Israeli industrialist Stef Wertheimer, the founder of Iscar Industries has devoted much of his time and resources to establishing industrial parks that help Israeli and Arab entrepreneurs in some of the lowest income, underdeveloped areas in Israel. Last year, when I wrote about Wertheimer, his handful of industrial parks had helped 175 companies develop, employed 5,000 people, and in 2007 had produced collective sales of $750 million. When I spoke with him, his sixth park established outside of Istanbul, Turkey in 2003 had grown to 70 companies that employed 300 people.

The Middle East Investment Initiative (MEII), a Washington D.C.-based non-profit group is another strong proponent of using businesses to create sustainability and peace. Established in 2005, MEII was formed specifically to stimulate the region’s fragile economies. And for the past two years, MEII (along with its partners, OPIC, the Palestinian Investment Fund, and CHF International) has been the quiet force behind a $228 million loan guarantee program helping small and medium-sized business ventures in the West Bank.

That is the reason why Berl Bernhard, the organization’s chairman and James Pickup, its president, swung by BusinessWeek’s New York office today. On their way to the Middle East, the pair came in to discuss this program that has helped a number of Palestinian businesses get off the ground for the first time.

"Clearly the best gains we’re going to see this year are going to come at the end of the year," says Frank Badillo, senior economist at Retail Forward. "They could make up for a lot of pain and suffering from the early part of the year." Panicked consumers cut their holiday spending last year by 4.5% in the months following the financial crisis in 2008, according to the group.

This year’s predictions are out, and most forecasters expect a slight rise from last year’s dismal figures. But small retailers that compete with big box stores and online discounters may see sales drop even if shoppers spend more overall. Though the economy has showed signs of growth, unemployment just topped 10.2%. The rising number of people jobless, underemployed, and those worried about the future will likely hold back spending.

Last month we asked for your help covering this story to get dispatches from the retail front lines. Today I’m pleased to introduce three companies we’ll follow over the next two months –- all small, independent retailers. These companies will share what they’re seeing and hearing from customers, whether their sales are up or down, and what strategies or promotions are working. We hope their insight will help your company this season. Here they are:

Einmaleins
Olympia, Wash.

Mathias Eichler, 32, runs Einmaileins, a European import shop in Olympia, Wash. he started in 2007. The store, located in the city’s downtown, sells “modern European lifestyle products” including kitchen and home items, books, and food. Eichler, who runs the shop with his wife but has no other employees, has averaged between $8,000 and $12,000 in monthly sales this year but hopes to more than triple that in December. He tries to draw customers into his shop with events like a First Friday gallery walk. “We’d rather compete with customer service and atmosphere, where big box stores can’t compete,” Eichler says. He also relies heavily on email marketing, Facebook, and Twitter to reach out to customers and promote his store.

Aunt Sally's Praline Shops
New Orleans, La.

Aunt Sally’s is a third-generation family business that makes the famous pecan candies in New Orleans’ French Quarter. The 38-employee company has a wholesale business, a retail shop that’s a staple on tourist itineraries, and an online mail-order business that usually makes up the bulk of sales during the holidays. Frank Simoncioni became CEO in 2005, four months before Hurricane Katrina devastated the city, and he says it has been a rebuilding process ever since. Though things were beginning to look better in the middle of 2008, further hurricanes in the fall followed by the financial crisis set the company back again. “That Christmas turned out to be really sour,” Simoncioni says. “It was the first year we took a major hit in the Web business.” He says tourism has never returned to pre-Katrina levels. Aunt Sally’s sales were down this year through September, and Simoncioni isn’t sure what to expect for the holidays. “We thought that the economy is pulling out of this recession, but the actual signs are not showing it.”

Overstock Art
Wichita, Kan.

Overstock Art sells hand-painted replicas of famous paintings online. Founder David Sasson, 40, has 14 employees in the United States and China, where the paintings are produced by local artists. The 7-year-old company mostly sells to consumers and small businesses, like restaurants or doctors’ offices looking for wall décor. Most paintings are priced between $100 and $200, and many customers buy them as gifts during the holidays. Overstock Art, which has annual revenue of under $4 million, was growing throughout 2008 at a 25% clip over the previous year, though that pace dropped off to single digits in the fourth quarter. Sasson says business was more or less flat in 2009 until mid-July, when sales picked up swiftly. September was his best month ever except for last December.

