The spiraling economy is causing widespread alarm, but some experts say these tough times could actually turn out to be a bonanza for small and mid-sized businesses (SMBs).
Historically, economic downturns have benefited startups and SMBs, as governments often look to such companies to revv up a sputtering market.
That’s why the federal and provincial governments should implement policies that help SMBs sustain their growth, say participants in the North American Tour to Inspire Entrepreneurs.
The Tour includes seminars aimed at helping startup operators tackle challenges such as managing cash flow, developing business plans, and accessing resources. The 10-city Canadian tour, which coincides with Small Business Month, kicked off in Toronto earlier this week.
“As big businesses downsize, small businesses erupt,” said Lori Ross, vice-president of marketing for Staples Inc. The business supplies store is one of the tour sponsors.
Ross said entrepreneurs often rise from the ranks of employees who have either lost their jobs to lay offs or have voluntarily quit them because they “realized an opportunity.”
Another Tour supporter agrees.
“Whenever there is a downturn or recession, we see more start-ups,” said Gene Lewis, vice-president of sales and marketing at Intuit Canada. The Edmonton-based company is the maker of QuickBooks – accounting software designed for SMB operators unfamiliar with accounting principles.
Lewis cited three key factors that motivate employees to strike out on their own: company downsizing or cost cutting, which curtails promotions and raises; getting fired; or receiving a severance package.
“In many cases the severance package becomes the seed money for the venture.”
Lewis did not have any Canadian figures but said a recent survey of businesses in Houston, Texas reflects the resilience of start-ups.
Harris County in Houston reports an average start-up filing of nearly 800 businesses per day in 2008. Harris is one of the counties in Metro Houston.
Start up hardiness was also backed up by a June 2008 survey by Service Leadership Inc, a Plano, Texas-based IT services firm.
In a poll of 140 Canadian and U.S. solution providers, the firm found SMBs very optimistic in their business outlook despite worsening economic indicators.
While more than half the respondents said their customers are delaying orders, more than a third reported account receivables are taking longer to collect, and 60 per cent said sales activity was down.
On average the businesses expected a 9.8 per cent increase in revenue this year over 2007.
As overwhelming majority of Canadian businesses are SMBs, they have a huge impact on the economy, said Carissa Reiniger, founder and president of Silver Lining Ltd., a Toronto-based firm that helps SMBs develop plans that their business goals.
“It’s been estimated that if every SMB hired one person a year, it would be a tremendous boost to the economy,” said Reiniger, who is one of the tour organizers.
Around 3.3 million Canadians are expected to become their own bosses this year, according to a survey by research firm Ipsos-Reid.
SMBs account for more than 95 per cent of Canadian companies and provide more than 80 per cent of this country’s jobs, according to surveys conducted by the Information Technology Association of Canada (ITAC) in Mississauga, Ont.
ITAC represents the interests of the information and communications technologies (ICT) industry in Canada.
Reiniger said for many entrepreneurs hanging up a shingle is the easiest part of the venture, though keeping the “open for business” sign up for a long time is a huge challenge.
“Many entrepreneurs are experts in their field but not very adept in managing a business.”
Areas such as developing a business plan, looking for financial backers and managing cash flow stymie many entrepreneurs, Reiniger said.
These areas, she said, are part of the entrepreneurial stage of a business. “Government, industry, and business organizations have to get together to help start-ups move to the next level.”
She said many governments can look to Edmonton, where the municipality is focused on developing policies that target SMB growth.
“Where Calgary concentrated on head office activity, Edmonton moved to make sure small business had free WiFi Internet access and venture capital resources in the city.”
This move encouraged many start-ups to remain and grow their business in the area, Reiniger noted.
Lewis of Intuit said B.C. and Ontario can also be credited for fostering SMB growth.
“The Ontario government has been very good in making resources accessible to SMBs.”