[From Atlanta Magazine] SMALL FIRMS: SURVIVING IS FIERCE While they continue to increase, running the obstacle course grows more hazardous. The small businessmen who do obtain financing find the real test is learning whether they have the will. (By Loral Dean) Al Hamilton by his own description has "been to the end of six rainbows, and there was no pot of gold." Now he's pursuing number seven, and "I'm over the curve and on my way down . . ." The private entrepreneur, small scale, still looking for the elusive treasure of success. Or maybe the goal is simply survival, while enjoying freedom from a straight, X-hour-a-week job with a regular check. Lockheed production engineer Hamilton began moonlighting some consulting work in 1959. In 1960, still with Lockheed, he incorporated a consulting company. In 1964, he plunked down $10,000 cash-"a real knockdown price" for some machine-part production equipment. He rented a three-truck garage, hired four employees, and with his wife in charge of production, became a manufacturer. Still he hung onto his Lockheed paycheck-until January, 1967, when his firm won a contract to produce landing gear cylinders for Piper 235s. At 38, Al Hamilton quit his $25,000-a-year Lockheed job to become a full-time entrepre neur. Sales were good, although "every once in a while we'd screw one up and lose our profits." He paid himself nothing, his wife $600 a month. Then came a bigger government contract, and "we were sure we'd be millionaires." To hedge his bets, though, he contracted with a golf-cart manufacturer to produce cart front ends and steering units. Things looked rainbowish indeed for two years. Then one bright afternoon in June, 1971, the golf-art firm's executives marched en masse into Hamilton's plant and announced that after the end of the month, they would no longer need his product. They had designed their own. Hamilton insists they had copied his design, but the cart firm is part of "a huge conglomerate that employes a battery of lawyers. My lawyer told me it would cost me $50,000 to defend my patent in court, and that I had a 10 per cent chance of winning." But Hamilton, a self-styled "cockroach capitalist," wasn't ready to be squashed. "Declare bankruptcy, the textbooks say. But true cockroach capitalists don't go bankrupt. They go back into nooks and crannies and find their money there." Small Business Administration granted him a one-year moratorium on a $220,000 loan. Hamilton stalled his suppliers. His wife had a job. And Hamilton went to inventing again: this time a machine to remove the inner skin of peanuts. Candy manufacturer M&M Mars bought one for $40,000 and ordered 10 more. While these were in production, Hamilton created a machine to custom-bend auto tailpipes. He began marketing them by "unfranchise"-direct sales to muffler service shops which avoid the royalties of a franchise. To round out his package, Hamilton is manufacturing mufflers too. In the fiscal year ending June 30, 1975, Hamilton & Co. sales totaled $1.9 million. In the current year, $4 million would be a conservative estimate, Hamilton says. The right rainbow at last? The small businessman is a special breed. He needs the ego of Muhammed Ali, the daring of Evel Knievel, the vision of St. John, the optimism of Pollyanna, the versatility of Leonardo da Vinci, the resilience of Scarlett O'Hara, the will of Lady MacBeth and the determination of Helen Keller. Statistics tell seemingly contradictory stories about the direction of small business. On the one hand, big business is getting bigger. By the year 2000. predicts Anthony Jay in Corporation Man, 300-600 giant international corporations will control most of the wealth in the Western world. Some 500 corporations already control about one third of America's tangible wealth. "About 70 per cent of all American industries," writes University of Georgia economics Professor James Green, "are dominated by four or five firms which produce more than half the output for that industry." At the same time. small businesses continue to increase. Of some 13 million enterprises in the United States. 