Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
COVER STORY :: UPSIZE FORECAST
Growing anyway
Business owners plot expansion despite
overall economic worries
by Sarah Brouillard
MINNESOTA SMALL-BUSINESS owners may be eternally optimistic about the health of their own companies. But their enthusiasm is muted when asked about their impressions for the overall economy heading into 2008, new research by Upsize Minnesota shows.
Polled in November 2007, 82 percent say revenue for their companies should increase in 2008.
But 34 percent say they expect the economy in the coming year to worsen. When polled in 2006, only 12 percent said they felt that way.
Also, 46 percent say they believe the economy will stay about the same as the previous year ? hardly an optimistic outlook, since 2007 saw a U.S. housing slump, a no-end-in-sight Iraq War, and an economy teetering on the edge of recession.
Administaff?s latest Business Confidence Survey, which polls small businesses nationally, says 55 percent of respondents are ?somewhat optimistic? or ?very optimistic? about the economy in 2008. Expectations, however, are more tempered than last year, when 79 percent of respondents said they were somewhat or very optimistic about the economy?s future performance.
Of all the issues looming in 2008, Upsize respondents say they are most concerned about the tightening of credit standards. More than 35 percent say business financing will be harder to obtain in 2008 compared to 2007. That?s more than twice the number who said so last year. Half say there will be no change.
Additionally, costs across the board are rising, say respondents. Survey results indicate there will be higher costs for wages, materials, capital expenditures and taxes.
?When you look at all these pieces, there?s a lot of things people are expecting will be difficult next year, or at least as difficult as 2007,? says Daniel Forbes, an assistant professor at the University of Minnesota, Carlson School of Management.
Last year, a shrinking labor pool was a big fear for 2007. By more than two to one, respondents who said there would be fewer qualified candidates in 2007 outnumbered those who said there would be more.
The numbers have since balanced out, tilting slightly in the optimists? favor. More than 25 percent say there?ll be a larger pool in 2008, while 21 percent say there will be a smaller pool. The remaining 53 percent say there will be no change.
Micro vs. macro
Forbes says there may be several reasons why Upsize respondents had such contrasting outlooks for their individual companies and the national economy.
Small-business owners, as a whole, are inherently optimistic. They believe they can build their companies out of sheer force of will, regardless of external factors.
?Unless something catastrophic takes place, my attitude is if I want to grow my company, I?m going to grow my company,? says Erich Hanson, CEO of August Ash Inc., a Bloomington-based Internet marketing and Web development firm.
?The only thing really holding me back is me. I might have to work a little harder to get the growth if the economy is not in as great of a position as anybody would want it to be. But it?s not going to stop us.?
According to their profile, Upsize survey respondents also have size, experience and nimbleness to back up their claims, Forbes says. About 240 people responded to the survey.
About 87 percent of respondents have fewer than 100 employees, and 90 percent have revenue under $25 million. Almost 30 percent have been in business for more than 20 years.
?They?re more flexible,? says Forbes. ?They aren?t as exposed in some ways as some of the larger businesses are.?
With their long track records, many owners may also have assembled a deep bag of tricks to help them get through the rough patches.
?Maybe they can pick and choose among projects or clients, or target their marketing in more finely tuned ways so they can manage these upheavals better than larger businesses,? Forbes says.
The type of company also seems to make a difference. Few Upsize survey respondents operate in the consumer-focused industries currently under siege, such as residential real estate or mortgage lending.
Instead, most sell business-to-business, and are in client-driven ? not product-driven ? industries, such as business or professional services.
As a result, they may not feel the pinch of the economy firsthand ? yet.
?It may be that these people think they are far enough removed,? Forbes says. ?But they may be closer than they think,? especially if the housing crisis permeates the rest of the economy in 2008.
Forbes says companies should load for bear, especially since a sizable amount of economists say a recession is a real possibility for 2008. Keeping prices at a reasonable level, he says, is one way to face economic challenges head on.
But 45 percent of respondents seem to have opposite plans. They plan to raise their prices in 2008. Only 5 percent say they will reduce prices, and about half say they?ll keep prices the same.
While it?s a common tactic to raise prices in an effort to offset other rising costs of doing business, ?they might reconsider how much pricing power they have next year,? says Forbes. ?If the overall economy is going to be softer, are companies really going to be in a position to raise prices to the extent that they anticipate??
He doubts it. ?If we do have a recession, there?s not going to be a lot of pricing power on the part of small businesses.
?It?s not a sunny takeaway,? says Forbes. ?But if they are more realistic about pricing, and more buyer-friendly, they may have an advantage in terms of ability to get new business, even if it?s at terms that are a little bit less desirable.?
Big growth goals
Despite their hang-ups over the larger economy, many Upsize survey respondents are moving ahead with ambitious growth plans in 2008.
John Hart, CEO of Eden Prairie-based DDL Inc., provides testing services to the medical device industry. He
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
