The announcement in August that EchoStar Communications Corp. would bring its new customer-service center to the former location of U.S. Steel National Tube Works in McKeesport is the kind of proclamation that makes politicians and economic development types swell with pride. After all, it’s a tangible symbol of the new economy overtaking the old, a rust-belt relic resurrected, a promise of thousands of new jobs.
Like most such announcements, this one was pushed into the public eye by slickly executed public relations campaigns and grand political muster. Still, Jon Prince barely noticed it. And yet his company, McKeesport Candy Co., a confections wholesaler and retailer, has operated not far from that former industrial site for nearly three-quarters of a century.
The truth is, Prince simply has been too busy running his small company to notice the nearby hoopla. His company now is in the hands of its third generation, and it’s clear that Prince, its president, wants it to be around at least that much longer. A confirmed optimist, he expects that to happen, not because he has waited for the economic development colossus to create a favorable business climate here, but rather because of something much simpler: The company has been willing to change with the times.
Prince is not unlike most local entrepreneurs, in that they are, by nature, independent individuals often guided by the singular vision of making their businesses successful, whether they are new software ventures or coffee kiosks in shopping malls. These business builders believe in their products and services, and they are convinced that they can make them into spectacular successes.
And in their sublime self-confidence, they often are sure they can do everything themselves.
But being in business, if anything, is likely to get tougher ahead, and entrepreneurs will find that going it alone won’t always be an option. Regulatory, competitive, legal and personnel issues probably won’t become any less complex in the future. While large companies have the resources to solve their problems internally or purchase the needed expertise, smaller companies with limited resources are more likely going to be the rule in Pittsburgh’s future.
Businesses, therefore, will have to respond to change more quickly, serve their customers more efficiently, and manage their finances and their employees more carefully to remain competitive. And that, according to many entrepreneurs, is why they would welcome new resources-and not just those aimed at high-tech companies-to help them navigate through uncertain waters. That kind of help, they suggest, will, in the end, offer the best hope for a healthy economy.
In the meantime, regional economic development studies, initiatives and organizations have trumpeted a pervasive theme: that high-technology businesses will provide the primary fuel for an explosive growth of business in Western Pennsylvania. The so-called “spike” industries-the innovative businesses, many of them spun out of research done at Carnegie Mellon University or the University of Pittsburgh that can be created here and then commercialized to produce jobs and wealth for the region-are viewed as the soil, fertilizer, rain and sun that will allow the region’s economy to grow and flourish into the next century.
But what about the thousands of entrepreneurial ventures outside high technology and the spike industries which, in aggregate, have the potential of providing thousands of jobs across the skills spectrum? What about entrepreneurs who launch businesses in retailing or construction, for instance? Where is the support system for the hair salon owner, the graphic design firm or the food-products company?
And from where is the know-how coming that will help small-business entrepreneurs engage and disengage from the virtual companies with whom they will have to combine to do business in the future? Will the rising tide which high-tech ventures are expected to produce rise enough to lift the rest along with it? Are the economic development groups and the entrepreneurial education complex, as they exist, prepared to assist this seemingly forgotten group of business builders? Are they the business and job creators that they purport to be?
“A lot of these organizations have done pretty well creating jobs for themselves,” says Thome Matisz, whose company, Solotec, has developed and is marketing Driv’nPlow, a snow plow for use with cars, passenger vans and sport utility vehicles.
Granted, Matisz is rather outspoken, but the views of other entrepreneurs are, in their own way, just as unsettling. Most see little direct benefit to them from most of the high-profile economic development efforts that pass through the region.
“They don’t seem to apply to me,” says Peg Stewart, publisher of the Green Tree Times, a community newspaper.
Adds Rick Restelli, president of International Apparel and Promotional Products Corp.: “The intentions are there, but I think politics gets in the way.”
“Politics” isn’t limited to government, either. More than one business owner observes that a lot of duplication of services exists across the various agencies and organizations, which in recent years has been addressed largely by the creation of umbrella organizations.
“I would say our area is overblown with competing agencies that hand out the same story and information,” says Matisz.