10.5 million employ fewer than 500 persons and register sales of less than $1 million a year. They generate approximately 40 per cent of GNP and 40 per cent of civilian jobs. 69-084 - 76 - 16 But small business must run an ever more complicated obstacle course. Big business has enormous advantages with its mass marketing, sophisticated market analysis and pervasive advertising. Capital is short, taxes high, and government regulations ever more complex. Many analysts, furthermore, detect an ebbing of the American entrepreneurial spirit. "The dream of being your own boss is powerful," observes John Thompson, an Atlantan authoring a book on grassroots entrepreneurship. (He was publisher of the now defunct Entrepreneur Spirit monthly.) Thompson perceives two threats to the survival of grassroots business: lack of will and lack of money. Good pay, security and "the good life" obtainable through salaried jobs are too attractive to most people, Thompson observes. Whenever he says to a wouldbe entrepreneur "O.K., you want to start your own business. First thing you do is quit your job, mortgage your home, put up your car and your boat as collateral...," nine out of 10 back down. The other threat, lack of start-up capital, is confirmed by Wiley Messick, Southeastern regional director of the Small Business Administration. SBA, he reports, is turning down 15 to 20 per cent of all loan applications today, contrasted with fewer than 10 per cent five years ago. Even so, SBA's number of trouble loans in the region has risen above 10 per cent for the first time in its 22-year history. And SBA is no keener to extend start-up money than any other lender. At least three out of four SBA loans-probably more-are made to established businesses. Even in better times, commercial banks generally find venture-capital lending too risky. Jack Vickery Jr., First National Bank assistant vice president, compares a person relying on borrowed funds to launch a business to someone who goes gambling in Las Vegas with a borrowed bankroll. A new business, he says, "should have a solid investor base." First Naitonal rejects 99 per cent of all venture-capital applications. Important as collateral, experience and type of business may be, Trust Company Bank commercial officer Billy Robinson believes there's an even more critical factor: "The first thing you must learn when lending to small business is that small business is the small businessman. Unless you know the businessman, you can't lend to small business. You have to *** appreciate what his goals are talk to him about his numbers. In about five minutes you know if he understands the mechanics of financing a small business." If he doesn't, a loan "will destroy both his dream and him." Only about one in 10 of Trust Company Bank's small business loans involves venture capital, Robinson says. One who made it is Micki Hearn, former personnel agency executive who opened a Buckhead gift shop last September. She got a loan though it's her first business venture, and gift shops are third highest on Dun & Bradstreet's list of failure-prone retail businesses. She had planned the shop for 12 years, and admits "I'm terribly arrogant. I just believe that I can do anything I want to." But Robinson was more impressed with her "numbers" and planning than with her determination. (Example: She conducted her own traffic count before settling on a Piedmont/Peachtree Crossing shop site.) Government regulation of business, and attendant protests by businessmen, have soared in recent years with adoption of such legislation as the Occupational Safety and Health Act (OSHA) and the Environmental Protection Act. So sweeping are the powers of non-elected bureaucrats to promulgate regulations under such acts that Georgia's Fourth District Rep. Elliott Levitas and Sen. Sam Nunn have introduced legislation calling for Congressional veto power over regulations. Businessmen in 1974 spent 20 per cent more time than in 1973 filling out the reports (some 114 million of them) that Washington requires. The Wall Street Journal reports. The Library of Congress estimates that the cost of completing and filing Federal forms has doubled in 10 years, to an annual cost of $40 billion. Cigar-box accounting by Mom-and-Pop businesses is gone forever. Says Mickie Hearn: "I got the finest CPA. attorney, insurance broker and banker I could find. While the layman may think that's an expensive way to go, that's not the case; any professional help is worth it." Government regulations have grown so complex, furthermore, that one accountant and one lawyer rarely are enough. A Metro Atlanta subcontractor, requesting anonymity, complains that a new entrepreneur "can't call a single agency and say, 'Can you tell *** *** me, given this amount of money and this number of men working for me, what forms do we have to fill out? We want to cooperate. We don't mind paying corporate taxes, Social Security taxes, Federal and State withholding taxes, sales taxes, State and Federal unemployment payments, business licenses, etc., if we just knew whom to contact." The price of learning the hard way may be a stiff fine. In the case of OSHA, the size of those fines can soar with shocking and sometimes debilitating speed. Young