It's January, 1999, and time for a reality check: Just how vulnerable are small companies to a business-fouling calamity from the Year 2000 bug?

Ask Paul Rasmussen. The Payson (Ariz.) entrepreneur is no ostrich about the potential disruption to his 17-person orthotics company if computers -- his and others' -- go haywire because they confuse the year 2000 with 1900. He has shelled out $50,000 to upgrade his accounting software, to replace aging computers, and even to buy a generator in case the local power company doesn't have its Y2K act together.

But Rasmussen doesn't believe he'd be paralyzed if, for all his preparations, his billing and shipping programs crashed as they ticked into the new millennium. He could manage by hiring temporary employees to do the paperwork by hand, he says. Nor does he think his fellow entrepreneurs are as vulnerable as many predict -- not least because they've had to be resourceful to survive thus far. "Those people have been through hell and high water, and they know how to get through stuff," he says.

DON'T PANIC. Much has been made of entrepreneurs' lackadaisical attitudes toward the Y2K problem. An October National Federation of Independent Business survey found that 40% of the small outfits surveyed lacked any Y2K fix-it plan. Fortunately, some traditional small-business attributes -- their size, low levels of computerization, and newness -- may actually work in their favor, making them less vulnerable to a business shutdown and less vulnerable than many large companies. That's not to recommend a wait-and-see strategy, because there are sure to be disruptions to the supply chain. But before you panic, consider the following.

Small companies use fewer computers and less customized software than their big competitors. That's an advantage when trying to root out Y2K glitches. Large, older corporations trace much of their information architecture to the 1960s, when now-obsolete -- and bug-prone -- program languages COBOL and Fortran dominated. The difficulty of finding and fixing all the flawed code in 30 years of accreted computer systems is what gives the Y2K-phobic cold sweats.

According to the NFIB, one in five small businesses still don't use computers. As for the rest, the off-the-shelf programs they generally install tend to be easier to repair -- since publishers' release bug-fix patches for free or a small fee. What's more, entrepreneurs often buy recent vintage programs that state years in four digits (two-digit dates are at the root of the Y2K problem), so they should roll into the millennium without a hitch.

That's why self-employed graphic designer Susan Ives, who operates Square 1 in San Antonio with a few desktop PCs, is sanguine about the issue. "I'm not running old legacy databases," says Ives, who bought all her equipment within the past year and a half. "I really haven't worried about it." Ives's experience dovetails with the NFIB survey: Of the 500 small companies it polled, 89% upgraded their critical computer applications within the past two years.

Even computer consultants, who've been aggressively sounding the alarm about Y2K, admit that all small companies aren't vulnerable. Lou Marcoccio, Year 2000 research director at the technology consultancy GartnerGroup, concedes that half of the U.S. businesses with less than 100 workers -- which employ more than 40% of the workforce -- have "basically little dependence on internal automation."

MANAGEABLE FIXES. Marcoccio sternly cautions that small companies are "driven by that day's revenues" and don't have the resources to pull employees off their appointed rounds to fix Y2K problems. On the positive side, with only one or two networks, they won't waste time locating problems. Most of what small businesses dig up will be relatively manageable. "In most cases, it's easier to fix their problems from a technical perspective," Marcoccio says.

The simpler corporate structures of small companies are also an advantage in this situation, says Don Taylor, a Y2K consultant in Hampton Roads, Va: "If someone says the shipping software isn't scheduling right, somebody is going to notice this in a day or two. Otherwise, people are going to be sitting around doing nothing."

None of this should give unprepared small-business owners a feeling of complacency. Taylor points out that small companies have little financial cushion if Y2K problems cause major snafus. That's why he and other experts advocate that businesses assess their Y2K preparations rather than wait for something to go wrong. "If you want to wait until failure, that's fine," adds John Pierce, director of information technology at the nonprofit Maine Manufacturing Extension Partnership. "But for the price of shrink-wrapped software, I'd spend $79 now."

That's sound advice for entrepreneurs just waking up to the Y2K bug. At the same time, Taylor scorns Y2K alarmists: "Some people out there think every [small] organization is manned by dunces." The mettle of many small businesses may get a severe test next year. But predictions of their mass demise are likely to be exaggerated.

By Dennis Berman in New York
dennis_berman@businessweek.com

To: TECHNOLOGY