While the owners of many existing businesses may feel almost forgotten when it comes to economic initiatives, it’s not that there haven’t been at least pronouncements by the economic development community that existing businesses demonstrate promise for the region.
“Many think of economic development only as attracting new companies or plants from outside the region,” said Tim Parks, president and CEO of the Pittsburgh Regional Alliance, when the organization unveiled its economic development framework in December 1996. “Clearly, attraction of new business is important, but the biggest potential for growth is in nurturing the expansion of existing regional businesses, and encouraging the talented people of our region to become entrepreneurs and to start businesses here.”
At this point, the PRA continues to work on an action plan for the region, based largely on an extensive study conducted for the organization by McKinsey & Co. However, recent reports indicate that its early action efforts will focus more on marketing Pittsburgh to the rest of the world.
Still, most entrepreneurs aren’t particularly critical of local economic development efforts and strategies. Like the rest of the population, their opinions differ widely when it comes to big projects such as stadiums and convention centers.
But what comes across clearly in discussions with a group of people involved in a variety of ventures is the sense that they believe the economic development infrastructure has little impact on their businesses. More likely, they see themselves relying on their own wits and on each other to survive, grow and prosper.
Agile, not fragile
McKeesport Candy Co. is one of a few old but resilient businesses along Fifth Avenue in this once-bustling Mon Valley town. A few signs of resurgence have emerged in McKeesport, but many store fronts still are boarded up or blighted, a result of McKeesport’s decline in the wake of the steel industry’s abandonment of the region that began in the 1970s.
But McKeesport Candy has survived because it has been willing to change, not because of the promise of regional development, owner Jon Prince asserts.
The company grew and prospered in its early years because virtually every neighborhood at one time had its own store, perhaps two, which McKeesport Candy could service with small orders of candy and tobacco products. But with the advent of supermarkets, discount giants and convenience stores, McKeesport Candy found its customer base of small retailers drying up. Big wholesalers demand slotting fees to stock a company’s products, buy in huge quantities direct from the manufacturers, and impose strict delivery
schedules on their suppliers. So a few years ago, McKeesport Candy shifted its focus.
While it still retains its wholesale operations, the company dug into the fund-raising end of the candy business a few years ago and opened a retail store in Station Square.
For Prince, the ability to be agile has meant more than any of the economic development efforts that have gone on in McKeesport or elsewhere in the region.
“If you don’t [maintain that agility], you’ll have a lot of time to think about it because you won’t be here,” says Prince.
Do-it-yourself
Lucy and John Garrigan, owners of Business Alternatives Inc., are not unlike most entrepreneurs. They have busy schedules and wear lots of hats. For them, generating new business and keeping existing customers happy are their preoccupations. They are so busy taking care of the day-to-day that they hardly have time to look up to see what’s going on outside their office-machines business.
The Garrigans say they handle everything internally. “We get a book on the subject,” says John Garrigan when asked how he might handle a business issue imposed by some major legislation. The implications of the Family Leave Act on a small business could be profound, for instance, but entrepreneurs like the Garrigans are determined to confront them by themselves.
Self-support systems
If entrepreneurs look to anyone for help, it’s usually to their peers more than to economic development or membership organizations.
Take Jay Fairbrother, for example, who owns Direct Advantage Marketing, a marketing firm that conducts telephone fund-raising campaigns for clients such as arts organizations and public broadcasters.
Fairbrother’s company needs to be bonded in each state where it does business. So when the insurer that had always issued him his specialized bonds served notice in January that his bonding would be canceled the following month, he faced the possibility of having to shutter his operations.
In his scramble to get bonding, he enlisted the help of a peer group he belongs to, the Young Entrepreneurs Organization. It’s a group comprised of business owners who are under 40 and whose companies are doing at least $1 million in annual revenue.
After about a week of contacting brokers, most of whom weren’t even familiar with the bonds, Fairbrother queried YEO’s international database of members who specialize in particular areas and agree to make themselves available to other YEO members. He got a response the next day. And that same afternoon, he received a letter from a large insurance brokerage that said it would replace his previous bonds and issue a letter of credit to issue future bonds.
