It's All in Your Head

It's surreal-and exhausting-to ponder how much our country has been through over the past five years. The dotcom boom. The controversial 2000 presidential election. The dotcom bust. 9/11. Enron. Iraq. Janet's "wardrobe malfunction." The list goes on.

These strange times can mess with an entrepreneur's head. As we hit the midpoint of the first decade of the new millennium, chances are you're either feeling exceedingly optimistic or somewhat pessimistic about how things are going.

There are plenty of people on both sides of the fence. Economic pessimists point to disappointing job-growth figures, an increasing number of bankruptcies, shaky consumer confidence and anemic investment as indications that the times are bad and getting worse. As of September, 724,320 job cuts had been announced-higher than every year-end total prior to 2001, according to Chicago-based global outplacement firm Challenger, Gray & Christmas Inc. The Economic Cycle Research Institute, an independent forecasting group in New York City that releases a weekly report gauging growth in the overall economy, concluded economic growth fell to an 81-week low this past October as mortgage applications slowed and more people filed initial jobless claims.

"I have never been so pessimistic in making any [economic] forecast since 1981-82," says Robert H. Parks, economist and professor of finance at Pace University in New York City, and author of Unlocking the Secrets of Wall Street. Parks doesn't see evidence of a sustained economic recovery. Instead, he sees the specter of rampant asset inflation concerning housing and stocks, skyrocketing deficits, and a war with no end in sight. "The biggest single problem of the business community [in 2005] will be uncertainty," he says. "Trying to make a small business blossom over the next 18 months is going to be a very rough job."

Economic optimists, on the other hand, point to 11 straight quarters of economic growth, low inflation and interest rates that remain at historic lows as signs that the times are good and getting better. So while the job market may not be growing as quickly as expected, it is still growing.

SurePayroll-a Skokie, Illinois-based national provider of payroll services exclusively for small businesses-collects hiring and wage data from its 13,000 clients, and estimates that although the average small-business paycheck has dropped 3.3 percent year-to-date, the average head count grew from 5.5 to 5.6 employees between the second and third quarters of 2004. "Hiring has increased at small businesses across the country," says Michael Alter, president of SurePayroll, "which bodes well for saying the economy is recovering."

Entrepreneurs form their worldviews not from surveys, but from what they see happening around them. For Nate McKelvey, it's been a wild ride since he started Quincy, Massachusetts-based online luxury jet charter company CharterAuction.com in 1999. McKelvey, 35, hit the tail end of the VC boom and bootstrapped the company for most of 2000. At the same time, a now-defunct competitor received $35 million in venture backing. "I was thinking I had a horrible idea at the absolute wrong time," he says.

But 9/11 spurred a flurry of bookings that helped CharterAuction.com close 2001 with sales of $1.2 million. Today, the 25-employee company books luxury jets for highfliers ranging from Wall Street executives and celebrities to political bigwigs including Bill Clinton and Rudolph Giuliani.

McKelvey describes CharterAuction.com as a survivor that's made every penny count. He's encouraged by the company's international business, which has increased from 8 to 15 percent of the company's total business over the past two years. CharterAuction.com projects sales of more than $15 million in 2004 and hopes to maintain 60 percent annual growth in 2005. Even VCs are leaving voice mails, a sign things have come full circle.

Life isn't worry free, however: Rising oil prices and wide fluctuations in the stock market have required CharterAuction.com to adjust its marketing strategy to promote aircraft availability over price. "From my perspective, [the glass] is more than three-quarters full," McKelvey says. "For people who stuck it out, the nuclear winter is over."

Still, entrepreneurs can feel weighed down by all the instability at home and abroad. Melissa Wayne is co-founder of 3 Oh! 5 Creative Inc., a 9-year-old post-production company in North Hollywood, California, that produces movie trailers, TV spots, broadcast marketing pieces and bonus features for DVDs. Business boomed after 9/11 as people sought escape through movie rentals, but Wayne, 53, can't escape reality. She is troubled by issues ranging from the war in Iraq and the soaring national debt to the way other countries view the United States.

"There are so many changes going on. It's going to be a rocky road for quite a while," she says. "My reaction after 9/11 was that the world as we know it is over." Running a small company that can adapt quickly to market changes gives Wayne some confidence about the new millennium, but she's staving off major capital improvements and won't expand her staff of 40 until things seem more stable.

The U.S. economy is back to where it was in the early 1990s when the worst of the recession was over, but we're lacking the innovation and optimism of that time period, says Maria Minniti, associate professor of Economics at Babson College in Babson Park, Massachusetts. She sees 2005 as a crucial year for decisions that will have long-term impact on the economy. Uncertainty "is not a positive thing," she says. "There's a fork in the road."

How good entrepreneurs feel depends on where they're based, says Brenda Nashawaty, 50, principal of CHEN PR Inc., a 20-employee technology PR firm in Waltham, Massachusetts, whose clients include Sun Microsystems and Fairchild Semiconductor. "I think the sense of recovery is about six months ahead on the West Coast," she says. "We've just started to feel things are turning around in the past couple of months."

