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SMALL BUSINESS TRENDS brings you daily updates on trends that influence the global small business market.
Anita Campbell, Editor
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Friday, October 31, 2003
Small Business Vulnerable to Identity Theft
As if small business didn't have enough to worry about, here's another concern.

Small companies that do a lot of business online are as susceptible to identity theft as consumers. Especially the kind of identity theft that is carried out through "spoofing" or "phishing."

Spoofing and phishing occurs when thieves send fake emails or set up fake Web sites purporting to belong to eBay, PayPal, AOL and other legitimate businesses. The unwary are fooled into giving out sensitive information, including passwords and credit card numbers.

Since many small businesses use eBay, PayPal, AOL and other big eCommerce service providers that are typically the prime subjects of spoofs, small businesses are just as vulnerable to these online scams as consumers. After all, to a thief, a business credit card number or a business account password is as valuable or MORE valuable than a consumer's information.

Of course, for those entrepreneurs who find opportunity at their doorsteps no matter what, identity theft spells opportunity. For instance, FightforMe.com is a group of attorneys who promise to defend those accused of identity theft crimes. Then there's MailFrontier.com and others who've rolled out anti-scam products. And I am sure we will see more of these kinds of services crop up as scams continue and enterprising individuals and businesses spot an opportunity to provide a new product or service.

Read more in SmallBusinessComputing.com.
Thursday, October 30, 2003
Penetrating the SMB Market Requires Channel Partners
According to a report by the Yankee Group, a telecommunications and networking research firm, sales optimism and activity picked up in the small and midsize business channel in the last six months.

Despite this optimism, the SMB market dynamics are still challenging. The sales cycle remains long and "the channel must creatively and persuasively sell to customers with tight budgets."

There are 5.9 Million small and mid-sized businesses (defined by the Yankee Group as having 2 to 2,500 employees) in the United States. Because the market is fragmented, it is cost prohibitive for many large telecomm and networking vendors and service providers to sell directly into SMBs. Instead, they must rely on local solution providers to sell into this market.

"Vendors depend on the channel more than ever to push new products into this market," says Helen Chan, Yankee Group Small & Medium Business Strategies senior analyst. "Competition is always increasing, as even enterprise-focused vendors attempt to move downmarket. This inundates the channel with a confusing choice of vendors and products. Vendors must understand the needs of the channel in order to cultivate long-term, profitable relationships. By providing more than just the traditional product rebates and volume discounts, vendors can help channel partners transition to a services revenue model."

Read the full press release.
Arbitrary Law Enforcement Hampers Small Business
Small business in many parts of the world is hampered by corrupt legal officials or laws that are arbitrarily imposed.

The recent arrest of Russian business tycoon Mikhail Khodorkovsky is a high profile example of what small businesses face daily in countries where the law is for sale.

Small business people in Russia and other countries say corruption and arbitrary enforcement of laws is one of the biggest drags on growth. Small businesses are particularly vulnerable because they lack the clout or funds to protect themselves from bribe-seekers and corrupt court decisions.

According to Andrei Nasonov, head of Opora, a small business association in Moscow, "From the federal prosecutor to the local police, it's the same behavior: arbitrary interpretation of laws and violations of procedural norms."

Wall Street Journal subscribers, read more in an article by Jeanne Whalen.
Wednesday, October 29, 2003
Key Bank Supports Small Business
Key Bank has once again improved its Web site dedicated to small business, at www.key.com/smallbiz. The site contains a lot of information about growing and managing a business, and not simply product information. The site even includes an interactive tool that small business owners can use to develop a simple business plan--and it's free.

Key also has a section of the site dedicated to women, at www.key.com/women. Included in this section are links to Key's supplier diversity initiative, which supports women-owned businesses.

Key Bank is one of the nation's largest banks and largest small business lenders. Yet another giant going after the SMB market.
Urban Sprawl Trend Could Limit SBA Financing
Earlier this year, the SBA settled a lawsuit claiming that its lending practices encouraged urban sprawl and negatively impacted the environment. The settlement requires the SBA to establish future procedures for conducting environmental reviews of individual SBA 7(a) loans.

The lawsuit took place over what could become the new millenium's key environmental battleground in the United States-- urban sprawl. The lawsuit claimed that most SBA loans were made to suburban or rural areas and promoted urban sprawl. Urban sprawl, they claim, contributes to low-density, automobile-dependent new development, which leads to the loss of prime farmland and wildlife habitat, air and water pollution and increased congestion.

What's interesting is that there's not even agreement that urban sprawl is bad. The Small Business Survival Council says "Sprawl is usually equated with growth, and there's nothing wrong with that."

The SBA conceded that its environmental review procedures needed revision, but denied that SBA loans were responsible for urban sprawl. The SBA says it is local land use decisions that determine the extent of urban sprawl, not SBA loans.

The upshot? This settlement could make it harder for small businesses to get SBA 7(a) loans in the future. Especially in environmentally sensitive areas near wetlands, farmland, etc. Read more.
Tuesday, October 28, 2003
Globalization Trend Creating Translation Boom
The forces of globalization and the Internet (those two again!) are driving a boom in the translation business.

As companies sell more products across country lines, often using the Internet, translators become more important.

According to a June 30, 2003 article in the Miami Herald, "The tech revolution is transforming the translation and interpreting business, once a niche industry for bilingual people who offered their services to businesses, government agencies and individuals in their communities. Now digital technology, Internet-based marketing strategies, and e-mail are turning the business into a nimble, tech-intensive international industry that favors management know-how and quality control. "

The translation industry is one of the few that is still dominated mostly by small and medium-sized players. As with any growing industry, it is starting to see some consolidation.

Read more.
Monday, October 27, 2003
Small Businesses Part of Global Marketplace
The following comments appeared in the Small Business Advocate Newsletter. They reflect the converging forces of globalization and the Internet on the SMB market:

"Hopefully it won't come as a surprise that your small business is part of a global marketplace. That means your competitors are across town, across the country, and across the planet. Plus there's a new Main Street where competitors set up shop in a market called cyberspace, where customers and businesses get together by doing eBusiness.

eBusiness is the overarching perspective of the online marketplace, and includes three primary activities:

1. eCommerce - where customers make purchases and lay their money down online.
2. eShopping - where customers educate themselves online, both in terms of product options and technical information.
3. eCustomer Service - where businesses employ online technology to serve customers in activities that do not require human involvement, like a Frequently Asked Questions resource.