We'll check in with these three retailers throughout the holiday sales season. But we still want help from readers to get a sense of how small businesses across the country are faring this year. If you have a tale from your business you want to share, let us know. Or if you see a local shop with a creative promotion, surprising success story, or anything else worth noting, send us a note or a photo. Leave a comment, email me, or let us know on Twitter.

One of the most valuable features of the Web as a business medium is interactivity, the ability of a company to create a dialog with its customers (current and future) via the Web site. At the same time, though, a company may be concerned that users' actions on their site could expose the company to liability. Whether from defamatory statements about competitors or individuals on a Web site message board, inappropriate language or suggestions in a chat area meant for minors, or copyrighted material posted without permission to the comment area of a blog, users' interactions could lead to legal risk for the site owner, whether or not it knew or approved of the improper postings or actions.

Early in the development of the commercial Web, there were a number of lawsuits brought against Web site owners and service providers, seeking to hold them liable for actions of users. The courts, faced with situations that had no real-world analogues, decided these cases in a variety of ways, which left the hosting businesses in a position of not knowing whether they would be better off editing every post or leaving their sites completely unpoliced.

After a particularly troubling decision holding online service provider Prodigy liable for an anonymous and allegedly defamatory posting in its Money Talk message board, Congress finally decided to act, understanding that the lack of clarity and risk of liability could seriously impede the development of the Internet as a business and communications medium. The result has been two major "safe harbor" laws, the general safe harbor for content liability in
47 U.S. Code Section 230 (passed as part of the otherwise-unconstitutional Communications Decency Act of 1996), and 17 U.S. Code Section 512(c), a specific safe harbor for copyright infringement enacted as part of the Digital Millennium Copyright Act of 1998.

The two laws, though, are sharply different not only in what they cover, but in the requirements they place on companies seeking to take advantage of them.

About as many franchise systems offer group health insurance coverage to franchise owners as there are snowflakes in the Mojave Desert. That's because insurers consider franchisees as separate companies from the franchising firm. So a franchised Burger King restaurant won't qualify for the deep group discounts that Burger King Corp employees receive. The result is that most franchise owners find health insurance too expensive to afford for themselves and their employees.

But one chain of some 550 print shops, Allegra Network, has found a way to buck the trend. The franchising firm is offering its franchise owners and their employees three types of PPO (Preferred Provider Organization) plans through Blue Cross Blue Shield of Michigan.

"Franchisor-based health insurance plans are rare in the franchising industry," said Carl Gerhardt, CEO of Allegra Network. Yet more than a third of Allegra's franchisees have signed on to a health care group discount, he noted. "Being part of a large franchise system like Allegra means that as more franchise owners join our health insurance program, there is a greater likelihood that cost increases will be kept to a minimum in the future."

Laura Pierce, Allegra's Vice President of Human Resources and Controller, explains that in the past insurance companies turned up their noses at covering franchise chains. "We could never find an insurance company that was willing to group several small businesses together under one umbrella and be willing to invoice each of them individually," says Ms. Pierce.

As the economy tightened in 2008, Allegra met with Blue Cross Blue Shield of Michigan.

The health care provider was willing to try.

In fact, you could say we're obsessed.

I don't think that's a bad thing. After spending an evening listening to Robin Chase, co-founder of Zipcar and current CEO of GoLoco, dissect one of Carl Jung's paintings at the Rubin Museum of Art last week, I'm convinced that obsession is the core of the entrepreneurial spirit. The Rubin has invited numerous artists, intellectuals, and executives to sit on stage with a Jungian analyst and respond to a painting from Jung's legendary Red Book diary, which famously chronicles the psychologist's descent into madness. Chase could have gone anywhere with the painting, which featured a deity-like man floating above an urban waterfront scene. Instead, she spent an hour discussing the potential tragedy of climate change if people don't deal with excess capacity (share your cars!) and sprawl (infrastructure first!).

