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Hot industries for small businesses.

Tracking consumer and business needs over the next decade is key to finding your entrepreneurial niche in the 1990s.

Finding the right business opportunity is like hunting for buried treasure. It's costly, time-consuming and there's no guarantee you'll hit pay dirt. Entrepreneurs can often be heard asking themselves the following questions during their quest: Is this industry recession-proof? Can I establish a niche? How much start-up capital will I need? Can I capture a significant size of the market? What are the industry trends?

Not easy questions to answer. However, President Clinton's vow to bolster the nation's small businesses offers would-be entrepreneurs hope. To help you on your search, BLACK ENTERPRISE has selected four industries we believe offer the best opportunities for black business owners.


The temporary help industry has done an about-face. Remember when temp agencies placed only secretaries and entry-level clerical workers? Those days have gone the way of the rotary phone. What happened, you ask? The industry was forced to go upscale to keep pace with the ever-changing needs of corporate America. Today's cutting-edge agencies now place such highly skilled professionals as computer programmers and paralegals.

The increased demand for a new breed of temp agency has spawned a host of business opportunities for African-Americans.

"When most people think of this industry," says Samuel R. Sacco, executive vice president of the National Association of Temporary Services (NATS), an Alexandria, Va., trade organization, "they think of the blue-collar segment. But the professional technical segment is seeing more growth."

The industry as a whole is growing. For the past two decades, the percentage of temp workers in the labor force has more than quintupled. According to NATS, revenue for 1991 was $20 billion, up 1.4% from 1990, and the industry's annual payroll also jumped 1.4% in 1991 to $14.5 billion. Modest growth, yes, but industry observers expect those numbers to rise as the economy creeps toward a full recovery.

"This is a great area," notes William J. Dennis, a senior research fellow for the National Federation of Independent Business Foundation, a Washington, D.C., small business research group. "Temps will be a thing of the future. We are seeing businesses attempting to scale back their labor force to meet customer demand. One way to do that is through temps. They allow companies to handle various sizes of demand without increasing fixed labor costs."

According to Sacco, the regions to watch are in the South and Midwest, specifically Florida, Georgia, the Carolinas, Oklahoma, Missouri and Kansas. "Those areas have experienced growth," Sacco notes. "A lot of companies have left the Northeast. The South and Midwest weren't as badly affected by the recession." Another popular region is Washington, D.C., where a number of government agencies rely on temp help.

The industry continues to be a reactive one. It doesn't drive workplace trends; instead, it reacts very quickly to them. One of the key challenges business owners face for the remainder of the decade is to quickly respond to shifting customer needs. For example, 10 years ago, if a company president needed a secretary, the only requirements were that she type 50 words a minute and have a small degree of telephone savvy. Not anymore. The workplace has gone high-tech and become more complex. Today's secretaries are computer-literate and can operate intricate spreadsheet programs. It has become even more critical for agency owners to upgrade a temp's skills to meet higher performance standards.

Thats exactly what Rosalind Clifton, president of Backlog Ltd., is trying to do. Backlog is a 4-year-old Chicago agency that grossed $700,000 last year. Clifton says she offers all her temps (for a slight fee) a six-hour multimedia training course. "In the past we just relied on a quick test and some references before sending our people out," notes Clifton, whose agency places medical claim examiners, clerical/customer service support staff and word processors. "Now we test them on a computer system to see if they know WordPerfect If they don't, we train them so we can give the client exactly what they're looking for."

It will take that kind of forward-thinking strategy for more black temp agency owners to succeed. Although the industry outlook is promising, the field remains fiercely competitive. Such upper-echelon agencies as Manpower Inc. in New York and Chicago's Kelly Services continue to monopolize clients. For example, according to Staffing Industry Report, a Cupertino, Calif-based industry newsletter, in 1990, those agencies alone had 1,407 and 935 branch offices, respectively.

