Pass or Fail?

A Silver Lining in Layoffs?

Just before September's terrorist attacks, announced layoffs for 2001 in corporate America already totaled more than 1 million. The sum by year-end will be much higher.

For entrepreneurs, the news is not all bad. Seasoned execs who are laid off may bring their experience and knowledge to your business. "This is one of those good opportunities to get really good people," says William B. Gartner, the Henry W. Simonsen Chair in Entrepreneurship at the University of Southern California in Los Angeles.

Those laid-off employees who don't mind a smaller organization along with reduced pay and benefits may decide to join you. Or they may become your competition. "You'll see a tremendous start-up of businesses from these people," says Sharon Hadary, executive director of the Center for Women's Business Research in Washington, DC. She sees recently expanded support services-from Small Business Development Centers to targeted bank programs-helping all these would-be entrepreneurs get started. If these companies aren't competing with you, however, they'll represent a gold mine for B2B sales.

Closer to home, layoffs at other companies may improve some of your existing employees' commitment to your business, says Gordon Miller, an executive coach and CEO of Denver's Delta Road Inc. You may also find some employees becoming skittish. Your challenge is to instill confidence, build morale, and to position the company to take advantage of the eventual upturn.

Crisis in Toyland
If your industry is just getting around to a slowdown, companies in the toy market say welcome to the wake. After years of skyrocketing growth, the toy industry contracted by 1 percent in 2000, according to the Toy Industry Association (TIA). This year looks to be worse. Much worse.

"Expect to see more reality series with Web connections, even an all-reality cable channel."(OK, so the all-reality channels are CBS and Fox, not cable.)
-Tommi Lewis, editor of Teen magazine, Entrepreneur, December 2000

Is it any wonder, then, that retailers Zany Brainy and Store of Knowledge Inc. filed for Chapter 11? Before 2000, the stores appeared to be surefire winners. At a time of rising parental concern about education, they focused on "smart toys"-products the increasing number of tykes in our country could learn from as well as play with.

Maybe retailers should have paid attention to the howling coming from toy product manufacturers-as should entrepreneurs everywhere. "We are living in an age where technology, age compression [children adopting toys younger and for shorter time periods] and overabundance of media are working together to give young people a much broader array of entertainment choices than ever before," says Elie Dekel, president of Los Angeles-based Saban Consumer Products, producer of the Power Rangers action toys. Beware: Every business competing for customers' time will also be competing for their business.

Zany Brainy and Store of Knowledge were battling aggressive competitors. "There are four major accounts that dominate the business," says Thomas G. Murdough Jr., chairman and CEO of The Step2 Company, which makes large outdoor toys. "Toys 'R' Us, Kmart, Target, and Wal-Mart represent 60 percent of [toy] sales."

Such a narrow consolidation among so few stores is causing a fight for shelf space at the remaining retailers, he says, while the monster retailers can cherry-pick the most popular products-"smart" or not-and sell them at a discount that makes niche retail strategies like Zany Brainy extremely difficult. Of course, if it picks the right products, a smaller retailer can triumph. But lately the pickings have been slim, even though the TIA estimates manufacturers introduce approximately 5,000 toys each year.

No recent introduction has had success like we saw with Pok�mon. "There were no breakaway new toy categories in the last 18 months," says Dekel. "There are almost always copies of an idea, variations on a theme until you saturate the market. The toy business has been in that cycle for some time." Too little product differentiation can smother the most lucrative markets-and doom other parts of the economic food chain that rely on that differentiation.

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This article was originally published in the December 2001 print edition of Entrepreneur with the headline: Pass or Fail?.

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