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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
February 2006

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Upsize Lifeline Awards & Forecast: Indicators up


Indicators up

by Sarah Brouillard   Minnesota small-business owners see good things on the horizon for 2006, especially at their own companies, exclusive new research by Upsize Minnesota shows.

Surveyed near the end of a rough 2005 — a year that saw hurricanes wreck the coastlands, and high energy prices ravage bottom lines — respondents say they feel the new year will bring positive economic changes.

A full 85 percent expect revenue to increase in 2006 from last year. Seventy-eight percent predict increases in net earnings. More than half say they believe business conditions for their particular market will be more favorable in 2006 than last year.

After years of making do with fewer people, 58 percent of respondents say they plan to increase their numbers of workers. Only 3 percent say they will decrease their employment base, while 39 percent say they’ll keep their numbers unchanged.

Companies’ ambitious hiring plans, however, come with some skepticism about the quality and quantity of their prospects.  Twenty-nine percent predict a smaller pool of qualified candidates than 2005, while 25 percent say they expect a larger pool. Forty-six percent say the pool will remain the same.

If owners follow through on their plans, many employees can expect healthier compensation. Fifty-seven percent of respondents say they plan to increase salaries or wages in 2006, while 42 percent say they will keep salaries and wages the same as in 2005.

A smaller amount — 23 percent — say they will increase benefits spending. Seventy-four percent say they will keep their benefits spending about the same.

Small-business owners indicate they will increase capital equipment spending. Almost half — 47 percent — say they will increase capital expenditures on equipment and infrastructure in 2006, compared to 2005. Forty-three percent say they predict no change in their capital spending for the new year.

Shades of gray
There are some shades of gray among the mostly glowing survey responses.

While exuding great confidence in their own companies, business owners seem less enthusiastic about the larger economy, says Dan Forbes, assistant professor for strategic management and organization at the Carlson School of Management at the University of Minnesota. Upsize asked him to review the survey results.

Thirty-seven percent of owners say they think the overall economy will improve, and 49 percent say the economy will stay about the same.

A national small-business confidence survey, conducted by Administaff in fall 2005, showed similar mixed feelings among its respondents. More than half — 54 percent — reported they were “optimistic” about the economy in the coming year, while about a third said they were undecided.

External business factors also loom large for respondents of the Upsize survey. Many respondents — about 69 percent — say they believe  costs will rise for the main materials and services (excluding employee costs) they’ll need to do business in the new year.

Sixty-one percent say there will be no change in their ability to obtain business financing in 2006, compared to 2005. Yet nearly a quarter — 21 percent — feel financing will be harder to come by.

Another sore topic for respondents is taxes. Most — 62 percent — say the tax climate will stay about the same, while 34 percent predict it will be less favorable. Only 5 percent feel the tax climate will be more favorable for small businesses in 2006.

“People are modestly optimistic with regard to the economy as a whole,” says Forbes. “But I would say they’re very solidly optimistic with regard to their performance in 2006.”

The disparity isn’t surprising, he says. His research — as well as plenty of anecdotal evidence — suggests entrepreneurs can have “overconfidence” in the success of their own ventures. And unlike managers at larger companies, they rarely have analysts, investors or a higher-ranking officer to answer to, he says.

“It would be a leap to say that all of these people are overconfident,” he says, pointing out that many  respondents to the Upsize survey have experience — about 50 percent report being in business for 11 years or more — to back up their claims. “But there certainly is a disconnect between” their perception of their companies and their perception of perception of the larger economy, he says.

The national Administaff survey reveals similar high expectations among small-business owners for their companies. More than two-thirds of respondents — 68 percent — expect to experience more growth in the coming year than in 2005.

Sixty-four percent of companies polled by Administaff plan to increase salaries and wages. Two-thirds intend to add employees, and half predict an increase in capital spending, according to that survey.

Ambitious plans
Many respondents to the Upsize survey are preparing to turn their optimism into ambitious plans for 2006.

Bob Carlson, CEO of Eden Prairie-based Premier Restaurant Management Inc., which owns most of the Majors Sports Cafes, says he has a lot on tap for the new year. He’s contemplating taking his company public to gain liquidity for his shareholders. And he’s launching a new sports-related, casual-dining concept while also scoping new locations for the first time outside of the Twin Cities.

Revenue for the company should fall between $25 million and $27 million, as compared to $20 million in 2005, he says.

His company has gotten a lot of press lately for its rocketing growth, but Carlson says he has no specific growth plans, as far as hard numbers, for 2006. “We don’t chart our growth on opening X amount of stores each year. We take it on a location-by-location basis,” he says. “I can’t tell you if we’re going to have two new stores or 10.”

Dawn Schaefer, CEO of Creative Ad Solutions Inc., a Mankato-based company that sells promotional products and corporate gifts, also plans to expand her company in 2006. She’s eyeing several buildings in Mankato, one of which she’ll buy and move her headquarters to in 2006.

In doing so, she’ll be one step closer in accomplishing a second, more personal goal: To create a referral-based co-op, where other tenants in her building — service companies such as an accounting firm, a law firm, and a graphic design firm — would be chosen based on quality and trust, ty and trust, she says.

Besides being a one-stop-shop for customers, the hub would be a physical translation, she says, of the business-to-business networking model used by BNI (Business Network International). Schaefer herself is a member of one of the organization’s Mankato-based chapters.

Despite losing a few large orders from a casino client that went out on bid in 2005, revenue jumped 73 percent from the previous year — and “that alone just sets us up for a really good feeling about 2006,” Schaefer says.

