Small businesses take cues from tech giants’ moves

by J. Jennings Moss

Originally published July 22, 2022 in the Silicon Valley Business Journal.

As inflation rises, so too does the fear of a recession.

Nationally, some 70% of leading economists told the Financial Times last month they expected the U.S. economy to be in a recession next year.

Several of the Silicon Valley’s biggest employers already appear to be preparing for such a hit. In recent weeks, Apple Inc., Google LLC, Meta Platforms Inc. and Netflix Inc. have announced plans to slow hiring or cut jobs — or have already slashed staff.

Silicon Valley’s small businesses are bracing for the impact. Some say they’re feeling it already.

For Mark Baker, a local broker for Coldwell Banker, business has doubled since the start of the Covid-19 pandemic and remains “robust,” he told the Business Journal. But his clients have noticed the change in the economic winds already and are “self-adjusting,” he said.

“We are in a recession,” Baker said, predicting the downturn would end near the middle of 2023.

For now, Charlie Wilcox, the owner of Marianne’s Ice Cream in Santa Cruz, is more concerned about inflation and related supply problems than a recession. Some two years after the pandemic first started disrupting supply chains, Marianne’s continues to face challenges in getting certain items from vendors. Meanwhile, his costs for equipment and packaging paper have gone up.

“We are raising prices to try to cover the increases,” Wilcox said. Despite that, “we haven’t seen any direct reduction in sales volume as yet.”

Such Concerns Are Being Felt Across The Nation

Similar economic and operating concerns are being felt by small business owners nationwide, according to a recent survey by Goldman Sachs. Among the survey’s findings:

  • 97% of small business owners across the nation say inflationary pressure has increased or stayed the same compared to three months ago.
  • 80% say higher gas prices are hurting their businesses.
  • 78% say supply chain issues have gotten worse or stayed the same compared to three months ago.
  • 65% said they have had to increase the prices of their goods or services to offset rising costs.
  • 93% say they’re worried the United States will experience a recession within the next year.

“Over the past two-and-a-half years, small-business owners have faced a once-in-a-century pandemic, once-in-a-generation inflation, unprecedented supply chain disruptions, and historic challenges finding qualified employees,” said Jessica Johnson-Cope, who chairs the national leadership council for Goldman Sachs’ 10,000 Small Businesses Voices initiative. “Washington has helped us through the worst of it, but it’s clear that more needs to be done.”

Justin White, the CEO of K&D Landscaping in Watsonville, isn’t particularly worried that the current economic uncertainty will lead to a recession. The construction industry, particularly residential remodeling, is continuing to thrive, he said.

But that doesn’t mean his business isn’t being challenged. He’s had to hike prices due to increased labor, transportation and material costs, he said. And those higher prices are affecting sales.

They’ve “led to a 4% drop in our close rate for (the second quarter) compared to the same time period in 2021,” White said.

Labor continues to be a challenge

Another factor complicating things is the demand for labor, a situation that’s impacted practically every industry since businesses began to reopen their doors after the initial pandemic lockdowns.

Pizza restaurant A Slice of New York, which has two locations in San Jose and Sunnyvale, has had to battle higher food and energy costs, said Kirk Vartan, its general manager. But for the employee-owned business, labor has been the biggest challenge, he said.

“We can’t find people,” Vartan said. “We are just making less as a business.”

Inflation — particularly in the prices of energy and everyday staple goods — and continuing supply chain problems are hurting local businesses, said Derrick Seaver, CEO of the San Jose Chamber of Commerce. But it’s unclear whether all this will lead to a recession, Seaver said. That will depend on a host of macroeconomic factors playing out on the national level he said.

However that plays out, small business owners should be active locally, advocating that city leaders lower costs and burdens on the business community, he said.

“At the local government level, the mission right now is to do no harm,” Seaver said.

Business owners should prepare for a downturn

To a large degree, the economic climate for the Valley small businesses is affected not just by government regulation, inflation or supply chain costs, but the health of the region’s dominant tech industry, said Russell Hancock, CEO of Joint Venture Silicon Valley. During the height of the pandemic, many of the big tech companies thrived — and their market valuations soared — as homebound consumers flocked to online services, he noted.

But as people have returned to work and regular activities, many of those companies and their stock prices have taken a hit, something that could bode ill for the region, he said.

“There’s no longer the same crazy demands (for their products),” Hancock said. He continued: “These companies are reaching their saturation point.”

It would be “hubristic” to think that Silicon Valley is somehow different and won’t be affected by an economic downturn, Hancock said. So, business people would be wise to “batten down the hatches” and prepare for it, he said.

“If you live in Silicon Valley long enough, you learn that you should never become overly euphoric during the boom period, and you should never become despondent during the downturn,” Hancock said. “We just need to stay level.”

