Small business, big trouble.

Competition from the Internet and forward-thinking chains are making it tough for gay-owned businesses to keep their doors open

When the news came in December that Mulryan/Nash Advertising--one of the biggest providers of national ads to gay and lesbian newspapers--was closing its doors without paying its debts, Jim Thomas had a gnawing feeling he knew what it meant for the News-Telegraph, the gay and lesbian newspaper he'd published and edited since 1981.

"The paper had been straggling for some time." Thomas says, citing the total loss of revenues from viatical companies since the mid 1990s and the radical waning of phone-sex mid telepersonals ads with the advent of the Interact. "The Mulryan/Nash fiasco was the fatal blow."

The News-Telegraph, with 14,000 copies distributed semimonthly in St. Louis and Kansas City, Mo., published its last issue January 14. Without the $5,000 Mulryan/Nash owed--about what it; cost to put out, each issue--the paper could not go on.

The News-Telegraph is not alone. At least half a dozen gay and lesbian papers have folded during the past few months, including Edge in Los Angeles; the San Francisco Spectrum and Creampuff in San Francisco: David Magazine and Ms. David Magazine in Fort Lauderdale, Fla.; and "One in Ten," the gay and lesbian supplement to the Boston Phoenix.

Although in the last few years there's been much media attention prod to the supposed power of gay consumers, many lesbian and gay businesses that once made up the backbone of their local communities are struggling--and often failing. Along with newspapers, many gay and lesbian bookstores and coffeehouses have closed or are in serious financial trouble.

Business analysts and gay and lesbian businesspeople agree that the economic woes are due less to discrimination than to a history of poor business acumen, new economic forces such as the Internet, and radical changes in social attitudes--from both mainstream businesses and lesbian and gay consumers.

Part of the problem, experts say, is that many establishments were founded on community service principles rather than sound business practices.

"I opened the store for an ideological cause." says River Artz, whose gay, lesbian and feminist bookstore Pandora Books for Open Minds closed last October after 18 years in Kalamazoo. Mich. "I didn't know much about business then. My goal wasn't to of money."

Artz's philosophy has been the rule rather titan the exception. "A lot of gay businesses are rooted in gay politics," says Per Larson, author of Gay Money and a financial adviser to gay men and lesbians in New York City and the Hudson Valley. But such attitudes are "a relic of the past," he says. "Any business that tries to operate like that now is going to find fast [that] the only place it has in the gay and lesbian community is in the history books."

Grant Lukenbill, author of Smart Spending: The Gay and Lesbian Guide w Socially Responsible Shopping and Investing, says that most often when lesbian and gay businesses fail, it's because they did not adhere to the three basics of running a small business being well-capitalized, gathering solid consumer research, and executing an aggessive marketing strategy.

Thomas acknowledge that the News-Telegraph was always poorly financed. The paper was initially put together on Thomas's living room floor, with no capital investment beyond the $2,000 in prepaid ad sales it took to print the first issue. Securing a bank loan or getting an investor for a gay paper would been unthinkable back then, says. Furthermore, those running the paper were "willfully naive about business," Thomas adds. "We were quasisocialist Advertising was a necessary evil at best." By 1990, when Thomas his coworkers realized they to become more business-savvy it was too late. Thomas's inquiries bank loans were met with "a point-blank response that no one was going to give us money because of our hand-to-mouth existence," he says.

Today, most gay and lesbian businesspeople believe that both the money and the willingness are there for lesbians and gay men looking for loans to start a small business. "The sources of investment capital are available today more than ever before," says Walter Schubert, founder and chairman of gfn.com, the Gay Financial Network.

"I don't hear discrimination stories about bankers and investors turning down people because they are gay," adds Joe Sprague, executive director of the Chicago Area Gay and Lesbian Chamber of Commerce.