This new global and cyber reality is creating both threats and opportunities. Small businesses must be prepared to challenge the threats and pursue the opportunities."

Online Ads Lucrative for SMBs
Contextual-ad services are the hot new thing among small and independent Web sites. Even small Web sites with no advertising sales force can generate noticeable revenue from the ads placed on their sites.

Contextual-ad services provide Web sites with text link ads that are relevant to the site's content. Some of the services even give the Web site owner the ability to block competitors' ads or offensive ads.

Contextual-ads generate more money because the ad services use search engine technology to make sure the ads relate to the content of the particular page on which the ads are served. In turn, that increases the number of click-throughs. The more click-throughs, the more revenue the site earns.

These services are far more lucrative than link exchanges or affiliate networks, which have been around for years. Contextual ads are helping Web site owners monetize their sites. Some Web site owners are finding that what was once a labor of love now generates enough revenue to pay for overhead and sometimes even a part-time salary.

Who are these contextual-ad services? Google's AdSense is the largest, followed by Overture Content Match, About's Content Sprinks, and Espotting Media's Content Monetisation.

Google's service is already acknowledged to be the best. And, now that Google has announced it will be acquiring Content Sprinks, Google is shaping up to become the overwhelming leader in this space.
Saturday, October 25, 2003
Weekly SMB Market Roundup
The high tech industry is aggressively courting small and midsize businesses. Here is a roundup of product and service introductions during the week ended October 24, 2003:

Microsoft formally introduces its 2003 Office System lineup. "Microsoft is making a massive push into the small business market with Office 2003 as well as its recently released Small Business Server 2003... ." More.

IBM launches content management software for midsize businesses. "DB2Content Manager Express... enables smaller businesses to capture, manage and store corporate documents, as well as media and graphic files." More.

Verizon enters the SMB Internet security market, offering round-the-clock Internet security services. More.

Intel introduces a new marketing and training initiative for its distributors and dealers. It is designed to help the channel convince small businesses of the need to upgrade PCs and adopt wireless solutions. More.

Toshiba launches 3 notebook computers to attract small businesses. Toshiba is following a trend by small businesses toward notebook PCs. More.

ACCPAC International, Inc., a subsidiary of Computer Associates International, Inc. launched a business intelligence tool for small and mid-size businesses (SMBs) seeking a cost-effective system for improving their sales planning, analysis, and strategy development. More.

Guarded Networks, a managed security services provider, has chosen to support Fortinet's antivirus firewall products in its BorderShield managed security service platform to capitalize on the growing demand by small- and medium-size businesses (SMBs) for outsourced security services. More.

Wireless Security Corp. announced a new security outsourcing service for wireless LANs to help IT staff at small and medium-sized businesses (SMBs) spend less time deploying and managing wireless systems. More.

Solinus, Inc., a leading provider of e-mail messaging solutions, launched an online service, Inbox Genius, to remove SPAM and viruses' from e-mail before final delivery to workers' mailboxes. The service is targeted toward the SMB market. More.

Siebel, NetSuite and Microsoft announced programs to offer down-scaled CRM product to the European SMB market. There are 10 Million SMBs in Europe and this market is vastly underserved. (However, don't conclude that the U.S. SMB market is saturated with CRM products. According to a Gartner Group spokeswoman, in North America only 5% of small businesses have a CRM solution, and only 20% of medium size businesses have one.) More.

The above list is by no means exhaustive. But it does give a clue as to the importance of the SMB market to high tech, and signals a key trend.

Friday, October 24, 2003
Globalization Trend Attracts Venture Capital
Cleveland-based Crystal Internet Venture Funds is shifting its investment strategy to focus on computer hardware and software companies engaged in global commerce between the U.S. and Asia.

Crystal is raising a new $150 Million fund which will be invested either in U.S. companies that will do business in Asia, or Asian companies that can expand into the U.S. market. This reflects a shift from Internet startups to catch a ride on the growing globalization trend. "It turns out...the Internet is now a tool causing globalization to accelerate," said managing director Daniel Kellogg. Crains subscribers read more.
HR Outsourcing Affects SMBs
Outsourcing of human resources is a growing trend, impacting small businesses both positively and negatively.

According to Dataquest, HR business-process outsourcing (BPO) is expected to grow to a $58.5 billion industry in the U.S. by 2005 from $21.7 billion in 2000. Two intersecting trends are driving the acceleration in HR outsourcing: (1) the increasing complexity of the employment landscape, and (2) the globalization trend.

A recent article in Knowledge@Wharton states: "The reasons for the explosion in HR outsourcing are easy to fathom. In part, the reason is the growing complexity of HR regulation, which drives up the costs of compliance. Companies recognize that HR administrative functions don't generate revenues, but they can lower costs if outsourced. In addition, technology is now available that allows work to be done in low-wage countries, something that didn't exist in the past."

So how is HR outsourcing impacting the small and medium business market? Here are just two of the ways:

    Small and medium HR providers are finding it harder to compete for a share of lucrative large-employer business. Historically, a high percentage of HR providers have been smaller enterprises. That's because the barriers to entry into fields such as recruiting, temporary services, training, and similar HR areas were low. It didn't require a huge investment in plant, equipment or technology to get started in these fields. As a result, each local market had its own local (small and midsize) providers. However, as the large HR players become more global, with the resources to set up offshore operations, smaller HR providers are finding it harder to compete at the same level. Industry consolidation and competition from larger providers are expected to intensify, taking a toll on smaller players.
    More HR outsourcing solutions are coming on the market tailored specifically for the SMB market. As the employment landscape becomes more complex, smaller employers have more reason than ever to outsource HR functions. In the past it was hard for a small business to justify outsourcing. In many cases HR was a luxury smaller employers could not afford, except for "essential" functions like payroll. But today, employers are faced with so many regulations that skilled HR expertise is becoming a necessity in order to stay out of hot water. In turn, this has led to the birth of a whole segment of outsourced providers with solutions tailored for smaller employers, at price points they can afford. Many of those providers are themselves SMBs who are carving out a niche serving other small and midsize businesses.
Thursday, October 23, 2003
Overly Broad Patents Threaten SMBs
Overly-broad Internet and software patents threaten small businesses. Such is the insightful point of view of Internet guru, Don Pavlish.

