This is the season when we hear again the tale of small- businessman Ebenezer Scrooge, the featured character in Dickens' "A Christmas Carol," and a cautionary figure for entrepreneurs everywhere.
Although few of the 8 million small-business owners in the United States would identify with the wizened symbol of cold avarice painted by Dickens, Scrooge ran a small business involving a warehouse and ledgers and accounts. Probably he played a part in the distribution of goods for London, the great smoky city that was bustling in 1843 with commerce from the colonies and finance for Britain's industry, which then led the world. We know that stores stayed open on holidays because Scrooge could buy a turkey on Christmas morning.
What does Scrooge have to say to American small-business people? Think big, among other things, but more on that later.
First the outlook for small business and entrepreneurship in 1988, which may not be too bad despite last October's cataclysm on Wall Street.
There will undoubtedly be more than 200,000 new businesses started in 1988--just as there have been each year for the past six, according to Dun & Bradstreet, the credit rating agency. There will be close to 60,000 business failures--comparable also to the annual total of recent years.
So each year we add about 2% to the number of businesses in the nation, most of them started with loans from relatives or second mortgages on family homes--relatively unaffected by Wall Street.
True enough, young companies won't be able easily to sell stock to the public in 1988; the market for initial public offerings dried up right after the Oct. 19 crash. According to Investment Dealer Digest Information Services, there were 56 to 70 new stock issues a month in 1987--until the crash. Then, November saw six new issues, and December saw none.
But there will be a healthy supply of venture capital, says Jane Morris, vice president of Venture Economics, the Wellesley, Mass., company that keeps track of entrepreneurial financing. Why? Because the major corporations, university endowments and pension funds that invested $3.4 billion in 1,500 young companies this year will be even more eager to invest next year "now that valuations are realistic," says Morris. Translation: Small-business owners will have to give more equity in their companies in exchange for financing.
But with $24 billion in venture capital in the marketplace, at least the financing should be there.
Sure, but is this any time to go into business? The answer is, any time's the right time if you have a good idea. Examples of successful companies that started during bad or uncertain times are too numerous to mention. Henry Luce launched Fortune magazine in 1930, and McGraw-Hill started Business Week in 1931. Both survived and thrived because they understood and answered to changing times.
In the year ahead, manufacturing businesses and those that look to export markets will do well, says economist Joseph Duncan of Dun & Bradstreet. But that doesn't mean you need an aircraft factory to start a business next year. Think of something that big exporters may need and set about providing it.
It needn't be high tech. One of Inc. magazine's standout entrepreneurs last year, Pacific Envelope Co.'s Robert Cashman, started an envelope-manufacturing company in Anaheim in 1975--also, incidentally, a recession year on Wall Street.
This year Inc.'s standout business is a Houston-based chain of hairdressing salons, called Visible Changes, put together by husband-wife entrepreneurs, John and Maryanne McCormack. What did the McCormacks find new in hairdressing? Nothing really. Their success lies in making it possible for hairdressers to earn really good money through customer service and high productivity.
Which is a good idea for a business. Coca-Cola didn't spread throughout the world on taste alone, but because thousands of bottlers everywhere had a chance to become millionaires.
The principal reason for going into business in the first place is that it's the only way to get rich. That's not greedy, it's smart. It used to be said that while you never get rich working for a big company, at least you're secure. Now even that's not true, with one company after another restructuring or merging. That's why we've had a 35% rise in company start-ups in this decade.
But good work is seldom done alone, which is where Scrooge was a poor businessman, keeping his employee Bob Cratchit cold and in the dark--and getting poor productivity as a result. Then the Ghost of Christmas Past shows Scrooge how generous his first employer, Mr. Fezziwig, was to his clerks, and how well they worked. So Scrooge gives Cratchit a raise and the firm prospers. Moral: People work better when there's something in it for them.