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Roundtable discussion

Small business owners remain optimistic despite rising costs, competition

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Small-business lenders at a Daily Transcript roundtable in February predicted 2014 would be the year the lending market really bounces back from the recession.

Their counterparts on the business side had a chance to chime in Thursday, and they said that although the local market is still fairly flat, they’re optimistic about the future.

“Everything is bumping along. It’s better than it was in 2008, 2009 and even 2010, but the slope, the trajectory is very flat,” said Roger Ball, president of Rick Engineering, on the pipeline for architects, which is seen as a measure of the need for future service work.

“Their work is picking up, they’re happy for the work that they do get, but we’re not in a competition for employees like occurred in 2004, 2005 and 2006 when we couldn’t find enough people,” Ball said, noting that his engineering firm has seen a slight uptick in work over the past few years, but with thin margins.

Tim Penick, president of construction firm T.B. Penick & Sons Inc., said deal velocity in San Diego “is just OK,” and Corky Mizer, CEO of roundtable sponsor Corky’s Pest Control, said the company’s discretionary money has dried up to a mere 10 percent.

One sector experiencing growth is information technology and security.

“In the consulting arena we have seen a little bit of a pickup. Especially working with schools and bond programs, we’ve seen a little action there over the past five years, which had been a real, real struggle just to stay in business,” said Darryl Vidal, vice president of Networld Solutions Inc. “So I do see things picking up.”

Jim Matteo, CEO of Bird Rock Systems, agreed that his company has also seen a healthy market and strong demand for labor. Although most noncyber sectors present at the roundtable said they’re not experiencing any business boom to speak of, all were confident about the future of San Diego’s small-business community.

“I might not sound like it, but I’m very optimistic,” Mizer said. “And I think you’re talking about San Diego -- we’re a world of our own here really, as far as I’m concerned.”

Ronson Shamoun, CEO of RJS Law, said he is concerned about tax and regulatory burdens on small businesses, but echoed this positive outlook for the future.

“I’m optimistic, too,” Shamoun said. “I mean, it’s going to be slow but we’re going to get there -- just not as fast as we anticipated or want to. But I’m very optimistic.”

Increasing tax, health care burdens and uncertainty, competition from international firms, and a regulatory environment not conducive to quick decisions are samplings of what’s holding back growth in the San Diego small-business arena.

With rising costs for health care shaving already razor-thin margins, several executives said their companies have had to entirely reconfigure their benefits packages.

“I think the uncertainty overall is the big question, because our premiums in health care had been rising well before the [Affordable Care Act] and now they’re really starting to go up to the point where when we put together packages, I start to wonder about [the employee’s] family,” Vidal said. “Because as a small business we provide all the health coverage, a complete package, and so we’re looking at restructuring that whole thing and going to a ‘you pay for yourself and you do your family’ type of thing, just to address that.”

He said the uncertainty about when the federal changes will take effect and what they’ll ultimately look like is an even larger issue than rising costs.

“The big problem with that is they’re making changes just on the fly, and a business is not going to change their strategy based on someone saying, ‘Well we’re not going to enforce this part or were going to push this off’ -- I can’t bank on that contingency, so I have to plan on what I know.”

In addition to these federal regulations, the construction and lending representatives said California’s notoriously slow decision making when it comes to land use is also a major harness on growth, particularly given San Diego’s lack of available land.

“I worked with a national developer some years ago in East County, and it took him six-plus years to get the first shovel in the ground on their project,” said Ray Weamer, vice president of City National Bank. “And they went to Texas and did a build-to-suit in eight months. You can’t time a market from a lender’s standpoint on what a market’s going to be in six years on a project.”

Not only is Texas draining some local prospects, but pressure is increasingly coming from large international companies.

Most executives at the roundtable agreed that this competition, including attempts to buy out smaller local operations, has been an issue for several years, but Patricia Butler, CEO of BRG Consulting, said she has seen a dramatic increase as of late.

“What’s been happening to us in the last year is we’re losing out to firms that are huge,” Butler said. “So even though I have over 30 years of demonstrated good experience and our documents hold up to every legal challenge, they’re hiring international firms, and the client doesn’t know who’s really working on that document. … This started with a vengeance in the last five years, but it’s accelerated so that I am now one of only two other individually held environmental planning consulting firms in San Diego -- all the rest have been bought by large engineering firms.”

Michael Owen, chief credit officer at CDC Small Business Finance, said he’s seeing this in the larger Los Angeles market, as well.

“We cover Los Angeles and we’re seeing a lot more Pacific Rim influence and buying that’s changing some of the bank’s approach to try to gain some of that business,” Owen said.

Even with these growth speed bumps, roundtable participants agreed that San Diego is still a prime spot for small businesses, in part because of its entrepreneurial culture, stoked by the top-notch local schools.

“I think [San Diego] is unique too, in that there’s a great entrepreneurial climate here,” Matteo said. “I’ve seen that there are a lot of businesses, a lot of new companies starting up, and it’s always that way in San Diego. Even where we work. At Bird Rock, we work in the midmarket and enterprise space, and you see a lot of new companies come in, and I think that’s one of the big advantages that San Diego has with the universities and amount of entrepreneurship that’s active here.”

Roundtable Participtants

Roger Ball, President, Rick Engineering

Patricia A. Butler, Executive President and CEO, BRG Consulting

Jim Matteo, CEO, Bird Rock Systems

Corky Mizer, Owner/CEO, Corky's Pest Control (roundtable sponsor)

Michael Owen, Chief Credit Officer, CDC Small Business Finance

Tim Penick, President, T.B. Penick & Sons Inc.

Ronson J. Shamoun, Principal and CEO, RJS Law

Whitney Sibley, Management Director, The Mendes Company

Darryl Vidal, Vice President, Networld Solutions Inc.

Ray Weamer, Vice President, City National Bank (roundtable sponsor)

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