Point in fact: In 1994 Eolas Technologies obtained a U.S. patent claiming to have invented the concept of browser plugins. Plugins are used to seamlessly integrate Flash, PDF, and Java into websites. Eolas filed suit and obtained a verdict of a half billion dollars against Microsoft. If Microsoft does not get the decision overturned or settle with Eolas, then browser plugins could be stripped from Internet Explorer.

At some point, millions of businesses--many of them small and midsize businesses-- with Flash plugins, may be faced with having to re-do their websites to eliminate such plugins.

According to Pavlish, if businesses would rather spend their limited Website funds adding new features instead of re-doing existing elements, they should let the Patent Office and legislators know how they feel. "Should the patent office continue to allow the internet to be treated as a strip mine for intellectual property gold-diggers, the cost of doing e-commerce will rise, consumer choices will be limited, and innovation will be stifled -- hardly a hospitable online environment for America's small businesses."

Read more here in Craintech.
Intel Chasing Small and Medium Businesses
Computer manufacturers are among the ranks of large businesses chasing dollars from the SMB market.

Intel Corporation just announced a program to help customers evaluate and deploy PCs based on the latest hardware and software technology innovations.

According to the Intel press release announcing this new program: "Several factors play a role in the decision for smaller businesses to upgrade PCs, including additional costs of maintaining aging PCs; lower productivity from older applications and outdated, unsupported software and operating systems; and the growing number of security issues."

Intel is launching a program to provide marketing assistance to its distributors and dealers to help them educate smaller businesses "on when and why PCs should be replaced and how new wired and wireless PCs can grow business and enhance return on investment."

"Many small businesses lack formal IT departments and at times delay PC replacements, believing it will save the company money," said Willy Agatstein, general manager of Intel's Reseller Products Group. "In the long run, this strategy actually has a large impact on the bottom line in terms of increased computer support costs and reduced company competitiveness."
Trend Toward Notebook Computers
Toshiba is another computer manufacturer seeing the lure of the SMB market. It is introducing a series of notebook computers aimed specifically at smaller businesses.

According to Toshiba, the trend among smaller businesses is following the trend among consumers, which is toward smaller, notebook PCs. Toshiba plans to capitalize on this trend by offering a line of notebooks with the features that small and medium size businesses need. These features include a copy of Microsoft Office 2003 Small Business Edition.

As noted by C-NET News, "though small and medium-size businesses have fewer employees, which means lower sales, the sheer size of the market is an appealing opportunity for large PC makers such as Toshiba and competitors Dell, Hewlett-Packard and IBM."
Wednesday, October 22, 2003
SMBs Competing in the Face of Offshore Outsourcing
Another day, another article about the growing trend to outsource offshore. Expect many more.

The Wall Street Journal recently ran an article in its center front page column about outsourcing of call centers to the Phillipines. Due to the U.S.'s longtime presence in the Phillipines, finding call center employees who can sound American seems to be less of a problem than in some other popular offshore destinations, such as India. Call center reps in the Phillipines apparently are faster to adapt to American accents and colloquialisms. That's making the Phillipines a rapidly-growing outsourcing destination.

There are 30,000 people answering phones and emails in Manila. They perform work for such American icons as American Express and Dell Computer. Call centers have become very important to the Phillipines economy.

If you subscribe to the Wall Street Journal, click here to read more.

This trend is not going away. Companies in the call center business and the increasing number of service businesses that are moving offshore have no choice but to adapt and adjust. Small and midsize providers have a lot at risk.

How will they meet this challenge? The same way companies always compete--by differentiating, partnering or diversifying, among other things:

    - Finding underserved niches that the offshore providers are not good at or are not interested in.
    - Partnering with offshore providers. For instance, the U.S. company could become the sales and marketing arm, and the offshore company could focus on delivering the services, given the lower cost structure.
    - Diversifying to add complementary services. For instance, a call center business could add offerings such as direct marketing, web design and development, to develop a more comprehensive customer-focused offering and thereby create competitive advantage.

Small Businesses Unprepared for Disasters
Most small businesses underestimate how long it will take to rebuild their property, resume operations and return to previous income levels in the event a disaster strikes. What's worse, the majority do not have business income insurance to recover costs/damage such as payroll, operating expenses and lost profits.

Experts say it takes 4 to 6 months to rebuild property and resume normal operations after a disaster. Then another 6 months to a year to return to previous income levels.

Yet a new nationwide survey by Safeco Corp finds that 45% of small businesses seriously underestimated the recovery time, thinking it would take less than 3 months to recover their normal operations. And 55% did not have business income insurance.

"This is a real problem in the small-business market. Too often we find that by the time entrepreneurs are able to rebuild their workplace, they're in poor financial shape, and reopening is not easy," said Caryn Siebert, vice president of claims for Safeco Property and Casualty Companies.

Safeco, a top-five provider of insurance to small businesses in America, conducted its survey to understand why businesses may fail after experiencing a major crisis. Previous studies have shown that 25 percent of all businesses fail to reopen at all. And 40 percent of small businesses fail within a five-year period of a crisis.

Safeco provides a fast, easy online calculator to help small businesses calculate their business income insurance needs. Click here for the Safeco calculator.

This is yet another example of a large business targeting SMB market dollars, and reflects the growing attractiveness of the SMB market.
Tuesday, October 21, 2003
Software Piracy FAQs
Here are some important facts, figures and resources about software piracy from the Business Software Alliance:

    - States with the lowest population density had the highest software piracy rates. The state with the highest software piracy rate is Mississippi, at 42%.
    - The states with the lowest piracy rates are Illinois (13.5%), Michigan (13.9%) and Ohio (14.3%).
    - Civil damages can exceed $150,000 for each software program copied. Companies can also be subjected to criminal penalties, including fines of up to $250,000 or five years in jail.
Midsize Businesses Target of Software Piracy Watchdog
Losses due to software piracy in the United States totaled over $6 Billion in 2002. That's according to the State Software Piracy Study by the Business Software Alliance. The losses take into account lost retail software sales, job losses, and tax revenue losses.

