SRP Metro Phoenix Business Study

2011 METRO-PHOENIX BUSINESS STUDY

NEW STRATEGIES FOR SUCCESS

PRESENTED BY

IN COLLABORATION WITH

FOREWORD

The past several years have been economically challenging for families, businesses and every

level of government. Everyone felt the pinch of our recent economic downturn. As a company

doing business in Arizona for more than 100 years, SRP knows the vitality of our community is

directly related to the success of our local businesses.

Arizona businesses promote job growth, drive the economy and improve the vitality of our

community. We all want to see our economy move forward and our business environment

improve. That’s why we worked with Arizona State University, the Arizona Small Business

Association, the Greater Phoenix Chamber of Commerce, the Phoenix Business Journal and

WestGroup Research to bring you the 2011 Metro-Phoenix Business Study.

The findings in this research provide excellent insights and stories from more than

830 Phoenix-area business owners, who candidly share information about not only the

challenges they recently experienced but also the solutions they incorporated to sustain

their businesses during those economic challenges. Fortunately, they had a lot to say and

I think you will find their experiences helpful.

In addition to partnering on this report with Valley stakeholders, this past year SRP actively

began looking for opportunities to help local businesses navigate the challenges of the poor

economy by creating the SRP Business Resource Center (BRC).

The BRC is a free, online, one-stop information center created by business to help business. At

srpbizresource.com, important business information, resources and helpful advice are available

to help take businesses to the next level.

SRP wants to be part of the solution that keeps the Valley moving forward. We believe this study

and our BRC are a step in the right direction. We view both as tools to move us closer to a

stronger and prosperous Phoenix economy.

I want to thank the Phoenix-area businesses that participated in this study and acknowledge our

partners that made this study possible.

Mark Bonsall

General Manager & Chief Executive Officer

SRP

■ i

2011 METRO-PHOENIX BUSINESS STUDY TABLE OF CONTENTS

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . i

Acknowledgments . . . . . . . . . . . . . . . . . . . . . ii

Overview . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . 5

Findings . . . . . . . . . . . . . . . . . . . . . . . . . . 7

•Challenges, Impact and Strategies . . . . . . . . . . . 7

•The Future. . . . . . . . . . . . . . . . . . . . . . 19

• Information Resources . . . . . . . . . . . . . . . . 25

•Technology . . . . . . . . . . . . . . . . . . . . . 27

•Sustainability . . . . . . . . . . . . . . . . . . . . 32

Methodology . . . . . . . . . . . . . . . . . . . . . . 33

End Notes . . . . . . . . . . . . . . . . . . . . . . . . 36

PROFILES

Sherry Michaels, Michaels & Associates Docntrain Ltd. . . 17

Ed Goff, Blockwise Engineering. . . . . . . . . . . . . . 23

FEATURES

Impact of the Economy by Industry . . . . . . . . . . . . 10

Ready to Grow . . . . . . . . . . . . . . . . . . . . . 22

Trying to Figure This Out . . . . . . . . . . . . . . . . . 31

ii ■

ACKNOWLEDGMENTS

COLLABORATING ORGANIZATION

Arizona State University (ASU)

INSIGHTS/ANALYSIS

Gary Naumann,

Director of the Spirit

of Enterprise Center, ASU

Todd Sanders, President

and CEO, Greater Phoenix

Chamber of Commerce

Kristen Wilson,

COO, Arizona Small

Business Association

Don Henninger,

Publisher,

Phoenix Business Journal

RESEARCH TEAM

SRP

Jim Briggs, Senior Market Research Analyst

Brian Cary, Manager, Forecasting, Research & Economic Development

Denise Hayes, Senior Marketing Program Manager

Linda Murphy-Lessor, Principal Market Research Project Manager

ASU

Dennis Hoffman, Director, L. William Seidman Research Institute, Department of Economics

Elizabeth Farquhar, Managing Editor, KnowWPCarey

Sidnee Peck, Director and Instructor, Entrepreneurial Initiatives

WestGroup Research

Katy Gallert, Research Analyst

Glenn Iwata, Executive Vice President

SM

■ 1

OVERVIEW

NEW STRATEGIES FOR SUCCESS

Businesses across the country have spent the past four years

“re-inventing,” “right-sizing,” “re-skilling,” “re-branding,”

“viral marketing,” “organically growing” and using a

multitude of other buzzword

strategies to survive.

According to the

National Bureau of

Economic Research,

the recession

officially began in

December 2007

and ended in June

20092; however, the

reality has been a

painful, four-year

economic slowdown that has

forced businesses to change the way they operate.

Businesses in metropolitan Phoenix have been especially

hard-hit by this slowdown, with real estate and construction

sectors leading the downturn. Dennis Hoffman, Director of the

L. William Seidman Research Institute at ASU, observed:

“Housing and construction slowed to a standstill in late ’06/early ’07; there wasn’t much going on … so we lost jobs in virtually all sectors. Retail sales adjusted in a fashion that it’s never adjusted. … The pace of growth drivers like utility hookups plummeted. … It’s the worst recession in the postwar period.”3

A number of questions arise when considering the impact on

area businesses during this slowdown.

❯ What are the biggest obstacles facing businesses?

❯ What steps are businesses taking to survive?

❯ Which strategies are successful?

❯ How will businesses operate differently going into the future?

In other words, is there a “new normal” that is being

established as a result of the past four years? This year’s

study, “2011 Metro-Phoenix Business Study: New Strategies

for Success,” focuses on the issues and steps these survivors

have taken.

This study is the result of collaboration between SRP and ASU,

along with support from a number of endorsing organizations.

The purpose of this collaborative effort is to provide a resource

to companies, government agencies, educators and supporting

organizations that want to help develop solutions for

businesses in the midst of the economic slowdown.

The findings in this report are based on input received from

833 Phoenix-area businesses. Interviews were conducted

primarily by telephone with business owners and management

from August–November 2011. Most of those interviewed were

considered “small businesses.” Respondents were contacted

and given the option of participating in the research using

phone or Web methods. Quotas were set by industry type and

number of employees to achieve a representative sample of

metro-Phoenix businesses. When applicable, results from this

2011 study were compared with a 2007 study conducted by

SRP, ASU and WestGroup Research.4 In addition, one-on-one

interviews were conducted with local business experts and

focus groups were held with area businesses to provide

perspective to the issues businesses are facing.

The following highlights key findings from the research.

CHALLENGES

❯ Refocus/rethinking — In 2007, the top challenge facing businesses was managing cash flow (21%); only 1% had concerns about the economy. In a comparable unaided question asked in 2011, 56% mentioned being affected by the economic slowdown. This figure grew to 86% after businesses were directly asked, “How has the current economic environment/conditions affected your business, if

at all?”

❯ Barriers — Businesses were asked to rate a series of specific “challenge” questions (an “aided” version of the most significant challenges they face).

“Our Arizona small businesses are doing

extraordinary things, even in a challenging economic environment.

It is so important to give businesses an opportunity to tell their story.

Organizations like SRP and ASU pulling their resources together allows businesses

to do that without having to turn away from what is most important to them —

running their business.”1

Kristen Wilson, COO, Arizona Small Business

Association

2 ■

❯ In order, the most significant challenges are:

•Access to capital (41% consider this a significant challenge; combining the top two responses, 60% consider this either a significant or somewhat of a challenge) — The limits on available capital will result in growth occurring at a slower pace.

•Rebuilding the customer base (34%–35% significant challenge) — Businesses are still trying to figure out how to market and build their customer base in this new economy.

•Financial planning (29% significant challenge)/managing cash flow (27% significant challenge) — The uncertainty of the marketplace makes it difficult to forecast and prepare for the future. Cash flow represents one of the key financial factors affected by this challenge.

•New rules/new tools (mentioned by 15%–22% as a significant challenge for each one listed) — Once businesses reach beyond the survival stage, they want to know the impact of new rules (e.g., health care reform) and tools (e.g., social media) to help with their operations. Also included in this list are how to retain and hire employees, manage staff and negotiate with suppliers.

IMPACT

❯ Shrinking businesses — The most significant impact on businesses from the economic slowdown is the “shrinking” of businesses. Seventy-one percent experienced a decrease in sales/profit/customers because of the economy, resulting in businesses being smaller today than they were a few years ago.

❯ Suppliers — Although most businesses did not feel the economic environment has had an impact on supplier relationships, more than one-third (38%) feel their relationships have been affected in some manner and 11% feel suppliers are more stringent in their policies. Six percent gave the opposite view and said suppliers provided more leeway with credit policies, increased services or found ways to improve customer relations.

STRATEGIES

❯ Retreat or attack — Companies tend to take one of two strategies in order to survive — retreat or attack — and most have chosen to retreat in the economic downturn (cutbacks were mentioned by 39% as their primary strategy). The attack/aggressive strategy involves the opposite approach — expanding operations, increasing advertising/marketing, launching new products/services and adding new locations (mentioned by 28% as their primary strategy). Businesses feel the attack strategy is more risky than retreating and is not always as successful.

❯ Limits on retreating — Companies can become only so small and still stay in business. Businesses appear to be at a point where they have stretched the productivity of their workforce and have already tried

cutting costs.

