by Dr. Charles Toftoy
GW Professor
January 14, 2002

The USA’s entrepreneurial culture is the strongest in the world. The
9-11 tragedy and economic slowdown (hereafter termed the “dilemma”)
will increase the number of small businesses and new business
opportunities. Don’t forget that small businesses create 75% of new
jobs so when the economy downswings, entrepreneurship swings upward.
Actually venture capitalists will invest more then $35 billion in
start-ups this year.

The Impact

The dilemma has affected some sectors and geographies harder than others have, but almost every business has been impacted. Some businesses are in watchful waiting; others are pursuing their target markets with vigor. If you are a business owner, stalling for a turnaround in our economy, strong competitors will pass you by. Frankly, I think it will take us until the first half of 2003, or later to improve the economy. It’s tough to get lenders interest in an unsettled economy with less stable markets. Currently, 53% of lenders say they would be less likely to lend to global borrowers and 42% less likely to lend to small-medium businesses. Industries affected negatively by the dilemma: advertising, agriculture, airlines, autos, shipping, basic manufacturing, finance, global business, media and entertainment, real estate, technology, tourism. The dilemma hurt or will hurt 48% of all small businesses in sales revenue.

Since 9-11 about 642,411 jobs have been cut which is more than the 12-month totals for every year from 1993 to 1997. Telecommunications led all industries in downsizing (25,178 in November 2001).

Examples: Motorola is cutting 9,400 jobs leaving the company with 48,400 employees compared to 150,000 in August 2000. Lucent Technologies plans to cut 49,000 jobs from its total of 106,000. Quest Communications is cutting 7,000 jobs. Commercial insurance has had probably the hardest hit with losses up to $70 billion in the industry. Premium prices are rising from 50-100% thus it becomes unaffordable. Actually rising insurance costs are business owners biggest problem. You can just pick out certain areas of the country where terrorism has affected many industries. For example, San Antonio’s tourism industry will lose $100 million as a result of terrorism. Some non-profits, nationwide, have lost half of their endowments.

These scenarios are common throughout the USA. In another arena, more than 15,000 restaurant workers have lost their jobs nationwide. Services employment has been cut 111,000 jobs in October, 2001 – the biggest one month decline since 1939. Most of the job cuts are sharper at hotels, auto rental agencies, airlines, building services, retailers, and restaurants. NYC alone stands to lose 105,200 jobs in the 4th quarter. Actually NYC faces a $21 billion loss, on an annual basis, due to the World Trade Center attacks. Consider the losses to business in securities, insurance carrier, legal, computer and data processing services, which occupied the majority of space in the WTC and surrounding damaged buildings. Eight Broadway shows closed; three shows are producing 1/3 of Broadway’s total gross. Close to Ground Zero a Subway sandwich shop is down 75% in business, owner lost 5 weeks of pay while store was closed, and he used to have a 7 minute commute, now it is one hour.

There are many horror stories to relay as a result of the dilemma nationwide – not just in NYC. About 21% of the 331,000 jobs lost in November, 2001 were white collar and 25% of laid off managers, over the age of 40, started companies in the late 1980s, early 1990s. These are the type of people that might start their own business, which was one of my earlier points. Now that we understand about some of the impacts of the dilemma, let’s uncover suggestions to assist those who want to start-up and those who have been hurt by the dilemma.

The author is the Director of the Entrepreneurship/Small Business Program and Faculty Coordinator for the Cooperative Education program at The George Washington University. Dr. Toftoy was a 1999 National Entrepreneur of the Year award recipient. he was judged by Ernst& Young as one of the top Entrepreneurs in the Nation in the supporter category. He is also a highly decorated, twice wounded U.S. Army Vietnam Veteran.

Dr. Charles N. Toftoy
Director,
Center for the Advancement
of Small Business