SRP Metro Phoenix Business Study


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SRP Metro Phoenix Business Study

  2. 2. FOREWORDThe past several years have been economically challenging for families, businesses and everylevel of government. Everyone felt the pinch of our recent economic downturn. As a companydoing business in Arizona for more than 100 years, SRP knows the vitality of our community isdirectly related to the success of our local businesses.Arizona businesses promote job growth, drive the economy and improve the vitality of ourcommunity. We all want to see our economy move forward and our business environmentimprove. That’s why we worked with Arizona State University, the Arizona Small BusinessAssociation, the Greater Phoenix Chamber of Commerce, the Phoenix Business Journal andWestGroup Research to bring you the 2011 Metro-Phoenix Business Study.The findings in this research provide excellent insights and stories from more than830 Phoenix-area business owners, who candidly share information about not only thechallenges they recently experienced but also the solutions they incorporated to sustaintheir businesses during those economic challenges. Fortunately, they had a lot to say andI think you will find their experiences helpful.In addition to partnering on this report with Valley stakeholders, this past year SRP activelybegan looking for opportunities to help local businesses navigate the challenges of the pooreconomy by creating the SRP Business Resource Center (BRC).The BRC is a free, online, one-stop information center created by business to help business., important business information, resources and helpful advice are availableto help take businesses to the next level.SRP wants to be part of the solution that keeps the Valley moving forward. We believe this studyand our BRC are a step in the right direction. We view both as tools to move us closer to astronger and prosperous Phoenix economy.I want to thank the Phoenix-area businesses that participated in this study and acknowledge ourpartners that made this study possible.Mark BonsallGeneral Manager & Chief Executive OfficerSRP■ i
  3. 3. 2011 METRO-PHOENIX BUSINESS STUDY TABLE OF CONTENTSForeword . . . . . . . . . . . . . . . . . . . . . . . . . i ACKNOWLEDGMENTSAcknowledgments . . . . . . . . . . . . . . . . . . . . . ii COLLABORAT ING ORGANI Z A TI ONOverview . . . . . . . . . . . . . . . . . . . . . . . . . 1 Arizona State University (ASU)Background . . . . . . . . . . . . . . . . . . . . . . . . 5Findings . . . . . . . . . . . . . . . . . . . . . . . . . 7 INSIGHT S/ANALYSIS • Challenges, Impact and Strategies . . . . . . . . . . . 7 Gary Naumann, • The Future . . . . . . . . . . . . . . . . . . . . . . 19 Director of the Spirit of Enterprise Center, ASU • Information Resources . . . . . . . . . . . . . . . . 25 • Technology . . . . . . . . . . . . . . . . . . . . . 27 Todd Sanders, President • Sustainability . . . . . . . . . . . . . . . . . . . . 32 and CEO, Greater Phoenix SMMethodology . . . . . . . . . . . . . . . . . . . . . . 33 Chamber of CommerceEnd Notes . . . . . . . . . . . . . . . . . . . . . . . . 36 Kristen Wilson, COO, Arizona SmallPROFILES Business AssociationSherry Michaels, Michaels & Associates Docntrain Ltd. . . 17 Don Henninger,Ed Goff, Blockwise Engineering . . . . . . . . . . . . . . 23 Publisher, Phoenix Business JournalF E ATU R E SImpact of the Economy by Industry . . . . . . . . . . . . 10 RESEARCH T EAMReady to Grow . . . . . . . . . . . . . . . . . . . . . 22 SRP ASUTrying to Figure This Out . . . . . . . . . . . . . . . . . 31 Jim Briggs, Senior Market Dennis Hoffman, Director, Research Analyst L. William Seidman Research Institute, Department of Brian Cary, Manager, Economics Forecasting, Research & Economic Development Elizabeth Farquhar, Managing Editor, KnowWPCarey Denise Hayes, Senior Marketing Program Manager Sidnee Peck, Director and Instructor, Entrepreneurial Linda Murphy-Lessor, Principal Initiatives Market Research Project Manager WestGroup Research Katy Gallert, Research Analyst Glenn Iwata, Executive Vice President ii ■
  4. 4. OVERVIEWNEW STRATEGIES FOR SUCCESS In other words, is there a “new normal” that is being established as a result of the past four years? This year’sBusinesses across the country have spent the past four years study, “2011 Metro-Phoenix Business Study: New Strategies“re-inventing,” “right-sizing,” “re-skilling,” “re-branding,” for Success,” focuses on the issues and steps these survivors“viral marketing,” “organically growing” and using a have taken. multitude of other buzzword strategies to survive. This study is the result of collaboration between SRP and ASU, According to the along with support from a number of endorsing organizations. “Our Arizona small businesses are doing National Bureau of The purpose of this collaborative effort is to provide a resource extraordinary things, even in a challenging economic environment. Economic Research, to companies, government agencies, educators and supporting It is so important to give businesses an organizations that want to help develop solutions for opportunity to tell their story. the recession Organizations like SRP and ASU pulling officially began in businesses in the midst of the economic slowdown. their resources together allows businesses to do that without having to turn away December 2007 The findings in this report are based on input received from from what is most important to them — and ended in June running their business.”1 833 Phoenix-area businesses. Interviews were conducted 20092; however, the primarily by telephone with business owners and management Kristen Wilson, COO, Arizona Small Business reality has been a from August–November 2011. Most of those interviewed were Association painful, four-year considered “small businesses.” Respondents were contacted economic slowdown that has and given the option of participating in the research usingforced businesses to change the way they operate. phone or Web methods. Quotas were set by industry type andBusinesses in metropolitan Phoenix have been especially number of employees to achieve a representative sample ofhard-hit by this slowdown, with real estate and construction metro-Phoenix businesses. When applicable, results from thissectors leading the downturn. Dennis Hoffman, Director of the 2011 study were compared with a 2007 study conducted byL. William Seidman