❯ Leading the recovery — Larger companies (20-plus employees) appear to be more likely to lead the economic recovery. These companies tend to be more optimistic about their economic future and more likely to expand than smaller companies (those with one to four employees).

“You can’t

(shrink) forever. You shrink to survive, but in the long run, the way capitalism works, that’s a death spiral.” Brian Cary, SRP Manager, Forecasting, Research & Economic Development5

Signi�cant Somewhat Not a challenge Don’t know

Applyingnew technology 15% 34% 47% 4%

Negotiatingprices

15% 26% 50% 9%

Managingstaff size 16% 21% 44% 19%

How torun business 21% 28% 49% 2%

Finding/retainingemployees 22% 24% 41% 13%

Managingcash �ow 27% 31% 41% 1%

Planning for�nancial future 29% 43% 26% 2%

Marketing/promoting business 34% 41% 23% 2%

Growing business/retaining customers 35% 40% 23% 2%

Accessto capital 41% 19% 34% 6%

MOST SIGNIFICANT CHALLENGES (AIDED)Total 2011 Responses

■ 3

THE FUTURE

❯ Optimism — Businesses are anxious to return to the boom years. Half of businesses (50%) anticipate their financial position will improve in the next 12 months; only 12% expect their situation to become worse. Almost half (46%) are expecting to expand within their next planning cycle, and another 46% plan to stay about the same size.

❯ Flexibility — Most of these businesses have relatively short planning cycles. More than one-third (38%) can make significant changes to staffing within a year’s time; 67% have planning cycles of two years or less. Younger, smaller companies appear to be more flexible and can adjust quickly to changes in the marketplace.

INFORMATION RESOURCES

❯ Staying in-house — One-third of the businesses rely on outside resources for advice about how to plan and run their business. Those that do are most likely to use industry publications and trade organizations to get information specific to their business (26%). Even fewer have taken advantage of government-backed resources.

❯ Marketing/forecasting — Businesses that have sought help from outside organizations need help regarding marketing and supporting the growth of business (25%). Businesses also need forecasting information to help them understand the impact of future trends and enable them to plan accordingly (22%).

TECHNOLOGY

❯ Actively using social media — Three out of four of the businesses maintain a website, and half of them actively use social media. Facebook and LinkedIn are the top business social media tools.

❯ Advertising/promotion/communication — Businesses are primarily using social media for two purposes:

•As a marketing tool to advertise and promote their services — For example, 45% of Facebook users said they apply social media to market/promote their business.

•To communicate with customers — For example, 63% of LinkedIn users said they apply social media to stay in touch with their customers.

❯ Trying to figure it out — Most businesses are still trying to determine how social media can benefit them. They see great potential but need more information about how to apply social media and measure its success. Among active Facebook users, 14% said they added more customers and 8% experienced an increase in sales because of their Facebook involvement.

SUSTAINABILITY

❯ Beginning stages — Some businesses (59%) are making efforts to be more environmentally sensitive in their processes and operations, with 21% saying they recycle. Almost half of businesses (41%) admit to not taking any steps to be more environmentally conscious or are not sure what steps their company is taking.

❯ Low- and no-cost solutions — Most companies undertaking sustainability efforts are using low- and no-cost solutions, such as recycling office products and turning off lights.

OVERVIEW CONTINUED

4 ■

CONCLUSIONS

SURVIVAL STRATEGIES

❯ Shrinking — Compared with pre-recession days, today businesses have lower sales revenues, tighter profit margins, smaller operations, and fewer product and service lines. Companies had to shrink in order to survive.

❯ Flexibility — As organizations became smaller, they also became more efficient, with less overhead and shorter planning cycles. Bottom line, they found ways of staying in business using fewer resources. Companies that have survived the past four years have had to be more flexible in order to adapt to lower customer demand and compete for the limited number of profitable products/services.

❯ Risk taking — Some businesses have successfully taken more aggressive strategies and grown during this slowdown. Businesses that have successfully executed these strategies tend to be smaller (in terms of annual revenue) but not necessarily home-based. They are also more likely to be active on social media.

THE NEW NORMAL

Most businesses want the future to look more like the

pre-recession days of growth, profit, more employees, more

office space, available resources (both human and financial),

and greater demand for their products/services. The new

normal will involve growth but with the following challenges.

❯ Slower growth — The availability of resources such as commercial office space and an underemployed workforce will help with growth; however, limitations from credit markets will rein in the temptation to quickly expand. Even during stronger markets, businesses considered access to capital and cash flow management their two most significant challenges.

❯ New rules/new tools — Businesses need help marketing in this slow-recovering economic environment. Although demand for products/services will naturally increase as the economy strengthens, marketing strategies and methods have changed over the past four years. Businesses will need to figure out how to use social media and new technology and then implement these strategies in order to reach their customers.

❯ New markets — During the slowdown, companies commented about reducing their products/services to only their most profitable core offerings. Businesses could not afford to take too much risk during an era of tighter profit margins and uncertain customer demand. If businesses want to jump-start their growth in this new normal, they will need to broaden their products, test new markets and take some risks in their approach. At some point, they need to step beyond the conservative, safe approach.

❯ Losing efficiencies/flexibility — Another challenge businesses will face as they grow will be maintaining the efficiencies and flexibility they have attained during the economic slowdown. For example, adding staff or increasing office space would mean increasing payroll or locking into lease agreements. These types of growth steps reduce flexibility and potentially add long-term expenses.

■ 5

PRIORITIES

Businesses provided a clear list of priorities to “supporting”

organizations that want to help them navigate through the

new normal.

❯ Finding capital — The No. 1 priority is obtaining capital in this tight credit market. Businesses, financial institutions and policymakers need to find solutions to make both short- and long-term funding available. It’s a simple formula: No capital means no growth.

❯ Marketing in the new economy — The second priority is rebuilding customer bases. Businesses seem anxious to find ways to reach potential customers. They need help identifying new opportunities, learning how to use new tools and technologies (e.g., social media and iPads), and changing the way they market their products/services. What worked in 2007 may not work as well today. Supporting organizations need to educate businesses about the new basics of marketing.

❯ Re-learning how to run their business — The third priority is a natural progression that flows from the marketing step. As companies move past survival mode, they need help with the infrastructure to support them. Growth means more planning and forecasting, responding to new regulations, managing staff and finding resources. In the same way companies learned how to operate with less during the past four years, they now need to learn how to grow with new rules, new demands and new opportunities. A significant challenge for supporting organizations is teaching owners how to run their business when they do not have the time or patience to learn.

BACKGROUND

What is the history behind the study?

The 2011 Metro-Phoenix Business Study is the fourth in a

series of business research studies that began in 2005

sponsored by SRP, in collaboration with ASU, and conducted

by WestGroup Research. The original study was conducted as

part of an annual tracking study conducted through the

Hispanic Research Center at ASU. The study evolved from

2005–07 to include both Hispanic and non-Hispanic

minorities as well as women-owned businesses. From

2007–10, SRP and ASU chose not to conduct the research

after earlier trending analyses identified minimal changes in

demographics and attitudes from year to year.

Why did SRP and ASU conduct this research?

In 2011, SRP and ASU took a different angle than in previous

years. Instead of focusing the research on specific target

groups (e.g., minority businesses), this year’s study researched

the impact of the recent economic downturn on businesses in

the Phoenix area. The study was designed to be a resource for

a broad range of audiences, including government officials;

planners and analysts; business and community leaders; and

educators who want to understand the marketplace better.

This research provides a snapshot of the challenges businesses

face during a slow-recovering economy as well as the

successes experienced. Findings provide a blueprint of where

to focus efforts to support Phoenix-area businesses as well as

possible opportunities and solutions for businesses to consider.

SRP and ASU have made significant long-term commitments to

providing resources to support local businesses. This research

is just one part of their continuing efforts.

CONCLUSIONS CONTINUED

6 ■

How will the findings be reported?

Study findings will be incorporated into SRP’s Business

Resource Center (BRC) and ASU’s KnowWPC online business

resource. Stakeholder groups will have access to this

information through a number of different channels, such as

the websites, workshops and press releases.

The SRP BRC provides business solutions in one location to

help businesses become more successful. It includes locally

focused information, such as the economy at a glance, local

business resources, legislation updates and advice from local

business experts.

SRP BRC: srpbizresource.com

ASU will be writing articles and providing information from

this study through the W.P. Carey KnowWPC website,

knowwpcarey.com.

What businesses participated in the survey?

BUSINESS CHARACTERISTICS OVERVIEW

TOTALS

Number of completed interviews 833

Ownership:

Sole proprietorship 33%

Corporation 17%

S corporation 18%

Partnership 9%

LLC 20%

Other/refused 3%

2010 median revenue $241,400

Median number of employees 3

Median age of company 14 years old

Business descriptions:

Home-based 40%

Not-for-profit 8%

A breakdown of industry type and number of employees is

listed in the “Methodology” section (Page 33).

Primarily small businesses — The majority of the Phoenix-

area businesses that participated in this study are organized

as a corporation (limited liability company [LLC], corporation,

S corporation or C corporation). It should be noted that an

LLC can also be considered a corporation, S corporation or

C corporation. The companies are relatively small, with a

median of three employees and revenue of $241,400 in

2010; 40% are considered home-based businesses.

