While many businesses remain cautious about expanding in a tough economy, entrepreneur Sandy Marsico is bucking the trend. She recently knocked down walls to expand her marketing and interactive design firm.
“We’re being slammed with requests for proposals. We haven’t been this busy since 2007,” Marsico, owner of Sandstorm Design, said at the start of the year.
While many small businesses fail before they reach the job-creation stage, young companies remain the nation’s best hope, said Dane Stangler, senior research analyst at the Kauffman Foundation. Some will become “the next generation of large and midsize businesses,” Stangler said.
Despite the severity of the recent recession, “There still were hundreds of thousands of businesses started. And we would expect that to increase,” as the economy improves, Stangler said.
Sandstorm’s growth is the result of hard work and planning. Marsico added two senior managers a year ago, one to head up creative and the other technology, allowing her to spend more time on strategy and sales, including diving into government work and becoming certified as a women-owned business. “I can almost guarantee I’ll have more staff” a year from now, she said.
Like the vast majority of the more than 61,000 companies licensed with the city of Chicago, Sandstorm Design is a small business, employing just 11 workers. But together, small businesses are a driver of the economy. What’s more, the sector is considered a leading indicator, because small firms often are the first to respond to signs of economic recovery.
Vantage Solutions, a full-service human resources consulting firm, is seeing more interest in training and other proactive approaches to human resource development again, instead of pay reductions, furloughs and layoffs. “It’s causing me to be optimistic about 2010 and beyond,” said Vanessa Smith McTier, owner of the Chicago firm. The company recently signed a longer-term lease for more space and plans to add staff in the first quarter.
But the breadth and diversity of small businesses makes it tough to generalize. “We see some that are trying to just make it through, while others are trying to get loans for marketing or expansion,” said Marianne Markowitz, regional administrator at the U.S. Small Business Administration.
In Illinois, small businesses are a diversified group, numbering more than 1 million businesses, touching every sector from manufacturing to professional services, from retail to health care. According to 2006 Census data, they include 258,000 employer companies that together employ more than 4 million and contribute $192 million in annual payroll to the economy, Markowitz said. They also represent 98 percent of the state’s employers and 49 percent of its employment.
With all eyes in Washington on the recovery, small business is getting more attention because research indicates small companies — and particularly the youngest ones — are the biggest job creators.
A new study of Census data commissioned by the Kauffman Foundation indicates firms less than five years old created about two-thirds of all new jobs in 2007. On average, these young firms created about four jobs per year. As a result, the Kauffman Foundation is advocating policy changes to encourage start-ups, such as cutting payroll taxes, welcoming immigrants who intend to start businesses here, commercializing more university technology, easing lending standards for start ups, and reforming Sarbanes-Oxley regulation, which discourages small companies from going public.
“There is some sense that belts will be loosened up as the new year begins, and businesses will have new budgets to spend,” said Mary Lynn Fayoumi, president and chief executive at the Management Association of Illinois in Downers Grove.
Still, many businesses are watching what happens with health care reform and economic policy before forging ahead with a growth plan, Fayoumi said. “A lot of organizations are still in a wait-and-see mode. They are still struggling with how lean they should be and when it’s safe to staff up again.”
Amit Gauri, owner of America’s Dog restaurant in Lincoln Park, has his eye on a new location that would double his current workforce of 12. But he needs capital to expand. Despite the fact that his restaurant is doing well financially, no bank has been willing to lend him the $300,000 to $400,000 he needs to open another location. “It’s very frustrating,” he said. “When the banks aren’t lending, it trickles down. It’s the waiting that’s hard.”
With new federal appropriations designed to encourage lending to small businesses approved, the wait could get shorter. When the Small Business Administration received American Recovery and Reinvestment Act funds last spring, it increased the government guarantee on 7(a) loans to 90 percent and waived borrower fees on most 7(a) and 504 loans. Volume rose markedly, Markowitz said. “We’re hoping as an agency to help these businesses get access to capital,” she said.