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Entrepreneurs have opportunities to seize: small businesses still face the threat of extinction but can survive into the 21st century.

On June 17, Jerry Damerow addressed the Association of Arkansas Entrepreneurs. He touches on the same points in this article about the future of entrepreneurs in Arkansas. Damerow is a former partner with Ernst & Young who was transferred to Little Rock to establish the company's state Entrepreneurial Services Group. He was then transferred to an international assignment before leaving the firm to return to Arkansas. He operates the Gerald A. Damerow & Associates consulting firm, focusing on helping clients with planning and managing growth.

Are entrepreneurs becoming extinct?

I asked this question before a gathering of the Association of Arkansas Entrepreneurs, a group not unbiased on the topic.

It's a reasonable question.

Many of yesterday's small, family-owned businesses have gone the way of the Northern Spotted Owl -- they still exist, but their habitat is threatened by other species.

In the '60s and before, a typical family business might have been a corner drug store, a bakery, a car dealership, a small print shop, a small insurance agency, or one of a variety of small, specialty retail shops.

Since the '60s, a variety of fast-food franchises, video rental stores and personal-computer related businesses have come into vogue and are popular with the more entrepreneurial among us.

These types of businesses all share a common problem: the threat of extinction.

This doesn't mean they all will become extinct. But, to survive, the entrepreneurs who run them will need to master new skills and build new relationships.

We are living through an unprecedented period of change.

Most of us grew up in the post-World War II period during which the U.S. dominated the international marketplace. I don't think we fully understood all the ramifications of this dominance. We took it for granted, and we don't have a broad enough understanding of the new global economy.

Another monumental change relates to size. Big is no longer beautiful. Corporations are down-sizing, shedding subsidiaries, chopping themselves up into smaller business units.

Governments are doing the same. The Soviet Union rapidly broke up into independent republics. Californians want to divide their state, if the San Andreas fault doesn't do it first.

On top of all this, business structures are changing.

Internally, the corporate pyramid is becoming the corporate pancake.

It has been predicted that business organizations of the future will look more like symphony orchestras, with the chief executive officer conducting a team of highly skilled specialists capable of functioning with little supervision from above.

External structures are changing as well.

The "movie studio" model is coming into vogue in other industries. Movie studios operate with a relatively small cadre of employees until production begins. Then, a team of specialists (actors, producers, directors, gaffers -- whatever they do) are convened for the specific purpose of producing the movie. Increasing numbers of businesses are moving this way.

On top of all this, international economic structures are changing. The world seems to be moving toward a series of more integrated markets that may then evolve into trading blocs. Most notable are the European Economic Community and the North American free trade zone. But similar alliances are emerging in other parts of the world.

Businesses are also developing alliances, often with competitors, that span the globe.

The velocity of change is increasing so much that businesses of all sizes are having difficulty keeping up. This is true of virtually all industries, but the computer industry is one of the most dramatic.

Next year, Intel Corp. plans to introduce, well ahead of schedule, its 586 microprocessor that is being called a "one-chip mainframe." This seems astounding enough, but economist George Gilder predicts that, by the year 2000, we will have a chip containing one billion transistors able to process two billion instructions per second that will sell for less than $100.

Even if Mr. Gilder is somewhat off in his prediction, the trend is obvious and the velocity of change we are experiencing today will seem slow by the year 2000.

The Big-Business Takeover

The markets of yesterday's small businesses are increasingly being taken over by larger businesses. Highly efficient companies who have mastered technology and developed flatter, leaner organizations have emerged to take over markets formerly dominated by small businesses.

There is no better example of this than our own Wal-Mart Stores Inc. Some have criticized Wal-Mart for its impact on smaller businesses. This is unfair since it simply has been smart enough to benefit from massive changes in our economic environment.

There are many more examples of big businesses taking over entrepreneur's markets. Kroger Food Stores and Harvest Foods are much more than grocery stores these days. They have introduced a vast array of new departments into their stores competing directly with small businesses such as flower shops, bakeries, equipment renters, buffet dining facilities, packaging and mailing services, drug stores and video rental stores.

This phenomenon is not limited to the retail sector. Big accounting firms are targeting the clients of smaller firms with increasing effectiveness. Well-financed national franchises (Century 21, Midas, H&R Block, etc.) have emerged in every conceivable business sector to compete against local independent entrepreneurs.

To make matters worse, many big companies are going to "just-in-time" inventory methods. One result is that entrepreneurs who formerly acted as middlemen are being squeezed out of the distribution system.

Once again, Wal-Mart is in the forefront in adopting a company policy of not dealing through manufacturers' representatives. Interconnectivity is the wave of the future wherein a company's computer is tied directly to its suppliers' computers and orders are placed automatically. Small businesses are, for the most part, the victims of this increased efficiency.

Keeping Up With Changes

Technology is cutting into entrepreneurs' markets in other areas.

