This might just be the year of the small business, but buckle up: Things will likely get worse before they get better.
Economists often say that each high-paying job at a manufacturing plant or corporate headquarters creates three other jobs. After all, someone has to do the dry cleaning and cook the restaurant meals. So it stands to reason that each corporate layoff leads to three layoffs, which means about 3,000 local white-collar job cuts is really more like 12,000. That doesn’t include cuts to the blue-collar sector, which has suffered big losses in manufacturing and construction.
With jobs becoming increasingly scarce, the entire local economy will recalibrate. The housing market will be slow, and buyers – some combination of individuals, banks and developers – will be forced to eat major losses on houses that are worth much less than what they would have been in 2007 or 2008.
The slowing economy will also put a dent in the small businesses that rely on the upper middle class and businesses that handle work for the major local employers. Construction will be slow. New restaurants will struggle. It will probably mean that laid-off employees will be forced to start businesses or seek employment at trades or occupations that might seem to be below their education or skill levels. At first they’ll be hesitant, but, as the economy continues to retract, many will have no choice.
Just to recap some of the big job cuts:
Qimonda: 1,200 jobs lost, with more likely – the company has not made a profit in more than a year
LandAmerica: 130, with the possibility of another 700 after bankruptcy proceedings
Circuit City: 800, with the possibility of hundreds more if the company is liquidated
Genworth: 1,000 globally, no announcement on how many locally but likely in the hundreds
Rehrig: more than 100, after the closure of a 300,000-square-foot shopping cart plant
Two other big companies could make cuts in the future:
CarMax is no longer a profitable company. Car buyers need credit to finance a vehicle, and credit is hard to come by.
Capital One is in the credit business. Enough said.
But uncertain economic conditions create tremendous opportunity for savvy companies. Businesses and consumers are changing their mindsets and the ways they spend money. Companies that can quickly bring a low-price option to the market will be rewarded. The key for 2009, according to a handful of informal interviews, is price point.
Companies that can provide a service at a lower price might be able to expand faster now than in boom times. Shoppers are going to Trader Joe’s and Walmart, which are cheaper than some grocery stores, and that trend will expand to all sorts of sectors. Web programmers who run smalls operations and can build a site for $5,000 instead of $40,000 will get the work.
This dynamic will make 2009 hard for firms that sell expertise and strategic advice. It’s too hard to quantify the return on investment, and even that is sometimes inflated. Likewise, it’s going to be a tough year for marketing, public relations and advertising firms.
The number of startups will increase, continuing a trend we began seeing last year. Many newer startups were formed when experienced workers left leadership positions as companies downsized or moved outside the region. Some are doing great. (We’ve tried to profile most of them.) Take Boxwood Partners. With offices in Shockoe Slip, the investment bank hired more than 10 employees in 2008 as it worked to buy and sell small companies across the country. The firm also has a private equity wing that buys companies and runs them for several years.
RiverFront IG, an investment-advising firm that launched its first mutual fund last year, is gaining traction in the financial sector with expertise honed at Wachovia Securities.
Even in marketing, two former marketing executives at Wachovia Securities started their own firm, the Hoople Group, catering to the financial advising sector as well as local Richmond clients.
But starting a business is not for everyone. So how does Richmond right the ship, or what can the business community do to help the local economy?
Local government agencies and public-private partnerships must act fast. There needs to be a renewed emphasis on firms that draw revenue from outside the region. Small assistance can go a long way, including incentive programs or ways of helping the best companies line up new clients.
Economic development agencies might have to change offerings from seminars on how-to-start-a-business to programs that offer loan guarantees or help defer cost for struggling but ultimately stable businesses. Access to credit remains tight, according to local bankers, and all the how-tos in the world won’t do anything if there’s no money. A good start would be clear incentive programs for unused office space.
This might also be a great time for some of the area’s established business leaders to get together and start a venture capital fund that can help the most promising startups grow. If even one of them turns into a viable company, it will help the other local firms that handle various subcontracting work (payroll, human resources, etc.). That idea has failed in the past, but with the right leadership it could work. Maybe there could be a business plan contest with the best idea gets $250,000 in funding. The Venture Forum, a group that promotes entrepreneurial activity in Richmond, has seen a growing presence and its marquee event, the Greater Richmond Companies to Watch, has skyrocketed in popularity.
However, laid-off workers looking to start business face an exceptionally competitive environment, and they must be able to compete on cost or with a more efficient product. They’ll be at a disadvantage from the outset because many do not have the contacts that their competitors have, and they’ll be working against more experienced business operators.
But for those who think they can find a way to do it better and for less money, 2009 might be their year.
Aaron Kremer is the BizSense editor. Please send comments or story ideas to [email protected].