Cynthia Cruickshank, president and CEO of Unique Support Services Inc., a 9-year-old New York agency, complains that most potential customers stick with agencies they've been doing business with for the last 10 years. For instance, Cruickshank says it took her four years to finally nab Merrill Lynch & Co. Inc., the New York-based securities brokerage firm, as a client. "I called persistently, sent them introductory letters and profiles of my company, and all they said was they already had a list of vendors and they didn't need my services," Cruickshank recalls. "Then, all of a sudden, I got a call and they wanted me to do a proposal for them. I got the business in 1987 and provided them with secretaries and word processors."

Competition isn't the only industry drawback, however. Entrepreneurs must have deep pockets--or know someone who does--to start up a temporary agency. Covering payroll, taxes and insurance often overwhelms many fledgling business owners. Industry sources say that, depending on the type of agency you're launching, start-up costs can range anywhere from $50,000 to $125,000.

Cruickshank's figures are even higher. "If you want enough start-up capital, you should have $500,000 to make sure your temps are paid and that you have money until your receivables come in."

Launching a franchise for such BE FRANCHISE 50 companies as Norrell Services Inc. in Atlanta and Snelling & Snelling Inc. in Dallas, however, is considerably cheaper. Start-up costs can go as low as $60,000. Remember, the franchisor bankrolls most of the investment.


In the age of 50-hour work weeks and dual-income households, who has time to cook? That's the point-many of us don't. And that suits restaurateurs just fine. According to the National Restaurants Association (NRA), a Washington, D.C.-based industry organization, sales for the food service industry are projected to hit $267 billion in 1993, up from $255 billion in 1992. (The food service industry covers all food not prepared at home, including airline meals and takeout food.)

Food service sales have risen dramatically since 1970, from $42.8 billion to the projected $267 billion this year. Franchised restaurants' sales have also been cooking. Franchising in the Economy 1991, published by the International Franchise Association, a Washington, D.C., trade group, reports that revenues for franchised restaurants were expected to reach $85.5 billion in 1991, a 9.8% increase from 1990 (latest available figures). Also, the Bureau of Labor Statistics (BLS) predicts that in sectors dominated by small firms, the restaurant industry is projected to contribute the largest number of new jobs, at 2.2 million between 1990 and 2005.

Why the jump in all categories? "People are relying more and more on other people to prepare food," says Wendy Webster, an NRA spokeswoman. "Their lives are too busy. People don't have time to make breakfast, lunch and dinner every day."

Eating and drinking places continue to be dominated by small businesses. The NRA says that nearly three out of four (72%) of these establishments had annual sales of less than $500,000 in 1987.

The hot growth area in the food service industry is the off-premises sector, which includes all delivery, takeout and drive-through restaurants. While the NRA says on-premises restaurant traffic didn't go up between 1983 and 1990, off-premises traffic rose 40%. To capture a greater segment of that emerging market, more table service restaurants have established takeout counters and delivery service. "It's what America demands," says Webster, noting that pizza, French fries, hamburgers and chicken are the most popular foods for off-premises dining.

Another big trend is the growing interest in various ethnic cuisines. Traditionally, the American diet consisted of two staples: meat and potatoes. When Americans wanted to try something a little risque, that meant eating Chinese or Italian. Now the nation is witnessing a genuine interest in emerging ethnic cuisines from Latin America, India, Africa and the Caribbean.

Many of the restaurants serving ethnic food are concentrated in urban areas where a significant portion of the population has their roots in that culture. Since the nation is becoming more conscious of nutrition, many of these restaurants will benefit. "Because more ethnic cuisines are not centered around meat, they are perceived to be healthier," says Webster.

Adolf Dulan, co-owner with his wife, Mary, of Aunt Kizzy's Back Porch in Marina del Ray, Calif., says his challenge is to operate a restaurant that can serve all ethnic groups. "You can't be thinly focused," says Adolf, whose 8-year-old soul food restaurant grossed $1.5 million last year. "We're trying to lighten up our menu to make our food healthier. Our portions are smaller, and we're also adding less salt to our food."

The best places to open a restaurant are in the South and Southeast, according to Restaurants & Institutions, a Des Plaines, Ill.-based industry magazine. Some of those areas include Alabama, Tennessee, Kentucky and Florida. Experts say smaller markets nationwide often make prime locations because large cities are already heavily saturated. (It seems as if there's a McDonald's on every street corner in some cities, doesn't it? Also, the economy in those regions has outperformed the national averages.

