127 lines
5.8 KiB
Markdown
127 lines
5.8 KiB
Markdown
---
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created_at: '2016-01-18T19:43:37.000Z'
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title: Michael Bloomberg on starting a business during tough economic times (1982)
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url: http://www.nytimes.com/1982/05/08/business/for-new-business-during-recession-start-must-be-lean.html
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author: raldi
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points: 106
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story_text:
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comment_text:
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num_comments: 40
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story_id:
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story_title:
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story_url:
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parent_id:
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created_at_i: 1453146217
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_tags:
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- story
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- author_raldi
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- story_10926423
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objectID: '10926423'
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year: 1982
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---
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A year ago, James C. Pearson had a retail furniture business with an
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extensive inventory. As interest rates rose, however, his profit margin
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fell. Last summer, amid an expanding recession, he cleaned house and
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started a new business, Susan James Associates.
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''We're a consulting firm now,'' said Mr. Pearson, the firm's president.
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''We place bids, then buy only what we need for each job. Somebody else
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has to keep the inventory.''
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Michael R. Bloomberg was a partner at Salomon Brothers, the securities
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firm, until last September. His new company, Innovative Market Systems,
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which opened for business in February, is developing computer software
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systems for financial analysts. ''When we sold the company to Phibro
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last fall,'' Mr. Bloomberg said, ''I left to start a new business.''
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Both companies were started during a recession, and both have endured a
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period of business failures unequaled since the 1940's. And while they
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may not be representative of all new businesses formed during the
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recession, they may share many of their characteristics. Tight money and
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technological change, business people say, are key factors in the
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current wave of new companies. 'Interesting Time'
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''This is an interesting time,'' Mr. Bloomberg said. ''You can't go out
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and start a steel mill, but the position of the business cycle and the
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rate of technological change are such that people can go and start small
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companies when they have a few people with good ideas.''
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Not surprisingly, the number of business starts during the first quarter
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of 1982 declined from the same period last year. According to
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preliminary figures supplied by the Dun & Bradstreet Corporation, 9,094
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new businesses were formed during the first three months of 1982, down
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2.9 percent from the 9,366 last year. The biggest declines in business
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start rates were recorded in the region composed of Kentucky, Tennessee,
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Alabama and Mississippi, down 16.9 percent.
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Dun & Bradstreet said the rate of new incorporation declined in every
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region of the country except the Middle Atlantic area - New York, New
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Jersey and Pennsylvania - which had an increase of 10.3 percent.
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The Small Business Administration, which also monitors new business,
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cautions that 1982 figures, though they may be down, are being compared
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with a record number of business starts last year. In 1981, 581,661 new
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businesses were incorporated, up more than 9 percent from 1980. Thomas
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A. Gray, chief economist for the agency, attributed last year's increase
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at least partially to the unemployment caused by the recession.
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''New business formation just seems to occur more frequently during a
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recession,'' Mr. Gray said. ''If you're suddenly unemployed and walking
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around in the street, you're more likely to say to yourself, 'Now is the
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time to try.' ''
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''The other question you have to ask is, 'What businesses are failing?'
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'' Mr. Bloomberg added. ''I think businesses that are already in
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existence -small, medium or large - tend to have greater problems during
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a recession, as people stop spending or change their buying habits. I'm
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not sure that has anything to do with new businesses.'' Borrowing Costs
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Key Factor
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Though other sources echoed Mr. Bloomberg's comments, most still say
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that starting up a business these days is no picnic. Undoubtedly, the
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primary problem is the cost of borrowing money. For a smallbusiness
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owner, who is generally forced to borrow at rates far above the prime
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interest rates charged to a bank's best customers, high capital costs
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may narrow his choices of business.
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''Without a doubt, it's the biggest problem a small-business man will
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face,'' said Gordon Bizar, president of the International Business
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Network, a political and economic organization for small businesses.
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''On the other hand, if you can get the money, now is the time to be
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buying a business.''
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Most people do it the other way around, Mr. Bizar said. ''They get in
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when the market is good and pay premium prices,'' he said. ''Those are
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the businesses that are failing today.''
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Of course, not all new businesses are surviving, either. A small company
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founded in Chicago last year with the goal of buying X-ray negatives
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from hospitals and selling them for their silver content died when
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silver prices fell. Other businesses struggle on, hoping to last until
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consumer spending picks up. Some find their niche right away. 'Nothing
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to Get Excited About'
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Scott Sanders, an actor who co-founded Survival Techniques in his New
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York loft last December, said sales of his custom-painted decorated
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pillows, at $22.50 each, had been ''O.K., but nothing to get excited
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about.''
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Mr. Sanders said the recession had definitely hurt his sales, but,
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because his costs are so low (he and several friends do all the work),
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the tiny company will probably stay in business.
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According to Malcolm N. Smith, senior lecturer in the School of Economic
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Policy at the University of Chicago's Graduate School of Business, high
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interest rates have done more to new business formation than simply
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restricting the choices involved. Mr. Smith said the recession had made
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certains kinds of businesses - specifically, consulting and service
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companies - more attractive aside from their low start-up costs.
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''In times like this, most companies would rather contract out than
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increase their employment,'' he said. ''If they need a computer
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programmer, they'll turn to an outside consultant before they'll
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actually hire anyone.''
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Illustrations: photo of Michael B. Bloomber and his partners
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