Not so rosy
Not all small companies have such a rosy outlook. All manufacturing companies in the survey, 9.7 percent of the respondents, predict decreases in revenue, income and personnel, as overseas outsourcing continues to decimate their industry. While the vast majority of respondents do not outsource any business functions to other countries, those planning to increase their outsourcing outnumber those planning to decrease it by two to one.

Jackie Salisbury, CEO of Mack Engineering, a Minneapolis-based machine shop, has been fighting the effects of outsourcing for several years. She doesn’t expect 2006 to be any different, she says.On tap for her new year are a reduced work force (mostly due to unreplaced retirees), and lower prices “because our customers are demanding it,” she says. “They want double-digit decreases in pricing every year, period.” Otherwise, they’ll simply ship their jobs overseas to China, she says.

Keeping competitive means she must also buy leading-edge equipment, while material costs go up 20 percent a year. Still, she says,”we haven’t passed any of that on — yet.” Despite the assault on her bottom line, Salisbury predicts $6 million in revenue for 2006, compared to $5 million in 2005.

With fewer machinists, Salisbury plans to use the open floor space to incorporate more value-added services into the mix — “things that our customers are looking for that can help us compete with offshore” manufacturers.

Transportation companies, too, expect a tough year ahead, with rising fuel costs putting a squeeze on their margins. Joyce Brenny, CEO of Brenny Transportation Inc., a St. Joseph-based trucking company, says her industry could be “headed for a train wreck” in 2006 if gas prices continue to rise.

The logical solution — passing on the costs to customers — isn’t a simple one when prices fluctuate so much on any given day or week, in any given state. Since Brenny quotes customers a fixed fuel price before her trucks hit the road, extreme spikes often result in her company covering the difference. “You can’t keep up,” she says. If prices won’t drop in 2006, Brenny at least hopes they’ll level off.

There’s also a shortage of truckers, as fewer people find the profession desirable. And tires — another petroleum-based product — are  becoming more expensive.

So it’s no wonder Brenny’s advice for transportation companies in the new year sounds more like a warning: “If you’re having a good stretch, you’d better be banking some of that money because I guarantee around the corner there’s going to be a stretch of bad coming,” she says. “Don’t freak out about it — prepare for it.”

Restructuring benefits
More than anything, 2006 seems to be the year small companies finally will be hitting their stride. Theirs has been a gradual recuperation from the effects of Sept. 11, 2001, and the subsequent economic downturn.

Hit particularly hard was Minneapolis-based Shea Inc., an interior design and architecture firm that focuses on branding. With a large portion of their business in the hospitality industry, and a slowdown in the office market, the staff had to downsize significantly four years ago. The company went through a couple rounds of layoffs, and chose not to hire on pace with regular turnover. Shea now employs 30, down from 100 in 2001.

In the long run, cutting staff presented a golden opportunity to restructure the company, says Andy McDermott, communications director. “We’re leaner and meaner,” he says. Instead of its traditional style of operating in silos — with separate divisions for architects, interior designers, graphic designers, and so on — the company reorganized into a more cohesive group. “Once we got smaller, we kind of blended everybody, putting them all together. It seems to be working for us.” The result has been increased efficiency, and a greater team approach to tasks.

With fewer people, Shea plans to scale back its corporate headquarters — the reason why Shea is one of 4 percent of respondents planning to reduce office or facilities size in 2006.  (By contrast, 29 percent plan to expand or relocate to more space, while 66 percent plan to stay put.)

Work, however, is picking up. Consistent gigs from high-end restaurant accounts, such as the upscale Morton’s Restaurant Group, provided the company a steady stream of work when its core markets slowed down. But now that the office market is back on the upswing, says McDermott, his company is getting ready for a busy 2006.

“We’re seeing trends that are working in our favor,” he says. “The general feel is that things are improving.” The company forecasts $4.5 million in fees for next year, up 10 percent from 2005.

Milestone Growth Fund, a venture capital firm that invests in minority-owned companies, saw its own pace of deals slacken after 2001. “We were kind of dead,” says Esperanza Guerrero-Anderson, CEO of the Minneapolis-based nonprofit.” Not only did we not see a lot of deals come our way, but also we didn’t want to invest. It was really a watch-and-see period.”

Now that Milestone has completed its latest fundraising campaign, the company is planning an investment bonanza for 2006. During the early months of the new year, Milestone staffers will focus on marketing to attract a larger number of prospects, and add to their 28 current investments, says Guerrero-Anderson. “We have a very strong commitment to grow in 2006,” she says.

[contact] Bob Carlson, Premier Restaurant Management Inc.: 952.906.3777; bobc@premiercompaniesmn.com; Joyce Brenny, Brenny Transportation Inc.: 320.363.6999; brennytr@uslink.net; www.brennytransportation.com. Dan Forbes, Carlson School of Management, University of Minnesota: 612.625.2989; dforbes@csom.umn.edu; www.csom.umn.edu. Esperanza  Guerrero-Anderson, Milestone Growth Fund: 612.338.0090; esperanza@milestonegrowth.com; www.milestonegrowth.com Andy McDermott, Shea Inc.: 612.339.2257; andym@shealink.com; www.shealink.com. Jackie Salisbury, Mack Engineering Corp.: 612.721.2471; jackie.s@mackengineering.com; www.mackengineering.com. Dawn Schaefer, Creative Ad Solutions Inc.: 507.344.8464; dawn@creativeadsolutions.com; www.creativeadsolutions.com.