So, ready to start your own food place? Not so fast. Despite the growth, the industry has some major shortcomings. For starters, profit margins are minuscule. If you're planning to launch a table service restaurant, the NRA says you'll be lucky to clear four cents on every dollar you make. For fast food, which has a limited menu and lower labor costs, clearing eight cents on every dollar is considered a major achievement.

Start-up costs can also be astronomical. Remember, there are taxes, employee benefits, payroll, labor costs, food costs and energy costs that have to be taken into consideration. The average start-up cost of a franchise restaurant is $250,000. (Start-up costs for such fast food giants as Burger King and McDonald's approach $1 million). Not everybody can do it. According to the Dun & Bradstreet Corp., a New York-based business information service, bankruptcies in the drinking and eating places category rose 42% between 1990 and 1991.

Ezell Stephens, quality control specialist and co-owner of Ezell's Fried Chicken in Seattle, Wash., hasn't declared bankruptcy, but he did have a tough time finding start-up capital. After buying a 1,200-square-foot site in 1978 with $35,000 in personal savings, Stephens says he needed an additional $120,000 to open his fast food restaurant. The money, he explains, was needed to remodel the building, buy equipment and purchase inventory. "I approached three banks and got denied," Stephens recalls. "Then I was put on a two-year waiting list before they would even review my application again."

Patience paid off for Stephens. After an exhausting six-year search, during which time he attended junior college, worked at a hospital laundry and performed in nightclubs, he got a Small Business Administration loan for $120,000. "It was a long, slow process," Stephens says.

What are the keys to success? "You have to be a savvy business person," notes Wendy Webster of NRA. "You have to do your research beforehand, work with the local bureau of trade, know traffic patterns and the economic profiles of your customers."

It's also important to keep your ear to the ground. Restaurants are a lot like the Hula-Hoop--they're in one year and out the next. Karl Egge, professor of economics at Macalester College in St. Paul, Minn., says: "As soon as a restaurant establishes its niche, the crowd is ready for the next 'in' place."

Restaurants also go belly up for simple, yet crucial, reasons. For instance, a restaurant can close down not because the food was horrible, but because it didn't have kiddie booster seats and it was located in a neighborhood heavily populated with children.

That's why Webster warns, "You can never stop listening to your customers. A restaurateur is never smarter than his customers. That's true of all retail segments, but it's acutely true with restaurants since the profit margin is smaller."

Adds Egge: "You have to be nimble-footed and have your Air Jordans on to catch the next wave."


Question: When you think health care, what are the first things that come to mind? Nurse's aides? Home health care? Outpatient facilities?

Answer: Probably all of the above.

Face it. The nation's population is getting older. According to the American Health Care Association, a Washington, D.C.-based organization, 2.2 million Americans turned 65 in 1990. And as we become an older society, demand for health care facilities will only increase. Example: Spending for home health care mushroomed 440% between 1980 and 1990, with the largest increase occurring from 1989 to 1990 when spending jumped 47% to $4.4 billion. Want more proof? Health care costs were projected to devour close to 13% of the gross national product last year--a percentage that's expected to rise to nearly 17% by the end of the decade. And remember, as President Clinton drafts legislation aimed at making health care affordable to more Americans, additional demand--and business opportunities--will be created.

"There will always be provisions for sick people," says Rosa Kittrell Barksdale, president of Barksdale Health Care Services Inc. Her 10-year-old Pelham, N.Y., agency places home health care aides, registered nurses and licensed practical nurses in hospitals, institutions and private homes throughout Westchester County, the Bronx and Manhattan. She's right. And to reduce skyrocketing medical costs, more care is being administered to cheaper, nonhospital settings such as patients' homes and free-standing clinics. According to the Department of Health and Human Services, the nation's medical costs exceeded $600 billion in 1990.

Experts say some of the high-growth areas include nursing and personal care facilities, home respiratory care, senior day care, home intravenous (IV) infusion and medical claims processing. Many African-American business owners are also eyeing treating AIDS patients and sick children.