The Business Software Alliance is a trade group whose members include some of the world's leading software companies, like Microsoft. It assists the industry by acting as a quasi-policing agency. Last year it raised over $12 Million in fees from settlements with private companies.

In case you thought software piracy was a nefarious act done offshore --either in third world countries or places without reliable legal systems-- think again. According to the BSA, it is still a problem within U.S. companies.

The United States ranks lowest in the world in the level of piracy --and this rate has dropped for six straight years. Yet the BSA actively goes after U.S. businesses, with its hotline 1-888-NOPIRACY and its "Report Piracy" section of its Website.

What kind of company runs afoul of the BSA enforcement efforts? Typically it is a midsize regional business. Usually an ex-employee--perhaps in the IT Department, perhaps some other department-- failed to purchase the requisite number of licenses to cover all PCs using the software. Many times senior management is unaware of the violation. Problems often arise due to lax internal procedures and incomplete record keeping. An ex-employee (or sometimes a current employee) rats on the company. The BSA steps in and forces a settlement, much to the embarrassment of company leaders.

You may be wondering why midsize companies are most at risk. It's a combination of economics, staffing, awareness and self-policing.

Today most large companies have implemented strict internal licensing procedures, including periodic internal software audits. Occasionally a large company is nabbed by BSA, but not often.

Very small companies simply don't have that many computers. Violations are scattered and tend to be small-scale.

That leaves midsize businesses. They are large enough to have a volume of computers needing software licenses, but typically don't have the staffing levels to create strict internal processes with checks and balances. Often control of software license data is entirely in the hands of a single employee.

If you are a subscriber of the Wall Street Journal, read more about midsize business and software piracy here.
Monday, October 20, 2003
On April 14, 2004, new privacy rules go into effect for smaller businesses. Under the new rules, health related information received in connection with a health benefit plan cannot be used when making employment-related decisions. HIPAA (which stands for Health Insurance Portability and Accountability Act of 1996) mandates a privacy shield around employees' personal health information.

What is a violation of HIPAA? The kind of thing that goes on routinely in most small and midsize privately-owned businesses. Have an employee who contracts a serious disease like multiple sclerosis? Expect your HR clerk to tell you, because it is going to jack up your company's premiums? Think again. That's a violation of HIPAA.

What small and midsize businesses will need to do is build a "Chinese wall." Businesses have to isolate health-related information and keep it separate from other employment-related data. This applies to both hard copy data and electronic data. Businesses have an obligation to keep health information secure and protected from prying eyes.

Health information can only be distributed on a need-to-know basis. And the definition of who needs to know is extremely narrow--just the person handling claims, and not 6 or 8 other employees. Even the person's manager or the business owner(s) shouldn't be in the loop.

For more information about HIPAA, visit the government's special HIPAA Web pages designed for small and midsize businesses.

What do these new rules mean? They suggest a boomlet (in some cases already underway) for certain kinds of service providers:

    - A whole field of consultants has popped up. We are seeing more experts in this field, designing entire practices around advising businesses about HIPAA compliance. Just do a search on Google or one of the other major search engines for "HIPAA consultant" or even just "HIPAA" and you will see how many service providers have jumped on the HIPAA bandwagon.
    - Lawyers who advise small and midsize businesses need to be aware of the new rules so they can proactively advise their clients.
    - Software and Web developers will experience increased demand to make electronic information secure. Especially as the realization sets in as to how far reaching HIPAA can be.
    - Outsourcing of handling of health insurance claims will continue to grow--either to insurance administrators or PEOs (professional employer organizations) or similar third parties. HR in general has become so complex that many companies find it cheaper and easier to outsource than to build all that specialized expertise internally.

Sunday, October 19, 2003
Insurance Costs Biggest Problem for Small Business
Rising insurance costs are at the top of the problem list for small business owners. That's according to the most recent (September 2003) Economic Report of the National Federation of Independent Business. Cost and availability of insurance is the single most important business problem of America's small businesses.

Read the Economic Report here.
Saturday, October 18, 2003
Site Offers Fundraising Lesson for Small and Midsize Businesses
VFinance is one of the best online sources for entrepreneurs, startups and existing businesses to raise capital. In fact, according to Yahoo, it's THE best.

vFinance targets business owners who see opportunity but can't go after it due to lack of capital. The site claims to have a database of over 1,600 venture firms and 60,000 angel investors. In addition to providing information on equity investment (venture and angel), the site also offers access to lending sources.

One of the most helpful features of the site is the VC Quiz. In 20 questions the Quiz tells an entrepreneur or business owner how venture capitalists assess business opportunities. There is a charge of $19.95 to get the completed Quiz results. But business owners can gain tremendous insight into the VC mindset just by taking the Quiz, even without receiving the emailed final report.

The Quiz comes across loud and clear with a message I find myself repeating over and over to entrepreneurs and small business people: In the current climate, an opportunity has to be quite large, market leading, and offer huge potential returns in order to interest VCs.

The truth is, small businesses do not interest VCs. If there isn't a $500 Million market for which you have a plan to capture majority market share within 4 or 5 years, a VC will not consider your opportunity a good use of VC investment capital. VCs are not in the business of seeking modest returns on modest proposals.

Small businesses--and startups that have the potential to grow into nothing bigger than small or midsize businesses--are better off approaching family and friends, local angels (if you can find them), and lenders. It's no longer the 1990's, when venture money was given away like M&Ms to trick-or-treaters. Those days are long past.
Friday, October 17, 2003
Small Businesses Encouraged to do Business Overseas
The SBA has launched a new Web site to assist small businesses in determining the risks of doing business overseas. The Website, www.AssessYourInternationalRisk.org, has been developed in partnership with the U.S. Chamber of Commerce. A spokesman said the initiative would "provide small business owners with the information they need to make smart decisions concerning overseas expansion, and how to address the risks inherent in entering the international marketplace."

