Ready to Rumble?

Looking Up?

Nevertheless, the Commerce Department's GDP and consumer spending figures indicate the economy is growing, if less robustly than in the third quarter of 2003. Powered in part by consumer spending, the U.S. economy grew by 8 percent during the third quarter of 2003 and by 4 percent in the fourth quarter, some of the highest growth rates in five years. Consumer spending in the third quarter of 2003 rose 6.9 percent over the previous quarter-buoyed by a boom in mortgage refinancing and by tax rebates-and by 2.6 percent in the fourth quarter. According to a University of Michigan survey, however, consumer confidence is wavering, having fallen in February 2004.

Despite this, entrepreneurs in the retail sector have been able to slash inventories-in January 2004, orders for goods other than transportation rose, and retail sales overall jumped 0.6 percent-and find the capital needed to hire new workers and expand. Says Satagaj, "Retailers are feeling the best."

And as the government has increased funding for defense and other federal spending, small businesses have been able to take advantage, since the administration has opened more federal contracts to smaller companies. Sequoia Ramsey, president and founder of Realistic Computing Inc., a Baltimore-based computer support firm founded in 2001, has been able to grow her company by relying on government contracts.

Similarly, small businesses have capitalized on the market for homeland security-related products. New Technology Management, a Reston, Virginia-based company with 150 employees, has become a major contractor for the Department of Homeland Security, installing the agency's systems for border surveillance at seaports and land crossings.

Youths are increasingly interested in entrepreneurship. According to the Bureau of Labor Statistics, the number of self-employed Americans between the ages of 20 and 24 is rising, and a recent survey by Junior Achievement Inc., which educates K-12 students about business, shows a plurality of Americans between the ages of 13 and 18 believe owning your own business is more stable than working for a company. Meanwhile, the number of universities offering entrepreneurship classes has risen tenfold in the past two decades.

The 2003 "GEM" shows the number of adults considering starting a company rose year-on-year. In a study of executives of midsize companies released in January by business advisory firm Grant Thornton, more than 80 percent expected the economy to improve in 2004, and more than 90 percent were optimistic about their companies' prospects. Even manufacturing, which entrepreneurs felt could be in terminal decline, seems to be rebounding. In January, the National Association of Manufacturers reported that factories would add nearly 250,000 jobs in 2004.

A Fighting Chance
Whether in a bad or a boom economy, there are lessons both budding and established entrepreneurs must learn. Michael Zey, a professor of management at Montclair State University in Montclair, New Jersey, offers these tips:
  • Explore Internet businesses. "The Internet is still expanding, [but] people are scared" about starting Internet businesses, Zey says. He believes two areas where there's still considerable room to grow and interest among investors are broadband-related services and wireless Internet-related services, such as games on demand.
  • Become more malleable. "In a down economy, customers are more demanding," Zey says. In a strong economy, small businesses can get away with less regular contact with their customers and suppliers. But in a down economy, small businesses need to be prepared to customize orders and handle more special requests.
  • Don't assume you can't get a loan or a grant. Though some sources of capital, like VCs, dried up in the down economy, Zey says, there are other places to look; savvy entrepreneurs can pit potential creditors against each other. "Play off e-banks, commercial banks and others. Get out of the mind-set of just going to your local bank."

    And don't be afraid to use your credit cards, since interest rates are low. "A lot of what you need at the smallest level is self-financing-you may max out the credit cards," says John Satagaj, president of the Small Business Legislative Council.

  • Focus on higher-end services. "Landscapers were having no problems whatsoever" in the down economy, Zey says. "Entrepreneurs could provide higher-end services" and tailor their ideas to wealthier clients, who weren't hurt as badly.
  • Research demographic trends. "We have an aging population about to retire en masse," says Zey. "[They're] going to be looking for things to do"-and to buy.

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This article was originally published in the May 2004 print edition of Entrepreneur with the headline: Ready to Rumble?.

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