The American Scene; Job Hor: Small Business

It's inches in the northern suburbs before the change to rain. Tonight rain and scattered thunderstorms likely and warmer low around 40, tomorrow rain changing briefly to snow in the afternoon windy and turning colder high in the 50s. Current temperature 33 degrees. This is WMACU and WMACU FMNBC in Chicago. The American scene, a series of pre -recorded programs providing a closer look at those things which form our contemporary society. Produced by the Illinois Institute of Technology in cooperation with WMACU, the discussion today will consider job horizons and small businesses. Now here's our host, Don Anderson. Good morning and welcome to the American scene. My name is Don Anderson. Many people are wondering today whether there is a place any longer in an American society for the small businessmen, either as manufacturer or retail store owner. Whether to carry on in this field is a hard decision for the

small operator to make. Whether to start up such a business at all can provoke weeks of anxious thought. The consumer public is getting used to large -scale advertisements into a trained army of sellers. Sheer size may not be a guarantee of quality, but it does ensure that if anything goes wrong, there is a chain of command along which it can be rectified. The greater the name, the more sensitive its owner is to his reputation. People who have patronized the big stores or ordered from the big factories are apt to feel uneasy when they revert to the individual shop owner, the small family industry. They feel perhaps that they are putting too much reliance on too few people, that the vendor may be able to indulge a capricious or even a take it or leave it attitude to anyone who has the money to spend. On the other hand, there is a public which has remained loyal to these merchants and would like to see more of them. They dislike dealing with firms who cannot recognize them by name. The small businessman himself may have an excellent head for business. He may, for example, be marketing and very skillfully a product of his own invention, but he is continually

competing against organization as well as size. Unless he has had a sound training and business management, he may be running a serious risk. This risk may be lessened if his merchandise is new or exotic or difficult to come by. If he is operating a traditional business such as a Foundry or a grocery store, he must offer a service as smooth and reassuring to his customers as his large competitors do. The small businessman stands today at a crossroads and to help us better understand what his prospects are and, in fact, how much the community needs him, I am pleased to welcome this morning Mr. A. A. Imberman, president of Imberman and DeForest and director of the management seminar for smaller business currently being held at IIT and Professor Elmer H. Burak, lecturer in industrial management at IIT. Welcome this morning, gentlemen. Thank you for coming. And perhaps we best begin by trying to define what we mean by a small business. What is a small business, Professor Burak? Well, God in talking about a small business and

the career opportunities which may open up for young men, I think we have to recognize that we are not only dealing with the traditional classifications of the self -employed owner type of a chap, but we also must recognize that numerous opportunities exist for managerial and administrative, technical and professional types of people in businesses owned by others but which are relatively small in terms of the scope of operations. So there are two approaches we can take to this whole question, whether you own it or whether you work for it. Mr. Imberman, how would you add to that? Well, in trying to define what we are talking about, we can talk in terms of a number of employees as to what makes a small business, the total amount of assets the company might have, or any of these other measures. Now there is no one measure. For example, if we were to say

500 employees and less is a small business, this is what the small business administration says actually. Well, 500 employees in one industry like the manufacturer of men's clothing is a tremendous large company. 500 employees in the manufacturer of steel are glasses, a drop in a bucket, a very small company. So in the main and not the waste time, I would suggest that a company would be called small if it has 250 fewer employees. Would you go along with that professor? I think that's right, Mr. Imberman, and not only this type of size in terms of numbers of employees, but recognizing the fact that we have the self -employment opportunities, but at the same time we are recognizing the salaried wage kinds of opportunities which may exist in employment for other people. Okay, well let's accept these limits then in terms of 250 employees or less, and recognize that in some industries this still may be relatively large for the industry, but

for the purposes of our discussion this morning, we'll accept 250. What kind of trends can be seen in the types of small businesses that might be available today or in the future for a person who is interested in going into this area as a career? Well, would you mind? I find here in the Chicago land area that there's a whole trend, at least there ought to be a trend, and I find some evidence for it. Manufacturing component parts for end product manufacturers, a manufacturer manufactures a machine tool or a lathe or something. He normally does not manufacture every bit of equipment on. All this television set that these audiences watching us, that television set has about 200 different component parts, made in many cases by small manufacturers, many of them are made right here in Chicago. Now there's a big opportunity

here in Chicago for the manufacture of component parts for all sorts of machinery and electronic equipment. Now this is growing because the market for these things is growing. I think Mr. Imberman is perfectly correct in identifying what would seem to be some growing opportunities in our local metropolitan or greater Chicago area. I think at the same time we also recognize that in the environment around us, we have some major changes, trends which are taking place, which will in effect establish the environmental framework within which nuclear opportunities will be developing for young people. For example, we can look at the trends in terms of the distribution of the population. We're finding and we are expecting in the next 10 years based on statistical extrapolations done by the Department of Labor and the President's Economic