The Web site features a convenient ask-the-expert option where small business owners can ask questions about the risks of doing business overseas. The website fills an important gap. A lack of knowledge may needlessly stifle or jeopardize a company's expansion, according to the SBA.

The Web site initiative is related to work being done by the U.S. Chamber of Commerce to boost participation by American small businesses in new international trade agreements. It is part of the Chamber's TradeRoots program to educate and help build capacity for small and medium sized businesses to start exporting under new trade agreements with Chile and Singapore. The Chamber's approach is to support individual states' trade development programs and encourage regional cooperation.
Thursday, October 16, 2003
Express SBA Loans Rising in Popularity
The SBA's "Express" loan program has been growing and is expected to become the most popular form of SBA loan this year. Express SBA loans totaled 49% of all SBA loans in fiscal year 2003 (ending September 30th), up from 34% in 2002 and 27% in 2001, according to the SBA.

Express loans have less stringent criteria than traditional SBA 7(a) loans. Usually documentation requirements are lower and loans can be closed faster.

The SBA has broadened the Express loan program to reach out to more small businesses. It increased the maximum loan size for Express loans to $250,000, and opened the program to more banks. The SBA guarantees just 50% of Express loans, compared with 75% to 85% of its traditional 7(a) loans. But banks have more control over the loan process with Express loans.

Total number of SBA loans last year was 67,306. Mainly because of the Express program, more banks made SBA loans in the past year. There were 720 participating lenders, nearly triple the 245 participating lenders in the 2002 fiscal year.

Click here for more information on the SBA's Express Loan Program.
Banks Chasing Small Businesses
Some of the country's largest banks are targeting small businesses, including Bank of America, FleetBoston, and Wells Fargo.

Bank of America sees small businesses as a huge potential customer base. For instance, it was the top SBA lender last year, making 9,406 SBA loans. In an article in American Banker Magazine, Bank of America says it "targets small-business owners because they bring both personal and commercial business to the bank."

More and more financial institutions are "chasing small businesses with fee-generating services, dangling special loan programs and deposit accounts. Many of these banks believe they can cross-sell small-business owners with personal financial planning, employee benefits products, and extra commercial services such as payroll or cash management."

Small businesses are underserved in American banks today and deserve more attention. Although they typically represent about 10% of a retail bank's customer base, they are extremely profitable customers, with profitability four to seven times that of consumers, on average. For some banks, this valuable segment contributes up to 60% of their retail profits.

If you are a subscriber of American Banker Magazine, read more here.
Why Savvy SMBs Leverage eBay
The Internet has transformed small and midsize businesses. One of the reasons: it has inexpensively opened up marketing and sales channels that those organizations would never have had access to otherwise.

Earlier this week I reported that if you want to see where SMB business-to-business eCommerce activity is headed, watch eBay. Well, here's another reason to track eBay. According to the Neilsen Net Ratings, eBay is by far the leading starting point for shopping on the Web. In August 2003, eBay had nearly 43 Million unique visitors. The next closest was Amazon, with a little more than half that number, at 26 Million uniques.

When you consider that on eBay, the majority of sellers are small businesses, you can see why eBay is so important to the SMB market. Where else could a small business--even a single entrepreneur or home-based business-- reach an audience of 43 Million by paying a small fee?

If it were not for eBay, many of those same small businesses would not even exist. Most of them would not be in a position to open up a brick-and-mortar storefront, staff it, and run it as a traditional business. They are in business because eBay has made it possible for them to run a bare-bones "virtual" organization.

And eBay's Web commerce lead is growing. Their visitor numbers grew by 40% over the prior year. Obviously, a lot is happening on eBay. Keep watching what eBay does next.

Read Neilsen Net Rankings here.
Wednesday, October 15, 2003
Small Business as a Leading Indicator for the Economy
I recently met with the President of a large national bank. He asked me whether small and midsize businesses were seeing any change in the economy. He seemed surprised when I said that many of the SMBs I dealt with were optimistic and experiencing an uptick in business compared to the beginning of 2003. He said that larger companies in Northeast Ohio that he spoke with were not reporting a significant increase in business.

But his report and mine are not necessarily at odds. In fact, I would suggest that the two reports make perfect sense.

Small business is a leading indicator in the economy. Why? Smaller enterprises are simply more sensitive to changes in the economy. They feel the effects of an improvement sooner than their larger counterparts.

The smaller the business, the less it takes to make a big difference. Even a handful of new orders can make a significant impact on a small business on a percentage basis. Larger businesses need many more new orders before the impact becomes pronounced.
Tuesday, October 14, 2003
Everyone Wants SMB Business--and that Signals Change
It's no secret that large corporations are chasing dollars from small and midsize businesses. Giants like American Express, with its OPEN Network, are reaching out to SMBs with services and products designed specifically for their needs. Microsoft, Dell and HP are all coming out with promotions and special products this fall for small and midsize businesses. Even the epitomy of big--Big Blue (IBM)--claims to get more than 20% of its sales from small businesses. And the list goes on.

Expect this trend to continue, even accelerate. Smaller enterprises are leading the recovery and, therefore, are seen as better customer prospects than large corporations still feeling the effects of recession. Also, in certain industries that are saturated at the high end or where competition is fierce, suppliers have no choice but to reach down into the smaller end.

For smaller enterprises, this may signal a shift in economic power. SMBs have stronger bargaining leverage than ever before when dealing with larger corporations. Now is the time for small and midsize businesses to negotiate for better prices, special deals, and more service.

For larger enterprises, initiatives to reach the SMB market bring new and different challenges they are not used to. Here are just a few of those challenges:
    - Products and services have to be tailored to meet the needs of SMBs.
    - Many large corporations have their work cut out for them to bring price points low enough to be affordable by SMBs.
    - The economies of marketing and selling into the SMB market present challenges all their own. Large suppliers are going to have to leverage new channels to reach the SMB market cost-effectively. One example: they may have to find channel partners with a strong brand already existing in the SMB market. Another example: they will look to leverage Internet channels to reach the multitudes of small business decison-makers with "personalized service", without expensive in-person sales calls.