Research Institute at ASU, observed: SRP, ASU and WestGroup Research.4 In addition, one-on-one interviews were conducted with local business experts and “Housing and construction slowed to a standstill in late focus groups were held with area businesses to provide ’06/early ’07; there wasn’t much going on … so we perspective to the issues businesses are facing. lost jobs in virtually all sectors. Retail sales adjusted in a fashion that it’s never adjusted. … The pace of The following highlights key findings from the research. growth drivers like utility hookups plummeted. … It’s the worst recession in the postwar period.”3 CHALLENGESA number of questions arise when considering the impact on ❯❯ Refocus/rethinking — In 2007, the top challenge facing businesses was managing cash flow (21%); only 1% hadarea businesses during this slowdown. concerns about the economy. In a comparable unaided❯❯ What are the biggest obstacles facing businesses? question asked in 2011, 56% mentioned being affected by❯❯ What steps are businesses taking to survive? the economic slowdown. This figure grew to 86% after businesses were directly asked, “How has the current❯❯ Which strategies are successful? economic environment/conditions affected your business, if❯❯ How will businesses operate differently going into the future? at all?” ❯❯ Barriers — Businesses were asked to rate a series of specific “challenge” questions (an “aided” version of the most significant challenges they face).■ 1
  5. 5. M OST SIGN I F I C A NT C H A LLE NGE S ( A IDED) IM PACT Total 2011 Responses ❯❯ Shrinking businesses — The most significant impact on Access businesses from the economic slowdown is the “shrinking” to capital 41% 19% 34% 6% of businesses. Seventy-one percent experienced a decreaseGrowing business/ in sales/profit/customers because of the economy, resultingretaining customers 35% 40% 23% 2% in businesses being smaller today than they were a few Marketing/ years ago. 34% 41% 23% 2%promoting business ❯❯ Suppliers — Although most businesses did not feel the Planning for financial future 29% 43% 26% 2% economic environment has had an impact on supplier Managing relationships, more than one-third (38%) feel their 27% 31% 41% 1% cash flow relationships have been affected in some manner and Finding/retaining 22% 24% 41% 13% 11% feel suppliers are more stringent in their policies. employees Six percent gave the opposite view and said suppliers How to 21% 28% 49% 2% provided more leeway with credit policies, increased run business Managing services or found ways to improve customer relations. staff size 16% 21% 44% 19% Applying new technology 15% 34% 47% 4% ST RAT EGIES Negotiating 15% 26% 50% 9% ❯❯ Retreat or attack — Companies tend to take one of two prices strategies in order to survive — retreat or attack — and Significant Somewhat Not a challenge Don’t know most have chosen to retreat in the economic downturn (cutbacks were mentioned by 39% as their primary❯❯ In order, the most significant challenges are: strategy). The attack/aggressive strategy involves the opposite approach — expanding operations, increasing • Access to capital (41% consider this a significant advertising/marketing, launching new products/services challenge; combining the top two responses, 60% and adding new locations (mentioned by 28% as their consider this either a significant or somewhat of a primary strategy). Businesses feel the challenge) — The limits on available capital will result in attack strategy is more risky than growth occurring at a slower pace. retreating and is not always • Rebuilding the customer base (34%–35% significant “You can’t as successful. (shrink) forever. You challenge) — Businesses are still trying to figure out how to shrink to survive, but in the ❯❯ Limits on retreating — market and build their customer base in this new economy. long run, the way capitalism Companies can become works, that’s a death spiral.” • Financial planning (29% significant challenge)/managing only so small and still stay Brian Cary, SRP Manager, cash flow (27% significant challenge) — The uncertainty in business. Businesses Forecasting, Research & of the marketplace makes it difficult to forecast and appear to be at a point Economic Development5 prepare for the future. Cash flow represents one of the where they have stretched key financial factors affected by this challenge. the productivity of their • New rules/new tools (mentioned by 15%–22% as workforce and have already tried a significant challenge for each one listed) — Once cutting costs. businesses reach beyond the survival stage, they want ❯❯ Leading the recovery — Larger companies (20-plus to know the impact of new rules (e.g., health care employees) appear to be more likely to lead the economic reform) and tools (e.g., social media) to help with their recovery. These companies tend to be more optimistic about operations. Also included in this list are how to retain their economic future and more likely to expand than and hire employees, manage staff and negotiate smaller companies (those with one to four employees). with suppliers. 2 ■
  6. 6. O VE R VI E W CONTINU E DT H E F U TU R E T ECHNOLOGY❯❯ Optimism — Businesses are anxious to return to the boom ❯❯ Actively using social media — Three out of four of the years. Half of businesses (50%) anticipate their financial businesses maintain a website, and half of them actively use position will improve in the next 12 months; only 12% social media. Facebook and LinkedIn are the top business expect their situation to become worse. Almost half (46%) social media tools. are expecting to expand within their next planning cycle, ❯❯ Advertising/promotion/communication — Businesses are and another 46% plan to stay about the same size. primarily using social media for two purposes:❯❯ Flexibility — Most of these businesses have relatively short • As a marketing tool to advertise and promote their planning cycles. More than one-third (38%) can make services — For example, 45% of Facebook users said significant changes to staffing within a year’s time; 67% they apply social media to market/promote their business. have planning cycles of two years or less. Younger, smaller • To communicate with customers — For example, 63% of companies appear to be more flexible and can adjust LinkedIn users said they apply social media to stay in quickly to changes in the marketplace. touch with their customers.IN F O R M A TI O N R E SO U RC E S ❯❯ Trying to figure it out — Most businesses are still trying to determine how social media can benefit them. They see❯❯ Staying in-house — One-third of the businesses rely on great potential but need more information about how to outside resources for advice about how to plan and run apply social media and measure its success. Among active their business. Those that do are most likely to use industry Facebook users, 14% said they added more customers and publications and trade organizations to get information 8% experienced an increase in sales because of their specific to their business (26%). Even fewer have taken Facebook involvement. advantage of government-backed resources.