Groups like YEO can offer other benefits as well, says Fairbrother. He can get advice, for instance, “without the cost of a $200-an-hour lawyer to explain what I need to do.” That’s not to say he wouldn’t use a lawyer at all, but YEO has helped him cut through some of the details, he says, and home in on the issues he has needed to address.
The camaraderie that Fairbrother feels with the other members of YEO, particularly the other two-dozen members of the local chapter, has proven a potent force for him. In forum sessions held by each chapter, members can discuss in confidence problems that run the gamut from the professional to the personal and, sometimes both.
“That’s powerful,” says Fairbrother. “I’d take that over all the Ben Franklin handouts I could get.”
Show us (some) money
Not that anyone is likely to dole out anything to Fairbrother. Entrepreneurs always seem to have trouble coming up with enough capital to finance their enterprises, and despite the campaigns mounted by banks that say they are actively seeking small businesses to lend money to, financing seems to be an ongoing problem. The perception at least is that businesses in high tech and information technology, for instance, are the ones attracting the capital.
“Of course, there’s much more support for businesses that seem more glitzy,” says Prince.
“There are a lot of us who feel that since we’re not in high tech, we don’t have access to that kind of money,” says Fairbrother. But he adds that many of the businesses owned by some of his fellow YEO members have the potential to “explode” if they are able to get access to the right level of financing.
Susan Gove, president of the Gove Business Center, a former convent on Mount Washington which she converted to a center designed for small enterprises, attended a program by one of the entrepreneurial support organizations at the Duquesne Club recently. The group, she says, marched out a number of speakers who talked about how easy it is for small businesses to get SBA loans and government grants.
“The other nine strangers at my table were all laughing as hard as I was,” says Gove.
And John Garrigan’s assessment sums it up for a lot of entrepreneurs.
“They lend money to those who have it,” says Garrigan.
David Wilke, an experienced small-business accountant who has just launched his own practice, relates a tale of two of his clients, a husband and wife, who entered a business that was in the same field in which they had been working. After three years, they had doubled their income and still couldn’t get a bank line of credit without putting up their home as collateral and taking out a certificate of deposit with the lender.
Yet without the financing, they would be hard-pressed to expand their business. Indeed, growth without adequate access to capital is difficult and fraught with danger, says Wilke. Entrepreneurs who get caught in the squeeze of a cash-flow crunch, he says, can be tempted to try things that will eventually bury their business.
“If you go from $500,000 to $1 million in expenses, you’re going to take your payroll taxes to pay your suppliers,” Wilke says.
And other funding sources seem to be just as difficult for entrepreneurs to access.
“We know how difficult it is even to get $50,000,” says Matisz, who scraped together start-up money from friends, family and personal savings. No Pittsburgh bank would help Matisz finance Solotec, although Southwest Bank of Greensburg bank eventually stepped forward. Now that the product is showing commercial promise, Matisz says, out-of-state banks are dropping off their business cards.
It’s not that entrepreneurs are blind to the situation that banks find themselves in, either. Most acknowledge that they find that, once they have established a track record, banks are more willing to work with them.
“Once people have worked with you, that’s not a problem, but again, they’re responsible for their bank or their company, and their job is to guard it,” says Cathy Vonderau, who operates a documentation service.
While getting money is essentially difficult, finding someone who can help you with the process, it turns out, can be just as vexing.
“The SBA was a tough nut to crack,” says Restelli, who found banks balking at making such loans. Restelli got the Chrysler Corp. Duquesne University Small Business Development Center to help him put together a financing plan, but he says he only came across the SBDC’s services because, as a Duquesne graduate, he receives literature about the university.
Another resource that he found valuable but with little visibility is the Carnegie Library’s downtown business library. “I don’t know that a lot of people are aware that it exists,” Restelli says. “There’s got to be a better way to educate people.”
Tapping into the system
For Dick Thornton, a retired bank executive, getting money to finance the start-up of his Satellite Office Network hasn’t been a problem. The service provides clerical services to businesses and employs handicapped individuals and others who prefer to work from home.
