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Entrepreneurs may look as though they live in the same world as everyone else, but they apparently inhabit an alternate reality. How else can we explain their widespread concern about the national economy at a time when most economists are positive about the outlook for 2006 and beyond?
"The economy is not even close to being OK," says Pete Radatti, 49, president and founder of CyberSoft Operating Corp., a 12-person security software developer in Conshohocken, Pennsylvania. "There are a lot of things that are not OK." Radatti cites worries about a real estate bubble, finding adequate workers, health insurance costs and more.
Joe Popper, 43-year-old owner of Computer Gallery in Palm Desert, California, agrees: "There's great uncertainty in the marketplace from our perspective. We're very concerned." Rising interest rates, energy prices and uncertainty about the lasting effects of last year's hurricanes figure in Popper's analysis.
And these entrepreneurs are just two individual voices in a crowd of small-business owners who tend to say the same thing. Forty-seven percent of entrepreneurs said an unstable U.S. economy was the most worrisome wild-card factor that could affect them in the coming year, according to Entrepreneur magazine and PricewaterhouseCoopers' first annual "Entrepreneurial Challenges Survey." The survey interviewed CEOs and founders of 340 fast-growth businesses, with an average of $31.5 million in annual sales and a 259 percent compound annual five-year growth rate.
While 62 percent of those surveyed were generally optimistic about the economy, that was down from 70 percent in the sample taken a year ago, notes Pete Collins, director of Barometer Surveys for PricewaterhouseCoopers. "There was definitely a falloff from a year ago," Collins says. "And in the second quarter of 2005, 72 percent were optimistic."
The difference, in a word, is Katrina. Half of the respondents were interviewed before the killer storm struck the Gulf Coast in early September, and half were surveyed afterward. Optimism about the economy was at 70 percent pre-Katrina, but fell to 52 percent afterward. Collins expects the pessimism to be short-lived. "Typically, we bounce back up to normal after events like this, usually in the next quarter or so," he says.
Indeed, entrepreneurs have other business worries. Rising health-care costs, shortages of qualified workers and weak market demand all ranked close behind economic instability as choices for the three scariest wild cards that could harm their businesses. While the economy was the most common item on their top-three-concerns lists, only 10 percent of respondents considered the economy the single most important challenge businesses will face in 2006. Topping that list were finding and retaining qualified employees, and generating enough demand to keep sales growing.
Fast-growth entrepreneurs' concerns warrant special attention, says Collins. "Because they are growing so fast and experiencing change more rapidly than other companies, we think they're a good business barometer for others to look at and follow," he says. "They're typically ahead of the curve."
With that in mind, Entrepreneur spoke to business owners surveyed by PricewaterhouseCoopers to get the view from the ground. We also quizzed experts about how business owners might be able to deal with the problems identified by the survey. The resulting outlook for 2006 shows entrepreneurs both what challenges they're likely to face, and how these can be overcome.