This sort of single-mindedness, even when presented with madness, is what has helped propel Chase to success. I'd venture that other entrepreneurs who dive into their business ventures wholeheartedly have the same. After all, what is it to sacrifice everything for an idea, if not madness?

The company released a statement that said, in part: “Under the plan, CIT expects to reduce total debt by approximately $10 billion, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability.”

CIT’s latest move comes after the firm attempted to find any avenue but bankruptcy that would keep it afloat. In July, the company was denied a second federal bailout after it had already received $2.3 billion in Troubled Asset Relief Funds (TARP). The government’s lifeline was given in the form of preferred stock – and as a result of CIT’s bankruptcy proceedings, the government is expected to take a bath on that $2.3 billion.

To date, CIT has been the biggest player in factoring – a form of debt financing used by those businesses that are unable to secure traditional loans or credit lines. This allows companies to sell their receivables at a discount in return for cash. A number of suppliers and manufacturers such as apparel makers deploy factoring as way to hold them over until retailers pay.

One of the biggest questions now is how CIT’s own considerable problems will impact the retail sector -- particularly with the crucial holiday season just around the corner. Last July, when the company announced that it had failed in its bid to secure a second government rescue retailers were girding themselves for the possible fallout. However, the worst-case scenario appears to have passed.

Craig Shearman, the vice president for government affairs at the National Retail Federation, a trade group, says that the timing of CIT’s bankruptcy has actually boded well for retailers. “We think we dodged a bullet for the holiday season,” he says. “If there had been a collapse in September it could have created a hole in the retail supply chain big enough for Santa Claus to drive his sleigh through. At this point, most merchandise is either in distribution centers or already on store shelves.”

So for now, CIT will be added to the growing list of taxpayer agonies. And as one of the largest corporate bankruptcies, it has demonstrated that it was certainly not too big too fail.

• 3.6 million small businesses could qualify for tax credits to subsidize insurance. These include businesses with 25 or fewer employees and average wages under $40,000.
• Health insurance exchanges could save firms with fewer than 50 employees 25% off the expected cost of single premiums in 2016.

Small business is center stage in the public debate during the week when both chambers of Congress released new versions of their health reform bills. Obama's latest push comes late in a week that began with small business health costs leading the Sunday New York Times. And it follows the administration's focus last week on extending recovery efforts by beefing up loan guarantees and encouraging community banks to expand small business lending. As Robb Mandelbaum reported in the Times, the lending initiatives seem intended at least in part to court Maine Republican Sen. Olympia Snowe's vote for health reform.

As for the House bill out today, BW's Jane Sasseen looks at the battle ahead:

The House bill includes higher penalties on businesses that don't provide insurance for their employees; those with more than 100 workers would be expected to cough up a penalty of 8% of payroll. And individuals who don't get coverage could face a penalty of 2.5%.

But the biggest difference -- and the biggest fight ahead -- comes in how the bill would be paid for. While the Senate wants to tax so-called "Cadillac" health care plans in order to fund health care reforms, the House wants to impose a surtax of 5.4% for individuals making adjusted gross incomes of over $500,000 and couples over $1 million a year to pay for a chunk of their bill.

Companies with payroll under $500,000 would be exempt from the employer mandate. The new tax proposal on high incomes (which seems unlikely to make it past the Senate into a final bill) is sure to draw sharp criticism. Prepare for a rush of rhetoric about how the House's proposed tax would fall on the shoulders of small businesses. For the record: Most small business owners aren't earning that much. (Remember, AGI is income after business expenses and other adjustments.)

In separate statements, the NFIB panned the House bill and struck a cautious tone toward Obama. The group remains opposed to employer mandates and a public plan, even under the "opt-out" compromise in the Senate. The Small Business Majority supported today's House bill. Now that Congress has concrete proposals out of committee, we'll look past the rhetoric and unpack the details that matter to small business owners in the coming days.

Video of Obama's speech today is below.