This might just be the year of the small business, but buckle up: Things will likely get worse before they get better.
Economists often say that each high-paying job at a manufacturing plant or corporate headquarters creates three other jobs. After all, someone has to do the dry cleaning and cook the restaurant meals. So it stands to reason that each corporate layoff leads to three layoffs, which means about 3,000 local white-collar job cuts is really more like 12,000. That doesn’t include cuts to the blue-collar sector, which has suffered big losses in manufacturing and construction.
With jobs becoming increasingly scarce, the entire local economy will recalibrate. The housing market will be slow, and buyers – some combination of individuals, banks and developers – will be forced to eat major losses on houses that are worth much less than what they would have been in 2007 or 2008.
The slowing economy will also put a dent in the small businesses that rely on the upper middle class and businesses that handle work for the major local employers. Construction will be slow. New restaurants will struggle. It will probably mean that laid-off employees will be forced to start businesses or seek employment at trades or occupations that might seem to be below their education or skill levels. At first they’ll be hesitant, but, as the economy continues to retract, many will have no choice.
Just to recap some of the big job cuts:
Qimonda: 1,200 jobs lost, with more likely – the company has not made a profit in more than a year
LandAmerica: 130, with the possibility of another 700 after bankruptcy proceedings
Circuit City: 800, with the possibility of hundreds more if the company is liquidated
Genworth: 1,000 globally, no announcement on how many locally but likely in the hundreds
Rehrig: more than 100, after the closure of a 300,000-square-foot shopping cart plant
Two other big companies could make cuts in the future:
CarMax is no longer a profitable company. Car buyers need credit to finance a vehicle, and credit is hard to come by.
Capital One is in the credit business. Enough said.
But uncertain economic conditions create tremendous opportunity for savvy companies. Businesses and consumers are changing their mindsets and the ways they spend money. Companies that can quickly bring a low-price option to the market will be rewarded. The key for 2009, according to a handful of informal interviews, is price point.
Companies that can provide a service at a lower price might be able to expand faster now than in boom times. Shoppers are going to Trader Joe’s and Walmart, which are cheaper than some grocery stores, and that trend will expand to all sorts of sectors. Web programmers who run smalls operations and can build a site for $5,000 instead of $40,000 will get the work.
This dynamic will make 2009 hard for firms that sell expertise and strategic advice. It’s too hard to quantify the return on investment, and even that is sometimes inflated. Likewise, it’s going to be a tough year for marketing, public relations and advertising firms.
The number of startups will increase, continuing a trend we began seeing last year. Many newer startups were formed when experienced workers left leadership positions as companies downsized or moved outside the region. Some are doing great. (We’ve tried to profile most of them.) Take Boxwood Partners. With offices in Shockoe Slip, the investment bank hired more than 10 employees in 2008 as it worked to buy and sell small companies across the country. The firm also has a private equity wing that buys companies and runs them for several years.
RiverFront IG, an investment-advising firm that launched its first mutual fund last year, is gaining traction in the financial sector with expertise honed at Wachovia Securities.
Even in marketing, two former marketing executives at Wachovia Securities started their own firm, the Hoople Group, catering to the financial advising sector as well as local Richmond clients.
But starting a business is not for everyone. So how does Richmond right the ship, or what can the business community do to help the local economy?
Local government agencies and public-private partnerships must act fast. There needs to be a renewed emphasis on firms that draw revenue from outside the region. Small assistance can go a long way, including incentive programs or ways of helping the best companies line up new clients.
Economic development agencies might have to change offerings from seminars on how-to-start-a-business to programs that offer loan guarantees or help defer cost for struggling but ultimately stable businesses. Access to credit remains tight, according to local bankers, and all the how-tos in the world won’t do anything if there’s no money. A good start would be clear incentive programs for unused office space.
This might also be a great time for some of the area’s established business leaders to get together and start a venture capital fund that can help the most promising startups grow. If even one of them turns into a viable company, it will help the other local firms that handle various subcontracting work (payroll, human resources, etc.). That idea has failed in the past, but with the right leadership it could work. Maybe there could be a business plan contest with the best idea gets $250,000 in funding. The Venture Forum, a group that promotes entrepreneurial activity in Richmond, has seen a growing presence and its marquee event, the Greater Richmond Companies to Watch, has skyrocketed in popularity.
However, laid-off workers looking to start business face an exceptionally competitive environment, and they must be able to compete on cost or with a more efficient product. They’ll be at a disadvantage from the outset because many do not have the contacts that their competitors have, and they’ll be working against more experienced business operators.
But for those who think they can find a way to do it better and for less money, 2009 might be their year.
Aaron Kremer is the BizSense editor. Please send comments or story ideas to [email protected].