Nashawaty and three PR colleagues started CHEN PR (an acronym created from the first letters of their last names) in 1996 and rode New England's dotcom wave. When the high-tech sector started to crumble in 2000, though, they stopped replacing employees who left the company, and growth stayed flat until 2003. Nashawaty thinks the downturn of the early 2000s was much worse than the slump of the early 1990s. This time, "it was bigger," she says. "There were more people in the business who lost their jobs, [and] in all businesses, not just ours."

Nashawaty is cautiously optimistic about the future. On one hand, CHEN PR is branching into PR services for biotech and security firms, and it's seen a healthy uptick in company sales, which surpass $1 million per year. On the other hand, she sees businesspeople becoming too cautious. She thinks it will take another year before the economy is healthy. Until then, she believes, it's important to look on the bright side and forge ahead conservatively. "It's corny, but we Americans plow through. We get through bad times," she says. "Everyone [in business] feels like it's going to get better if we just stick to what we're doing."

Some entrepreneurs are glad the overheated dotcom era is a distant memory. "A lot of people who didn't know what they were doing jumped in because they [thought they] could wing it, and [they] ticked off a lot of consumers," says Scott Siegel, co-founder and CEO of 6-year-old Sunrise Financial Inc., a mortgage broker in Chicago with 29 employees.

Sunrise's sales doubled every year during the first four years as the company rode the refinancing boom. Now the re-fi era has ended, and interest rates are rising; but Siegel, 38, remains optimistic. An industry shakeout is underway, leaving the company with fewer competitors. While housing prices could fall, Siegel believes the housing market will stay fundamentally strong this year. He stays focused on the day-to-day business instead of small movements in interest rates or political infighting in Washington. "I don't think it matters politically what's going on," Siegel says. "With their homes, people are functioning at more of a local level. It's very myopic." The company plans to double in size over the next few years through strategic alliances with other lenders. Sales hit $1.8 million in 2004, and Siegel hopes to hire at least five new employees in 2005.

Entrepreneurs don't care as much about the big picture as they care about their particular sector, says Donald Mazzella, editor of Small Business Digest, an online publication based in Palisades Park, New Jersey. It polled more than 5,000 small-business owners last year and found 62 percent expected to exceed goals. When it comes to their own businesses, entrepreneurs "are pretty positive about things," Mazzella says. "Certainly in those areas they can control, they're very positive."

Kimberly Gyuran is president of The Payroll Company, an 11-employee payroll firm based in Las Vegas. Friends and family advised her it wasn't the right time to start a business, but Gyuran took out a loan against her 401(k) and put up her house for collateral for an SBA loan to start the company in November 2000.

Less than a year later, 9/11 happened. The company stayed afloat by offering free payroll services, such as cutting checks and setting up direct deposit accounts for customers, who in turn referred new clients. "It just snowballed," says Gyuran, 39. Helping clients navigate changes in federal employment laws has spurred business in recent months: Today, the company has more than 600 clients and sales approaching $1 million. In December, the company upgraded to a new 2,600-square-foot space.

Gyuran feels reality has met her expectations, but she tends to avoid "energy stealers" like TV news and newspapers. When she feels down, she meditates. "I can't live in fear," she says. "If I spent all my time worrying, I wouldn't have time to grow the business."

For entrepreneurs, staying optimistic means maintaining confidence in their products or services. The state of the economy always plays second fiddle to a really good idea, says Doug Brenhouse, co-founder of MetaCarta Inc., a 4-year-old Cambridge, Massachusetts, software firm whose search engine software is used by clients including the Air Force, Chevron and the Department of Defense.

Brenhouse, 31, spent the first half of 2001 looking for funding and received a grant through the Department of Defense in mid-2001. The war in Iraq has increased demand for software tools that make it easier to access specific information; MetaCarta's staff doubled in 2003 and 2004. "Customers are buying more," says Brenhouse, whose company's sales are less than $10 million a year.

Brenhouse believes the dotcom era taught everyone a good business lesson. He sees the software industry coming back as more companies with good value propositions get funded. But established companies are still shedding overcapacity, and he knows entrepreneurs who have serious doubts about the economy. "Some are really excited about what they're doing and how things are working out for their companies," Brenhouse says. "Some are saying, 'Wow. This is terrible. I can't wait for something else to happen.'"

He'd like to think the hardest times are behind us, but being an entrepreneur requires making hard decisions and taking calculated risks every day, no matter what's going on "out there." His motto? Whether you think you can or you think you can't, it's true. "If I really were pessimistic about the state of the world, our business probably wouldn't be doing as well," he says. "[The economy] can only get better this time around." If 2005 is as volatile as the past four years, entrepreneurs will need all the confidence they can get.

Chris Penttila is Entrepreneur's "Staff Smarts" columnist.