There were minimal changes in overall company

firmographics between the 2007 and 2011 studies.

Firmographic comparisons between 2011 study results

and 2007 census data were also comparable.

■ 7

FINDINGS

THE CHALLENGES, THEIR IMPACT AND STRATEGIES

This section reviews the challenges Phoenix-area businesses have been facing over the past few years, the impact these issues have

been making on businesses and the solutions businesses have tried to overcome the difficulties.

What a difference four years makes — Not surprisingly, the

top challenge among Phoenix-area businesses today is the

economic downturn/recession. Even those not specifically

mentioning the economic downturn list other factors that could

be affected by the economy. The chart highlights businesses’

severe shift in focus over the past four years. In spring 2007,

cash flow was the top challenge businesses were trying to

address; only 1% mentioned the economy. Companies still

considered cash flow a top issue in 2011, followed by

building or rebuilding their customer base.

THE CHALLENGES

What are the most significant challenges Phoenix-area businesses have faced over the past few years?

These responses represent businesses’ “top-of-mind” reactions

when asked about their most significant challenges. Results

were compared with a similar 2007 study6 conducted by SRP,

ASU and WestGroup Research (see “Methodology” section)

that involved responses from 850 Phoenix-area businesses. A

more detailed and “aided” version of these challenges is listed

later in the report.

Question: To begin, what have been the most significant challenges or barriers you have faced in your business in the past two or three years?

*Note: Top responses mentioned; based on multiple responses.

**Significantly different at 95% confidence level between 2007 and 2011.

MOST SIGNIFICANT CHALLENGES (UNAIDED)*

Overcoming economic downturn/economy

Cash �ow

Finding/retaining customers

Rising expenses

Marketing — how/costs/ROI

Increasing competition

Finding/retaining employees

2007

2011

56%**1%

14%21%**

11%14%

10%**0%

6%7%

5%6%

5%18%**

8 ■

An “aided” version of the question was asked by reading

businesses a list of potential challenges and having them rate

each one as a significant challenge, somewhat of a challenge

or not a real challenge.

Question: For each one, please indicate how much of a challenge — if any — you find this area by rating as a significant challenge, somewhat of a challenge, not a real challenge or don’t know/does not apply.

Top priorities — Businesses’ ratings tend to cluster around

four categories in the following order:

❯ Capital — Where and how to borrow money is the most significant challenge.

❯ Growth — How to grow and marketing/promoting the business are the top challenges when combining the top two categories — significant and somewhat of a challenge — together.

❯ Financial management — Planning for the future and managing cash flow are in the third level of challenges businesses face.

❯ Knowledge — The fourth level involves know-how in running the business — human resources, management skills, negotiating skills and technology applications.

BUSINESS COMMENTS

“The economy (is the top challenge); how the economy has gone up and down. People do not want to spend money to buy bikes and repair bikes. People are hanging on to their money.”

Bicycle repair company

“The biggest barrier would be rising costs and not being able to keep up with the economy. The cost of the product and using the material that is in demand (has been rising). For the customer, not being able to use the money for things that are broken, they are using (the funds) for other day-to-day use.”

Glass replacement business

“The challenges are whether I should grow and hire employees or just continue on my own without employees. Also, being so busy that I might have to turn away potential new clients because I’m the only employee. (Another challenge is) keeping quality at a level so that people won’t check out the competition.”

Investment company

“Renting the units (is the top challenge), because there are a lot of people losing their jobs!”

Apartment complex

“The tire business is way down. With the cost of tires going up, the service side is going up. The economy has not hurt us too bad. We are not generating as much on tires. Our (profit) margins are down. We had our first sales decrease in 24 months.”

Tire retailer

“I would say the economy. My clients have gone out of business. Clients have had to downsize, and I had to downsize at one point. I had five employees, and now I’m down to myself.”

Accounting firm

Signi�cant Somewhat Not a challenge Don’t know

Applyingnew technology 15% 34% 47% 4%

Negotiatingprices

15% 26% 50% 9%

Managingstaff size 16% 21% 44% 19%

How torun business 21% 28% 49% 2%

Finding/retainingemployees 22% 24% 41% 13%

Managingcash �ow 27% 31% 41% 1%

Planning for�nancial future 29% 43% 26% 2%

Marketing/promoting business 34% 41% 23% 2%

Growing business/retaining customers 35% 40% 23% 2%

Accessto capital 41% 19% 34% 6%

MOST SIGNIFICANT CHALLENGES (AIDED)Total 2011 Responses

■ 9

The 2011 study asked businesses to rate some of the same

challenges as the 2007 study7.


**Significantly different between 2007 and 2011.

Shifting challenges — There has been a significant shift in

priorities in five of the top six “significant” challenges over the

past four years. In 2007, the priority was focused more on

finding/retaining employees (42% rated it a significant

challenge). In 2011, priorities changed to finding capital

(41%), growing the business/retaining customers (35%) and

marketing/promoting the business (34%).

More challenges — In general, businesses are more likely

now than in 2007 to consider the items listed in the chart

above as significant challenges. Economic conditions appear

to be increasing the intensity of these challenges.

MOST SIGNIFICANT CHALLENGES (AIDED)*

Access to capital

Growing business/ retaining customers

Marketing/ promoting business

Managing cash �ow

Finding/retaining employees

How to run business

2007

2011

41%**28%

35%**25%

34%**21%

27%23%

22%42%**

21%26%**

Big challenges for smaller companies — Younger and smaller

companies (in terms of revenue) are significantly more likely to

have challenges gaining access to capital.

*Note: Responses in each category are mutually exclusive.

**Significantly higher than the other categories.

ACCESS TO CAPITAL (AIDED) *

AGE OF BUSINESS

1–9 years

10–19 years

20+ years

2010 ANNUAL REVENUE

< $100K

$100K–$1M

$1M+

Percent rating as a “signi�cant challenge”

50%**

37%

43%

51%**

33%

38%

10 ■

IMPACT OF THE ECONOMY BY INDUSTRY

A further look at these six industries highlights ways the

economic slowdown has affected them.

RETAIL

❯ More experiencing declines in sales/revenues/profit and number of customers (84% vs. 70% for all other businesses)

ACCOMMODATIONS/FOOD SERVICES

❯ More likely to feel retaining/finding employees is a significant challenge (34% vs. 21% for all other businesses)

❯ Among those most affected by the economy (68% unaided vs. 55% for all other businesses)

❯ More likely to actively use Facebook for business (50% vs. 31% for all other businesses)

HEALTH CARE/SOCIAL SERVICES

❯ Less likely to mention being affected by the economy (44% unaided vs. 59% for all other businesses)

REAL ESTATE

❯ Among the industries more likely to feel affected by the economy (65% unaided vs. 56% for all other businesses)

FINANCE/INSURANCE

❯ More likely to increase marketing efforts as a way to address the economic slowdown (43% vs. 27% for all other businesses)

PROFESSIONAL/SCIENTIFIC

❯ More likely to feel accessing capital is not a problem (49% vs. 31% for all other businesses) nor is finding/retaining employees (50% vs. 39% for all other industries)

❯ More likely to actively use LinkedIn (38% vs. 16% for all other businesses) and less likely to use Facebook (8% vs.

20% for all other businesses)

The economic slowdown significantly affected all industries

over the past four years. Most of the top challenges, impacts

and solutions mentioned by the businesses were common

across industry types. For example, one of the top challenges

encountered by all six industries in this analysis was gaining

access to capital. How to grow the business/retain customers

and marketing/promoting the business were also among the

most significant common challenges.

TOP CHALLENGES (AIDED)*

PERCENT RATING AS A SIGNIFICANT CHALLENGE

Professional/scientific n = 129**

Marketing: 34%Access to capital: 33%Growth: 32%

Health care/ social servicesn = 118**

Access to capital: 36%Financial planning: 35%Growth: 31%Marketing: 29%

Retailn = 96**

Access to capital: 47%Growth: 41%Marketing: 41%

Accommodations/ food servicesn = 80**

Access to capital: 46%Marketing: 36%Retaining employees: 34%

Real estaten = 72**

Access to capital: 39%Growth: 39%Marketing: 31%Financial planning: 31%

Finance/insurancen = 56**

Access to capital: 43%Growth: 36%Marketing: 36%


**The top six industries with the largest sample size representation are listed in this analysis.

■ 11

THE IMPACT

How have Phoenix-area businesses been affected by the economic downturn?

Note: Companies that did not mention anything about the economy in the first question were specifically asked, “How has the current economic environment/conditions affected your business, if at all?” The responses to this question were combined with those mentioning something about the economy in the first question to provide the findings in this table.


Shrinking companies — Most Phoenix-area businesses (86%

unaided and aided combined) have been affected by the

current economic conditions. The economy’s most significant

impact is the shrinking of businesses — lower revenues,

smaller profits and fewer customers.

❯ The 14% unaffected by the economy are distributed equally across a number of categories, including industry type, company size and length of time in business.