❯❯ Marketing/forecasting — Businesses that have sought help SUST AINABILIT Y from outside organizations need help regarding marketing ❯❯ Beginning stages — Some businesses (59%) are making and supporting the growth of business (25%). Businesses efforts to be more environmentally sensitive in their also need forecasting information to help them understand processes and operations, with 21% saying they recycle. the impact of future trends and enable them to plan Almost half of businesses (41%) admit to not taking any accordingly (22%). steps to be more environmentally conscious or are not sure what steps their company is taking. ❯❯ Low- and no-cost solutions — Most companies undertaking sustainability efforts are using low- and no-cost solutions, such as recycling office products and turning off lights.■ 3
  7. 7. CONCLUSIONSS U R VI VA L STRA TE G IE S T HE NEW NORM AL❯❯ Shrinking — Compared with pre-recession days, today Most businesses want the future to look more like the businesses have lower sales revenues, tighter profit margins, pre-recession days of growth, profit, more employees, more smaller operations, and fewer product and service lines. office space, available resources (both human and financial), Companies had to shrink in order to survive. and greater demand for their products/services. The new❯❯ Flexibility — As organizations became smaller, they also normal will involve growth but with the following challenges. became more efficient, with less overhead and shorter ❯❯ Slower growth — The availability of resources such as planning cycles. Bottom line, they found ways of staying in commercial office space and an underemployed workforce business using fewer resources. Companies that have will help with growth; however, limitations from credit survived the past four years have had to be more flexible in markets will rein in the temptation to quickly expand. Even order to adapt to lower customer demand and compete for during stronger markets, businesses considered access to the limited number of profitable products/services. capital and cash flow management their two most❯❯ Risk taking — Some businesses have successfully taken significant challenges. more aggressive strategies and grown during this ❯❯ New rules/new tools — Businesses need help marketing in slowdown. Businesses that have successfully executed these this slow-recovering economic environment. Although strategies tend to be smaller (in terms of annual revenue) demand for products/services will naturally increase as the but not necessarily home-based. They are also more likely economy strengthens, marketing strategies and methods to be active on social media. have changed over the past four years. Businesses will need to figure out how to use social media and new technology and then implement these strategies in order to reach their customers. ❯❯ New markets — During the slowdown, companies commented about reducing their products/services to only their most profitable core offerings. Businesses could not afford to take too much risk during an era of tighter profit margins and uncertain customer demand. If businesses want to jump-start their growth in this new normal, they will need to broaden their products, test new markets and take some risks in their approach. At some point, they need to step beyond the conservative, safe approach. ❯❯ Losing efficiencies/flexibility — Another challenge businesses will face as they grow will be maintaining the efficiencies and flexibility they have attained during the economic slowdown. For example, adding staff or increasing office space would mean increasing payroll or locking into lease agreements. These types of growth steps reduce flexibility and potentially add long-term expenses. 4 ■
  8. 8. C ONC L U S I O N S C ONTINU E D BACKGROUNDP R I O R I TI E S What is the history behind the study?Businesses provided a clear list of priorities to “supporting” The 2011 Metro-Phoenix Business Study is the fourth in aorganizations that want to help them navigate through the series of business research studies that began in 2005new normal. sponsored by SRP, in collaboration with ASU, and conducted by WestGroup Research. The original study was conducted as❯❯ Finding capital — The No. 1 priority is obtaining capital in part of an annual tracking study conducted through the this tight credit market. Businesses, financial institutions and Hispanic Research Center at ASU. The study evolved from policymakers need to find solutions to make both short- and 2005–07 to include both Hispanic and non-Hispanic long-term funding available. It’s a simple formula: No minorities as well as women-owned businesses. From capital means no growth. 2007–10, SRP and ASU chose not to conduct the research❯❯ Marketing in the new economy — The second priority is after earlier trending analyses identified minimal changes in rebuilding customer bases. Businesses seem anxious to find demographics and attitudes from year to year. ways to reach potential customers. They need help identifying new opportunities, learning how to use new tools Why did SRP and ASU conduct this research? and technologies (e.g., social media and iPads), and changing the way they market their products/services. In 2011, SRP and ASU took a different angle than in previous What worked in 2007 may not work as well today. years. Instead of focusing the research on specific target Supporting organizations need to educate businesses about groups (e.g., minority businesses), this year’s study researched the new basics of marketing. the impact of the recent economic downturn on businesses in❯❯ Re-learning how to run their business — The third priority the Phoenix area. The