From the February 1998 issue of Entrepreneur

We've all heard about the devastation consuming our nation's small retail enterprises--but finally, a recent study offers scientific insight into what occurs when massive discount retail chains take root in Any Town, USA. While the survey findings are not that surprising, they do highlight the devastating effects of a retail imbalance on the nation's economy.

"The country cannot have a healthy economic balance of growth unless there's a balance in the economy between small businesses and large businesses," says Edward B. Shils, Ph.D., study director of The Shils Report, which measured the impact of mega-retail discount chains on small businesses in various communities.

Hoping to prove his theory, Shils surveyed hundreds of entrepreneurs throughout California, Illinois, New York and Pennsylvania. His main findings? Seventy-two percent of respondents expected the mega-retail chains to negatively impact their businesses, 50 percent believed a serious reduction in their work force was an inevitable consequence, and 80 percent anticipated a major decline in sales.

Shils also discovered that wholesalers, the primary buying sources for small retailers, are fast disappearing now that these billion-dollar retailers are buying directly from suppliers and manufacturers. Many of the small stores are now forced to buy from competitors in order to stock their shelves.

In addition, Shils noted that for every part-time job created at a Target or Wal-Mart, a job and a half would be lost at what would have been a Main Street competitor. And alas, these "big boxes"--some of which measure more than 200,000 square feet--are supported by government tax breaks.

Perhaps the biggest problem for communities: Super-sized retailers fail to increase the size of the market. Instead, they just transfer the merchandise sales from lots of smaller companies into their own store by selling items below cost--an advantage unattainable by smaller competitors.

"I've been to malls all over the United States, which were [once] beautiful malls with a lot of small, individual companies," Shils says. But as soon as a Wal-Mart or Target moves in, "stores are boarded up, full of graffiti, and the mall begins to look like a ghetto. What we're really beginning to have is a whole string of national cemeteries. Is that what we want in America?"

But according to Kenneth Stone, an economics professor at Iowa State University and a leading authority on retail trade, the battle's not necessarily a losing one for small business. To fight back, they can establish a niche for themselves and learn to keep customers with exceptional service, flexible return policies, technological advances and extended hours of operation.

"I won't deny there have been a lot of small stores severely impacted by the mass merchandisers," Stone says. "But the smart ones know how to thrive in this environment."

Bard At Work

Whose words these are, I think I know...

By Karin Moeller

Lovers use it to woo, politicians use it to inspire, and now business owners can use it to stimulate communication. What has the power to influence topics as divergent as love, politics and business? Good, old-fashioned poetry.

Jim Armstrong believes in the power of poetry. In the newest twist on human resources specialists, Armstrong's Longmont, Colorado-based CorPoet seeks to put some of the "culture" back in corporate culture with its poetry workshops--or "wordshops."

"I try to tear down the walls of how people perceive poetry, as an intimidating, intellectual ivory tower," says Armstrong, who holds a master's degree in poetry and creative writing.

Armstrong encourages creative expression by sharing examples of poems written by people in the workplace--from janitors to CEOs. Wordshop participants are eventually asked to write poems of their own--but forget about iambic pentameter, rhyming couplets and other traditional poetic parameters.

"Our wordshops allow [employees to express] their feelings about the company," says Armstrong. "They also enable upper management to express their mission for the corporation to everyone in the culture."

At the conclusion of the wordshops, Armstrong compiles an "Annual RePoet"--an anthology of all the poems penned during the wordshops--which can be distributed throughout a company in booklet form, on audiotape or CD-ROM, or even on the business's intranet.

While CorPoet's fee depends on the length of the wordshops and the number of participants, a full-day wordshop usually costs about $1,500. The value of CorPoet's services, however, is harder to quantify.

"It's difficult to put a pricetag on this," says Armstrong, "but we've seen in business that by improving communication and creativity, productivity goes up."

Paradise Lost?

Hawaii rides out a wave of problems.