Barksdale says her firm, which posted $6.1 million in revenues last year, is attempting to penetrate the IV infusion sector where patients receive nutritional therapy at home. "There is a real need for this kind of care," says Barksdale. "We just started a training program for our employees and home health care aides for other agencies including the Red Cross and the Urban League."

Rick VanNoy, president of Consolidated Critical Care Inc., an Atlanta-based distributor of medical supplies such as beds and wheelchairs, says the IV therapy sector is a lucrative one. "Companies that offer nutritional therapy can get reimbursed up to $21,000 a month, per patient from private institutions," he says.

How can you decide where to launch your venture? Easy. Identify those states that are growing fastest Florida, Texas and California are good bets. According to the U.S. Census Bureau, between 1980 and 1990, 15 of the top 20 fastest-growing cities were in those states.

Karl Egge adds another tip. "Look at the urban areas where there should be greater access to health care."

Since health care is such an explosive industry, be warned that growing too quickly can damage your entrepreneurial health. VanNoy says his company almost went out of business shortly after he purchased it in June 1990.

Six months after buying Consolidated, revenues stood at $120,000. Intense marketing helped push that figure to $820,000 a year later. Company receivables also ballooned to $500,000 in 1991 from $150,000 in 1990. "When we first started, we did business with anyone who would do business with us. That lead to uncollectable and bad business," VanNoy remembers. "We had to slow our growth and became more selective as to whom we did business with and made sure money was coming in at a steady pace."

If you're thinking about entering the field, industry observers say be prepared for one thing: Stringent regulations. Barksdale says that in 1987, the Department of Labor mandated that nurses working in New York State could not work over 40 hours without getting time-and-a-half. That was bad news for her. "In 1991, I spent $28,000 on overtime," she notes. "In 1990, I didn't spend any."

Regulations or not everyone agrees that health care remains one of the country's hottest growth industries.


Talk about a broad industry. Business services can include everything from advertising to architectural services. According to the BLS, small business service companies--principally in the data processing and miscellaneous business service category--are projected to create 1.82 million jobs by the year 2005. The BLS says that virtually all of the nation's projected new jobs will be in the business service sector.

Business services continue to be a hot area for African-American entrepreneurs for two reasons: It's less capital-intensive, and more corporations continue to contract out services previously done in-house. A growing number of large corporations are looking to smaller businesses to handle their bookkeeping needs, legal affairs and accounting demands. "Many of these services save corporations time or money," notes Bruce Phillips, a Small Business Administration senior economist. "These businesses aren't totally recession-proof, but they're close to it. This is an area that continues to expand because of increasing technology and the complexity of our lives."

Another area that has great growth potential is equipment leasing. "More companies are renting and leasing computers, furniture and vehicles. Almost any durable goods can be rented or leased," says Phillips.

Computers and data processing also offer good opportunities. Even though shrinking prices have slowed revenue growth from 20% annually to about 10%, demand remains strong. Thomas A. Farrington, CEO of Input Output Computer Services Inc., a Waltham, Mass., systems integration company ranked No. 37 on the 1992 BE 100s with $30 million in sales, says lower prices have turned the industry into a buyer's market "Five years ago, you would've paid $1 million for a computer system," says Farrington. "Today, you can buy a system with the same capability for $100,000 or $200,000. Thats good news for customers."

Industry observers say the fastest-growing sectors in the computer industry will be systems integration and local area networks (LANs). According to a recent survey by Computer Intelligence, a La Jolla, Calif., market research firm, 20% of the companies that were installing new systems in 1991 said they would use LANs. In 1992, 27% of the firms that hooked up new systems said they used LANs. Farrington projects the growth in that sector will out strip the industry as a whole. He adds that networking and systems integration will grow 20% to 25% annually.

"Although the industry is in a state of flux," Farrington notes, "there are several pockets of opportunities."
COPYRIGHT 1993 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Thompson, Kevin D.
Publication:Black Enterprise
Date:Mar 1, 1993
Previous Article:Old age is an opportunity.
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