study was designed to be a resource for is a natural progression that flows from the marketing step. a broad range of audiences, including government officials; As companies move past survival mode, they need help with planners and analysts; business and community leaders; and the infrastructure to support them. Growth means more educators who want to understand the marketplace better. planning and forecasting, responding to new regulations, managing staff and finding resources. In the same way This research provides a snapshot of the challenges businesses companies learned how to operate with less during the past face during a slow-recovering economy as well as the four years, they now need to learn how to grow with new successes experienced. Findings provide a blueprint of where rules, new demands and new opportunities. A significant to focus efforts to support Phoenix-area businesses as well as challenge for supporting organizations is teaching owners possible opportunities and solutions for businesses to consider. how to run their business when they do not have the time or SRP and ASU have made significant long-term commitments to patience to learn. providing resources to support local businesses. This research is just one part of their continuing efforts.■ 5
  9. 9. How will the findings be reported? What businesses participated in the survey?Study findings will be incorporated into SRP’s BusinessResource Center (BRC) and ASU’s KnowWPC online business BUSINESS CHARACT ERIST I C S OV E RV I E Wresource. Stakeholder groups will have access to this TOTALSinformation through a number of different channels, such as Number of completed interviews 833the websites, workshops and press releases. Ownership:The SRP BRC provides business solutions in one location to Sole proprietorship 33%help businesses become more successful. It includes locally Corporation 17%focused information, such as the economy at a glance, localbusiness resources, legislation updates and advice from local S corporation 18%business experts. Partnership 9%SRP BRC: LLC 20%ASU will be writing articles and providing information from Other/refused 3%this study through the W.P. Carey KnowWPC website, 2010 median revenue $241, Median number of employees 3 Median age of company 14 years old Business descriptions: Home-based 40% Not-for-profit 8% A breakdown of industry type and number of employees is listed in the “Methodology” section (Page 33). Primarily small businesses — The majority of the Phoenix- area businesses that participated in this study are organized as a corporation (limited liability company [LLC], corporation, S corporation or C corporation). It should be noted that an LLC can also be considered a corporation, S corporation or C corporation. The companies are relatively small, with a median of three employees and revenue of $241,400 in 2010; 40% are considered home-based businesses. There were minimal changes in overall company firmographics between the 2007 and 2011 studies. Firmographic comparisons between 2011 study results and 2007 census data were also comparable. 6 ■
  10. 10. FINDINGSTHE CHALLENGES, THEIR IMPACT AND STRATEGIESThis section reviews the challenges Phoenix-area businesses have been facing over the past few years, the impact these issues havebeen making on businesses and the solutions businesses have tried to overcome the difficulties.THE CHALLENGES What a difference four years makes — Not surprisingly, theWhat are the most significant challenges top challenge among Phoenix-area businesses today is thePhoenix-area businesses have faced over economic downturn/recession. Even those not specificallythe past few years? mentioning the economic downturn list other factors that couldThese responses represent businesses’ “top-of-mind” reactions be affected by the economy. The chart highlights businesses’when asked about their most significant challenges. Results severe shift in focus over the past four years. In spring 2007,were compared with a similar 2007 study6 conducted by SRP, cash flow was the top challenge businesses were trying toASU and WestGroup Research (see “Methodology” section) address; only 1% mentioned the economy. Companies stillthat involved responses from 850 Phoenix-area businesses. A considered cash flow a top issue in 2011, followed bymore detailed and “aided” version of these challenges is listed building or rebuilding their customer base.later in the report.MO ST SIGNIFICA NT C H A LLE NGE S ( U NA I DED) * Overcoming economic 1% downturn/economy 56%** Cash 21%** flow 14% Finding/retaining 14% customers 11% Rising 0% expenses 10%** 2007 Marketing — 7% 2011 how/costs/ROI 6% Increasing 6% competition 5% Finding/retaining 18%** employees 5%Question: To begin, what have been the most significant challenges or barriers youhave faced in your business in the past two or three years?*Note: Top responses mentioned; based on multiple responses.**Significantly different at 95% confidence level between 2007 and 2011.■ 7
  11. 11. An “aided” version of the question was asked by reading BUSINESS COMMENT Sbusinesses a list of potential challenges and having them rateeach one as a significant challenge, somewhat of a challenge “The economy (is the top challenge); how the economy hasor not a real challenge. gone up and down. People do not want to spend money to buy bikes and repair bikes. People are hanging on to theirMO S T S I GN IFICA NT CHA LLENG ES (AIDED) money.” Total 2011 Responses Bicycle repair company Access 41% 19% 34% 6% to capital “The biggest barrier would be rising costs and not being ableGrowing business/ to keep up with the economy. The cost of the product andretaining customers 35% 40% 23% 2% using the material that is in demand (has been rising). For the Marketing/promoting business 34% 41% 23% 2% customer, not being able to use the money for things that are broken, they are using (the funds) for other day-to-day use.” Planning for 29% 43% 26% 2% financial future Glass replacement business Managing 27% 31% 41% 1% cash flow “The challenges are whether I should grow and hire Finding/retaining 22% 24% 41% 13% employees or just continue on my own without employees. employees Also, being so busy that I might have to turn away potential How to 21% 28% 49% 2% new clients because I’m the only employee. (Another challenge run business Managing 16% 21% 44% 19% is) keeping quality at a level so that people won’t check