Small businesses take cues from tech giants’ moves

by J. Jennings Moss

Originally published July 22, 2022 in the Silicon Valley Business Journal.

As inflation rises, so too does the fear of a recession.

Nationally, some 70% of leading economists told the Financial Times last month they expected the U.S. economy to be in a recession next year.

Several of the Silicon Valley’s biggest employers already appear to be preparing for such a hit. In recent weeks, Apple Inc., Google LLC, Meta Platforms Inc. and Netflix Inc. have announced plans to slow hiring or cut jobs — or have already slashed staff.

Silicon Valley’s small businesses are bracing for the impact. Some say they’re feeling it already.

For Mark Baker, a local broker for Coldwell Banker, business has doubled since the start of the Covid-19 pandemic and remains “robust,” he told the Business Journal. But his clients have noticed the change in the economic winds already and are “self-adjusting,” he said.

“We are in a recession,” Baker said, predicting the downturn would end near the middle of 2023.

For now, Charlie Wilcox, the owner of Marianne’s Ice Cream in Santa Cruz, is more concerned about inflation and related supply problems than a recession. Some two years after the pandemic first started disrupting supply chains, Marianne’s continues to face challenges in getting certain items from vendors. Meanwhile, his costs for equipment and packaging paper have gone up.

“We are raising prices to try to cover the increases,” Wilcox said. Despite that, “we haven’t seen any direct reduction in sales volume as yet.”

Such Concerns Are Being Felt Across The Nation

Similar economic and operating concerns are being felt by small business owners nationwide, according to a recent survey by Goldman Sachs. Among the survey’s findings:

  • 97% of small business owners across the nation say inflationary pressure has increased or stayed the same compared to three months ago.
  • 80% say higher gas prices are hurting their businesses.
  • 78% say supply chain issues have gotten worse or stayed the same compared to three months ago.
  • 65% said they have had to increase the prices of their goods or services to offset rising costs.
  • 93% say they’re worried the United States will experience a recession within the next year.

“Over the past two-and-a-half years, small-business owners have faced a once-in-a-century pandemic, once-in-a-generation inflation, unprecedented supply chain disruptions, and historic challenges finding qualified employees,” said Jessica Johnson-Cope, who chairs the national leadership council for Goldman Sachs’ 10,000 Small Businesses Voices initiative. “Washington has helped us through the worst of it, but it’s clear that more needs to be done.”

Justin White, the CEO of K&D Landscaping in Watsonville, isn’t particularly worried that the current economic uncertainty will lead to a recession. The construction industry, particularly residential remodeling, is continuing to thrive, he said.

But that doesn’t mean his business isn’t being challenged. He’s had to hike prices due to increased labor, transportation and material costs, he said. And those higher prices are affecting sales.

They’ve “led to a 4% drop in our close rate for (the second quarter) compared to the same time period in 2021,” White said.

Labor continues to be a challenge

Another factor complicating things is the demand for labor, a situation that’s impacted practically every industry since businesses began to reopen their doors after the initial pandemic lockdowns.

Pizza restaurant A Slice of New York, which has two locations in San Jose and Sunnyvale, has had to battle higher food and energy costs, said Kirk Vartan, its general manager. But for the employee-owned business, labor has been the biggest challenge, he said.

“We can’t find people,” Vartan said. “We are just making less as a business.”

Inflation — particularly in the prices of energy and everyday staple goods — and continuing supply chain problems are hurting local businesses, said Derrick Seaver, CEO of the San Jose Chamber of Commerce. But it’s unclear whether all this will lead to a recession, Seaver said. That will depend on a host of macroeconomic factors playing out on the national level he said.

However that plays out, small business owners should be active locally, advocating that city leaders lower costs and burdens on the business community, he said.

“At the local government level, the mission right now is to do no harm,” Seaver said.

Business owners should prepare for a downturn

To a large degree, the economic climate for the Valley small businesses is affected not just by government regulation, inflation or supply chain costs, but the health of the region’s dominant tech industry, said Russell Hancock, CEO of Joint Venture Silicon Valley. During the height of the pandemic, many of the big tech companies thrived — and their market valuations soared — as homebound consumers flocked to online services, he noted.

But as people have returned to work and regular activities, many of those companies and their stock prices have taken a hit, something that could bode ill for the region, he said.

“There’s no longer the same crazy demands (for their products),” Hancock said. He continued: “These companies are reaching their saturation point.”

It would be “hubristic” to think that Silicon Valley is somehow different and won’t be affected by an economic downturn, Hancock said. So, business people would be wise to “batten down the hatches” and prepare for it, he said.

“If you live in Silicon Valley long enough, you learn that you should never become overly euphoric during the boom period, and you should never become despondent during the downturn,” Hancock said. “We just need to stay level.”