IMPACT/CHALLENGES OF CURRENT ECONOMY*

71% Decrease in sales/pro�ts/customers

Dif�cult to collect on payments

Had to lower prices

Tougher to get loan

5%

4%

4%

4%

9% Prices for supplies/inventories increasing

Finding new business opportunities

BUSINESS COMMENTS

“We have a couple of part-time contractors that we had to lay off. Sales volume is down 40%.”

Nonprofit industry alliance organization

“I put out coupons and do as much online marketing as possible, and I have seen a dramatic decrease in phone calls as of May. But the traffic on my website has gone up.”

Real estate

“Our customer is the federal government. When you see the federal budget go down, these opportunities for government contracts go down, so our budget is really tied to the federal government.”

Technology/personnel company

“There are a lot of winter visitors here in Arizona. With the current economic environment, a lot of these patients haven’t been back. A lot of them come down and don’t see the physician, where they used to come down and get the (treatment) they needed.”

Physician (private practice)

“We often rely on volunteers, and there are more people that are in need of jobs than are volunteering. “

Nonprofit that supports senior citizens

“The economy affected our cash flow; our customers are getting paid slow, so our receivables have increased. Sometimes I feel that commercial construction is done on the backs of contractors and suppliers; owners are undercapitalized to get their projects done. If it weren’t for the government work we (had) last year and into this year, our financial condition here would be really bad.”

Wholesale supplier for manufacturer

12 ■

How has the economy affected the growth of companies?

Question: In the past six months, has your business seen an increase or a decrease in the number of employees?

The number of employees has held even — The impact of the

economic downturn has leveled off. Most companies have

already laid off workers and cut expenses. A slightly higher

percentage of businesses have decreased rather than

increased their workforce (19% decreased/13% increased),

but most stayed the same size.

COMPANY SIZE IN PAST SIX MONTHS

Stayed the same64%

Decreased19%

Increased13%

Don’t know4%

Another factor to consider is that the typical business has

only a few paid employees (a median of three in 2011).

Smaller businesses would have difficulty cutting back on

current staff levels.



Larger companies are more likely to have grown — Larger

companies (in terms of employee size and annual revenue)

are more likely than smaller organizations to have increased

the number of employees in the past six months.

ADDED EMPLOYEES IN PAST SIX MONTHS*

NUMBER OF EMPLOYEES

1–4

5–19

20+

2010 ANNUAL REVENUE

< $100K

$100K–$1M

$1M+

5%

28%**

13%

4%

41%**

22%

■ 13

How has the current economic environment affected supplier relationships?

Question: How has the current economic environment/conditions affected the business relationships or arrangements you have made with your suppliers/vendors, if at all?


The economic environment has had a mixed impact on supplier relationships — More than one-third (38%) of

businesses feel their relationships with suppliers have been

affected. While most of those who have been affected

mentioned a negative impact (e.g., increased costs), some feel

the economy has had a positive affect (e.g., suppliers are

more flexible with payment terms).

Business suppliers appear to have taken one of two routes

with their strategies during the economic slowdown.

❯ More stringent — Eleven percent mentioned that suppliers took this approach. These suppliers want to minimize losses and lessen risk/exposure. They tend to raise prices, cut supplies/services or tighten credit practices.

❯ More flexible — Six percent mentioned that suppliers took this approach. These suppliers want to find ways to build their business and provide more leeway with credit policies, increase services or find ways to improve customer relations.

IMPACT OF ECONOMY ON SUPPLIER RELATIONSHIPS*

Top responses

Not affected/did not recall/ not mentioned

Buying less/ more strategically

More stringent policies/ higher prices by suppliers

More �exible policies/ lower pricing by suppliers

62%

11%

11%

6%

BUSINESS COMMENTS

“The economy has definitely put a strain on my suppliers. It has limited us on asking favors. It has made negotiating agreements difficult.”

Restaurant

“They are more restrictive in their ability to extend credit and don’t do extra things. They limit their products to smaller core products and services. Their product inventory is much less and (they) have longer delivery times. They are slower and less available.”

Printing company

“I’ve done a lot more searching for better pricing for the products that I have to buy, and I also negotiated with my primary shipping for better rates.”

Automotive parts supplier

“It hasn’t affected me. I guess some of my vendors are in the same boat. I think the vendors are getting out and visiting me more to get more business. Of course the economy has slowed them down as well.”

Insurance agent

“I would say we are becoming less flexible on terms of payment.”

Propane distributor

“For us, the economic situation actually gave us the opportunity to make relationships stronger, because they looked to us for advice about what was going on.”

Commercial real estate

14 ■

THE STRATEGIES

What steps have businesses taken to address the current economic conditions?

Question: What steps, if any, has your company taken to address the economic environment?


The main solutions businesses have taken fall in two divergent

categories: cutting back their operations or taking more

aggressive actions.

Cutbacks — The top responses that fell within the “cutbacks”

category include cutting back on costs in general (21% of

the 39% that mentioned cutbacks) followed by layoffs (14% of

the 39%).

Other comments that fell within this category include:

❯ Cutting back pay/salaries

❯ Reducing work hours/days of operation

❯ Decreasing advertising/marketing efforts

❯ Moving to smaller/less expensive locations

❯ Cutting less profitable inventory

❯ Stopping the hiring of new employees

STEPS TO ADDRESS ECONOMIC CONDITIONS*

Top responses

Cutbacks

Expand/more aggressive

No steps taken

More individual sacri�ce

Change processes/practices

39%

4%

5%

15%

28%

More aggressive — The aggressive/growth actions include

increasing advertising/marketing (12% of the 28% that

mentioned aggressive/growth actions) and changing pricing

strategies (10% of the 28%). Other growth strategies include:

❯ Becoming more diverse/trying new products/adding product lines

❯ Expanding the business in general

❯ Hiring more employees

❯ Looking for new ways to grow

❯ Spending more time on sales

More individual sacrifice — The fourth category of responses

involves more individual sacrifice from business owners.

Responses that fell into this category include:

❯ Working harder/taking on more of the workload

❯ Becoming more efficient

❯ Getting another job to supplement the income

❯ Using retirement money

❯ Getting family members to help out

Changing processes/practices — Responses that fell into this

category include:

❯ Changing suppliers

❯ Setting up own website

❯ Offering payment plans to clients

❯ Screening buyers

❯ Investing more conservatively

Other solutions mentioned range from going back to school

for more education to praying more.

■ 15

BUSINESS COMMENTS

“We negotiated with our landlord to lessen the rent.”

Restaurant

“All of my therapists are trying to take on more clients; they are working more. We’ve cut back on some materials that we would normally buy, such as therapy tools for the children.”

Counseling service

“We have trimmed our expenses. We do more email marketing and provide more discounts to our existing customers.”

Beauty salon

“Building customer relationships — going back to older clients and reconnecting with them.”

Office communications supplies

“(We) reduced the number of printing from quarterly to twice a year and raised the prices by 50%.”

Rehabilitation facility

How effective have these strategies been in helping businesses?

Note: Small sample sizes on each response, especially cut hours (n = 23) and lower prices (n = 48).

Question: Has this step been effective in helping you address the economy?


Cutbacks have worked so far — Most feel the steps they

have taken to address the economic downturn have been

effective. Cutting back business expenses has been the most

effective method.

Some success with greater risk —Those trying marketing

strategies (lower prices and increased advertising/marketing)

are willing to take risks (e.g., increasing costs in order

to increase revenue), and some experienced success with

these efforts.

The chart below identifies the types of companies that

successfully implemented a more aggressive approach

(increased advertising/marketing or expanded).

SUCCESSFULLY IMPLEMENTED AGGRESSIVE STRATEGY

Smaller (median gross revenue) $105,000

Not as likely to be home-based businesses Only 27% home-based

Active on Facebook 49%

EFFECTIVENESS OF STEPS TAKEN TO ADDRESS ECONOMY*

Cut pay

Cut back on costs

Lay off employees

Cut hours

Lower prices

Increase advertising/marketing

87%

59%

75%

82%

85%

85%

16 ■

KEY FINDINGS

❯ Refocus — The economic downturn has drastically changed how businesses think and operate. Four years ago, the top challenge facing businesses was cash flow management and less than 1% had concerns about the economy. Today, surviving and overcoming the economic slowdown is the top objective of most companies.

❯ Shrinking businesses —

Seventy-one percent

experienced a decrease

in sales/profit/

customers because of

the economy,

resulting in businesses

being smaller today

than in 2007. The top

survival strategy has

been to shrink the business

to match decreasing revenue.

❯ Retreat or attack — Companies tend to take one of two approaches during the economic slowdown: retreat or attack. Most have chosen to retreat, hence the shrinking businesses mentioned above. The attack/aggressive strategy involves the opposite approach: expanding operations, increasing advertising/marketing, launching new products/services and adding new locations. This aggressive strategy is more risky than retreating and not always as successful.

❯ Limits on retreating — Companies can become only so small and still stay in business. Businesses appear to be at a point where they have stretched the productivity of their workforce and exhausted cost-cutting measures.

❯ Barriers — Although companies would like to return to doing business as they had in the past, the new normal will include more restrictions and slower growth. The main barriers companies face are:

•Access to capital — Limits on available capital will cause slower growth.

•Rebuilding the customer base — Businesses are still trying to figure out how to market and build their customer base in this new economy.

