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Small Business Roundtable

Local business owners: Positive economic outlook should be viewed with caution

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A growing theme within San Diego’s small business community is that of cautious optimism. As the economy shows signs of slowly getting better, hopes are rising slowly as well. But as the first quarter of 2011 comes to a close, a Daily Transcript executive roundtable revealed that many small businesses still aren’t sure what to expect.

The roundtable brought together the heads of several small businesses, as well as companies that deal with those businesses regularly, just a day after the release of Union Bank’s Annual Small Business Economic Survey.

In many respects, the participants echoed the encouraging news of the survey, which found that more San Diego small business owners report a more positive outlook for 2011 than 2010, especially when talking profits, hiring and capital expenditures.

Among the roundtable participants was Tony Vigil, assistant deputy director for the U.S. Small Business Administration. Especially encouraging, he said, is the rapid increase in small business loans guaranteed by the SBA.

“Business is good,” Vigil said. “It’s gone up 30 percent in 2010 from ’09. And this year, we’re 56 percent ahead for the first five months over the first five months of last year.”

Vigil also noted that roughly 155,000 new small businesses have sprung up across the nation in just the last 10 months. Monty Dickinson, the immediate past president of SCORE San Diego, a nonprofit small business consultant, has noticed activity pick up as well. Dickinson recalled that at the time of the economic plunge in 2008, attendance at his workshops plunged with it.

Just more than two years later, the differences are apparent, he said, with attendance levels now meeting or exceeding those before the dip.

But that excitement was met with a level of skepticism.

Lora Heramb, vice president of Brookfield Homes, said her customers give her insight into the big picture -- and it’s often not encouraging.

“From our customers, it is extreme caution,” Heramb said. “They are still very, very afraid. I don’t care what price range, where we’re located -- whether it’s in Chula Vista or in North County.”

From there, caution became the buzzword of the hour-long discussion. Three others, including Dickinson, used it to describe the outlook for the year ahead, even as they saw positive ends to 2010.

What may look good now may actually be a sign of more of the same, some noted.

“I think that the starting (of) new businesses can be deceptive,” said Michael Grossman, president of First Dental Health, “because of the fact there are so many people that don’t have jobs, that have no place else to go except to start new businesses.”

Others agreed that not every uptick in business translates to a better economy. Vincent Mudd, who heads the regional chamber of commerce and provides analysis to the city of San Diego on its finances, is also the president of a business outfitter and consultant, San Diego Office Interiors.

His company closed out 2010 with its best year since 2007. But that success came with a twist. The growth, he said, came on the consulting side of his business, where he found many of his customers needing to downsize through office design and management services.

“A lot of it was shrinking companies,” Mudd said. “In other words, we went to a number of companies that were in big buildings, and we showed them how they could get into smaller buildings.”

For the first time ever, consulting accounted for more than half of SDOI’s overall business, Mudd added.

Similarly, Jose Marquez of GM Business Interiors said his company experienced unprecedented sales in 2010. But he remains concerned because the growth came almost entirely from the public sector.

“The (public sector) investment that is being made in the local economy is huge,” Marquez said. Beyond the public sector though, Marquez said business is “minimal to non-existent.”

Among the biggest hindrances to growth that still remains, many of the panelists agreed, is the tight lending market. In a personal account of his struggle to secure financing, Mudd said his company recently approached two large banks to fund the addition of solar panels to its operations building. Both banks, one of which was the company’s bank of business, denied the request, with one telling him the loan request was too small. Another small bank offered to finance the additions only if SDOI became its customer.

“When the banks remove themselves from playing in that field because there are larger opportunities for banks where they don’t have to get their fingers dirty -- with us under-$40 million companies -- you’re driving these $40 million companies into the ground,” Mudd said.

Vigil offered a suggestion for companies struggling to secure financing: Don’t go for commercial loans. Some people aren’t aware, he said, that a bank’s commercial loan department often favors large, highly rated companies. Asking specifically for the SBA department can sometimes avoid an inevitable denial, he added.

Lydia Bock, owner of positioning and navigation system producer Geodetics, said the current lending market poses a particular problem for businesses like hers, where financing needs to go far beyond startup capital. She built her company on mostly private capital around 10 years ago, well before the market slumped. If she was starting today, though, she doubts she’d survive because working with the military leads to a lengthy development cycle and costly marketing.

Mudd said the sooner companies realize that the current market is the new “normal” --and act accordingly -- the sooner they’ll begin to flourish.

“I think it’s OK, because what was happening -- which was just life being financed through credit and debt -- was never sustainable,” Mudd said. “But we all built our business models to participate in that Ponzi scheme.

“And now, the fact of the matter is, that’s just not the way growth is going to happen any more. I think this will be the year when that becomes the most true.”

Related article: Is your office sending the right message about your company’s mission?


Roundtable Participants

Lydia Bock, Owner, Geodetics

Monty Dickinson, Immediate Past President, SCORE San Diego

Michael Grossman, President & CEO, First Dental Health

Lora Heramb, Vice President, Brookfield Homes

Jose Marquez, Principal, GM Business Interiors

Vincent Mudd, President & CEO, San Diego Office Interiors

Tony Vigil, Assistant Deputy Director, U.S. Small Business Administration

Vicky Zillioux, Chief Administration Officer, Strategic Development Worldwide (Sponsor)

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