09/16/96 SUDDENLY, A SCRAMBLE FOR GOOD HELP

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SUDDENLY, A SCRAMBLE FOR GOOD HELP
Small businesses that were swamped with resumes just a few years ago now face a crunch
When Hughes Missile Systems announced two years ago that it would close a California plant and lay off 6,000 people, Kamrin Benji figured he was in luck. The fledgling Los Angeles computer-parts exporter had more work than his staff could handle. ``I remember thinking: `Great. Workers will be running to me.''' Instead, the chief executive of Micro Time Data Systems, which now has $24 million in sales, is combing colleges and the Internet in his most desperate labor search ever. ``I ask myself all the time: `Where are all these people who lost their jobs?'''
The question is reverberating from L.A. to Long Island, from software makers to Smokestack America. Now that the recession has faded, the small businesses the government says led the nation back to prosperity with three-quarters of all new jobs face a roadblock: They have more slots than bodies and are losing scarce workers to a new wave of upsizing by large corporations.
Entrepreneurial companies that were swamped with unsolicited resumes a few years ago are turning to headhunters, homemakers, temporary workers, and welfare recipients. One is searching among church pews; another is looking overseas. Car washes and fast-food restaurants offer signing bonuses. ``We're all getting desperate and doing things we wouldn't have imagined six months ago,'' says Jay Brodsky, president of Ran-Paige Co., a light-machine maker in Sellersburg, Ind. How desperate? He rented a Long Island conference center to entice local residents to his Research Triangle (N.C.) plant. The move came after $750,000 worth of robots and 17% pay hikes failed to fill the labor pipeline.
CULTURE SHOCK. The most glaring evidence of the labor shortage is creeping wages. After years of lagging behind the national average, small companies plan to boost compensation 3% this year, says a survey by Arthur Andersen Enterprise Group. Still, that pay is dwarfed by salaries at large companies, keeping entrepreneurial companies at the bottom of job-hunters' lists. And even those that do land employees are complaining. Beginners lack skills and education, and corporate castoffs often can't make the transition from cautious bureaucracy to the fast-paced decision-making required at smaller companies. ``You tell them they're in charge of sales and marketing. They say: `Where's the person who licks the envelopes?''' says David Birch of Cognetics, an economic researcher in Cambridge, Mass. ``Rule No.1 is, I won't hire anyone who has worked for a large company.''
Many small companies are straining existing staff with overtime and struggling to keep up with deliveries. Some, when push comes to shove, are even rejecting precious orders. ``We turned away $700,000 worth of work this year because we couldn't find enough people to do it,'' says Bill Pritchard, president of Wichita Tool Co. ``It's by far our biggest impediment to growth.'' The company recently raised wages 10% and joined a small-company training alliance. Still, it couldn't find enough new workers to counter attrition. Sales actually fell 40%, to $1.9 million, in the year ended in April.
The problem will worsen. Small businesses are growing faster than ever, in part because of work outsourced from shrinking corporations. And their prime labor pool--the generation behind the baby boomers--is shrinking. The government expects the number of workers aged 25 to 34 to contract by 13% over the next 10 years.
``It's everybody's dream to grow rapidly, but I think it's beginning to dawn on all of us that this may become impossible,'' says Robert Kramer, president of Brookdale Plastics Inc. in Minneapolis. The company spent $500,000 in the past three months automating its molding machinery. The equipment replaced 15 jobs, leaving 30 people generating $4 million in annual sales, a 25% increase over last year. Now, orders are racing toward $6 million, and Brookdale needs a dozen more workers. Kramer has asked employees to put in several hundred hours of overtime, a hardship he hopes to offset with more benefits, including tuition reimbursement, and perks such as a recent three-day cruise for all. Still, Brookdale has doubled lead times, riling customers. ``Right now, we're trying to figure out what to do with one customer who spends $80,000 a year and doesn't want to wait,'' Kramer says.
Worries about labor shortages surface in virtually every survey of small-business owners. Half of 434 entrepreneurs interviewed by Coopers & Lybrand last month cited a lack of workers as their biggest obstacle. Service companies complained about a shortage of high-tech workers, marketing and sales executives, scientists, and statisticians, while their blue-collar counterparts cried out for crafts- and tradespeople. On average, the companies, whose sales range from $1 million to $50 million a year, expect to fill 10% fewer positions than they'll add this year. The findings echoed those from Arthur Andersen, National Small Business United, and BUSINESS WEEK interviews with 24 entrepreneurs.
Shortages are particularly acute in over two dozen states where unemployment trails the national average, 5.6%. Only 4.6% of workers are unemployed in Georgia, 3.9% in Colorado, 3% in South Dakota. In Wisconsin, the crisis is so bad the state recently sent a representative to Germany and Asia to woo U.S. servicemen and women. ``We figured they'd have the electronics skills our small businesses needed,'' says John Van Benthuysen, Kenosha County training coordinator. Employers just started sorting through the 550 resumes he brought back.