•Planning — The uncertain marketplace makes it difficult to forecast and prepare for the future.

•New rules/new tools — Once businesses reach beyond the survival stage, they want to know the impact of new rules (e.g., health care reform) and leverage tools (e.g., social media) to help with their operations. Also included in this list are how to retain and hire employees, manage staff and negotiate with suppliers.

❯ Suppliers — Most businesses’ relationships with suppliers have not changed significantly over the past four years. While some suppliers have been more stringent in their approach to credit, others have provided more leeway with credit policies, increased services or found ways to improve customer relations.

“Businesses that have weathered

these challenging economic times are coming out stronger, more focused and with a better foundation to effectively manage

growth when things really start to turn around. They will be able to react and adapt quickly to new opportunities and challenges — making them extremely competitive in the local, regional and

global market.”8

Kristen Wilson, COO, Arizona Small Business

Association

■ 17

PROFILE

SHERRY MICHAELS, MICHAELS & ASSOCIATES DOCNTRAIN LTD.

THE BUSINESS

Michaels & Associates Docntrain Ltd. is a consulting business

that develops customized training solutions specific to individual

businesses’ needs. The company consists of a network of

instructional designers, programmers, media specialists and

technical writers who build and execute training and

18 ■

THE STRATEGIES

Michaels had to cut back her expenses in order to survive. A

concern she had was how to cut expenses without affecting her

core business or product quality. Since personnel costs

represent a significant part of her company’s expenses,

Michaels met with her staff and determined the best ways to cut

salaries and hours and still stay in business. Michaels speaks

highly of the sacrifice and commitment her team made during

this time in order to keep the business alive.

In addition to making cuts, Michaels evaluated her business

model and took steps to reach new markets through innovation.

One major step involved investing heavily in the development

of an online learning management system. She also changed

her company’s website during this time.

Another important move was to change marketing strategies.

Michaels and her staff determined that the best way to grow

the company was through the networking efforts of the

executive team, rather than through a sales force. The executive

team was more familiar with the training processes and more

effective in selling and servicing the clients.

THE LESSONS

The past four years have taught Michaels about persistence,

especially during hard times. She points to the length of time it

took Steve Jobs to bring the iPad to the market as a great

example of the persistence businesses need to demonstrate in

order to survive.

Another lesson Michaels learned is to include employees in

decisions and solutions. Her employees’ commitment and

involvement with the organization are critical for its survival

and growth.

Michaels and her executive team are now more deliberate in

their decision-making process. New ideas are evaluated more

carefully using feasibility studies and business planning.

Employees are still encouraged to be innovative but need to

justify the risks.

information systems for large corporations, such as Avnet and

MetLife Bank. The company provides a full range of services,

such as needs assessments, training systems design, online

portals, tutorials and other various training tools for its clients.

The company has 16 full-time and eight part-time employees,

who all work from home and are connected by webcams,

online conference systems and Internet-based communication

tools. Michaels & Associates positions this technology to access

a pool of talented, hardworking, at-home professionals while

minimizing the company’s operating costs (e.g., there’s no need

for office space).

THE BEGINNING

Sherry Michaels began her career in a technical position,

where she learned aspects of her job through self-paced

tutorials. It was in this position that she developed her

understanding of how training affects an employee’s

performance and ability to execute the job in a manner

consistent with the company’s goals and standards.

After a 30-year career in the training industry, and upon

moving to Arizona, Michaels left her former employer and

decided to start her own business. In 1998, she started

Michaels & Associates to pursue her passion for employee

training and has built a successful consulting business over the

past 14 years.

THE IMPACT OF THE ECONOMIC SLOWDOWN

One of the biggest challenges Michaels has faced is selling the

value of custom training development, because it can be

difficult to demonstrate a financial return on investment from

these efforts. Custom training budgets tend to be “soft budget”

dollars and are among the first to be cut, especially during tight

financial times. When the recession hit, revenues declined. Or

as Michaels describes it, “When the music stopped, the

business literally froze for Michaels & Associates.”

■ 19

THE FUTURE

Businesses were asked to forecast their financial future and

broadly set forth what they plan for the coming years.

What do businesses predict will happen to their business in the next year?

Question: Thinking about the next 12 months, do you anticipate that your company’s financial situation will improve, stay the same or become worse?

FUTURE FINANCIAL SITUATION NEXT 12 MONTHS (2011)

Improve50%

Stay the same34%

Become worse12%

Don’t know4%

FUTURE FINANCIAL SITUATION NEXT 12 MONTHS (2007) *

Improve69%

Stay the same26%

Become worse4%

Don’t know1%

Businesses remain optimistic — Businesses are cautiously

looking ahead to the next 12 months. Only 12% said they feel

they will be in a worse financial situation by the end of 2012;

half feel their situation will improve. In 2007, forecasts for the

next 12 months were significantly more positive than in 2011

(69% felt their situation would improve vs. 50% in 2011).9

*Responses in each category are mutually exclusive.


***Significantly lower than the other categories.

Younger and larger businesses tend to be more optimistic —

Companies younger than 10 years old and those with more

than four employees tend to be more likely to feel their

financial situation will improve in the next 12 months. See the

“Ready to Grow” feature for more information about these

optimistic companies.

FINANCIAL SITUATION WILL IMPROVE IN 2012*

AGE OF BUSINESS

1–9 years

10–19 years

20+ years

NUMBER OF EMPLOYEES

1–4

5–19

20+

59%**

64%

57%

45%***

41%

47%

20 ■

How far in advance do businesses plan?

Question: How far in advance does your business plan to make decisions regarding expanding, maintaining or decreasing the size of your business? Do you plan less than one year, one to two years, three to five years, more than five years or not at all?

LENGTH OF PLANNING CYCLE

< 1 year38%

Nobusinessplanning

13%

3–5 years12% Don’t

know4%

1–2 years29%

> 5 years 4%

Planning cycles vary widely among businesses — Most

businesses have relatively short planning cycles. More than

one-third (38%) may make plans to expand or contract in less

than one year; 67% have planning cycles of two years or less.

It is interesting that 13% admit to not doing any business

planning. Smaller (based on employee size), younger

companies appear to have shorter planning cycles.


**Significantly lower than the other categories.

PLANNING CYCLE OF LESS THAN ONE YEAR*

AGE OF BUSINESS

1–9 years

10–19 years

20+ years

NUMBER OF EMPLOYEES

1–4

5–19

20+

43%

29%**

44%

39%

30%**

45%

■ 21

What are businesses planning for the future?

Question: Thinking about the next planning cycle, do you plan on expanding your business; keeping the business about the same size as it is currently; shrinking your business; transitioning ownership of your business to another person, group or organization; relocating the business; or closing the business?

*Note: Based on multiple responses.

Growth plans — Almost half of the businesses anticipate

expanding within their next planning cycle. These businesses

appear to be optimistic that they will weather or have

weathered the economic downturn and seem poised for

expansion. On the other hand, almost 20% plan to make a

major change, including

transitioning ownership,

relocating or closing

down the business. In

a similar question

asked in 2007, 47%

planned on

expanding (46% in

2011) and 38%

anticipated staying

the same in the coming

year (46% in 2011).10

FUTURE PLANS FOR BUSINESS*

Expand

Keep same size

Transition ownershipto someone else

Relocate

Close

Shrink

46%

46%

7%

7%

5%

4%

“(In this economic

environment), you can expand much less expensively.

There are better-quality people to hire at competitive wages. … If you are a retail establishment looking to

expand and lease space, it’s much less expensive in a soft business climate. The cost of advertising and reaching

out is lower.”

Brian Cary, SRP Manager, Forecasting, Research & Economic Development11

Leading the recovery — Larger companies (20-plus

employees) appear to be more likely to lead the economic

recovery. These companies tend to be more optimistic about

their economic future and more likely to expand than smaller

companies (those with one to four employees).

Larger companies are more likely to:

❯ Feel that finding and retaining qualified employees is a significant challenge (31% vs. 19% for those with one to four employees)

❯ Make cutbacks to address the economic environment (56% vs. 32% for those with one to four employees)

❯ Feel their financial situation will improve in the next 12 months (64% vs. 45% for those with one to four employees)

❯ Have plans to expand during their next planning cycle (58% vs. 43% for those with one to four employees)

❯ Be in the accommodations and food services industry (25% vs. 5% for those with one to four employees)

•Also, less likely to be in the professional, scientific and technical services industry (5% vs. 20% for those with one to four employees)

❯ Be older (median age of 21 years vs. median age of 14 years for those with one to four employees)

KEY FINDINGS

❯ Optimism — Businesses want to grow and thrive as they did before the economic downturn. Businesses do not want the new normal to be just a smaller version of their former selves. They are strongly optimistic about the future and plan to grow; almost half are expecting to expand within their next planning cycle.

❯ Flexibility — Most businesses have relatively short planning cycles. More than one-third (38%) mentioned they could make significant changes to staffing within a year’s time; 67% have a planning cycle of two years or less. Younger, smaller companies are more likely to have shorter planning cycles and more able to adjust to changes in the marketplace.

