When a jobs engine stalls

Small businesses led past rebounds, but not this time

By Erin Ailworth and Katie Johnston
Globe Staff / August 15, 2011

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Last year, chef Jacky Robert and his business partner, Loic Le Garrec, did what small-business owners often do after a recession loosens its grip: They moved forward, opening another Petit Robert restaurant, with the backing of investors.

But their post-recession optimism is tempered by the fragile economy, locally and globally. While the tables at all five Petit Robert restaurants regularly fill, diners are spending less than they once did.

To compensate, Robert and Le Garrec have reduced wait staff hours, replaced linen tablecloths with paper, and begun offering deals through the website Groupon - something they once thought smacked of desperation.

The stock market turmoil of the past few weeks, while unsettling, has validated their conservative approach to building a business.

“It’s not going so bad. It’s not going so great, either,’’ Le Garrec said recently. “Before, [customers] were spending $50 to $60 on a bottle of wine, and now they spend $25 to $30, and they don’t drink as much.’’

Other small businesses also have remained in survival mode, and plan to stay there. That could make an already slow economic comeback even more sluggish, economists say.

Small companies account for more than 50 percent of all private sector employment, and have traditionally led economic rebounds by adding jobs. That’s not happening this time.

Owners have become accustomed to doing more with less and are getting by with fewer employees.

Jeff Stibel, chief executive of Dun and Bradstreet Credibility Corp. in Los Angeles, which helps businesses build credit, said many small companies that endured the recession are still struggling. Federal stimulus money that was supposed to filter down to them never really arrived, he said.

“What small businesses were left with was they had to be scrappy, they had to be lean,’’ Stibel said.

And there is nothing in the economic projections that is likely to change that thinking, said Chris G. Christopher Jr., a senior economist with the Lexington forecasting firm IHS Global Insight. In fact, he said, small-business owners’ confidence has been spiraling downward for months - even before the dramatic market swings of late.

The percentage of small-business owners feeling optimistic about the economy fell from 67 percent in a June survey, to 47 percent in July, according to the online payroll service SurePayroll.

“It’s just not looking good,’’ Christopher said. “Small business is generally the driver that pushes down the unemployment rate.’’

The caution among small businesses in many ways reflects what is happening in the broader economy and labor market. Conditions have dramatically improved since the worst of the recession, when companies were laying off workers by the hundreds of thousands. That’s not happening anymore, but neither is the next step needed to drive the recovery forward: robust hiring.

Keith Hall, commissioner of the Bureau of Labor Statistics, the federal agency that tracks the job market, said US employers need to create about 130,000 jobs a month just to keep up with population growth and hold the unemployment rate steady. Last month, the nation added just 117,000 jobs, after adding about 50,000 in each of the previous two months.

“Mostly it’s that we’ve just stopped losing jobs,’’ he said, “Unless we get record job growth, this [recovery] is going to take years.’’

Even businesses that are confident enough to boost their payrolls are doing so only after careful consideration.

Black Duck Software in Waltham, for instance, has doubled its workforce to 150 since 2008, including 30 employees hired since January. But chief executive Tim Yeaton said he isn’t letting his guard down.

“We do run very lean,’’ said Yeaton, who noted there are no executive assistants in his company, which serves about 1,000 clients. “We recognize that it’s tough times out there, so we’re going to be disciplined. We’re going to be humble.’’

Natick interior designer Laurie Gorelick would like to double the size of her company - to two - but she isn’t in a position to hire back the assistant she let go when business dropped off during the recession.

Gorelick said she survived the last downturn by finding inexpensive ways to spread the word about her work - such as by cold-calling contractors - but knows she has to get even more creative. She started tweeting two months ago, netting several new industry connections, and she’s considering offering her services for free to restaurateurs and retailers opening new stores as a way to showcase her work.

Other companies are seeking new markets to offset recession-era losses.

After buying Jessica’s Brick Oven in 2008, Nabil Boghos noticed revenues were slipping at restaurants the North Andover wholesale bakery depended on for business. So he started courting supermarkets, including Stop & Shop and Market Basket. As a result, sales increased from less than $2 million a year to a projected $9 million in 2011.

That has allowed Jessica’s Brick Oven to become one of the few small businesses in the region to dramatically increase its payroll since the recession. The company, which had about 25 employees three years ago, now has 125.

But like Yeaton, Boghos knows success could be fleeting if he’s not careful. That’s why he buys used equipment, locks in vendor prices a year in advance, and is prepared to make more adjustments on the fly.

“This situation in the economy makes you even sharper and keeps you focused even more,’’ he said.

Jim Anderson’s South End stained-glass business has also picked up momentum in the last few months, but he has no plans to rehire two full-time employees he let go in 2009, or to restore the 20 percent he sliced off his prices.

Businesses that have not learned the skills needed to navigate economic turbulence could face tough times, Anderson said.

“It’s like a thinning-out process,’’ he said.

Loan statistics from Massachusetts Growth Capital Corp., a quasi-public company created by the state to provide financial assistance to small businesses, offer reason for modest optimism.

More than half the loans currently being requested are to fund growth, said Bob Baker, a Capital Corp. board member and president of the Smaller Business Association of New England. That contrasts with two years ago, when 90 percent of the borrowing was used just to keep companies afloat.

But the increased borrowing is not necessarily generating jobs.

“They’re pushing the envelope with the staff that they have,’’ Baker said. “In the past, you’d hire people if you were busy.’’

Stibel, with Dun and Bradstreet, said he is concerned that so many small businesses and entrepreneurs are holding back.

“That’s what scares me right now,’’ he said.

“We’ve got to get people to start new businesses, and we’ve got to get small businesses to start hiring.’’

Erin Ailworth can be reached at or on Twitter @ailworth. Katie Johnston can be reached at or on Twitter @ktkjohnston.