Inexpensive computer software is available to prepare tax returns and common legal documents such as wills. This hurts the small, entrepreneurial law and accounting firms much more than the big guys.

Desktop publishing enables businesses to do slick in-house publications formerly sent out to a print shop. Travel arrangements can now be handled using the home computer.

Thus, it seems reasonable to ask: Are entrepreneurs becoming extinct?

Surprisingly, the answer to this question is an emphatic no.

But the safety net many entrepreneurs enjoyed in the past due to strong U.S. economic dominance around the world is gone.

During those days the favorite motto of entrepreneurs was: ready, fire, aim! This motto must now be discarded if entrepreneurs hope to survive the new world order.

Not only is entrepreneurship alive and well, it will explode in the decades ahead. For one thing, flattened corporate pyramids are breeding a new genre of older, more experienced, sophisticated entrepreneurs.

Arkansas is benefitting from this trend.

What's more, it will benefit even more in the future since it seems there is a large number of highly experienced native Arkansans who would love to return to the Natural State.

Some of these will lose their middle management positions around the country and will move back to form a company or join an existing entrepreneurial business. Others will see the increasing opportunities in Arkansas (and the declining opportunities in other parts of the country) and quit their jobs to come back.

In the next decade, Arkansas' brain drain problem will reverse.

Inc. magazine recently reported the number of businesses in the U.S. rose 54 percent during the 1980s while the population grew only 10 percent.

In 1990, the IRS reported there were 4.4 million corporations, 1.8 million partnerships and 14.2 million sole proprietorships. Most of these are small businesses, since only about 7,000 U.S. companies have a payroll exceeding 500 people.

Ernst & Young has projected that by the year 2000, 85 percent of all Americans will work in a company of 200 or fewer employees.

By the year 2000, futurist Rowan Wakefield predicts, 40 million businesses will operate out of the home doing things from selling lobsters to providing information services to big companies. Inc. went on to say that small companies these days are hotbeds of technology and, even more important, are nodes in invisible networks of subcontractors, franchisees, joint ventures, and strategic alliances that can span the globe.

The State Can Profit

Technology will make location less important. Many tasks formerly performed in metropolitan areas will be performed in places such as Marked Tree.

The Arkansas-based Wilowe Institute has already launched a project called "Communities of the Future" to explore how Arkansas can benefit from such trends.

Arkansans excel as entrepreneurs. But where are they going?

According to Ernst & Young, 20 million of the 21 million new jobs generated by the year 2000 will be in the service sector. Instead of building products, more and more entrepreneurs will deal with information, the key commodity of the 21st century.

This is not to say that manufacturing will be less important. However, due to high capital cost required to manufacture with state-of-the-art technology, more and more manufacturing will be done by larger companies and it will be less labor intensive.

Because of extremely short product life cycles, entrepreneurs will not build production facilities for products they develop. According to Ed Moldt of Wharton, they will rent manufacturing space or contract with flexible manufacturing facilities to manufacture their products.

A trend toward outsourcing will grow dramatically. Arkansas is well-positioned to benefit. Systematics Inc. of Little Rock is a great example of the explosive growth in outsourcing.

Health-care services will explode, and this should be a major growth area in Central Arkansas with its large health-care industry.

Environmental Issues

The recent conference on the environment in Brazil signaled the start of a new era of concern.

Arkansas is positioned to play a lead role in the environment. We already have successful companies operating in this area -- we have the National Center for Toxicological Research, and we have relevant research being performed in our universities and hospitals. The Wilowe Institute's Technology Committee is actively working to bring together these resources.

The United States trails Japan in the area of robotics. However, this is expected to change and Arkansas is fortunate to have several companies working in this area. The University of Arkansas has a center for development of automated material-handling methods, and our university system is turning out many fine engineers already contributing to our economy.

Two such engineers, rather than leave the state for lucrative positions they easily could have commanded, stayed here and formed a company called Intelec Systems, now a leader in applying bar code technology.

With the trend toward low cholesterol diets, fish farming is predicted to be a major growth area. The state's experience with catfish farms, and our generally favorable climate, should bode well for this industry.

Increasing concern about "ergonomics" is expected to fuel demand for new types of furniture and accessories for the workplace that eliminate physical problems often tied to prolonged use of computers and other high-tech equipment.

With Arkansas' large retirement population, elder care services should be a great area of opportunity.

Indeed, entrepreneurs are not becoming extinct. A new breed is emerging. The motto of this new breed is "ready (very ready), aim (carefully), fire!"

These entrepreneurs will know how to deal with the shortage of competent labor we will be facing. They will master techniques for dealing with product life cycles as short as one year and they will rent or jointly own flexible manufacturing facilities. They will be experts at marketing because they will know that only those who master the finely diced markets of the future will survive.
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Author:Damerow, Jerry
Publication:Arkansas Business
Date:Aug 10, 1992
Previous Article:The American dream: starting a new business is not for the weak of heart but it still can work out.
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