Window to Your World

Widespread Worries

One of the most striking findings of the survey is that concern about the economy reached into all sectors of the small-business world. The "Entrepreneurial Challenges Survey" splits respondents into four industry segments--product, service, high-tech and nontech--and many questions drew widely varying responses. Increased global competition, for instance, was ranked a top-three wild-card issue by a total of 12 percent of entrepreneurs. Across segments, however, it was included by 16 percent of high-tech companies and just 8 percent of nontech firms. (For complete survey results, including industry breakdowns, click here.)

The unstable U.S. economy, however, was a consistent concern across the board. Forty-six percent of service and nontech businesses considered it a wild-card factor, while 50 percent of product businesses and 49 percent of high-tech companies did likewise. Rising health-care costs also showed little variation between sectors, being ranked as a wild card by 43 percent of all companies, while the range varied from 42 percent for service and high-tech companies to 44 percent for product businesses and 45 percent for nontech companies.

The shortage of qualified workers, which came in third among wild-card concerns, drew more varied attention. Just 34 percent of product companies felt it was one of the potentially most harmful developments, while 47 percent of service companies took that view. Overall, 41 percent of fast-growth businesses were concerned about finding qualified employees.

Popper says he has developed a sophisticated employee screening process during his 16 years in the computer services business, but that isn't helping him today. "We can't get a stream of candidates," he says. "We've tried it all-newspaper and several online sources. It's not that we don't get respondents; we don't get qualified respondents."

Most Critical Factors
When PricewaterhouseCoopers asked about the factors most critical to business success in 2006, one factor stood far above the rest. Seventy-three percent identified retention of key workers as the most vital area. Service companies were most concerned, with 77 percent choosing "retaining key workers" as the most critical factor; 69 percent of product companies responded likewise. The next big area of concern, developing new products and services, was named by just 38 percent of respondents.

Two other issues occupied a second tier of the factors identified as most critical to success. Expansion to new U.S. markets was named by 36 percent, and 35 percent chose "increased productivity." Increasing productivity was more important to product businesses (39 percent), while reaching new U.S. markets was chosen most often by service companies (40 percent). Technology and nontechnology companies had different views on productivity: 39 percent of nontech firms chose it as most critical, compared to 30 percent of technology firms.

Power Up?
Energy costs were not at the top of business owners' minds when responding to the survey. When PricewaterhouseCoopers asked entrepreneurs to name the single most important challenge businesses would face in 2006, just 8 percent cited rising costs, including energy costs. The biggest top-of-mind challenge was again finding and retaining qualified employees, selected by 18 percent; rising costs ranked fifth, behind increasing sales and demand (15 percent), growing the business (14 percent), and changing economic conditions (10 percent).

When asked to choose the three wild-card factors that could be most harmful in 2006, however, 24 percent of business owners selected rising fuel costs. And for some businesses, higher energy prices are a major issue. "I'm most concerned about energy," says Jon T. McClure, 45, founder of ISO Poly Films Inc., a 55-person maker of plastic sheeting in Gray Court, South Carolina. "It's the number-one component in my product. We've been affected tremendously, even before [Hurricane Katrina]."

Energy costs since the storm-driven disruptions have risen to the point that nonmanufacturers are also feeling the pinch. Popper says higher costs for transporting technicians to job sites, as well as increased shipping costs for the computer components they are installing, are both directly affecting his bottom line. "When you raise gas a dollar a gallon in a place like California, where people commute long distances, that has a huge effect on employees," McClure notes. "That, in turn, has direct pressure on wages."

Searching for Sales
Despite the recent histories of very rapid growth for the surveyed companies, increasing sales and finding new demand for their products and services are at the top of their minds. Fifteen percent volunteered increasing sales and demand as the single most important challenge for 2006, ranking it second. When identifying wild cards, forty percent said weak market demand was a top-three concern. Product companies led the charge, with 46 percent saying it was one of the factors that could prove most harmful to fast-growth businesses.

Tracy Lefteroff, global managing partner of private equity and venture capital at PricewaterhouseCoopers, says the worries about market demand and increasing sales were strongest among technology companies because big companies are their most important customers. "When they go on a capital program, or start building inventory, companies will see stronger demand," Lefteroff says. With many large customers still suffering from a hangover of heavy technology spending a few years ago, demand for those products remains weaker. Also, according to Lefteroff, the implementation of just-in-time inventory management and other techniques that big companies use to reduce their own costs is contributing to larger upswings and downswings for their smaller suppliers.

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This article was originally published in the January 2006 print edition of Entrepreneur with the headline: Window to Your World.

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