Business Challenges in 2007

Beware of Spoilers

If you read the headlines, you might expect entrepreneurs to worry about rising taxes, looming inflation, changes in immigration law and the possibility of a bubble market in real estate. For the most part, you'd be wrong. Just 6 percent of the entrepreneurs surveyed listed higher federal, state and local taxes as a wild-card factor. Kay says the government's take doesn't keep her up at night the way some issues do. "Taxes are always an issue," she says. "But it's across the board. So it's not really making a difference vs. our competition."

For Kay, one of the scariest wild cards is the one most entrepreneurs considered least likely to be a wild card. That factor is inflation, which only 4 percent of those surveyed identified as a top wild card. In fact, inflation was just above "other" and "not reported" at the bottom of the wild-card rankings, which asked entrepreneurs to name their three most critical wild cards.

Kay, however, makes no bones about the fact that inflation scares her. "In my 35 years of doing this, I've never seen inflation across the board, not only for products but for labor as well, as we are seeing now," she says. She reports paying 70 percent higher prices for steel after an inflationary explosion in that critical commodity early last year. "Then cement went berserk," she reports. "Now it's not one product, it's every [product]."

Fuel prices no doubt contributed heavily to the increase in costs of bulky materials and energy-intensive commodities like cement and steel. Even though fuel prices have steadied, Kay says, other prices remain high. Meanwhile, some entrepreneurs seem to have adjusted to higher fuel prices. Only 16 percent listed energy costs as a wild card, compared to 24 percent a year earlier.

Many are passing costs onto their customers, Seagroves says. "There's a lag time to that," he explains. "Energy costs will go up and they'll pass through a price increase. If that holds, the tension will usually come down."

Changing immigration policy, another hot-button political issue, was of little concern to these entrepreneurs. Just 7 percent counted it as a wild card. And the prospect of a deflation in the real estate market also did not generate much worry. Kay, for instance, says that while residential real estate may be softening, demand for the warehouses and other commercial construction projects she specializes in remains strong. "The economy will continue to be robust, fueled by reduction of fuel costs as well as historically low interest rates," she predicts. "It's still very affordable for businesses trying to finance expansion."

The variety of responses from the entrepreneurs we interviewed about the survey's findings clearly illustrates that a wide variety of viewpoints exists. One entrepreneur's solution is another's problem, and what gives one a headache is no problem for many or even most of the rest. Dietrick, for example, says one of his worries is access to capital, a concern only 4 percent of entrepreneurs listed as the single most important challenge for 2007, and just 9 percent said it was a wild card.

Despite a 2006 growth rate topping 30 percent, Dietrick feels capital-constrained and says his company could grow even faster if it could fund the expansion. "We have a good relationship with our bankers," he says. "They're just not willing to go as far as we'd like them to."

Meanwhile, Seagroves reiterates that core skills for all entrepreneurs are flexibility and agility in facing a constantly evolving set of tests. Though it's vital to under-stand the problems facing you and other entrepreneurs, it's also important to avoid getting tunnel vision about today's issues. "These things will pass," he says, "and a new bevy of challenges will come over the next hill."

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This article was originally published in the January 2007 print edition of Entrepreneur with the headline: A Look Ahead.

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