Struggling With Success

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Even with their employee problems solved, for many small companies a bigger hurdle these days is the corporate customers who want more--and more--for their bucks. Cindy Kerr, vice president of sales and co-owner of automotive supplier PHC Industries of Camden, N.J., says, "Being in the supply-chain end of things has become almost an Olympic sport." PHC, which has 130 employees and revenues of around $10 million, is in the automotive-interior trim industry. One of its products is the air bag label that adorns the front seats of current car models. With stiffer regulations for air bags and with the automotive industry trying to get more from suppliers for less, PHC is struggling to be more things to more people.

"Because we're in a global economy," Kerr says, "there are so many options for our customers, we've got to run faster and jump higher to find opportunities." Just weeks ago, she relates, "we got a phone call from an automotive supplier with whom we're working on a vehicle launch. We are manufacturing a tiny piece that's going into the end product. They're struggling with the next piece of the process. They said they had already shipped us eight boxes with 800 pieces; they needed them assembled and returned in less than 12 hours. We can only produce about 100 assembled pieces an hour. Then they wanted them shipped 2,000 miles west." In the end, Kerr agreed to do the job if PHC was given an additional 12 hours to finish it. But, Kerr says, "we practically had to stand on our heads to get it done."

The fundamental issue, Kerr observes, is that in the auto industry this is a boom with a cost squeeze attached. Says Kerr: "Suppliers want a cost reduction of 5% from us overnight. Ten years ago, you could be a small business and be a little sloppy, be a little behind the times. Now we have to have the level of sophistication of some of our customers, who are often 100 times larger than we are."

And if you can't deal with it, maybe a competitor can. Ruth Stafford, president of Kiva International, a family-owned and -operated business in Phoenix, Ariz., that makes fiber corrugated boxes, says the rivalry in her niche is getting a bit too close for comfort. In fact, in her region, competition has gone up 46% in two years. "Profitwise," Stafford says, "we're not as strong as we used to be." Kiva has recently seen two price increases of 12% each for its raw materials. "We are having trouble meeting those costs," Stafford says. Yet she is confident that her company has staying power. "We'll hop through hoops for our customers. When things get a little tight or a little slower, that's when the competition gets shaken out."

For start-up small businesses in particular, the Internet appears to be both a panacea and a Pandora's box. While e-commerce can create overnight success, many firms can't meet their clients' instantaneous demands, so they end up taking a hit in customer satisfaction. Says consultant Sanow: "If I send out a message advertising my business to 4,000 people, and 1,000 people get back to me, how am I going to get back to them? You've got to have a plan."

The Internet can also create a host of legal issues for small businesses. Susan Nycum, an international partner with the law firm Baker & McKenzie and one of the original legal advisers on building the backbone of the Internet, warns that "e-commerce is global. So theoretically, small businesses are going to be subject to the laws of more than 200 countries." There are "huge jurisdictional problems," Nycum says, that include knowing where and when a contract has been entered into and what language to use on a company's website. "If, for example, you are doing business in France, the law says your website has to include French."

In the same vein, finding money to start a business isn't as simple anymore as just going to the bank. Venture capitalists have a greater role to play, and their demands are different. Michael Heller, chairman of the emerging-business and venture-capital group at Cozen and O'Connor, a Philadelphia law firm, says he gets 10 to 12 calls a month from start-up companies. According to Heller, venture capitalists also bring sophisticated knowledge and business contacts to help young entrepreneurs who may not have much business experience. But the price might include more restrictions on the emerging company.

Gregg Garnick learned a lesson about control the hard way. In 1994 he started a technology business in his basement with $100,000 in personal savings. His company developed video-capture cards for laptops, the forerunner to digital-video-disc technology. When the business started to grow, Garnick went to a venture capitalist. By 1996 Garnick's company had come up with the technology for DVD decoding. Says Garnick: "We were the first company in the world to demonstrate working dvd capability on the PC."