-Kansas City 4747 Troost Kansas City, MO 64110