Advisory Committee. We expect to find relatively greater proportions of older female adults in the population, the age classification from 55 to 75. We expect to find more young adults in our population, people in the age classification of say 19 to 35. And out of these kinds of trends in terms of just, say, population and its distribution, we can expect to see numerous new career opportunities being created in terms of the special needs and requirements of advanced age groups, the particular products that they'll need. Yes, the particular products, the services that will have to be furnished to this group. Perhaps we'll see additional monies available for satisfying new consumption needs or growing markets in what here to for have been relatively insignificant portions of our

economy in terms of manufacturing or service activity. And there are many others, there are many other trends of this type taking place in our economy, which bear importantly on the types of careers young people will be facing. For example, in the scientific area. You're talking specifically here in the opportunities for small businesses. Small businesses as such, but at the same time I think we again must recognize that we have a growing mass in our society of the manager, the administrator. This class will grow even more in the future. We'll see more people and activities within the firm and the small business firm who are working in terms of controlling its activities, working in terms of planning, working in terms of coordination of quality, production, and so forth. So are there numerous growing opportunities? Have you noticed Professor Burek the fact

that today it's almost impossible to get a custodian's job without a high school education? What do you think this means in terms of careers for young people in business? We seem to have a number of implications with regards to increasing levels of educational requirements for new people entering into businesses. And this probably become quite apparent to you and some of the seminars that you've administered. Yes, I find that people have had very little academic training, background, college work. Some of them may be successful as a matter of luck, but you can't depend on luck. Ability always helps. And most of these people with a little training in economics, marketing, business administration besides academic courses help bring about a more sure success and just plunging in and selling lemonade

at the front of that house. How many new small businesses fail each year? Or let's not probably that figure no one has right now, but if a person starts a small business, how much chances he has was succeeding? Manufacturing? Manufacturing. Of the first year in manufacturing, approximately 90 % discontinued. I don't like to use the word fail because this indicates that they all creditors and so on. They just discontinue. They pay off their debts and they call it a dollar and adjust out of business. In the first year, 90 % of the smaller manufacturers discontinue. And 10 % go on for the second year. And the second year, the probability is that 20 % will succeed and 80 % will continue. In the third year, 30 % will succeed and 70 % will discontinue. And short, the longer you are in business, the better the probability is that you will stay in business at the end of the year. And you can see

at the same time down that as Mr. Imramin is describing, by the time you get around to the end of the third and into the fourth year of some sample group of 100 companies that start out in terms of their a cell phone type of enterprise, there's not going to be too many left around. Yeah, even after four years, the chances of continuing in business are not very good. They're not even 50 -50 years. No, but they're better than they were when you started. Yes, and I think before we cast too much of the sour grapes in the direction of failures and the businesses that have started, I think that we probably should be aware of perhaps why some of these fail along the line. For what reason would this number of businesses not succeed? Well, let's take a typical example. Two friends, one is a production engineer. And the other one is an accountant, a financial type man.

And the production man has an idea for products and the financial and the financial accountant has an idea of how you control costs, run the factory. And they do a little market research by that they mean they go out and talk to some people and they say, look, can you use this? Can you buy this if we could produce it at six cents? And there's a lot of people saying, sure, I think it's all over when you have it. And so they go into business. The biggest difficulty that you usually find with small businesses is they have production know -how usually. They have financial know -how fairly, but they have very little merchandising know -how. They don't know how to go about selling this or finding customers. And this in my experience is why many of these discontinue. I don't like to use the word fail because fail means they go bankrupt. They very few of them do. We have found a tremendous lack of sophistication on a part of these businesses that have discontinued. It's sophistication in terms of awareness of capital needs.