The next few years should be interesting, as we see how far the balance of power shifts between large corporations and SMBs.
South Dakota is Friendliest State for Small Business
According to a report by the Small Business Survival Center, South Dakota offers the friendliest environment for small business. Nevada, Wyoming, New Hampshire and Florida round out the top 5.

The Small Business Survival Center is a conservative advocacy group for small business. Its annual report entitled Small Business Survival Index 2003, measures government-related factors such as tax burden, health care costs, number of state bureaucrats, crime rate, and even electricity costs. Those factors, according to the study, have the greatest impact on investment, entrepreneurship and business.

For readers here in Ohio wanting to know your own state's ranking, well, it's an unimpressive 39th.

Read the full study here.
Monday, October 13, 2003
Small Business: a Leading Indicator for the Economy?
On October 7th, I reported that unemployment figures from the government did not always reflect hiring by small and entrepreneurial businesses. Here's more on that subject.

This conclusion was reported by Haseeb Ahmed in an Economy.com article in early September. Mr. Ahmed believes that that government employment figures fail to fully capture new hiring activity of small businesses. Why? Because small businesses are usually the first to begin hiring during an overall upturn in the economy.

In fact, he believes that we will see the employment numbers retroactively revised later on to capture job gains that existed but were not captured in the initial data. Per Mr. Ahmed, something similar happened in the early 1990's recession recovery cycle, when job gains were retroactively revised upward by 1.5 million jobs.

According to the Small Business Survival Committee, a non-partisan policy group for small businesses and entrepreneurs, official Washington sometimes misses the importance of small business and entrepreneurs in the economy. Reporting of employment figures may be one example.

National Small Business Week Nominees
President Bush has designated the week of May 12, 2004 as National Small Business Week. In conjunction with that event, the Small Business Administration is taking nominations for Small Business Person of the Year.

The SBA will present awards to deserving entrepreneurs at the district, state and national levels. The SBA also presents awards in various categories, including:

    - Financial Services Advocate of the Year
    - Small Business Exporter of the Year
    - Minority Small Business Advocate of the Year

Contact your local SBA district office to learn more.
eBay for Small Business
It seems like just about every company these days professes to want to reach down into the small and medium size business market. Even eBay.

EBay offers a section of its site just for businesses called The Business Marketplace, "The world's largest online marketplace for business."

Once there, businesses can find anything from office technology (computers, printers), to businesses for sale, to commercial trucks, to professional services. There are even specialized marketplaces to help businesses search for industry-specific goods (agriculture, healthcare).

An especially interesting section of the site is called Wholesale Lots. Smaller businesses and discounters can purchase odd lots (and not so odd lots) of inventory to stock their businesses.

The Business Marketplace is tailored to appeal to businesses that want to equip and supply their businesses inexpensively. It can also be used by businesses to sell excess inventory or turn underutilized assets into cash.

Savvy businesses for years now have used listings on eBay as a marketing tool to draw in customers from the Web. In the past those listings primarily drew in enthusiasts, collectors and individual consumers. With eBay's Business Marketplace, more and more businesses will be using eBay to grow their B2B channels.

eBay has been a leader in transforming the face of online business, and bears watching to see the next moves it makes with its Business Marketplace. If you want to see where the SMB market is headed on the Web, keep an eye on eBay.
Sunday, October 12, 2003
Technology Gives Competitive Edge
We all know that large corporations have been using technology to become more productive and gain a competitive advantage. But what about the SMB market? Are small and medium businesses using technology to gain competitive advantage?

According to the most recent survey by Inc. Magazine of its Inc 500, the resounding answer is YES! Over 80% of its fast growing smaller enterprises report using new technology to give them a competitive edge:

    - 41% report that technology "very much" gives their organizations an edge.
    - 40% say that technology gives them "somewhat" of a competitive edge

Only 1% report that technology gives them no edge.
Health Benefits in Small and Medium Size Businesses
It shouldn't come as any surprise. The smaller the business, the less likely the business offers health benefits to employees.

Firms with 200 or more employees typically provide health benefits for employees. But when you go down to smaller businesses, the number drops dramatically.

A 2003 survey by the Kaiser Foundation shows that 98% of firms having 200 or more employees offer health benefits. But only about 60% of firms with fewer than 200 employees can afford to offer health benefits.

As a result, for businesses with under 200 employees, finding and retaining qualified employees can be a challenge. These organizations are at a disadvantage in the hiring market vis-a-vis larger firms which can afford to provide health coverage. See if this scenario sounds familiar: just when an employee becomes becomes really valuable with accumulated skills and knowledge, he or she leaves for a larger company offering better benefits or pay.

What are smaller businesses doing to address this? Some actions that small businesses have taken:

    - Adopt high deductible plans. According to the Kaiser study, more large employers are offering high deductible plans to employees, with deductibles of $1,000 or more per year. If this trend continues, smaller businesses may not be so far off from some larger employers with respect to health benefits.

    - Join a group that offers group health benefits for members. Check first with your local chamber of commerce. The Cleveland, Ohio area chamber of commerce, through its Council of Smaller Enterprises, has become nationally known for its affordable group benefits for members. While many chambers of commerce offer group benefits plans, not all are great deals, as I've learned through my own experience. It pays to shop around. But a chamber of commerce plan is definitely worth checking into. Find local chambers of commerce here.

    -Consider engaging a Professional Employer Organization (PEO). More and more small and medium businesses are outsourcing the handling of complex, human resources related matters to a PEO. PEOs can help control costs, and at the same time provide better service to employees. One of the things they can do for small and medium size firms is provide group coverage. As part of a larger pool, businesses can offer better health benefits and get professional handling of claims questions, etc. for employees. Search for a PEO here.

I expect we will see the trend toward greater outsourcing accelerate among the SMB market, which could be good news for PEOs. The business world increasingly is dividing into two camps: very large multinational businesses, and the growing SMB market. For small and medium firms to compete, economies of scale dictate that they outsource non-core services such as HR, in order to serve their employees cost effectively.
Saturday, October 11, 2003
Target Marketing is In!
Awareness marketing is out. Target marketing is in. Especially for smaller businesses with limited marketing budgets.