What is more likely to stump these businesses, however, is the lack of market research on gay and lesbian consumers. "It's very difficult to demonstrate the size of gay and lesbian market," Larson says. "The best that most gay businesses can do is speculate. But in today's business climate you have to be able to pin down the numbers."

The lack of statistics on gay and lesbian consumers is particularly harmful to small local businesses. Statistical models that put gay consumers at, say, 10% of the population are much more likely to hold true at a national level. But in small towns or cities the numbers may not necessarily pan out. Just because a gay and lesbian business operates in a city of 200,000 doesn't necessarily mean it has 20,000 gay and lesbian customers, says Jeff Swanson, owner of Sons and Daughters, a joint coffeehouse and bookstore in Grand Rapids, Mich. Before opening in 1990 Swanson did extensive research and came to the conclusion that the local population could not support, a business that was only a bookstore or only a coffeehouse--but it could support one that was a mix of the two.

In the past two years Michigan has seen at least three gay and lesbian bookstores fold. Swanson has managed to stay in business, he says, by changing with the times. "I don't always like the changes," he admits, "but you have to do it to survive." When he first, opened, about 80% of his merchandise consisted of books, Today, they make up only a quarter of his inventory. Magazines make up a larger percentage of sales than ever before, with an emphasis on "skin magazines." The rest of the merchandise is "trinkets," such as jewelry, T-shirts, "and anything you can slap a rainbow flag on," he says.

The character of the books on Swanson's shelves has shifted dramatically too. In the early '90s megastores such as Barnes & Noble changed the book retail business by offering discount prices. Gay and lesbian bookstores were particularly affected, notes Avin Mark Domnitz, CEO of the American Booksellers Association, an organization of independent bookstores. "The sweeping change in business tactics was accompanied by a sweeping change in attitude," he says. "It became socially acceptable--and economically feasible--[for a mainstream chain] to carry gay and lesbian books."

Accompanying that social change was an attitude shift in many gay and lesbian consumers. "It is no longer enough that a store is gay-owned," Per Larson says. "Gay customers look at, choices and prices too."

In response to the megastores, Swanson began focusing on books the chains wouldn't carry, "from topics like gay Catholics to fetishes." His coffeehouse business, on the other hand, has changed little over the years. "We found that what people are really buying at a gay coffee shop is gay atmosphere," Swanson says.

But in large cities the increasing acceptance of gays and lesbians in society has made the "all-gay" atmosphere less of a commodity, as Franny Price found in Philadelphia. Even though it was located in the heart of the city's gay and lesbian community, her coffeehouse closed in May 1998. The business had opened in June 1992 as a leather and cowboy goods store. Price eventually turned it into a combination coffeehouse and leather shop, advertising it with the catchy phrase "If you're a slave to java, then Franny's is where to go to be served." But patrons, many of whom were too embarrassed to buy erotic leather goods in front of coffee drinkers, stopped frequenting the store. The landlord refused to allow cooking, which restricted Price's opportunity to cash in on food sales. Competition from other coffee shops was fierce--four other gay-friendly coffeehouses were within a few blocks. "I had to sell 4,000 cups of coffee a month," she says.

As gays and lesbians become more and more mainstreamed, many analysts believe there will be a decreasing demand for gay-focused businesses. "The future is to be an openly gay business owner that caters to everyone," Larson predicts.

Others, however, believe the gay and lesbian community loses more than a publication or a business when a gay paper shuts down or a gay coffeehouse or bookstore closes. "When a business like that goes under, it leaves a huge social gap," Thomas says. At the same time, however, he recognizes that businesses must adapt to a new economic and social world. "The bottom line is that all the social good they do is for naught if they can't keep their doors open," he says.

Back in St. Louis. Thomas is getting another chance. New backers--this time with proper financial support--have recruited him to edit a new gay and lesbian paper, scheduled to hit the stands in June. "This time," he says, "we're going to operate with a lot more business sense."

Dahir has written for Time, Redbook, Men's Fitness, and other magazines.