January 9, 1997

A SIDEWALK VIEW OF SMALL BIZ

Even while giant retailers command much of the country's commercial and psychic landscape, Americans remain surrounded by hundreds of thousands of small enterprises. Unlike their big, public-company brethren, whose every strategy and personnel move is scrutinized by Wall Street and the investing public, small retailers operate in relative obscurity. Customers might notice that a store has gone out of business or that a popular restaurant has overhauled its menu, but they are most likely clueless about how the changes came about.

For a year beginning in April, 1993, author Tom Shachtman got inside the business of a traditional retail neighborhood, studying foot-by-foot the sociology and economics of one square block in the Chelsea section of New York City. What he found has recently been published as Around the Block (Harcourt Brace), an intimate look at how local businesses adapt to, and sometimes change, the world around them. BW Enterprise Online's Dennis Berman recently spoke with Shachtman. The following is an edited transcript of their conversation.

Q: What did writing this book teach you about entrepreneurial character?

A: What I found very exciting was the degree to which entrepreneurs thought about what they were doing. It wasn't just picking whether to go left or to go right. Before making a decision, they thought about how it was going to affect their business. I enjoyed the degree to which they were intellectually engaged.

What surprised me was how vital their enterprises were. For a large percentage of the business people, they didn't seem to be doing it as a fallback. They were liking it. It wasn't a so-called "day job," but a full-time occupation, what they've turned all their energies to. And these were people who I thought could have well done other things, so this was not something they were forced into by circumstance.

I also think they have a greater sense of loyalty to employees than occurs in larger businesses. There's more day-to-day interaction. Each employee is generally extremely important to that business, so you can't treat people as interchangeable parts. You depend too heavily on each person.

Q: Before long, superstores began to invade the territory of the small businesses on "your block." How did the small fry survive? And how will they keep it up in the future?

A: If you're right next door to a giant who is in the same business, you have a big problem. Still, I think that small businesses have several distinct advantages. First, they can be much more niche players. They can define a niche much more succinctly. Second, they can purvey quality. Most of these big stores are making their money on quantity. Third is service, which is really what one goes to a small store for these days. I don't care if it's selling paint or videos or prefabricated housing, you go to a small store because you expect the people there to be the entrepreneurs themselves or to be knowledgeable enough to deal with you in a way that helps the transaction. Those three areas are where the small enterprises have the edge.

A lot of the things in this book have to deal with cities and developing cultures in the cities that have fairly deep pockets. A clientele base is getting more sophisticated in its buying, and that's where small businesses can do better.

One of the other things I wanted to point out is that small businesses don't have the same imperative that those on the stock exchanges have. It's not imperative to have a larger growth rate this year than last. You don't have stockholders or a stock price to worry about.

Q: Your book points to banks and the government as being serious roadblocks to entrepreneurship. Just how big a problem is ready access to capital?

A: What I found was that there was this incredible inability to get financing, even to get anybody to pay attention to the businesses. They had to do it all on their own. Now, the lack of financing for businesses opening for the first time is quite understandable.... The real problem was for people who had been in business for a while and who needed capital. Virtually all of them had problems. Some of the restaurants were able to get financing relatively more easily than others, but lots of them were completely stagnating.

My feeling is that the banks could be a little smarter by adapting themselves to particular circumstances in the neighborhood. They should be able to identify the local business that has more than local potential. They should structure loans based on the experience of the entrepreneurs, rather than on the usual criteria.

Q: How much has bank consolidation affected branches' ability to make independent lending decisions?

A: Decisions tend to get much more centralized in a big business.... A business has to have, say, this amount of retained earnings in order to get a loan. Of course, you don't want loans to fail. Nonetheless, there are particular circumstances that could warrant a different look from other lending sources. So people turn to credit cards. And when you hear that, it just raises the hair on the back of your neck. Consider what some of these entrepreneurs have to do, which is to put themselves at personal financial risk. No one does that because they want to. They have no other alternative.

Q: Your book gets to the heart of many urban planning issues. What is the role of small business in preserving, or improving, city life?

A: Urban preservation is often focused on two prongs -- saving an architectural heritage and keeping people in a residential area. We should also try to conserve small businesses and show how they contribute to stability and livability. When we transform neighborhoods by gentrification, if it goes too quickly, you end up with a SoHo [another section of New York City], which is a complete mishmash between the residents and types of spaces available there. If someone wanted to open up a nice gallery in SoHo with the absolute newest young artists, who might sell a print for $150 or $250, it couldn't be done there. They'd have to do it somewhere with lower rent. That's not necessarily good.

Q: To what extent has America overlooked small businesses' contributions to the economy at large?

A: This is very important. As observers of business, we need to just go out and look -- without too many preconceptions -- and see what people are doing and how they're doing it. It's better to do that than listening to some theories. For example, the point is not how much capital someone has, but rather is it adequate for the task.

[The federal government] bailed out Chrysler, and that was fine. How many jobs did that save or create? If you had done the equivalent and bailed out 1,000 small businesses it might have been better for the economy. We don't think in those terms at all.