When the stock market crashed and the economy skidded to a halt however, people began to think twice about paying the kind of money for a pair of jeans that they would for a fine bottle of wine. Ball noted that during the first half of 2008, Rock & Republic’s sales had spiked 14% only to fall flat during the second half. His ambitious plans (which included boutique hotels) were placed on hold and he said that he was not going to price his jeans above $280. “The top-tier has fallen off,” he said, “there is no point in sitting there."

Fast forward to a year later -- Ball who is known as much for his brash personality and marketing finesse as he is for his expensive jeans was now pushing the top-tier down even further. In a nod to affordable luxury Ball released a new line of denim called appropriately enough: Recession Jeans. Priced at $128 to $132, the new iteration of Rock & Republic cost less than half the price of Ball’s famous $300 designer duds.

While the new price still hovered way above a pair of jeans at the Gap, Ball was not necessarily abandoning the $$$ = hip quotient that he had built his brand on. When Ball was starting out he created a swell of demand for his original pricey jeans by limiting the number of retailers he would sell to --even refusing to sell to Barney’s and Bloomingdale’s). He deployed a similar strategy when he unveiled his recession collection this past spring, the four-line offering was billed as a Limited Edition and sold only in a small number of outlets and for a finite period of time.

Rock & Republic’s skinny jeans may now cost less than before but Ball still seems to know how to drum up exclusivity at any price point and that may be the key to staying one step ahead of the economy. Then again, if things don’t pick up, Ball and his competitors may have to push the top-tier down another rung or two. Then the future of premium denim might have a different kind of label, along the lines of: Rock & Republic jeans for Target

In an interview with the New York Post, Icahn said that his plan would involve propping up CIT’s bank and spinning off a separate management team to run it, saying:

"You would have an infinitely better chance at getting bank approval with new owners than these guys do."

As CIT battles to avoid bankruptcy, the holiday retail season fast approaches and CIT is a main lender to some 1 million small and medium size businesses. As such it has been the biggest player in factoring – a form of debt financing used by those businesses that are unable to secure traditional loans or credit lines. This allows companies to sell their receivables at a discount in return for cash. A number of suppliers and manufacturers such as apparel makers deploy factoring as way to hold them over until retailers pay.

It will be interesting to see how CIT’s woes will impact retail sales that have already taken a hard hit due to the anemic economy.

The latest commercial bankruptcy figures (courtesy of AACER) are below. The chart shows the average number of US commercial bankruptcies per filing day in each month (because some months have more business days than others, strict month-to-month numbers can be misleading).

At 344 average daily filings in September, the rate is down slightly from its peak in May, but still 24% above Sept. 08. Anecdotally, some bankruptcy professionals told me that many companies often resist filing until the beginning of the next year, in the hopes that a strong fourth quarter would help them avoid insolvency. So watch whether the rate of filings continues to decline into next year or ticks up again in 2010. One other note on this chart: Because many people filed in late 2005 before changes to the bankruptcy code took effect, the early months shown here reflect an unusually low number of filings.

Online art retailers aren't the kind of businesses venture capitalists typically fund. But Bekman just raised $825,000 to build out the business.

Here's Tony Conrad, partner at True Ventures, in the NY Times:

“I love the idea of taking the friction out of the art world,” said Mr. Conrad. “A lot of people want to buy nice things, but don’t know how. Jen has built a business from that, which is growing very nicely and has a lot of repeat customers.”

...

“This really feels like a business that can disrupt the staid approach in the art world and make it more broadly accessible."

Sell fine art prints over the Internet? No VC would seed this idea, most wouldn't even take a meeting. This is one of those cases where execution made the difference. Bekman made it work from scratch. Now 20x200 has a track record and cash coming in. Now she can raise money to expand.

Cash flow positive. Growing revenue. Disruptive business model. If you've got those three things in place, it may not matter whether you're the kind of business VCs typically fund.

Update, Oct. 27:

A few readers in the comments have asked for more detail about Bekman's story, so I'm pasting our earlier piece on 20x200 below. You can also check out Tony Conrad's post on why he invested.