His difficulty has been in gaining marketing expertise. His clients, among them Eat’n Park and Applebee’s restaurants, as well as Parkvale Savings, are pleased with the service, says Thornton, and he’s confident that dozens, perhaps hundreds, of local companies could
use it.
But his efforts to get help from a couple of organizations produced phone-tag matches and promises to send literature-but no results.
“It’s very difficult to get these people to respond,” says Thornton.
For businesses like Satellite Office Network, simply a more efficient way to find potential customers, along with some focused marketing advice, could make a big difference.
For some entrepreneurs, fighting the “big is better” mentality has been an uphill battle. When Gove tried to launch her business center, designed primarily for one-person operations, she got more than a little resistance.
“When I was in the process of trying to open this building, to open it as an entrepreneurial center, people gave me absolutely no notice, took none of it seriously, and didn’t see it as an opportunity for economic development at all,” says Gove. “They sort of patted me on the head and said, ‘That’s nice.'”
Gove eventually managed to open the center, but she and some of her tenants still find it tough to land work with larger companies and government agencies. Despite the fact that ,collectively, they can muster the resources to handle large jobs and have access to professionals who could help them fulfill the contracts, most prospective clients view them as one-person shops.
“The mindset has to change as far as what the powers that be see as credible businesses,” Gove advises. “We’re serious businesses. We’re not huge dollar generators, but there is a huge number of us.”
To survive and prosper, the entrepreneurs interviewed by SBN say they would like better ways of identifying other similar-sized companies with which to work strategically.
“There are so many companies, so many small businesses in Pittsburgh … that are somewhere beneath the surface,” offers Lee Ann Munger, president of Graphics & Artworks, a design, marketing and public relations firm. “How do we find the hidden companies?”
She suggests a database of small businesses that would allow them to get in touch with each other. That, she says, coupled with a willingness on the part of large companies and government agencies to work with consortiums of small businesses, could open some additional doors for small entrepreneurs.
A working model
An already-working pilot program at Duquesne University could serve as a model for putting entrepreneurs on the fast track.
Its new Self-Employed Assistance Program gives unemployed individuals who meet a list of specific requirements an intensive course of training that prepares them for entrepreneurship. All the while, participants continue to receive unemployment benefits, enjoying a cushion of security that otherwise would not have been there.
Wilke, who has been involved as an instructor and with the development of SEAP, describes it as a “boot camp” for entrepreneurs. For fledgling entrepreneurs, Wilke characterizes it as “just as good as receiving a $10,000 loan.” More than half of the approximately two-dozen individuals who participated in the first phase, held earlier this year, are generating revenue for their enterprises, says Wilke.
The problem with most of the other educational programs available that are designed for start-ups, Wilke contends, is that they are not comprehensive enough. Most, he says, provide general information and serve more as a first cut that weeds out the uncommitted.
More value would be derived, Wilke suggests, if sponsors spent “less money on the one-day seminars and more on longer seminars, and when they graduate, make some money available.” For many, he adds, $1,000 of seed money or a few extra points on their credit rating for completing the program would be a boon.
If there were a way to synthesize the views of small-business owners and what they say they need to prosper into a few sentences, it might sound something like this: Financiers need to be more entrepreneurial, more willing to adopt the risk-taking posture that their clients take. There need to be better ways to identify each other as clients, customers, vendors and suppliers. The structure of the organizations in place to assist entrepreneurs needs to eliminate duplication of efforts, slash and streamline bureaucracies and pool resources into a more comprehensive, efficient delivery system.
In the end, the approach that Solotec has taken may wrap up the key to success for any enterprise, whether the entrepreneur goes it alone or is able to get some help along the way.
As Matisz puts it,”We’ve made it on sheer belief in what we’re doing.”
We want your feedback
Tell us what you think. We want to know what you think you need – and this region needs – to prosper economically. Fax your comments (with name and phone number) to (412) 321-6058, or e-mail the editor at [email protected]. We’ll publish your responses in the next edition.