Awareness marketing is when your main goal is to get the name of your product or business out there. So that it is on the tip of potential customers' tongues. Awareness marketing is also known as "branding."

Target marketing, however, is where you identify certain customer groups to achieve defined measurable goals. It's where you use a rifle instead of a shotgun to get your message out.

If your organization's marketing budget falls far south of the marketing budget of, say, General Motors or Home Depot, then target marketing is for you.

Target marketing is all about defining smaller groups of prospects and designing marketing approaches to appeal just to them. In target marketing, a "one size fits all" approach has no place. Instead, you must understand what makes the targets tick, craft a message to appeal just to that target group, and go after them.

Some target marketing approaches include:

    - Send out rounds of low cost postcards with specially crafted messages for each group of targets. Ask your marketing communications firm about this. Or, if you are on a really limited budget and have the time to do some research, there are many places of the Web where you can find low cost, high quality postcards. Just go to Google and type in a search for "postcard marketing" or simply "postcards".

    - Target lost or dissatisfied customers. To be successful at this you first have to apologize, accept responsibility, and suggest a remedy. But remember the rule of my colleague, Rich, an experienced marketer, "A former customer is usually a better, warmer lead than trying to get a completely new customer."

    - Find underserved customers. This is key if there are a lot of competitors for your product or service. You must stand out from the crowd. To do so, sometimes you have to narrow your focus. Instead of claiming to be all things to everyone, define your products or services to appeal to certain niche customers with specific needs.

bCentral has an interesting series of articles on the subject of target marketing. Click here to read more.
Friday, October 10, 2003
Offshore Outsourcing
Offshore outsourcing is getting lots of negative attention these days. For several years now, large corporations have been outsourcing back office service work to places like India and the Philippines. Recently this trend has picked up steam.

All predictions say the trend will accelerate over the next 5 years, even expanding from call centers and software programming, to include many new types of highly skilled office work. A study by Wharton Business School indicates that back-office HR services, financial services, and insurance services will increasingly move offshore in the next 5 years. Even higher level analytic jobs (cash-flow forecasting) and management jobs have begun to migrate overseas. Read about the Wharton study here.
Arbitration Clauses
A growing trend is to add "arbitration clauses" to contracts. These clauses state that you give up the right to sue in court if there is a dispute. Instead, you have to go to binding arbitration. Arbitration means that instead of going before a judge and/or jury, your dispute will go before trained professionals (usually lawyers) who make a decision. Most of the time there is no appealing the decision. Whatever it is, you're stuck with it. Good or bad.

Read the fine print. Chances are, you or your business are already party to contracts with arbitration clauses. Many credit card issuers (including all of the top 10 issuers), have them in their contracts. These clauses now routinely appear in health club memberships, pest control contracts, automobile contracts, insurance agreements--you name it.

We are already seeing small and medium size businesses adding such provisions to standard contract forms. There are many pros and cons, and each business should consult with its attorney, of course. But for background information, consider this:

(1) Filing an arbitration claim is more expensive than filing a small claims case. For businesses that are subjected to small claims cases frequently, arbitration can be a help.

(2) With arbitration, there is no such thing as a class action lawsuit. For business that worry about being harassed by the threat of class action lawsuits, arbitration can give added piece of mind.

I expect we will see the arbitration clause trend continue, even among smaller enterprises. This could mean a growth surge for attorneys who serve as arbitrators with organizations such as the American Arbitration Association and the like. Also, attorneys who serve the SMB market will do well to brush up on their understanding of arbitration clauses and how to use them to protect their small and medium business clients.
Thursday, October 09, 2003
Security for Small Business Computers
Large corporations can afford to hire armies of IT staff and have sophisticated resources to help secure their computer systems. But startups, home-based businesses, and other entrepreneurial businesses don't have that luxury. If you are an entrepreneurial enterprise in need of practical, understandable guidance, where do you turn?

Carnegie Mellon University's CERT Center has issued a pactical guide for indivudal computers and small networks. It is written in plain English (yes!) and is geared for those on limited budgets. Read the Guide here.
The Electronic Crimes Task Force and You
The U. S. Secret Service today kicked off the Cleveland Electronic Crimes Task Force. Created under the USA Patriot Act, this is one of 13 task forces in cities around the country.

The task forces are partnerships between government and the private sector to fight high-tech crimes. The emphasis is on preventing cyber-crime from happening, rather than relying on law enforcement activity after the fact.

As was pointed out by one of the speakers at today's kick-off, over 85% of IT infrastructure resides in private business. To prevent cyber crime, the government and business have no choice but to work together.

Dr. Melodie Mayberry Stewart, CIO for the City of Cleveland, pointed out how the impact of cyber-crime on businesses has grown dramatically simply because so much more business is conducted using the Internet. She stated, "As more and more services become Web-based, companies have greater exposure to hacker attacks and other disruptions."

This exposure is escalating. According to Carnegie Mellon University's CERT Center, the number of cyber incidents in the first 6 months of 2003 nearly equalled the number of incidents for all of 2002.

The takeaways from this task force kick-off? You've probably heard them before, but they bear repeating:

(1) Make sure all your business computers and networks are protected by firewalls and anti-virus software.

(2) Stay up to date with software (e.g., Windows) security patches and anti-virus definitions.

(3) Make sure your employees understand the importance of protecting their home computers. That way, if they log in from home, they won't inadvertantly create a "backdoor tunnel" into your business systems for a hacker or worm to enter.

(4) Keep an eye out in major media for alerts about worms, viruses and other attacks. Monitoring agencies such as the CERT Center notify the media with practical instructions on what to watch for and, importantly, how to recover from attacks.
Wednesday, October 08, 2003
Employee Buyouts
If you've ever considered selling your business to your employees, the Ohio Employee Ownership Center may be of interest. It assists employees interested in buying their companies, and owners looking to sell to employees.

Just yesterday the Center was awarded a grant from the Ford Foundation, allowing it to expand its work.