By Janean Chun

Those braving the bitter cold of winter may long for the balmy tradewinds and white sand beaches that inspired the Hawaiian colloquialism "Lucky you live Hawaii." But Hawaii's entrepreneurs are experiencing a winter of discontent all their own. Business failure rates, bankruptcies and foreclosures are on the rise, while gross state product continues to slide.

"It takes more than a nice climate and a wonderful blend of cultures when you're battling a high tax burden and a ridiculous regulatory system," says Sam Slom, president of Small Business Hawaii, a private small-business association. "[Entrepreneurs] are hanging on by their fingernails."

For three years running, Hawaii's small-business owners, who comprise 98 percent of the state's 25,000 companies, have borne the nation's highest cost of doing business. While other states' economies have improved, Hawaii's has only worsened.

As debates rage about who or what is to blame, several factions have proposed solutions. In 1996, about 50 small-business owners ran for the state legislature. Seven were elected, including Slom, who thinks the number of entrepreneurial candidates will increase significantly this year.

Recently, Gov. Ben Cayetano unveiled his Economic Revitalization Task Force, which proposes seven major initiatives, including a 50 percent cut in the corporate income tax. "This is perhaps the most significant restructuring of a tax code anywhere in the nation," says Tom Leppert, vice chairman of Pacific Century Financial Corp. and facilitator of the task force. "It's aggressive, but given the situation, anything short of that would be a failure."

Meanwhile, the Internet continues to prove that no island is truly an island. Richard Moody, chairman of the board for Honolulu-based High Technology Development Corp., believes big names in technology may eventually move to Hawaii and use the state's features "to attract the brightest minds in the world."

The potential is clear. But can Hawaii live up to it? "If I didn't think we could turn things around, I wouldn't be here," says Slom. "But I'm sticking it out. We have to improve our business climate ourselves."

Pop Stars

Soda-preneurs put the fizz back into the cola wars.

By Debra Phillips

Coke isn't it. At least, that's what fledgling soft-drink companies strive to convince thirsty consumers of--surprisingly, with some success. "You're supposed to be able to do that kind of thing in this country," says Chris Payne, 45, co-founder with his wife, Ginger, of the Evergreen, Colorado-based soda company Ginger's Kitchen LLC. "I say that tongue-in-cheek, but we do believe it."

No reason not to. Even as Coca-Cola and Pepsi gulp down the lion's share of soft-drink sales, a steady stream of soda-preneurs are proving it's possible to burst these cola titans' bubbles--if only a little. And considering the billions of soft drinks consumed each year, a little in this case can add up to quite a lot.

"Through hard work and lots of luck, we've come out with a product that's successful," says Bill Dunman, 40, co-founder of Philadelphia-based Hank's Root Beer Co. How successful? Hank's line of soft drinks tapped into sales of nearly $2 million last year. Claims Dunman, "People are looking for something other than Coke or Pepsi."

Ironically, Dunman reached this conclusion while serving an 11-year stint at Coca-Cola. "They were like `You're nuts, Bill,' " says Dunman, recalling former colleagues' reactions to this piece of blasphemy. "But [Hank's Root Beer] was something I wanted to do."

By way of contrast, fellow soda-preneur Peter van Stolk doesn't dispute charges of craziness--if anything, he welcomes them. "It's a difficult industry," says van Stolk, 34, founder of Urban Juice & Soda, a $4 million Vancouver, British Columbia, beverage company. "How do you capture the attention of the consumer? You make it fun."

Fun, to van Stolk, means getting his employees to dress up in orange jumpsuits or as Elvis impersonators and hand out samples of his soft drinks. And if that isn't enough to go against the flow, van Stolk sells his products in alternative hangouts such as tattoo parlors and skateboard shops. "I don't believe you can be successful in the beverage industry if you play by the rules," van Stolk says, "because the rules are set by Coke and Pepsi."

"The soft-drink industry has to be one of the most monopolized [industries] out there," agrees Ginger Payne, 46. The Paynes' company is making a splash with Revel--a unique soda blend of fruit and spices. "It's a very tough market."