out staff size the competition.” Applying new technology 15% 34% 47% 4% Investment company Negotiating 15% 26% 50% 9% prices “Renting the units (is the top challenge), because there are a Significant Somewhat Not a challenge Don’t know lot of people losing their jobs!” Apartment complexQuestion: For each one, please indicate how much of a challenge — if any — youfind this area by rating as a significant challenge, somewhat of a challenge, not areal challenge or don’t know/does not apply. “The tire business is way down. With the cost of tires going up, the service side is going up. The economy has not hurt usTop priorities — Businesses’ ratings tend to cluster around too bad. We are not generating as much on tires. Our (profit)four categories in the following order: margins are down. We had our first sales decrease in❯❯ Capital — Where and how to borrow money is the most 24 months.” significant challenge. Tire retailer❯❯ Growth — How to grow and marketing/promoting the business are the top challenges when combining the top two “I would say the economy. My clients have gone out of categories — significant and somewhat of a challenge — business. Clients have had to downsize, and I had to together. downsize at one point. I had five employees, and now I’m❯❯ Financial management — Planning for the future and down to myself.” managing cash flow are in the third level of challenges Accounting firm businesses face.❯❯ Knowledge — The fourth level involves know-how in running the business — human resources, management skills, negotiating skills and technology applications. 8 ■
  12. 12. The 2011 study asked businesses to rate some of the same Big challenges for smaller companies — Younger and smallerchallenges as the 2007 study . 7 companies (in terms of revenue) are significantly more likely to have challenges gaining access to capital. MOST SIGNIF I C A NT C H A LLE NGE S ( A I D ED) * A CCESS T O CA PITA L (AI DED) * Access 28% AGE OF BUSINESS to capital 41%** 1–9 years 50%** Growing business/ 25% retaining customers 35%** 10–19 years 38% Marketing/ 21% 20+ years 33% promoting business 34%** 2007 2010 ANNUAL REVENUE Managing 23% cash flow 27% 2011 < $100K 51%** Finding/retaining 42%** $100K–$1M 43% employees 22% $1M+ 37% How to 26%** run business 21% Percent rating as a “significant challenge”*Note: Top responses mentioned; based on multiple responses. *Note: Responses in each category are mutually exclusive.**Significantly different between 2007 and 2011. **Significantly higher than the other categories.Shifting challenges — There has been a significant shift inpriorities in five of the top six “significant” challenges over thepast four years. In 2007, the priority was focused more onfinding/retaining employees (42% rated it a significantchallenge). In 2011, priorities changed to finding capital(41%), growing the business/retaining customers (35%) andmarketing/promoting the business (34%).More challenges — In general, businesses are more likelynow than in 2007 to consider the items listed in the chartabove as significant challenges. Economic conditions appearto be increasing the intensity of these challenges.■ 9
  13. 13. IMPACT OF THE ECONOMY BY INDUSTRYThe economic slowdown significantly affected all industries A further look at these six industries highlights ways theover the past four years. Most of the top challenges, impacts economic slowdown has affected them.and solutions mentioned by the businesses were commonacross industry types. For example, one of the top challenges RET AILencountered by all six industries in this analysis was gaining ❯❯ More experiencing declines in sales/revenues/profit andaccess to capital. How to grow the business/retain customers number of customers (84% vs. 70% for all other businesses)and marketing/promoting the business were also among themost significant common challenges. ACCOM MODAT IONS/F OO D SE RV I C E S TOP CHALLENGES (AIDED)* ❯❯ More likely to feel retaining/finding employees is a PERCENT RATING AS A significant challenge (34% vs. 21% for all other businesses) SIGNIFICANT CHALLENGE ❯❯ Among those most affected by the economy (68% unaided Marketing: 34% vs. 55% for all other businesses) Professional/scientific Access to capital: 33% n = 129** ❯❯ More likely to actively use Facebook for business (50% vs. Growth: 32% 31% for all other businesses) Access to capital: 36% Health care/ Financial planning: 35% social services HEALT H CARE/SOCIAL SER V I C E S Growth: 31% n = 118** Marketing: 29% ❯❯ Less likely to mention being affected by the economy Access to capital: 47% Retail (44% unaided vs. 59% for all other businesses) Growth: 41% n = 96** Marketing: 41% REAL EST AT E Accommodations/ Access to capital: 46% food services Marketing: 36% ❯❯ Among the industries more likely to feel affected by the n = 80** Retaining employees: 34% economy (65% unaided vs. 56% for all other businesses) Access to capital: 39% Real estate Growth: 39% FINANCE/INSURANCE n = 72** Marketing: 31% Financial planning: 31% ❯❯ More likely to increase marketing efforts as a way to Access to capital: 43% address the economic slowdown (43% vs. 27% for all Finance/insurance Growth: 36% other businesses) n = 56** Marketing: 36%*Note: Responses in each category are mutually exclusive. PROF ESSIONAL/SCIENT IF I C**The top six industries with the largest sample size representation are listed inthis analysis. ❯❯ More likely to feel accessing capital is not a problem (49% vs. 31% for all other businesses) nor is finding/ retaining employees (50% vs. 39% for all other industries) ❯❯ More likely to actively use LinkedIn (38% vs. 16% for all other businesses) and less likely to use Facebook (8% vs. 20% for all other businesses) 10 ■