And as Mr. Imramin suggested, merchandising in specific areas such as advertising, crediting collections, fundamental areas basic to the successful operation of a business. Areas that if the new entrepreneur has some knowledge of these, he immeasurably improves his chances of success in some type of a new business activity. Or for that matter, he increases and enhances his promotion possibilities in a business that it's owned by others, even if a person. Let me just add one more word. What the professor says is quite true. As Dunham Brath Street regularly does surveys why companies discontinued fail. And the biggest reason they come up with is insufficient working capital. Now the interesting thing is when you begin to examine this, you find that shortage of working capital is only a symptom. It is not usually the disease. And these

people, no matter how much money they have, they'd always run short because they don't know how to run in control of business. Usually you don't know what to do in the way of inventory control. In the way of other controls in the business, which will permit them to use their working capital to the utmost. This, and I'll learn this, you need two things, I think. One is some training and economics, business administration, marketing, analysis of financial statements, and the other is a little experience. I would never, and you may agree with me, suggest to a young man just out of college that he goes into business the very day after he has his diploma. Especially manufacturing business. Well, especially anything, I would suggest you get a year or two experience and somebody else's business. On what level, primarily in the sales and the marketing end, or would production end be a value? Well, even at the level of sweeping the floor, it makes no difference. We have a good many presidents and major companies

that start as office employees, stock clerks. Down before Mr. Immerman pursues this very interesting topic with you. I'd like to point out the parallel for the types of men who are working for others in business, and why they seem to demonstrate some inability to move ahead. For many of the same types of reasons that Mr. Immerman has enumerated in discussing retail type or self -owner kinds of operations. The inability to understand the relationships between the customer and the service groups, the operating groups, the supplier groups, all of which are part of the business system. The inability to understand why the marketing department wants to produce a certain product at a certain time or why it prices it out on a given manner or in a given manner. The inability to understand what's involved in the capitalizing or the capital support to carry on a business's activities.

So really, I think that we can draw some immediate direct, very close parallels between the lack of success for the unsophisticated kind of guy who's going into his own business and that of the man who sees or feels an inability to get ahead in a business that's owned by others. The knowledge of how to make a product and a cursory look to see that somebody would like to buy this product is not enough anymore to start a business and make it succeed. No, you're no longer selling lemonade during the corner. For example, you find, I find anyway, a number of small businessmen who are calling their accountants every month to post the checks and draw some totals. When the accountant goes away and they reason their little monthly report, they don't know what to do with it. They have no training of

analyzing what the accountants told them and yet you can tell a whole story just by reading an accountants report relation of inventory to working capital relation of turnover of stock and so on and so on. These people don't learn this. This is a very interesting situation. Again, the parallel can be found in the retailing area, for example, the small store owner say in carpeting or drapery goods or women's fashions who may even have the know how in terms of the kinds of lines to carry. But how do you get the customer through the front door and how do you service an account once it's established? So it takes really an all -around background knowledge in just a variety of different areas. This brings us back to what you said earlier, Mr. Amberman, in terms of merchandising being the most important factor or one of the most important factors in helping a business succeed. It's a very difficult thing. For example, this is a plastic pen. Now, I wager

that while the inside of this pen that is the ink thing is probably made by a fairly large size company, the outside the shell was made by a plastic manufacturer, usually a small one. And he has the ability either to extrude or laminate mold plastic products. Most of these men do not know how to go out and sell their ability. And this is true of most small companies. Do you find this to be so? Yes, and I think you can take it on the other hand also, that really in a business enterprise we have a number of interdependent activities, accountancy and finance, the marketing effort, the production effort. But we also have the earlier stages in terms of the development of a product, the identification of markets where these products can take hold and achieve some appreciable volume. All of

these activities tend to be interdependent, and there's just no question that merchandising is a very important part of the total business operation. But at the same time, you can have the merchandising and sophistication, but if you can't produce the product, you can't maintain your quality levels. You don't or aren't able to secure the capital. Each one works on the other and you're in trouble again. You have the good merchandiser trying to explain to the customer how come I didn't get the product. Or it gives too much credit, yes. And then at the end of the month, he doesn't have any money left to pay his labor. Well, let's try and tie two points together that we've made here so far. Mr. Emberman indicated that the trends in the future, as it is today, appears that the small business, the small manufacturer, will be primarily concerned with component parts of larger products or end products. And that the difficulty of maintaining yourself

in business on a small level is merchandising your product. One of the difficulties. I'm merchandising either your product or the service or your abilities. Let's talk about the relationship then of the small business to the large business. Why don't the large businesses go into the area that the small business can handle? Why can a small business have a better ability than a large concern in a particular product and act as a provider of components? Well, shall I try? It's here for him. And suppose this thing, or a little piece that went into a larger piece of machinery, this took special equipment to manufacture. It took special know -how to squeeze this out and press this and mold it and so on. And the big manufacturer says, well, I need only a thousand of these. If I manufacture these myself, I have to use a 10 ,000 square feet in my factory. I have to put in special