Even so, this isn't keeping companies the likes of Ginger's Kitchen, Hank's Root Beer and Urban Juice & Soda from stirring up sales. Distribution is difficult, as is convincing rut-entrenched consumers to try something new. But an ounce of innovation is worth as much as a gallon of tradition. "You don't go into something thinking you'll fail," says van Stolk. "And we're not going to fail."

Sounds like the real thing to us.

Pilot Program

Need a lift? Join the military.

By Cynthia E. Griffin

In the heat of battle, you process hundreds of facts and make split-second decisions. What are you--a jet jockey or an earthbound entrepreneur?

Both, says Jim Murphy, president of Atlanta-based Afterburner Seminars. Borrowing techniques from his seven-year career as a fighter pilot, Murphy has created a program that trains businesspeople to think like fighter pilots.

Afterburner instructors "are all top military pilots; some are Desert Storm medal recipients," says Murphy, 33, who launched Afterburner when he realized the parallels between fighter pilots and businesspeople. "[Like entrepreneurs,] fighter pilots have to make hundreds of decisions in a matter of minutes, so we get good at prioritizing."

Seminar participants do, too. They learn mission planning, teamwork and debriefing, a blameless process where the goal is to rectify mistakes. "Businesspeople are great at setting goals but don't [always reach them]," Murphy says. "Where small-business owners drop the ball is they never stop to look at why they didn't make the goal."

Afterburner presents half-day seminars for groups of 15 to 1,000. A more intense course, geared toward two to four individuals who learn the concepts in the cockpit of a plane over two days, targets business owners and teaches them how to become a task manager instead of a taskmaster.

The Cold Shoulder

Cold calls feel the deep freeze.

By Karin Moeller

The days of using cold calls as a main prospecting tool seem to be numbered. Case in point: In 1996, American Express Financial Services in Roanoke, Virginia, fearing that bad will generated by cold calling sullied the public's perception of the company, prohibited its financial advisors from making cold calls to residential prospects.

Considered radical by many, the policy change may have been bold enough to revolutionize how business owners approach prospecting. "Cold calling is a numbers game that wears people down," says Bill Cates, a professional speaker who helped American Express develop other prospecting methods. "It's becoming less productive. People use answering machines, caller ID and voice mail to screen calls."

So if cold-calling is out, how should you find prospects? Advertising campaigns, direct mail and seminars are other ways, says Cates, but referrals can be easier and more cost-effective. "If it's your prospects' preferred method of meeting you," he says, "it should be your preferred method of prospecting."

It's A Match

Your shot at the title.

We know, we know. You haven't forgotten. But just in case you've been busy recovering from the holidays, we'll remind you about our contests: Office Depot and Entrepreneur magazine's Small Business Owner of the Year contest (call 800-864-6868, ext. 320), and Dun & Bradstreet and Entrepreneur's Home Office's Homebased Business Challenge (call 800-357-7299, ext. 420).

Read All About It

What are business owners reading these days? The top 10 business books at press time (based on net sales) were:

1. Trump: The Art of the Comeback, by Donald Trump and Kate Bonher, $25.95 (Times Books)

2. The Millionaire Next Door, by Thomas J. Stanley and William Danko, $22 (Longstreet Press)

3. Die Broke, by Stephen M. Pollan and Mark Levine, $25 (HarperBusiness)

4. The Dilbert Future, by Scott Adams, $25 (HarperBusiness)

5. J.K. Lasser's Your Income Tax 1998, by J.K. Lasser, $14.95 (MacMillan)

6. Wall Street Money Machine, by Wade B. Cook, $24.95 (Lighthouse Publishing Group)

7. Success Is A Choice, by Rick Pitino, $25 (Broadway Books)

8. What Color is Your Parachute 1998, by Richard Nelson Bolles, $16.95 (Ten Speed Press)

9. The Excel Phenomenon, by James Robinson, $20 (Prima Publishing)

10. Investing for Dummies, by Eric Tyson, $19.99 (IDG Books Worldwide)

source: Waldenbook Co. Inc.