  14. 14. BU S I NE S S C O MME NTS THE IMPACT“We have a couple of part-time contractors that we had to lay How have Phoenix-area businesses been affectedoff. Sales volume is down 40%.” by the economic downturn?Nonprofit industry alliance organization“I put out coupons and do as much online marketing as IMPA CT / CHA L L ENGESpossible, and I have seen a dramatic decrease in phone calls OF CURRENT ECONOMY *as of May. But the traffic on my website has gone up.”Real estate 71% Decrease in sales/profits/customers“Our customer is the federal government. When you see the 9% Prices for supplies/inventories increasingfederal budget go down, these opportunities for government 5% Finding new business opportunitiescontracts go down, so our budget is really tied to the federalgovernment.” 4% Had to lower pricesTechnology/personnel company 4% Tougher to get loan“There are a lot of winter visitors here in Arizona. With thecurrent economic environment, a lot of these patients haven’t 4% Difficult to collect on paymentsbeen back. A lot of them come down and don’t see thephysician, where they used to come down and get the Note: Companies that did not mention anything about the economy in the first question were specifically asked, “How has the current economic environment/(treatment) they needed.” conditions affected your business, if at all?” The responses to this question were combined with those mentioning something about the economy in the first question toPhysician (private practice) provide the findings in this table. *Note: Top responses mentioned; based on multiple responses.“We often rely on volunteers, and there are more people thatare in need of jobs than are volunteering. “ Shrinking companies — Most Phoenix-area businesses (86%Nonprofit that supports senior citizens unaided and aided combined) have been affected by the current economic conditions. The economy’s most significant“The economy affected our cash flow; our customers are impact is the shrinking of businesses — lower revenues,getting paid slow, so our receivables have increased. smaller profits and fewer customers.Sometimes I feel that commercial construction is done on the ❯❯ The 14% unaffected by the economy are distributed equallybacks of contractors and suppliers; owners are across a number of categories, including industry type,undercapitalized to get their projects done. If it weren’t for the company size and length of time in business.government work we (had) last year and into this year, ourfinancial condition here would be really bad.”Wholesale supplier for manufacturer■ 11
  15. 15. How has the economy affected the growth Another factor to consider is that the typical business hasof companies? only a few paid employees (a median of three in 2011). Smaller businesses would have difficulty cutting back on current staff levels. COM PA NY S I ZE I N PA S T S I X MONT HS A DDED EMPL OY EES IN PA ST S I X MONTHS * NUMBER OF EMPLOYEES Don’t Increased know 1–4 5% 13% 4% Decreased 19% 5–19 22% 20+ 41%** 2010 ANNUAL REVENUE Stayed the same < $100K 4% 64% $100K–$1M 13% $1M+ 28%**Question: In the past six months, has your business seen an increase or a decrease in *Note: Responses in each category are mutually exclusive.the number of employees? **Significantly higher than the other categories.The number of employees has held even — The impact of the Larger companies are more likely to have grown — Largereconomic downturn has leveled off. Most companies have companies (in terms of employee size and annual revenue)already laid off workers and cut expenses. A slightly higher are more likely than smaller organizations to have increasedpercentage of businesses have decreased rather than the number of employees in the past six months.increased their workforce (19% decreased/13% increased),but most stayed the same size. 12 ■
  16. 16. BU S I NE S S C O MME NTS How has the current economic environment affected supplier relationships?“The economy has definitely put a strain on my suppliers. Ithas limited us on asking favors. It has made negotiating IMPA CT OF ECONOMYagreements difficult.” ON SUPPL IER REL AT IONSHIPS*Restaurant Top responses Not affected/“They are more restrictive in their ability to extend credit and did not recall/ 62% not mentioneddon’t do extra things. They limit their products to smaller coreproducts and services. Their product inventory is much less Buying less/and (they) have longer delivery times. They are slower and 11% more strategicallyless available.”Printing company More stringent policies/ 11% higher prices by suppliers“I’ve done a lot more searching for better pricing for theproducts that I have to buy, and I also negotiated with my More flexible policies/ 6% lower pricing by suppliersprimary shipping for better rates.”Automotive parts supplier Question: How has the current economic environment/conditions affected the business relationships or arrangements you have made with your suppliers/vendors,“It hasn’t affected me. I guess some of my vendors are in the if at all?same boat. I think the vendors are getting out and visiting me *Note: Top responses mentioned; based on multiple responses.more to get more business. Of course the economy has slowed The economic environment has had a mixed impact onthem down as well.” supplier relationships — More than one-third (38%) ofInsurance agent businesses feel their relationships with suppliers have been“I would say we are becoming less flexible on terms of payment.” affected. While most of those who have been affected mentioned a negative impact (e.g., increased costs), some feelPropane distributor the economy has had a positive affect (e.g., suppliers are“For us, the economic situation actually gave us the more flexible with payment terms).opportunity to make relationships stronger, because they Business suppliers appear to have taken one of two routeslooked to us for advice about what was going on.” with their strategies during the economic slowdown.Commercial real estate ❯❯ More stringent — Eleven percent mentioned that suppliers took this approach. These suppliers want to minimize losses and lessen risk/exposure. They tend to raise prices, cut supplies/services or tighten credit practices. ❯❯ More flexible — Six percent mentioned that suppliers took this approach. These suppliers want to find ways to build their business and provide more leeway with credit policies, increase services or find ways to improve customer relations.■ 13