❯ Poised and ready — Companies most ready to expand tend to be younger, larger (20 or more employees) and more optimistic about the future. They also appear to be financially healthier and more likely to use technology (e.g., social media) in their operations.

22 ■

READY TO GROW

Some businesses appear ready to grow, and they plan to do

this within the next two years. What are these organizations

and their characteristics?



***Significantly higher than 1–4 category.

Those more likely to expand include:

❯ Younger businesses

❯ Larger companies (those with at least 20 employees)

❯ Optimistic businesses (those that forecast improvements in their financial position in the next 12 months)

Another characteristic of expanding businesses is that they

seem “healthier/stronger” than those not ready to expand in

terms of having fewer “significant concerns,” being more likely

to have added employees recently and being more likely to

use social media.

Expanding companies:

❯ Tend to have fewer “significant” challenges with cash flow, retaining customers, promoting the business and planning for their future

❯ Are more likely to have added employees in the past six months (22% compared with 8% for businesses that don’t plan to expand)

❯ Are more likely to have a Web page (84% vs. 72% for those that don’t plan to expand)

❯ Are more likely to actively use Facebook (40% vs. 30% for those that don’t plan to expand)

A review of comments also highlights that expanding

companies make proactive efforts. Rather than waiting for the

economy to improve, they appear to have taken specific steps

to grow.

“We are diversifying and moving into new industries.”

Employment agency

“We formed an alliance with companies with complementary services.”

Training organization

“We have streamlined our menu, painted and updated the restaurant. We have fliers that offer 20% discounts.”

Restaurant

“We hired an Internet consultant to get me on the Web.”

Auto repair

PLANNING CYCLE OF LESS THAN ONE YEAR*

AGE OF BUSINESS

1–9 years

10–19 years

20+ years

NUMBER OF EMPLOYEES

1–4

5–19

20+

FINANCIALS NEXT YEAR

Improve

Same

56%**

58%***

50%

43%

42%

40%

28%

65%**

■ 23

PROFILE

THE BUSINESS

Ed Goff and his team at Blockwise Engineering invent, design

and manufacture machines for companies that make medical

devices to treat heart and vascular disease. Their core focus

is creating machines that produce balloon catheters and stents.

Blockwise Engineering is one of only a handful of companies

in the world that supply this technology to large medical-device

makers, such as Medtronic, Johnson & Johnson and

Boston Scientific.

ED GOFF, BLOCKWISE ENGINEERING

24 ■

THE BEGINNING

Goff has always had a passion for building things. After

receiving bachelor’s and master’s degrees in mechanical

engineering from ASU, Goff began his career at Honeywell

designing aircraft engines. He then went to work for W. L.

Gore & Associates, where he was first exposed to building

medical devices. When the company relocated to Flagstaff,

Goff spent a year commuting before deciding to leave the

company. He founded Blockwise as a consulting business in

2000. During one of his consulting assignments, Goff and his

father designed and built the first automatic catheter-balloon

folding machine from his home’s laundry room. The company

has experienced continued success over the past 12 years.

THE CHALLENGES

Blockwise Engineering experienced a few challenges

early on. Most of its customers are overseas, so one of

the first challenges the company faced was how to export

its machines and equipment abroad. The company had to

become well-versed in international shipping rules and

regulations. Most of the time, equipment can be shipped;

however, sometimes personal delivery is needed. One delivery

to the African island of Mauritius (the furthest point from

Phoenix from a global travel standpoint) involved Goff taking

four flights, totaling 30 hours of travel time.

Another challenge has been finding the right employees.

Not only do the engineers at Blockwise Engineering need to

be experts in building and design, but they also need to be

able to talk to customers. Each engineer handles the marketing,

design, building, manufacturing and service of a product.

Finding engineers that can handle the full range of

responsibilities is difficult.

THE IMPACT OF THE ECONOMIC SLOWDOWN

Blockwise Engineering has been very fortunate to have not

been negatively affected by the economic slowdown. With few

competitors and a steady demand for medical equipment, there

have been many opportunities to grow, even during the

recession. The company has benefited from shorter lead times

and better prices from its suppliers, as those companies try to

stay in business.

One factor of Blockwise Engineering’s success can be attributed

to offering a specialized product in a niche market that has a

consistent demand. Supporting companies that manufacture

medical supplies such as stents and catheter balloons appears

to be recession-proof.

Another factor of its success is its persistence and focus on

innovative technology. The company pushes to invent the latest

and greatest machines and equipment ahead of its competitors.

As Goff describes, “We just developed this heart valve

durability machine. … The technology that has gone into that

machine is very cutting-edge, and it has really helped us to

design a machine that is higher in performance and lower in

cost than the competitors.”

THE LESSONS

One of the biggest lessons Goff has learned over the years is

how to say “no.” He has learned that the company cannot be

everything to everyone and that focusing on a few key products

is what has helped his company become successful.

“One of the things I’ve learned is to focus on what you are

good at and learn to say ‘no,’” Goff says. “Learn to not be

willing to do everything every customer asks you to do. …

We’d rather not do that kind of business, because it is not part

of our core technology.”

Goff’s advice to other businesses in this difficult economy: “Try

to be different and unique. … If you do something that is totally

different than your competitors, then you might fail or you

might succeed, but you won’t have to slog it out and fight for

every bit of business.”

■ 25

INFORMATION RESOURCES

Respondents were given a list of organizations and asked

which ones they rely upon for outside help.

What outside information sources do businesses rely upon?

Question: Have you sought and/or received assistance/advice from any of the following government organizations to help your business?


Few businesses rely on outside resources to help them — These “self-made” businesses appear to rely on

friends, family, colleagues, and their own research and

instincts, and less on outside sources, such as government

organizations. Those that seek help running their business are

more likely to rely on industry publications and trade

organizations (26%) than their local chamber of commerce

(11%) or the Small Business Administration (9%). In 2007,

more businesses indicated they sought assistance from the

Small Business Administration (15% vs. 9% in 2011) and

SCORE (8% vs. 5% in 2011).

INFORMATION SOURCES*

Percent that have sought/used/received assistance

None of those listed

Industry/trade organizations

Local chamber of commerce

Small Business Administration

SCORE (small-business counselors

Arizona Small Business Association

Greater Phoenix Chamber

ASU

Arizona Hispanic Chamber

62%

26%

11%

9%

5%

5%

4%

2%

1%

What information do businesses seek when they contact outside organizations?

Question: What types of information do you typically seek when contacting these sources? Question was limited to those contacting outside sources for information.


Need for marketing help — Those using outside sources are

most likely to ask about ways to grow the business (25%).

Businesses are also looking for forecast information from their

industry and economic experts to help determine how their

business might be affected (22%).

INFORMATION NEEDED — TOP MENTIONS*

How to grow the business

Forecasting/economic trends

Finding capital

Advice on howto run business

Networking

Legal advice

Technology trends

Training employees

General informationabout business

Business planning

Prospect lists

Demographic information

25%

22%

14%

10%

9%

7%

5%

5%

4%

3%

3%

3%

26 ■

BUSINESS COMMENTS

“What’s going on in the marketplaces and around the country; mostly sales ideas.”

Health insurance brokers

“Ideas on how to grow the business is what I checked with SCORE and the chamber of commerce about; whether I accepted it is another question. The best advice I got was from a pet-sitting organization because of the specific knowledge about what their business entails.”

Investment company

“I was asking how to better market my business, but they couldn’t help me because they didn’t understand the ‘electronics’ of things because they were one generation ahead of me and didn’t grow up with the stuff we are growing up with now.”

Sporting goods

“Industry trends, for example automotive trends, new car introductions that might benefit from my product.”

Automotive parts

“A lot of what I seek is dealing with the new technology on social media, cellphones. Keeping up to date on new art, framing … fresh ideas and new techniques on marketing.”

Interior design/framing

“Trending for purchasing. Trying to figure out what our customers are going to purchase for the future and to source where our products are going to come from. It helps us predict what changes are likely to be in our area.”

Fashion boutique

KEY FINDINGS

❯ Staying in-house — Few businesses rely on outside resources to assist with their business. Those that do are using industry publications and trade organizations to obtain information specific to their business. Even fewer take advantage of government-backed resources and those offered by ASU.

❯ Marketing/forecasting — Businesses that do seek help from outside organizations want the same information echoed throughout this research: “I need help marketing my business so I can increase sales and add customers.” The second most mentioned request is for forecasting information to help them understand and plan for future trends that will affect their business.

■ 27

TECHNOLOGY

How have businesses been using new technology?

Question: How have your business operations used new technology in the past two years, if at all, such as computer applications/hardware, cellphones and mobile applications?


Businesses are adding portable devices as part of their business operations — Mobile devices, such as iPads, tablets

and laptops, are used by one-quarter of the businesses.

Businesses also appear to be investing in adding/upgrading

their computer systems (24%). The next tier of technology

applications involves upgrading software and increasing

communications with customers/prospective customers via

online communication — Web/emailing, texting and

electronic newsletters.