Her Web site is officially called 20x200, but founder Jen Bekman calls her online mart the gateway drug to the art world. The Manhattan gallery owner launched the site in September 2007 to sell limited-edition prints and photography at prices low enough to attract first-time collectors, starting at $20 for a print from a run of 200. Bekman, 39, worked for Internet companies including Meetup before opening Jen Bekman Gallery, where prices range from $1,000 to $20,000. She bootstrapped the now-profitable Net venture for less than $1,000, with the help of contacts who donated time get the site running. She now runs it with a staff of five (plus contractors), who also operate her gallery and a third venture, photo competition Hey, Hot Shot! that leads her to many of the photographers for 20x200. She splits profits 50-50 with the artists, and her art-world cred assuages artists' fears that their work will be commoditized. "People know that I am not just moving product," she says. But the product moves nonetheless. The e-gallery has shipped more than 40,000 prints, with $1.2 million in revenue in 2008.

Fixing this would save millions of home-based business owners time and money. At least six bills pending in Congress would simplify this. They would give home-based business owners the option to take a standard home office deduction of $1,500 or some figure to be set by the Treasury. (If taxpayers think they deserve a bigger deduction, they’d still have the option of calculating it the old way.)

Lawmakers, both Republicans and Democrats, introduced four similar bills last year, but they went nowhere. Like the tax self-employed workers pay on health care, this is an issue that affects a lot of small business owners with relatively little collective lobbying power.

The change is at the top of the tax reform recommendations recently published by the SBA's Office of Advocacy. The latest efforts to simplify the home office deduction were introduced in the last month, accompanied by press releases from lawmakers. The change would make tax time easier for the growing number of people working out of their homes, particularly many who have lost their jobs in this recession. Let's see if Congress follows through.

After seven years of legal wrangling with conglomerate Cendant Corporation, a jury has awarded Robert C. Halcro, a franchisee of Avis Rent A Car System, $16 million in damages.

A judge had previously ruled that the Avis franchisor had "unequivocally" breached its agency settlement agreement with Halcro’s company Alaska Rent A Car, when it acquired and continued to operate competitor Budget Rent A Car. He stated that the only issue to be determined was whether Alaska Rent A Car had been damaged, and if so in what amount.

On October 1, 2009, after two hours of deliberation, the jury awarded damages to the 50-year veteran franchisee declaring:

We, the jury, based upon the preponderance of the evidence, unanimously find the following verdict on the damages suffered by Alaska Rent-A-Car Inc., as the proximate result of the breach by Avis Budget Group, Inc. and Avis Budget Car Rental, LLC in the following amount: $16 million.

In hearing the verdict, Halcro said, "We won big. This goes to the core of the American franchise system. Big franchisors shouldn’t be able to get away with what they are trying to do in going against the small franchise operator." He said he felt fortunate that he had the money to battle in court, that most small business people don’t have the resources. "I spent almost $7 million fighting this franchisor, but I don’t care. I came into the world with nothing, my family is okay financially, so to hell with them. I’ll march on."

• The Senate Small Business Committee this morning heard from small business stakeholders about what kind of health reform they want to see. You can watch the hearing and download testimony here.
• Committee chair Sen. Mary Landrieu (D-La.) makes the case on MSNBC for a national exchange. Landrieu, a moderate Dem, and Sen. Olympia Snowe (R-Maine), the ranking Republican of the small biz committee, are worth watching. Snowe, who voted for the Senate Finance bill in committee, is the Democrats' best chance to pass a bill with a fig leaf of bipartisanship.
• The White House just put out a new report making the case that health reform will benefit small business.
• Senate Democrats expect to hammer out most differences between the two Senate versions (Finance and HELP committees) this week. The details of any public option or employer mandate could be decided in the next few days.
• Massachusetts mulls ways to keep premiums for small businesses in check after criticism that the state's mandates (which apply to companies with 11 or more full-time equivalents) are too burdensome.

Anything we missed? Let us know. And stay on top of government news with our new Small Business Policy Ticker.

Icahn’s proposal comes just days after CIT offered bondholders a debt swap – current debt for debt that matures at a later date as well as some stock. It also comes on the heels of last week’s announcement that CEO Jeffrey Peek would step down by the end of this year – an announcement that arrived one month after CIT said it was extending Peek’s contract until 2010.