Business owners rein in plans for expansion and e-commerce

[April 25th 2001]

A sputtering economy has dampened the mood of America's middle-market, entrepreneurial companies, which are backing away from expansion plans, expressing doubts about the future of e-commerce and rethinking their corporate strategies for long-term growth.

These are highlights from a national survey of 400 business owners and senior executives conducted by Grant Thornton LLP, a major accounting, tax and management consulting firm. The survey is part of the Grant Thornton Business Owners Council, a program that explores strategic issues affecting the growth of owner-managed companies.

According to the study:

• Only 34 percent of all business owners and executives in the survey say they are very optimistic about the growth of their companies, down from the 48 percent who were very optimistic in July 2000. Internet companies showed the sharpest decline, plunging from 85 percent in July 2000 to just 54 percent today.

• While half of all business owners expressed enthusiasm for the future of e-commerce in July 2000, that figure has sunk to 25 percent. Even Internet companies reported a decline in enthusiasm for e-commerce, from 83 percent to 59 percent.

• Fewer companies today plan to expand through a merger, acquisition, strategic alliance or joint venture. Just 48 percent foresee a domestic strategic alliance during the next three years, down from 60 percent in July 2000. In addition, 43 percent are planning a domestic acquisition, down nine points from the earlier 52 percent. The number of companies that do not have plans to grow globally rose from 37 percent to 45 percent.

"There certainly has been a dramatic shift in executive confidence over the past six months," says Andre Schnabl, Grant Thornton partner in Atlanta. "This change is consistent with the shifts we have seen in consumer confidence. However, we could just as well see a significant reversal in the next six months as interest rates continue to moderate and inventory problems in the technology sector continue to be resolved. Although the confidence trends are negative, we see a broad range of confidence views from entrepreneurs depending on industry, maturity of enterprise, strength of balance sheet and other factors."

"Businesses most likely to manage economic downturns successfully are those that can be most nimble," says Schnabl. "Owners and managers should strive to convert fixed costs to variable costs by outsourcing, using gain sharing arrangements with employees and vendors, and other creative ways to improve reaction as our economy changes."

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