TECHNOLOGY USED — TOP MENTIONS*

Use portable devices — smartphones, iPads, laptops

Added/upgraded computer systems

New-software upgrade

Increased communication online, texting, newsletters

Use social media

Updated/added website

Advertising online

Computerized accounting

26%

24%

10%

10%

9%

6%

5%

5%

BUSINESS COMMENTS

“We started using the cellphone with Internet access and the mobile applications. Our customers can contact us at any time. They can go directly to the manager, and they don’t have to wait to talk to one of the owners. That’s what we had to do in the past.”

Art retailer

“We advertise more on the Internet and (do) customer relationship building online. We find new clients and (do) email campaigns. We have laptops in service trucks that are linked to a centralized database.”

Manufacturer

“Using social networking and social media. This is a great way to connect with potential clients and contracts.”

Multimedia company

“We actually do use quite a bit of technology. Each crew member has an iPad and a cellphone, and each truck has GPS.”

Landscaping business

“Use a lot of Internet webcasts, which are live training sessions. Staying connected with customers in general with a smartphone, emailing, texting, social media.”

Consulting/engineering

28 ■

Which Internet-based tools do businesses use?

Questions: Does your business have access to the Internet for your business?

Does your business maintain a website or Web page?

Does your business have a page, account or channel on any of the following social media sites?

Which of these social media sites do you actively use as part of your business?


Businesses using social media — Most businesses maintain a

website/Web page, and almost half actively use social media

as part of their business. Businesses are most likely to use

Facebook or LinkedIn.

Larger companies are more likely than smaller companies to

actively use social media in their business.

❯ Companies that use any social media tend to have:

•Twenty or more employees (61% vs. 52% with five to 19 employees and 43% with one to four employees)

❯ Companies that actively use Facebook tend to:

•Not be home-based businesses (39% vs. 24% for home-based businesses)

•Have 20 or more employees (53% vs. 41% with five to 19 employees and 26% with one to four employees)

•Have an annual revenue of more than $1 million (44% vs. 33% with $100,000 to $1 million and 26% with less than $100,000)

❯ Companies that use Twitter tend to have:

•Twenty or more employees (20% vs. 15% with five to 19 employees and 9% with one to four employees)

INTERNET-BASED TOOLS USED BY BUSINESSES*

Has Internet access

Maintains website/Web page

Actively uses socialmedia for business

Has Facebook page

Actively uses

Has LinkedIn account

Actively uses

Has Twitter account

Actively uses

Has YouTube channel

Actively uses

97%

31%

6%

12%

12%

19%

19%

33%

42%

47%

74%

■ 29

Larger businesses (in terms of revenue and number

of employees) are also more likely to maintain a

website/Web page.



***Significantly lower than the other categories.

MAINTAINS A WEBSITE/WEB PAGE*

2010 ANNUAL REVENUE

< $100K

$100K–$1M

$1M

NUMBER OF EMPLOYEES

1–4

5–19

20+

Home-based

Not home-based

59%

94%

84%

68%***

93%**

76%

82%**

64%

How have businesses been using social media and what results have they experienced?

TOP RESPONSES

APPLICATIONS* RESULTS EXPERIENCED*

Facebook

n = 268

Advertising/ promotion: 45%

Customer education: 20%

Posting news: 12%

Keeping in touch with customers: 11%

Marketing: 11%

None/not much: 25%

More customers: 14%

Increased sales: 8%

Better communication: 8%

Increased visibility: 6%

Positive feedback: 3%

Not sure yet: 30%

LinkedIn

n = 157



Referrals/leads: 7%

Source of information: 5%

Find employees: 5%

None/not much: 31%

More customers: 15%



Not sure yet: 21%

Twitter

n = 97


Posting news: 20%



Marketing: 12%

None/not much: 27%

More customers: 13%


Increased sales: 4%


Not sure yet: 31%

YouTube

n = 53



Posting videos: 17%

Marketing: 11%

Linked to our website: 6%

Customer service: 4%

Training: 4%


More customers: 9%

Increased loyalty: 9%

None/not much: 9%

Positive feedback: 9%

Increased sales: 8%

Not sure yet: 25%

Questions: How do you use this site for your business?

What results has your business experienced from using this site?


30 ■

Advertising and communication — Promotion was the main

application businesses mentioned for Facebook, Twitter and

YouTube. LinkedIn is primarily considered a communication

tool for staying in touch with customers.

Limited success — Less than half of businesses feel any

specific social media tool has helped their business. Less than

25% have experienced an increase in sales or customers.

KEY FINDINGS

❯ Trying to figure it out — Most businesses are still trying to figure out how social media can benefit them. They see great potential but need more information about how to apply it and measure its success.

❯ Actively using social media — Half of the businesses are actively using social media. Facebook and LinkedIn are the top business social media tools; however, most businesses have not experienced much success with the sites.

❯ Opportunities — Companies are increasingly using mobile devices, such as smartphones and tablets, for business and will continue to need new applications and hardware to support them. With more companies using social media sites, there is also a growing need to help businesses learn

how to use these tools.

BUSINESS COMMENTS

“It’s hard for me to monitor where they (our customers) find us.” (LinkedIn and Facebook)

Medical imaging

“We haven’t done a lot with social media. We haven’t received any impact from what we have done.” (Facebook)

Dentist

“Our current customers appreciate the information we provide, and it’s been a positive resource for potential customers.” (Facebook)

Montessori school

“I’ve been very happy with it. People are able to get ahold of me to make reservations, and I can email them pictures of the park so they are not surprised when they get here.” (Facebook)

RV park

“We had the Food Channel show up, and when we put the information on YouTube, the people were there with their cameras taking pictures.” (YouTube)

Restaurant

“My business would not be up today and would have failed (without Facebook).”

Property investments

“We have captured a different population of people we might have missed.” (Facebook, Twitter and LinkedIn)

Social services agency

■ 31

Be active — Frequent interaction is

integral to making social media

successful. Whether businesses

are making daily or weekly

posts or monitoring

questions from customers,

active participation

appears to be a key factor

in keeping people engaged

and satisfied.

Measure success — Many businesses

interviewed did not know if social

media efforts were successful,

because they did not or

could not measure it.

Making an effort to follow

up with customers and

contacts would help them

understand the value social

media has on their business.

Get help — Social media can

be a very valuable and

profitable tool for

businesses when

done right, which is

why it makes sense

to use a third party.

Evolution of social media — What started out as a way to

connect friends, families and co-workers has rapidly

developed into an avenue businesses can capitalize on for

advertising/promotion, networking and education. LinkedIn,

Facebook and Twitter led the way after

launching in the mid-2000s.

Now each site has more than

100 million users (Facebook

has more than 800 million

active users,12 Twitter has

more than 100 million

active users13 and LinkedIn

has more than 135 million

members14). Those staggering

numbers are prompting companies to

quickly jump into the social media marketplace. Yet many of

these companies are still trying to figure it out. Almost half of

the businesses polled actively use social media as part of their

business; however, less than half of those feel it has helped.

Understand the big picture — Using social media effectively

goes beyond just setting up an account. Many companies

have started using social media

before really

understanding the best

approach for their

business. This has

the potential to

create clutter and

confuse the

audience. Businesses

need to take a step

back and focus on how

they can best use social

media to achieve their end goals.

Will it be a sales tool or a communication tool, or both?

“Don’t go at it alone. It makes sense in terms of

investment to go in and have someone come in and take a look at your particular business and give you

those three or four things that are going to make you successful in the social media world, because you could really run the

risk of cluttering or not getting your message out if you just go on

instinct.”16

Todd Sanders, Greater Phoenix Chamber of Commerce

“We have better internal

communication and awareness; however, it’s hard to track the external

value. I’ve never had anyone say, ‘We found you on

Facebook.’” (Facebook user)

Martial arts studio

“I try to go on weekly and

put in a helpful hint or something along those lines, and I participate in a group where we ‘like’ each others’

pages to get us higher on the group. It is then easier to find

us.” (Facebook user)

Landscape company“I haven’t gotten any

work yet but have managed to learn a lot. It’s more of a learning experience at this

point.” (LinkedIn)

Business consultant firm

“The social media side is very complicated, and it is not

enough to just set up a Facebook account and Twitter account. It (the key) is to really understand how to

engage and launch that type of campaign effectively.”15

Todd Sanders, Greater Phoenix Chamber of Commerce

TRYING TO FIGURE THIS OUT

32 ■

SUSTAINABILITY

What sustainability efforts have businesses been making?

Question: What specific actions/efforts, if any, has your business taken to be more environmentally conscious over the past year? This could include participating in renewable energy-related programs/installations, reducing your energy usage and/or making water conservation efforts.


Sustainability efforts are a lower priority — Businesses

appear to be making limited efforts to be more

environmentally conscious. Forty-one percent said they either

are not taking any steps or are not sure what steps their

business is taking. The top responses were recycling, using

less electricity and conserving water.

Some businesses seem to be making concerted efforts, such as

investing in more energy-efficient equipment; changing

lighting to CFLs; changing to more “green” packaging, using

green suppliers or providing more green products; or using

alternative fuels.