Atlanta attorney McNeill Stokes is challenging the constitutionality of OSHA before the U.S. Supreme Court on behalf of the American Subcontractors Association. Stokes calls OSHA "the most pervasive Federal regulatory statute in the United States today When an OSHA inspector fines you, he says, in effect, "This is your fine; this is your citation; you must take the offensive to prove yourself innocent within 15 days' working time!" Stokes calls OSHA "the break in the dike" because "all other [Federal] agencies now want the same power." "We don't have time to pore through the masses of material that come out of Washington," complains Donald Mahaffey, owner of Ply-Mart, a building supply firm. "And if they fine you for a violation, they should base the fine on whether it is your first, second or third violation. If you have a clean record, there should be some leniency." If you can retain your sense of humor in the face of more ludicrous regulations, you can stay ahead, says Bill McKinnon, owner of McKinnon's Louisiane, a Creole restaurant. One OSHA rule, for example, stipulates that restaurants must have toilet seats that don't wiggle. "So I keep a toilet seat that doesn't wiggle," McKinnon reports with a grin. "The stress on the small businessman is heavy, and if you let it overcome you, it can be the death of you. You've gotta bend like a willow tree. And you have to keep your sense of humor." Despite all the frustrations, writer John Thompson argues that this is the greatest age of opportunity for the entrepreneur since the beginning of the industrial revolution. "Why? Because we are two years into an era of dramatic changes in our country." The energy crisis has triggered costs that have spiraled far beyond the consumer's means. "Why did car sales fall so dramatically? You can say what you want, but it all boils down to the simple fact that people can't afford them. It is the nature of private enterprise to adjust to the market. Somebody is going to build a cheaper car . . . And a cheaper house, too. As it is now, 90 per cent of the population can't afford to buy a house. "There is great opportunity now, and I guarantee you that in garages and basements all over the country are funny little people getting a handle on the very real problems of this country." "Small business responds much more quickly to market demand," observes Donald Dible, Author of Up Your OWN Organization! A textbook example is Compac Industries, a four-employe Atlanta manufacturing firm. “I try to come out with something different every six months," says Compac President Bernard Corbin. "You have to catch the pulse of the country." In the flower-children period of 1967 it was daisy decals. Next it was bathtub appliques, then a pen to write on foil and other freezer wrap. Now he's into house-plant accessories. Dozens of successors are in his inventive mind. Some businessmen want to stay small. Occasionally some make it big. Five years ago, Jerry Allison was a 32-year-old poultry export executive of Gold Kist Inc., Atlanta-based agricultural cooperative. Assessing the worldwide food shortage before it became headline matter, he launched his own poultry exporting business. Today his international sales of a wide range of foodstuffs total $30 million a year. The small businessman may be an endangered species, but human nature being what it is, people will continue to dream of being their own selves and doing their own things. Restaurateur McKinnon caught the spirit: "I don't drop the hammer on my toe when the bell rings and run . . . because this is my home, too. It's been successful, and goddamit, I did it!" I have received an answer from the Federal Home Loan Mortgage Corporation with respect to the $5 million capital surplus requirement. It appears that the FHLMC has authority under section 305(a)(1) of the Federal Home Loan Mortgage Corporation Act to set this requirement. To my mind, this is another example of Congress having delegated authority, to a federal agency by way of very broad statutory language. The exercise of such authority requires stringent oversight of the agency's activities. In this case such oversight would be exercised by the Senate Committee on Banking, Housing, and Urban Affairs. In order to have your views known and your problems thoroughly reviewed, I am sending copies of your correspondence and the reply from the FHLMC to Senator William Proxmire, Chairman of the Banking Committee, along with a request that he examine this situation in depth. WPG/mh Enc. Sincerely Sam Nunn One of my constituents, Mr. Keith Skelley, President In essence, Mr. Skelley contends that the $5 million Sincerely, Enclosure Sam Nunn |