How entrepreneurs see 2006's second half

By Stacy Perman

updated 9:02 a.m. ET May 25, 2006

At the start of the year, BusinessWeek Online assembled a group of entrepreneurs and small-business watchers to discuss the economic issues that they believed would most impact entrepreneurs during the year ahead. Although mostly optimistic, they cited worries over consumer spending slowing down and the increasing cost of energy and health care.

At the year's midpoint, Businessweek Online reconvened the original participants of our virtual roundtable to reassess how their concerns were shaping up. The participants: William Dunkelberg, chief economist with the Washington-based trade group National Federation of Independent Businesses (NFIB); David Hennessey, global marketing professor at Babson College in Babson Park, Mass.; Michele Evanger, owner of the franchiser Designs of the Interior in Barrington, Ill.; Susan Sobbott, president of OPEN, American Express' small-business network; and Peter Horan, Chief Executive Officer of Allbusiness.com.

Edited excerpts of their conversations follow:

At the start of the year, one of the biggest priorities cited was growth; does that still hold true at this point in the year?

Dunkelberg: For small business, it remains getting sales in the door and finding employees to meet the demand of the customers.

Hennessey: I still think identifying growth opportunities [is a priority].

Evanger: Growth is still a top priority for us. Our [goal for 2006 was to add 15 new stores] and we are more than halfway there — we have already added nine franchises.

Sobbott: Growth continues to be the No. 1 priority for small businesses.

Horan: The top economic priorities for small business are rising fuel prices and rising interest rates.

Has your economic priority shifted since the start of the year?

ENTREPRENEURIAL SPIRIT The Best Entrepreneurs Under 25 Free Advice from Some Big Winners Dress the Part of a Leader The 10 Worst Presentation Habits Entrepreneurs: Cream of the Young Crop Academia's Brightest Tech Stars

Dunkelberg: Our major concerns are being able to meet strong demand [as well as] what it is going to be like at the end of the year if there is a [drop-off].

Hennessey: I think along with identifying growth opportunities, there is the whole issue of innovation, either to use in [NFIB members'] own businesses or [through] new products or services.

Sobbott: Among [our members], 68% said that they are seeing growth opportunities over the next six months. That is down slightly from the fall when it was 71%, but the net [result] is that growth remains high with strong opportunities for hiring, investing, and strong cash flows.

Horan: The change from six months ago is that I am surprised that fuel prices haven't eased up more. ... If they go much higher, they will hurt small businesses. ... I don't think it will become a huge issue yet, but if the Fed continues to use interest rates to fight inflation, it will slow down the economy.

What are your thoughts about growth, now looking at the second half of the year?

Dunkelberg: Looking forward, I'd say the same [as my predictions for the first half of 2006]. We are stunned at consumer spending in the first quarter. Spending is much stronger than expected, [and] we keep thinking consumers will start saving. [At the same time] government spending is up and planned equipment and capital spending is strong. Most [business] owners don't think it can continue.

Hennessey: I think entrepreneurs are waiting for consumer confidence to come back. ... There are also major political issues like Iran, Iraq, and immigration policy. Like everyone else, I think entrepreneurs are concerned about what is happening with our federal government. And there's an interesting statistic by Sure Payroll, a group that tracks small-business trends. [According to them] hiring and pay rates have been [basically] flat over the last three months.

Evanger: Although there is a housing slowdown, the great thing about [the] home-furnishings [area] is that [homeowners] are always working on something.

Sobbott: We still assume that there will be growth in the second half of 2006.

In terms of the biggest concerns on the economy and small business, have the issues changed since January or do they remain the same?

Hennessey: An important [issue] is interest rates. The Fed has raised the interest rates and [as] mortgages go up [so] does the cost of capital. Most small businesses have credit lines and [their] cost is going up.

Evanger: The job market is still a huge issue for small businesses. It's becoming increasingly challenging to find and entice good people.

Sobbott: Everyone is watching interest rates for a signal for opportunity. This is more prevalent today than it was six months ago. From a macroeconomic perspective, there is still great confusion in predicting where the economy is going to go.

Horan: Managing good people, funding growth, and health-care costs are still the top issues. I got a health-insurance bill for my company and it was up 12%. Because health care is viewed as an important benefit, it is linked to the ability to recruit and keep good people.

MORE FROM BUSINESSWEEK

BusinessWeek Section Front

Analysis: It's Obama's Economy Now Software for Business: When Not to Buy Stocks Surge on Intel News, Data Whitney: Goldman Will Ride the U.S. Debt "Tsunami" CIT: Not Too Big to Fail SendMe: Watch Out, iPhone App Makers New Book on Facebook: Fun Trumps Facts Tech in Schools: Federal Cuts Sow Concern GM Gets a Fresh Start Google's OS: Will PC Makers Bite? BusinessWeek Section Front