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Crisis Mode

Economic crises are trickling down to entrepreneurs. How are they fighting back?
August 1, 2004
URL: http://www.entrepreneur.com/article/71758

Things look good for Matthew Stewart, co-founder of College Works Painting, an 8-year-old Santa Ana, California, home improvement and construction firm with 160 full-time employees and 3,000 seasonal workers. His business has grown 400 percent over the past five years, with company sales expected to reach $27 million in 2004.

But underneath the surface, large economic crises are threatening to chip away at the company's profit margin. College Works Painting is paying one-third more this year for gasoline-it adds up quickly when employees have to drive long distances between projects. Stewart is adjusting to rising gas prices by hiring subcontractors if a job requires a lot of driving and incorporating changes such as using five-day delivery instead of overnight mail.

Even though business is picking up, "we're really paying attention to our pennies, so we maintain our profit margin," says Stewart, 32. "That way, we can keep it in our control."

Control, however, is getting harder and harder to come by as large economic crises trickle down to comprise a larger percentage of fixed costs. In addition, there appears to be a Bermuda Triangle of crises converging lately. Steel prices have increased at least 66 percent since December. The U.S. Department of Energy forecasts this summer's gas prices will be 20 cents more on average than last summer. Increasing dairy prices, meanwhile, are putting the squeeze on restaurants. The threat of terrorism and the falling value of the U.S. dollar aren't helping entrepreneurs, either.

It all adds up to cuts that whittle away capital investment. While entrepreneurs can't do much about rising prices, they're taking action on issues they can affect. When the recently passed Unborn Victims of Violence Act was in the Senate, a completely unrelated amendment about employee leave was tacked on, and business owners called Congressional offices in protest. The amendment was left out of the final bill.

Brien Biondi, CEO of the Young Entrepreneurs' Organization (YEO), sees "a dramatic increase" among its 5,500-member base joining political parties and local boards. A few YEO members have even run for political office. These days, conversation at YEO events gravitates toward issues ranging from taxation and gas prices to the ballooning federal deficit and whether the United States is investing too much in China.

There's frustration that the big economic crises are "not well-managed," Biondi explains, and that there isn't a strong voice representing entrepreneurs on Capitol Hill. "A lot of entrepreneurs are realizing they want to make an impact," Biondi adds.

Entrepreneurs who are watching their fixed costs climb in an election year may have no other choice. Stewart, a political science major in college, says he might consider entering politics someday. At the very least, he's thinking about self-insuring the company to reign in a workers' compensation bill that totaled $1.5 million in 2003. "I will do something," Stewart says. "I can't wait for reforms."