Even in a dismal, dog-eat-dog economy, small business owners tend to define their situation in one of three ways: Sinking Ship, Staying Afloat, or --here's the surprising part -- Riding High. Sinking or barely staying afloat is easy to understand. But it's the "Riding High" businesses that capture the imagination.
How do they do it? How many of them are there? Where do they come from?
Results from a new survey shed some light. The Small Business Monitor, published twice yearly by American Express Open, focuses mainly on small business hiring and investment plans and general outlook.
But less-known portions of the latest survey dug deeper into how the current economy has impacted small firms, revealing results that surprised researchers. About 58 percent of business owners describe themselves as merely "staying afloat." They've cut back, don't plan to hire anytime soon, and remain skeptical about business prospects. Another 21 percent describe their businesses as "sinking."
The number who see the current economic climate negatively affecting business prospects continues to climb. And in one finding that belies talk of recovery, the number of entrepreneurs who see things improving fell from 26 percent last fall to only 18 percent now.
Smooth Sailing Success
But there's another group whose experience and outlook is dramatically different. About 21 percent of business owners surveyed say they are flourishing despite the bad economy. Here are six secrets that set the successful "smooth sailing" businesses apart:
1. They don't need to borrow. Most growth firms (56 percent) generate enough revenue to cover working capital needs compared to 33 percent of "staying afloat" and just 13 percent of "sinking ship." And this in turn helps fuel additional investment in the business. Two-thirds of growth companies say this economy has had no impact on their ability to invest in their firms, compared to one-third of "staying afloat" and just 12 percent of "sinking ships."
2. They get paid faster. Despite the economy, just 13 percent of growth firms say customers have taken more time to pay compared to 34 percent of "staying afloat" and 47 percent of "sinking ship." One big factor is the Internet. Growth firms are almost twice as likely to use online payment solutions such as PayPal (19 percent) compared to just 11 percent of both "staying afloat" and "sinking ship" businesses.
3. They look for recession opportunities. Small business owners who've seen success in recession have approached the challenging economy in different ways than sinking ships. For example, successful firms are much likelier to benefit from weakness in the commercial real estate market. Nearly 1 in five say lower real estate costs (rent or a property purchase) have presented them with opportunities to cut expenses or expand on the cheap. That compares to just 13 percent of those staying afloat and a mere 2 percent of sinking ships.
4. They stay focused and lean: One-in-ten of the most successful entrepreneurs (12 percent) say they have minimized their product line and are not offering as many different choices of products or services as they once did, and their competitors do now. that compares to just 3 percent of those staying afloat and only 2 percent of those on a sinking ship.
5. They keep a flexible workforce: Forty-five percent of growth-track businesses allow employees to maintain flexible schedules, which includes working from home (compared to 31 percent of businesses that are staying afloat and 26 percent of sinking ships).
6. They are in the right industries. Business services and personal services are two sectors that have best weathered the recession, while retail and construction have fared the worst. A majority of growth companies (52 percent) are in business or personal services industries compared to 46 percent and 29 percent for "staying afloat" and "sinking ships." In addition, "staying afloat" and "sinking ship" firms are twice as likely to be in retail (25 percent for both vs. 12 percent for growth firms), and even more likely to be in construction (8 percent of "staying afloat" and 17 percent of "sinking ship" compared to just 3 percent of growth firms).