  17. 17. THE STRATEGIES More aggressive — The aggressive/growth actions include increasing advertising/marketing (12% of the 28% thatWhat steps have businesses taken to address the mentioned aggressive/growth actions) and changing pricingcurrent economic conditions? strategies (10% of the 28%). Other growth strategies include: ❯❯ Becoming more diverse/trying new products/adding STE P S TO A DDR E S S E C ONOM I C C O NDIT IONS * product lines Top responses ❯❯ Expanding the business in general Cutbacks 39% ❯❯ Hiring more employees ❯❯ Looking for new ways to grow Expand/ 28% more aggressive ❯❯ Spending more time on sales No steps taken 15% More individual sacrifice — The fourth category of responses involves more individual sacrifice from business owners. More individual sacrifice Responses that fell into this category include: 5% ❯❯ Working harder/taking on more of the workload Change processes/ 4% practices ❯❯ Becoming more efficientQuestion: What steps, if any, has your company taken to address the economic ❯❯ Getting another job to supplement the incomeenvironment? ❯❯ Using retirement money*Note: Top responses mentioned; based on multiple responses. ❯❯ Getting family members to help outThe main solutions businesses have taken fall in two divergentcategories: cutting back their operations or taking more Changing processes/practices — Responses that fell into thisaggressive actions. category include: ❯❯ Changing suppliersCutbacks — The top responses that fell within the “cutbacks”category include cutting back on costs in general (21% of ❯❯ Setting up own websitethe 39% that mentioned cutbacks) followed by layoffs (14% of ❯❯ Offering payment plans to clientsthe 39%). ❯❯ Screening buyersOther comments that fell within this category include: ❯❯ Investing more conservatively❯❯ Cutting back pay/salaries Other solutions mentioned range from going back to school❯❯ Reducing work hours/days of operation for more education to praying more.❯❯ Decreasing advertising/marketing efforts❯❯ Moving to smaller/less expensive locations❯❯ Cutting less profitable inventory❯❯ Stopping the hiring of new employees 14 ■
  18. 18. BU S I N E S S C O MME NTS How effective have these strategies been in helping businesses?“We negotiated with our landlord to lessen the rent.”Restaurant EFFECT IVENESS OF ST EPS TAK EN“All of my therapists are trying to take on more clients; they T O A DDRESS ECONOMY *are working more. We’ve cut back on some materials that we Cut pay 87%would normally buy, such as therapy tools for the children.” Cut back on costs 85%Counseling service Lay off employees 85%“We have trimmed our expenses. We do more email marketingand provide more discounts to our existing customers.” Cut hours 82%Beauty salon Lower prices 75%“Building customer relationships — going back to older clients Increase advertising/and reconnecting with them.” marketing 59%Office communications supplies Note: Small sample sizes on each response, especially cut hours (n = 23) and lower“(We) reduced the number of printing from quarterly to twice prices (n = 48).a year and raised the prices by 50%.” Question: Has this step been effective in helping you address the economy? *Note: Responses in each category are mutually exclusive.Rehabilitation facility Cutbacks have worked so far — Most feel the steps they have taken to address the economic downturn have been effective. Cutting back business expenses has been the most effective method. Some success with greater risk —Those trying marketing strategies (lower prices and increased advertising/marketing) are willing to take risks (e.g., increasing costs in order to increase revenue), and some experienced success with these efforts. The chart below identifies the types of companies that successfully implemented a more aggressive approach (increased advertising/marketing or expanded). SUCCESSFULLY IMPLEMENTED AGGRESSIVE STRATEGY Smaller (median gross revenue) $105,000 Not as likely to be Only 27% home-based home-based businesses Active on Facebook 49%■ 15
  19. 19. K E Y F I NDING S❯❯ Refocus — The economic downturn has drastically changed ❯❯ Barriers — Although companies would like to return to how businesses think and operate. Four years ago, the top doing business as they had in the past, the new normal will challenge facing businesses was cash flow management include more restrictions and slower growth. The main and less than 1% had concerns about the economy. Today, barriers companies face are: surviving and overcoming the economic slowdown is the top • Access to capital — Limits on available capital will cause objective of most companies. slower growth. ❯ Shrinking businesses — • Rebuilding the customer base — Businesses are still “Businesses Seventy-one percent trying to figure out how to market and build their that have weathered these challenging economic experienced a decrease customer base in this new economy. times are coming out stronger, more focused and with a better in sales/profit/ • Planning — The uncertain marketplace makes it difficult foundation to effectively manage customers because ofgrowth when things really start to turn to forecast and prepare for the future.around. They will be able to react and the economy,adapt quickly to new opportunities and • New rules/new tools — Once businesses reach beyond resulting in businesses challenges — making them extremely the survival stage, they want to know the impact of new competitive in the local, regional and being smaller today global market.”8 rules (e.g., health care reform) and leverage tools (e.g., than in 2007. The top social media) to help with their operations. Also included Kristen Wilson, COO, survival strategy has Arizona Small Business in this list are how to retain and hire employees, manage Association been to shrink the business staff and negotiate with suppliers. to match decreasing revenue. ❯❯ Suppliers — Most businesses’ relationships with suppliers❯❯ Retreat or attack — Companies tend to take one of two have not changed significantly over the past four years. approaches during the economic slowdown: retreat or While some suppliers have been more stringent in their attack. Most have chosen to retreat, hence the shrinking approach to credit, others have provided more leeway with businesses mentioned above. The attack/aggressive strategy credit policies, increased services or found ways to improve involves the opposite approach: expanding operations, customer relations. increasing advertising/marketing, launching new products/ services and adding new locations. This aggressive strategy is more risky than retreating and not always as successful.❯❯ Limits on retreating — Companies can become only so small and still stay in business. Businesses appear to be at a point where they have stretched the productivity of their workforce and exhausted cost-cutting measures. 16 ■
  20. 20. PROFILESHERRY MICHAELS,MICHAELS & ASSOCIATES DOCNTRAIN LTD. THE BUSINESS Michaels & Associates Docntrain Ltd. is a consulting business that develops customized training solutions specific to individual businesses’ needs. The company consists of a network of instructional designers, programmers, media specialists and technical writers who build and execute training and■ 17