equipment. A certain amount of capital investment. I have to hire some skilled people. I need only a thousand of these. Why do I do after I manufacture the thousand? Why do I do below this equipment? He says it's a lot cheaper if I go out and get competitive bids on this. It turns out I can't produce it that cheaply. And when it comes in, that's the end of my obligation. And this small amount of factory goes away and finds another customer. That's right. Yes, very much so. And in effect, then, underlying Mr. Emberman's remarks is the fact that the technology often possessed by a larger manufacturer, for example, won't sustain economically at least. In some cases, technically, small lots, varying colors. That is to say, tremendous variety in the kinds of product demands, which specialized customer groups may demand, and required to carry on their activity. So here's a major area where small businesses

have been able to develop a toe hole competitively. And no doubt, we'll sustain this, and we'll always serve a major need in this type of an area. And one of the reasons that a small business might go under is that a new small business is that he recognizes one buyer for his product. And once the order is through with that one buyer, he doesn't know. Well, he finds one customer for this product, and he's so busy turning this out. But he doesn't have time to go out and develop other customers, you see. And it's only when he's finished with the first one, then he looks around and says, I have four people here, I have salaries, I have to pay. I better try and find some more work you for. This is part of their problem. You don't develop a program selling. I'm sorry. I was just going to suggest that the same type of specialized know -how, not only in terms of ability to produce a product, it may be in specialized customer service.

A large firm might not choose to service some kinds of accounts in terms of frequencies of calls, or a personalized service in terms of telephone or direct contact with a customer. This may be the basis, pardon me, for a small business to thrive on this kind of customer servicing. There are a number of these specialized areas where the many businesses find themselves unable to successfully move in, at least economically, and provide the services or product or the variations required in that particular segment of the market. And here, a small manufacturer can very often provide some of these specialized services and maintain a place. We have indicated earlier that a good solid education is required to even begin to hope to maintain your small business before you should even think of starting one. It helps. It does not ensure it's excellent. No, it doesn't.

But it helps a great deal. I would say, would you say? Yes, I think also the idea that the basic education itself at an advanced level at the university, at a university of college, very often will provide the individual with the kind of understanding and background necessary to intelligently appraise the needs of a business. And he may make the decision in terms of a small business career, not to go in on a self -employed basis, but rather to choose that road, which means working for others. After all, recognizing our areas where we can be ahead of others and at the same time recognizing our shortcomings, I think, is part of our way of life in the home and business. Should enter into your decision if this is the area you're considering. I would think that any student, whether he's taking pre -med cars or pre -law or pre -theology or pre -anything,

should take some electives and economics, sociology, marketing. Because most college graduates, no matter what they originally start out with, most college graduates wind up in business in the United States. And to further reinforce Mr. Imberman's point, we find that in the last 10, 15 years, a measurable increase in the number of men who are moving through college towards the bachelor level, this number will probably double in the next 10 to 15 years. And going back to a point you made earlier about the sweeper, even this may call for a measurably advanced qualification. At least the high school diploma. What if a person decides, maybe in his last year of college or after he's out of college, that by going, here's a good product and I think there's a good market? Would you advise that he go back and take his business courses then? You're not

asking a high schooler to decide at that age that he wants to go into business for himself and therefore prepare himself for it? Well, I don't know whether he ought to go back to college, maybe take a night course, but surely he ought to talk to somebody whether it's an attorney, a banker, another businessman in that field and get some advice. What would you say to a young person today who is interested in starting his own business? Is it good? Should you pursue it? I would say that if the individual has a sound of formal training in those activities which are supportive to undertaking a business, namely things like merchandising, very saspects of marketing, finance, business administration, if the individual has an understanding of himself as an individual in our society, what is shortcomings, what things he can do better than other people? Well, it's a process of taking close stock of yourself and your knowledge

and making sure of what you're going into. Thank you very much for coming this morning, gentlemen, Mr. Imberman and Professor Gurak, and this is Don Anderson saying, good morning for the American scene. This has been the American scene, today's discussion. The American scene is pre -recorded and is produced by the Illinois Institute of Technology in cooperation with WMAQ. Next week's topic will be job horizons and mathematics, and we'll be discussed by Dr. Hyme Reingold and Mr. Benjamin Mitman, as we continue our investigation of the

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