Winning Combination

Hit the jackpot with venture capitalists.

By Cynthia E. Griffin

Venture capitalists know that choosing a plan from the hundreds they receive weekly is risky business. Even though they turn down 99 proposals for every plan funded, there is no guarantee the one chosen will be a megahit.

In fact, Richard Kalenka, a partner at Price Waterhouse LLP in Melville, New York, estimates only one in 10 companies receiving venture capital will be a stellar success, returning five to 10 times the money invested.

To be a superstar, businesses need to possess certain characteristics. "They need a desirable product, breakthrough technology, or an intangible brand that will give them an advantage," says Kalenka, regional director of Price Waterhouse's National Venture Capital Survey. "There also needs to be a large, [relatively stable] target market [or one that will grow over three to five years]."

Perhaps the most important determinant is the company's management team. The members need to know when to bring in more experienced management and be willing to change direction. The final ingredient venture capitalists look for is impeccable timing: knowing when to go public or begin a marketing campaign, for example. Combined, these characteristics improve an emerging company's chances of becoming another Yahoo! or Netscape.

Going Up?

What goes on behind elevator doors?

By G. David Doran

Almost every entrepreneur who rides elevators is familiar with the unwritten code of lift etiquette. Sardined into a tiny box full of strangers, people tend to withdraw into their own little worlds. Or do they? In a recent survey of elevator behavior commissioned by Morristown, New Jersey-based Schindler Elevator Corp., more than half the riders surveyed admitted to "checking out" their fellow passengers, while 35 percent attempt to make eye contact.

The survey also found that the gender gap doesn't close after the elevator doors do: Women are more likely than men to stop a conversation with a friend or colleague if other people enter the car, and men are far more courageous when it comes to chatting up a stranger.

Elevators seem to be a microcosm of the human experience. Survey respondents reported seeing everything from couples necking to a woman going into labor. Lift passengers are also prone to panic attacks, motion sickness and--although only 2 percent would admit to this--getting off at the wrong floor.

In dealing with swiftly closing elevator doors, the majority submit to the inevitable and wait for another car. However, 17 percent of riders stick a handy object between the doors, and 12 percent beg those inside to hold the door. Going up?

And They're Off

Most entrepreneurs use less than $5,000 to start their businesses.

None: 25.6%
Less than $5,000: 34.3%
$5,000 to $9,999: 9.0%
$10,000 to $24,999: 10.0%
$25,000 to $49,999: 5.2%
$50,000 to $99,999: 4.3%
$100,000 to $249,999: 2.9%
$250,000 to $999,999: 1.6%
$1,000,000 or more: .8%

source: 1992 Characteristics of Business Owners / Bureau of the Census

Contact Sources

Afterburner Seminars Inc., (888) 281-0714, http://www.afterburner-seminars.com

Bill Cates, (800) 488-5464, http://www.referralcoach.com

CorPoet, 1237 Third Ave., Longmont, CO 80501, (303) 776-5759

Ginger's Kitchen LLC, P.O. Box 1895, Evergreen, CO 80437, (303) 674-8005

Hank's Root Beer Co., (800) 289-4722, http://www.hanks-rootbeer.com

High Technology Development Corp., ramoody@lava.net

Pacific Century Financial Corp., P.O. Box 2900, Honolulu, HI 96846

Price Waterhouse LLP, (516) 425-3140, richard-kalenka@notes.pw.com

Schindler Elevator Corp., P.O. Box 1935, Morristown, NJ 07962-1935, (973) 397-6500

The Shils Report, The Fidelity Bldg.,123 S. Broad St., #2030, Philadelphia, PA 19109, http://www.shilsreport.org

Small Business Hawaii, (808) 396-1724, fax: (808) 396-1726

Urban Juice & Soda, (604) 654-6050, http://www.jonessoda.com