Thought Leadership: Small Businesses Are the Backbone of Our Economy
Posted by Melissa Lande on Sat, Jan 29, 2011 @ 03:16 PM
Most top thought leaders say Small Business is the backbone of the economy. Why? In the US, small business (less than 500 employees) accounts for around half the GDP and more than half the employment. Regarding small business, the top job provider is those with less than 10 employees. The most recent available data shows firms with less than 20 employees account for slightly more than 18% of the employment.
What are the challenges of small businesses?
Finding customers, of course. Keeping customers. Making smart marketing decisions like inbound marketing and PR. Ironically, the messaging that is "out there" doesn't match some of the hard realities of small business challenges.
TO FOLLOW THE MONEY YOU HAVE TO GET THE FUNDING
Small businesses use several sources for capital, including self-financing through the owner; loans; credit lines; private stock; grants, investors; banks-HAH! Let me pause-banks. HAH!
Many small businesses are financing themselves through credit cards and personal loans, always a poor choice, albeit common these days. Credit lines are far more attractive but harder to get, despite the PR messages that are being aired. And then there's the SBA, which, for a very small business is not a viable option because the loans are more than what is needed; and then, of course, even though the SBA guarantees a portion of the loan to the issuing bank and relieves the bank of some risk of extending the loan to a small business, it also requires business owners to pledge personal assets and sign as a personal guarantee for the loan. All roads lead to the bank, credit check, and loan officer.
Recently I did some unofficial investigative "questioning" of small businesses and then banks in NYC. Even with new initiatives in place for banks to create more funding for small businesses, most would not admit that chances of that trickling down to small businesses are small, but one manager of a very large branch of a very large bank in a very large city said, "We lent out $17-million last month. No small businesses."
Studies show that one third of small businesses are running into trouble due to cash flow and a core competency in financial activities and less cash to hire the lawyers/accountants needed to help with innovative solutions. (I have talked to numerous accountants and those handling small business say it's hard to get funding.) Many companies are using their budgets inefficiently in marketing, again, because of their lack of that core competency. Should I advertise? What about banner ads on the web? Peer to peer marketing; what's that? And websites.
One of my small business interviewees and I had a conversation. Scene 1.
ME: What are you doing with your website to add inbound marketing?
HIM: I just met a cool website guy and I'm using him.
ME: Is he offering inbound marketing?
HIM: What's that?
ME: That's when you do things with your website designed to produce customers, build relationships, draw interest, get the phones ringing. We can actually show you your return on investment.
HIM: I don't really know what he's doing.
ME: And you gave him your credit card?
HIM: He said he'd take out $5,000 and make my website better.
ME: (Taking a breath)... Not to be disrespectful, but how could you give your credit card and not know what will happen with the money?
HIM: That's not my expertise. It's his.
ME: And he didn't explain anything?
HIM: No. But he had a great portfolio. (Pause). My wife is going to kill me.
ME: I think you'd better call him and find out what he's doing.
SCENE 2. A week later.
HIM: I tried to get that website guy and he didn't get back to me so I called American Express and cancelled the order, but he had already taken the money to another account.
ME: (silent for a change).
HIM: They're investigating and will get me the money back. Then I want you to explain inbound marketing.
P.S. This is normal in a small business universe.
OK I'LL EXPLAIN MARKETING AND THEN YOU GET THE FUNDING. YOU KNOW, SMALL BUSINESS IS THE BACKBONE!
And all of this leads back to the bank and funding. So how viable is it for small businesses to hire vendors who can help them? In a recent article in CFO called "Credit Still Scarce for Small Companies," Alix Stuart writes about tense relationships between banks and small businesses as documented by a 2010 survey by Greenwich Associates. Overall satisfaction levels were down across the board, in large part because companies were having a hard time borrowing, according to Chris McDonnell, a vice president at Greenwich Associates, in the CFO article.
The same survey evaluated several thousand banks and only 34 of them made the cut as a winner of Greenwich Excellence Awards, which recognize a number of categories. "One category that saw meaningful changes relative to previous years was 'credit policy,' which includes banks' willingness to lend. Only 5 banks received sufficiently favorable scores to make the cut in that area in 2010." The following table shows those banks:
The good news, as reported by CFO attributing McDonnell, is that "companies that are considered creditworthy by banks and are looking to borrow are getting very competitive terms and pricing since banks are vying for these accounts and want to be able to report that they're lending money."
OK let's follow that thought to a land of more inbound marketing, creativity, flexibility and happiness.