SUSTAINABILITY EFFORTS — TOP MENTIONS*

Recycling

Reducing electricusage in general

Conserving water

Reducing electric usagevia equipment changes

Green packaging/suppliers/products

Using alternative fuels

Transportation/travel less/less gas

Using less paper

Using technology more(e.g., sending electronically)

Weatherization of facility

Not sure

None

21%

18%

15%

10%

4%

4%

4%

4%

3%

2%

4%

37%

KEY FINDINGS

❯ Beginning stages — Businesses are beginning to make efforts to be more environmentally sensitive in their business processes and operations, despite the economic downturn; however, most equate sustainability with higher costs and adding more steps to their processes. Almost half of businesses (41%) admit to not taking any steps to be more environmentally conscious or are not sure what steps they’re taking.

❯ Low- and no-cost solutions — Most companies making sustainability efforts are using low- and no-cost solutions, such as recycling office products and turning off lights.

❯ Significant efforts — Larger companies (20 or more employees) are most likely to take more significant sustainability efforts, such as changing to more “green” packaging, changing lighting to CFLs and changing

AC equipment to conserve electricity.

■ 33

METHODOLOGY

What types of companies participated in the research?

This study focuses on businesses in the Phoenix area that have

at least one full-time employee. It is important to note that the

definition of what is considered a “business” varies widely

among sources and might present a challenge when

comparing data and findings.

What companies were interviewed for the study?

For this study, 833 randomly chosen businesses were

interviewed. The overall survey results have a margin of error

of +/- 3.4% at the 95% confidence level. Subgroups with

smaller sample sizes have a larger margin of error.

BUSINESS COMMENTS

“I have just bought a different kind of product for cleaning supplies that is not harmful to the environment.”

Preschool (home-based)

“We are in the process of putting solar on the top of the buildings. In the new facility, the building is going to be totally solar.”

Storage facility

“I’d like to be able to recycle scrap glass, but I’m not able to recycle that in Glendale. I’m just able to recycle paper and some plastics and things like that. I’d like to be able to recycle more stuff, like metals or glass, even if I had to pay a little bit to do it.”

Art studio

“We save ink cartridges and old phones and turn them into cash.”

Gymnasium/studio

“Conserve electricity and change our filters frequently. We have a check of our AC every season. I take all of our boxes from shipping orders home to recycle since we don’t have a recycling program available to us.”

Family practice

“We have switched to environmentally friendly paper, and our printers all use 100% recycled print cartridges.”

Investigator

“We stopped using paper and plastic cups and are now using glass cups.”

Social services agency

“The power company is coming in and changing the warehouse lights.”

Manufacturer

“SRP has come in and has advised about the lighting, the ceiling, refrigeration and the walk-in cooler. We did the lighting, and we put in $50,000 to fix this place up and make it more efficient. We are also redoing the whole plumbing.”

Food processing

34 ■

The following is a breakdown of the groups that participated

in the research. Quotas were set by North American Industry

Classification System (NAICS) industry codes and the number

of employees from the most recent results of the U.S. Census

Survey of Business Owners (2007 Survey of Business Owners

— Phoenix Metropolitan Area).17 18

TYPE OF BUSINESS*

NAICS INDUSTRY CODE CATEGORIES PERCENT RESPONSE**

Professional, Scientific and Technical Services 16%

Health Care and Social Assistance 14%

Retail Trade 12%

Accommodations and Food Services 10%

Real Estate, Rental and Leasing 9%

Manufacturing 7%

Finance and Insurance 7%

Wholesale Trade 6%

Administrative and Support, Waste Management, and Remediation Services 5%

Construction 3%

Education Services 3%

Transportation and Warehousing 2%

Arts, Entertainment and Recreation 2%

Information 1%

Farming 1%

Utilities < 1%

Other Services 10%


**To target industry types, WestGroup initially used the NAICS codes reported by each company and listed by the sample company. During the survey, respondents were asked to describe their company and each organization was recategorized based on the description provided. The classifications provided above are based on the description of the business using two-digit NAICS codes.

NUMBER OF PAID EMPLOYEES

EMPLOYEES PERCENT RESPONSE

1 27%

2 18%

3–4 19%

5–19 20%

20–99 10%

100 or more 3%

Don’t know/refused 3%

Who was interviewed for the survey?

Telephone interviewers screened respondents in order to reach

the “highest-level” person in the organization. In most cases,

interviews were conducted with the owner, chief executive

officer or president.

POSITION PERCENT RESPONSE*

Owner/CEO/president 69%

Administrator/manager 20%

Board member/executive management 8%

Other 6%

*Some respondents listed more than one position within the company.

Where/how was the sample drawn for the study?

The sample used for this study was purchased from Scientific

Telephone Samples. The contact person, company name,

address, telephone number, NAICS code and number of

employees were included in the sample. From the available list

of Phoenix-area businesses, 27,700 were randomly drawn.

From that number, 833 businesses were screened and

participated in the survey.

■ 35

What methods were used to conduct the research?

The survey was conducted almost entirely via telephone

interviews. Participants were given the option of completing

the survey via the Web. Ten responded through the Web

survey, and 823 provided their responses by telephone.

When was the survey conducted?

The surveying started Aug. 17, 2011, and the final interviews

were completed Nov. 3, 2011. Web surveys were completed

during this same time.

How long was the survey?

The survey included 12 open-ended questions. The average

length of the telephone survey was 17 minutes. The average

length of the Web survey was 21 minutes.

Was an incentive used to encourage participation?

Respondents were given the option to include their name in a

drawing for one of 20 $50 gift certificates. Out of 833

respondents, 566 (68%) chose to be included in the drawing.

Was qualitative research used in this study?

SRP conducted a series of focus groups in 2010 and 2011

that asked businesses about the most serious issues they faced

and how the economy affected them. Insights from these focus

groups were used to aid in the survey’s development.

In addition, one-on-one interviews were conducted with local

business experts and business owners to get their perspectives

about the impact of the economic slowdown.

The following business experts provided insights into the analysis:

❯ Brian Cary, SRP Manager, Forecasting, Research & Economic Development

❯ Don Henninger, Publisher, Phoenix Business Journal

❯ Dennis Hoffman, Director, L. William Seidman Research Institute, Department of Economics, ASU

❯ Gary Naumann, Director, Spirit of Enterprise Center, ASU

❯ Todd Sanders, President and CEO, Greater Phoenix Chamber of Commerce

❯ Kristen Wilson, COO, Arizona Small Business Association

These business owners participated in the one-on-one interviews:

❯ Ed Goff, Owner of Blockwise Engineering

❯ Sherry Michaels, Owner of Michaels & Associates Docntrain Ltd.

Which 2007 study was used to compare findings with this year’s 2011 findings?

The “2007 SRP Arizona Business Study — Focus on Minority-

Owned Businesses”19 was a statewide study that also included

non-minority businesses as part of the sampling. Results from

only the metro-Phoenix respondents were used in the

comparison. Responses included both minority and non-

minority businesses. The data was weighted to match the

proportion of these businesses (minority vs. non-minority) from

the 2007 U.S. Census Survey of Business Owners. For

comparison with the 2011 study, 850 respondents

(unweighted) were used.

CONTACT US

For more information about the research, please email

[email protected].

For details about the challenges, impacts and solutions related

to this research, please visit the SRP Business Resource Center

at srpbizresource.com.

36 ■

11 Brian Cary, SRP Manager, Forecasting, Research &

Economic Development, Personal Interview, Jan. 31, 2012.

12 Facebook, Factsheet, 2012, facebook.com/press/info.

php?factsheet.

13 Nick Bilton, “Twitter Reaches 100 Million Active Users,”

New York Times, Sept. 8, 2011,

bits.blogs.nytimes.com/2011/09/08/

twitter-reaches-100-million-active-users.

14 LinkedIn, About Us, 2012, press.linkedin.com/about.

15 Todd Sanders, President and CEO, Greater Phoenix

Chamber of Commerce, Personal Interview, Jan. 9, 2012.

16 Ibid.

17 U.S. Census Bureau, “2009 MSA Business Patterns (NAICS),

Phoenix-Mesa-Scottsdale, AZ Metropolitan Statistical Area,”

censtats.census.gov/cgi-bin/msanaic/msasect.

pl?Sic=&MSA=38060.

18 U.S. Census Bureau, factfinder.census.gov/servlet/

GQRTable?_bm=y&-qr_name=ECN_2007_GQRT3&-geo_

id=31000US38060&-ds_name=EC0700A1.

19 SRP, 2007 SRP Arizona Business Study — Focus on

Minority-Owned Businesses, 2007.

END NOTES

1 Kristen Wilson, COO, Arizona Small Business Association,

Personal Interview, Dec. 20, 2011.

2 The National Bureau of Economic Research, Business Cycle

Dating Committee, Sept. 10, 2010, nber.org/cycles/

sept2010.html.

3 Dennis Hoffman, Director, L. William Seidman Research

Institute, Department of Economics, ASU, Personal Interview,

Jan. 24, 2012.



5 Brian Cary, SRP Manager, Forecasting, Research &

Economic Development, Personal Interview, Jan. 31, 2012.



7 Ibid.

8 Kristen Wilson, COO, Arizona Small Business Association,

Personal Interview, Dec. 20, 2011.



10 Ibid.

PRESENTED BY

IN COLLABORATION WITH

RESEARCH CONDUCTED BY

©SRP 2012 All rights reserved 12-0084-01 03/12