  21. 21. information systems for large corporations, such as Avnet and THE STRATEGIESMetLife Bank. The company provides a full range of services, Michaels had to cut back her expenses in order to survive. Asuch as needs assessments, training systems design, online concern she had was how to cut expenses without affecting herportals, tutorials and other various training tools for its clients. core business or product quality. Since personnel costsThe company has 16 full-time and eight part-time employees, represent a significant part of her company’s expenses,who all work from home and are connected by webcams, Michaels met with her staff and determined the best ways to cutonline conference systems and Internet-based communication salaries and hours and still stay in business. Michaels speakstools. Michaels & Associates positions this technology to access highly of the sacrifice and commitment her team made duringa pool of talented, hardworking, at-home professionals while this time in order to keep the business alive.minimizing the company’s operating costs (e.g., there’s no needfor office space). In addition to making cuts, Michaels evaluated her business model and took steps to reach new markets through innovation.THE BEGINNING One major step involved investing heavily in the development of an online learning management system. She also changedSherry Michaels began her career in a technical position, her company’s website during this time.where she learned aspects of her job through self-pacedtutorials. It was in this position that she developed her Another important move was to change marketing strategies.understanding of how training affects an employee’s Michaels and her staff determined that the best way to growperformance and ability to execute the job in a manner the company was through the networking efforts of theconsistent with the company’s goals and standards. executive team, rather than through a sales force. The executive team was more familiar with the training processes and moreAfter a 30-year career in the training industry, and upon effective in selling and servicing the clients.moving to Arizona, Michaels left her former employer anddecided to start her own business. In 1998, she started THE LESSONSMichaels & Associates to pursue her passion for employeetraining and has built a successful consulting business over the The past four years have taught Michaels about persistence,past 14 years. especially during hard times. She points to the length of time it took Steve Jobs to bring the iPad to the market as a greatTHE IMPACT OF THE ECONOMIC SLOWDOWN example of the persistence businesses need to demonstrate in order to survive.One of the biggest challenges Michaels has faced is selling thevalue of custom training development, because it can be Another lesson Michaels learned is to include employees indifficult to demonstrate a financial return on investment from decisions and solutions. Her employees’ commitment andthese efforts. Custom training budgets tend to be “soft budget” involvement with the organization are critical for its survivaldollars and are among the first to be cut, especially during tight and times. When the recession hit, revenues declined. Or Michaels and her executive team are now more deliberate inas Michaels describes it, “When the music stopped, the their decision-making process. New ideas are evaluated morebusiness literally froze for Michaels & Associates.” carefully using feasibility studies and business planning. Employees are still encouraged to be innovative but need to justify the risks. 18 ■
  22. 22. THE FUTURE Businesses remain optimistic — Businesses are cautiously looking ahead to the next 12 months. Only 12% said they feelBusinesses were asked to forecast their financial future and they will be in a worse financial situation by the end of 2012;broadly set forth what they plan for the coming years. half feel their situation will improve. In 2007, forecasts for the next 12 months were significantly more positive than in 2011What do businesses predict will happen to their (69% felt their situation would improve vs. 50% in 2011).9business in the next year? FINA NCIA L SIT UATI ON FUTUR E F I NA NC I A L S I T U AT I ON WIL L IMPROVE IN 2 0 1 2 * NE XT 1 2 M ONT H S ( 2 0 1 1 ) AGE OF BUSINESS 1–9 years 59%** Don’t Become know 10–19 years 47% worse 4% 12% 20+ years 41% Stay the same 34% NUMBER OF EMPLOYEES 1–4 45%*** Improve 5–19 57% 50% 20+ 64% *Responses in each category are mutually exclusive. **Significantly higher than the other categories. ***Significantly lower than the other categories. Younger and larger businesses tend to be more optimistic — FUTUR E F I NA NC I A L S I T U AT I ON Companies younger than 10 years old and those with more NE XT 1 2 M ONT H S ( 2 0 0 7 ) * than four employees tend to be more likely to feel their Become financial situation will improve in the next 12 months. See the worse 4% “Ready to Grow” feature for more information about these Stay the same Don’t 26% know optimistic companies. 1% Improve 69%Question: Thinking about the next 12 months, do you anticipate that your company’sfinancial situation will improve, stay the same or become worse?■ 19
  23. 23. How far in advance do businesses plan? Planning cycles vary widely among businesses — Most businesses have relatively short planning cycles. More than L E NGT H OF PLA NNI NG C YCL E one-third (38%) may make plans to expand or contract in less than one year; 67% have planning cycles of two years or less. > 5 years It is interesting that 13% admit to not doing any business 4% 3–5 years planning. Smaller (based on employee size), younger No 12% Don’t business know companies appear to have shorter planning cycles. 4% planning 13% PL A NNING CYC LE OF L ESS T HA N ONE YEAR * 1–2 years AGE OF BUSINESS 29% < 1 year 1–9 years 43% 38% 10–19 years 45% 20+ years 30%** NUMBER OF EMPLOYEES 1–4 39%Question: How far in advance does your business plan to make decisionsregarding expanding, maintaining or decreasing the size of your business?Do you plan less than one year, one to two years, three to five years, more than 5–19 44%five years or not at all? 20+ 29%** *Note: Responses in each category are mutually exclusive. **Significantly lower than the other categories. 20 ■