Small businesses can be hard to sell. In some situations, especially with unique businesses, selling the business to employees may be the only viable exit strategy.
Online Marketing for Your Business
One of the most cost-effective ways for a small business to supercharge its online marketing is to optimize its Website. The annual cost is relatively modest --typically $500-$2000.

For that expenditure, your site will be adjusted ("optimized") so that the pages will be indexed by the search engines more readily. That way, when someone searches on one of the search engines like Google or MSN, they are more likely to find your site.

More and more companies are optimizing their Websites. So many, that iProspect, a search engine optimization business, was just named as one of the country's fastest growing businesses to the Inc 500 by Inc. Magazine.
Tuesday, October 07, 2003
High Tech and Small Business in Demand
Software and IT-related firms: here's some good news. According to the Bureau of Labor Statistics, 8 of the 10 fastest-growing occupations in this decade will be technology based.

Here is the list of where the new jobs will be:

1. Computer software engineers, applications -- 380,000 jobs
2. Computer support specialists -- 490,000 jobs
3. Computer software engineers, systems software -- 284,000 jobs
4. Network and computer systems administrators -- 187,000 jobs
5. Network systems and data communications analysts -- 92,000 jobs
6. Desktop publishers -- 25,000 jobs
7. Database administrators -- 70,000 jobs
8. Personal- and home-care aides -- 258,000 jobs
9. Computer systems analysts -- 258,000 jobs
10. Medical assistants -- 187,000 jobs

But--as a report on MSN Money points out, this demand for high tech may be offset by the trend in high tech jobs moving offshore, to places like India. Click here to read more.

So, if there is demand for high tech, but it is moving offshore, then where is the opportunity for enterprising Americans?

According to the article, one source of export-proof jobs may be in small businesses. Even though payroll figures suggest 1.1 Million jobs were lost since 2001, another set of figures--measuring household employment--shows a gain of 1.4 Million jobs.

Why the discrepancy? Well, the payroll numbers don't pick up self-employed and very small, entrepreneurial businesses. The household tallies do, and they paint a picture of how America is being employed these days. More and more, it is in small and entrepreneurial businesses.

One takeaway: marry the demand for high tech with the trend for ever smaller businesses, and maybe that's where the opportunity for some enterprising individuals lies.
Government Contracts for Small Businesses
A significant number of small businesses are doing government work. Yet, overall, small businesses are not competing as effectively for government work as large firms.

That's according to a study reported in today's Wall Street Journal.

Small businesses report that less than 5% of their total sales come from government contracts (as a total amount of sales).

It's true, for a significant number of small firms, government work is part of their business. 21% of small businesses had direct contracts with government agencies. Another 15% were subcontractors to prime contractors who do work for the government.

When you consider that the vast majority of businesses (over 99%) are defined as small businesses, you can understand the conclusion that small businesses are not getting their share of government work. Guess that means those of us with small businesses have to try harder...or something.
Monday, October 06, 2003
Safest and Riskiest Small Businesses
What are the safest small businesses to start? And which ones are riskiest (most likely to be unprofitable and fail)?

An interesting site, www.bizstats.com, looked at profit and loss data for 2002, and came up with some intriguing answers. The site measures the percentage of businesses by category that show a profit each year.

One thing it shows is that professional services make the most profitable small businesses. Surveyors ranked first, with almost 94% showing an annual profit. Next are optometrists (93% profitable), dentists (92% profitable), and CPAs (91%).

Among those in the middle were data processing/information services (66% profitable); commercial equipment rental (62%); heavy construction (66%); metal fabrication (69%); and securities brokers (60%).

Down at the bottom were hunters and trappers--only 24% of them are profitable. OK, OK, maybe hunting and trapping isn't in your startup plans, but some other relevant examples are sobering. The fourth most risky business is manufacturing of computers and electronic products, with only 34.5% showing a profit. Among metal manufacturers, only 41% are profitable. And don't even think about opening up a video store, because more than half of them are unprofitable.
Small Businesses Depend on the Web
A 2003 study released this week by Interland, Inc. shows a revealing picture about small business and the Web.

Over 78% of small businesses report their companies benefit from having a Web presence. 51% say their Web site provides credibility. Another 33% said their Web site is their most powerful marketing tool. 28% rely heavily on their Web site to make sales goals.

Joel Kocher, chairman and CEO of Interland, said "This study shows that small and medium-sized businesses already on the Internet are finding it to be a true business tool, with 56 percent of those surveyed being able to attribute some portion of their annual sales to their online presence."

The study suggests that managing customer relationships through email is increasingly important: 68 % of small and medium-sized businesses communicate regularly with customers via email. This despite all the dire predictions about spam killing email.

An even more interesting point is this: 38% of small and medium businesses say they are not likely to do business with a company that does not have a Web site. This suggests that a Web site is becoming a prerequisite to be in business. Without a Web presence, your company may actually lose business.

Download a copy of the Interland Survey here.
Saturday, October 04, 2003
Management Skills, not Capital, Predict Success
It doesn't really matter how much startup capital you have. Startup capital is NOT the leading predictor of success, according to Inc Magazine. What matters more is your ability to manage a growing business.

Inc Magazine studied the companies in its Inc 500 list. Companies that started with less than $1,000 were as likely to be successful as those that started with more than $100,000.

Now, it's true that companies which started with more than $100,000 grew larger and faster. That's probably because they could afford to hire employees faster.

However, the companies that started with the most capital were actually less profitable on average than those that started with little capital.

Which says a lot about managing to a tight budget, doesn't it? When you get used to squeezing every penny, those habits carry on and make the difference in profitability.
Best Cities for Entrepreneurs
According to a report in Entrepreneur Magazine, the top ten cities for entrepreneurs in the United States are: Minneapolis/St. Paul; Washington, DC; Atlanta; Fort Lauderdale; Salt Lake City; West Palm Beach; Norfolk; Miami; Charlotte; Orlando.

Makes you wish you lived in one of these cities, doesn't it?

However, successful small businesses exist in every city. So don't let lists like this interfere with your perseverance. Good business owners find opportunity in their own back yards.
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