The problem stems from a vibrant economy. ``Corporate layoffs have been more than offset by hirings at small businesses,'' says Gary Burtless, a labor economist at the Brookings Institution in Washington. Indeed, 1.5 million net new jobs have been added so far this year, government figures show--more than five times the number cut by major corporations, according to Challenger, Gray & Christmas, a Chicago outplacement firm.
Feeding the shortage is the mismatch between downsized employees' expectations and the realities of small business. Pay is the first barrier. ``A lot of the jobs we're looking at filling are under $30,000. People would rather stay home,'' says Ken Heller, president of Nutech Environmental Corp. in Denver and chairman of National Small Business United, a trade group in Washington.
More broadly, longtime corporate employees often take months to adjust to the new culture, lack of support, and fast pace of an entrepreneurial company. ``We tell layoff victims who are going to work at small businesses that there will probably be less pay and more responsibility, maybe longer hours,'' says Van Benthuysen. ``We say: `You're going to be in a very different environment that won't have the assets, the structure.' But regardless of all the preparation, they all go through a culture shock.''
Just ask Burt Stratton. The sales manager took a $30,000 pay cut and lost a name that opened doors when he switched from IBM to CGS, a small Manhattan software maker. ``Suddenly people were saying, `Who's CGS? Why should I use you?' I didn't know the answer.'' For six months Stratton floundered and despaired. Then, he changed his attitude and ``created a new identity.'' He began selling so much, he got a promotion and his income swelled past his IBM salary.
Another obstacle to finding staff: Many laid-off employees used severance checks to start their own companies. Corporate castoffs were among those starting 800,000 new businesses last year--a 5% spike over 1994's record. ``I put my feelers out to people I used to work with at Xerox Corp. and people I knew at IBM to see if they'd be interested in a job, and several had already started their own businesses,'' said Michael Diener, customer-services director at Helysis Corp., a $4 million machine-tool maker in Torrance, Calif. The awakening came during a nine-month search for a technician for its Chicago office for $35,000 a year. Helysis finally recruited a returning Navy veteran who saw an ad in a Norfolk (Va.) newspaper. ``We couldn't get a bite. I've never seen anything like this.''
Aggravating the problem is that many who are laid off from big corporations are returning to them. Five of the companies that did the largest downsizings in recent years are hiring: Sears, AT&T, Boeing, Xerox, and IBM. Together, they announced 249,836 job cuts since 1993. But they have already hired 46,000 people this year, says John Challenger, executive vice-president of Challenger, Gray & Christmas. ``Large companies trying to make do with a core of people are now getting into hiring mode as resources are freed up,'' he says. His surveys show laid-off managers and execs finding new jobs faster than they have in 16 years.
Boeing let 40,000 people go during the recession. Now, for the first time in six years, it's hiring--8,200 workers by yearend. That's bad news for companies like Wichita Tool, which hired a half-dozen of Boeing's laid-off machinists and toolmakers. ``All of them said they would never go back,'' Pritchard says. But when Boeing started hiring again in April, every one bolted--taking a few colleagues and leaving behind 37 workers bitter about their pay. ``They came in here and bragged about their salary and benefits,'' complains Pritchard. ``I'd have been better off if I'd never hired them.''
With salaries 5% to 10% higher than small manufacturers, Boeing's draw is no mystery. ``Labor shortage?'' says spokesman Peter Conte. ``Not here.'' And if there was a problem with the pool, Boeing could run unskilled people through a training program whose budget is bigger than Wichita's annual revenues.
NEW POOLS. On average, small and midsize businesses plan to spend only 2.7% of revenues on training this year, says Arthur Andersen. It's a slight improvement from last year but still no match for Corporate America. So they're getting more creative. Pritchard, for example, recently let down his guard and joined an alliance of 40 small toolmakers around Wichita to create a four-year apprentice program that provides on-the-job training while workers attend school one night a week. The employer pays the student's salary and the cost of tuition and books.
Some employers are reaching around the unemployment statistic to welfare recipients and retirees. When Olds Products moved from Chicago to Kenosha, Wis., it cut a deal with 100 churches, synagogues, and mosques to trade employee leads for $100 donations. ``We found older workers that way,'' the company's management consultant, Edward Baker, says.
Headhunters, meanwhile, are running into each other even in the vastness of cyberspace. That's where one recruiter at CGS, a New York software company, spends her entire day. And it's where EagleView of Boston finds applicants to videotape and send to the PCs of employers. Mary Burke, a vice-president of V-Mark Software in Westborough, Mass., is among those trying the novel service. ``Desperate measures for desperate times,'' she groans. Which begs the question: What stones will be left to turn over as the problem worsens?
By I. Jeanne Dugan in New York