1. 2011 METRO-PHOENIX BUSINESS STUDY
NEW STRATEGIES FOR SUCCESS
PRESENTED BY
IN COLLABORATION WITH

2. FOREWORD
The past several years have been economically challenging for families, businesses and every
level of government. Everyone felt the pinch of our recent economic downturn. As a company
doing business in Arizona for more than 100 years, SRP knows the vitality of our community is
directly related to the success of our local businesses.
Arizona businesses promote job growth, drive the economy and improve the vitality of our
community. We all want to see our economy move forward and our business environment
improve. That’s why we worked with Arizona State University, the Arizona Small Business
Association, the Greater Phoenix Chamber of Commerce, the Phoenix Business Journal and
WestGroup Research to bring you the 2011 Metro-Phoenix Business Study.
The findings in this research provide excellent insights and stories from more than
830 Phoenix-area business owners, who candidly share information about not only the
challenges they recently experienced but also the solutions they incorporated to sustain
their businesses during those economic challenges. Fortunately, they had a lot to say and
I think you will find their experiences helpful.
In addition to partnering on this report with Valley stakeholders, this past year SRP actively
began looking for opportunities to help local businesses navigate the challenges of the poor
economy by creating the SRP Business Resource Center (BRC).
The BRC is a free, online, one-stop information center created by business to help business. At
srpbizresource.com, important business information, resources and helpful advice are available
to help take businesses to the next level.
SRP wants to be part of the solution that keeps the Valley moving forward. We believe this study
and our BRC are a step in the right direction. We view both as tools to move us closer to a
stronger and prosperous Phoenix economy.
I want to thank the Phoenix-area businesses that participated in this study and acknowledge our
partners that made this study possible.
Mark Bonsall
General Manager & Chief Executive Officer
SRP
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3. 2011 METRO-PHOENIX BUSINESS STUDY TABLE OF CONTENTS
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . i ACKNOWLEDGMENTS
Acknowledgments . . . . . . . . . . . . . . . . . . . . . ii
COLLABORAT ING ORGANI Z A TI ON
Overview . . . . . . . . . . . . . . . . . . . . . . . . . 1
Arizona State University (ASU)
Background . . . . . . . . . . . . . . . . . . . . . . . . 5
Findings . . . . . . . . . . . . . . . . . . . . . . . . . 7 INSIGHT S/ANALYSIS
• Challenges, Impact and Strategies . . . . . . . . . . . 7 Gary Naumann,
• The Future . . . . . . . . . . . . . . . . . . . . . . 19 Director of the Spirit
of Enterprise Center, ASU
• Information Resources . . . . . . . . . . . . . . . . 25
• Technology . . . . . . . . . . . . . . . . . . . . . 27
Todd Sanders, President
• Sustainability . . . . . . . . . . . . . . . . . . . . 32
and CEO, Greater Phoenix
SM
Methodology . . . . . . . . . . . . . . . . . . . . . . 33 Chamber of Commerce
End Notes . . . . . . . . . . . . . . . . . . . . . . . . 36
Kristen Wilson,
COO, Arizona Small
PROFILES Business Association
Sherry Michaels, Michaels & Associates Docntrain Ltd. . . 17
Don Henninger,
Ed Goff, Blockwise Engineering . . . . . . . . . . . . . . 23 Publisher,
Phoenix Business Journal
F E ATU R E S
Impact of the Economy by Industry . . . . . . . . . . . . 10 RESEARCH T EAM
Ready to Grow . . . . . . . . . . . . . . . . . . . . . 22 SRP ASU
Trying to Figure This Out . . . . . . . . . . . . . . . . . 31 Jim Briggs, Senior Market Dennis Hoffman, Director,
Research Analyst L. William Seidman Research
Institute, Department of
Brian Cary, Manager, Economics
Forecasting, Research &
Economic Development Elizabeth Farquhar, Managing
Editor, KnowWPCarey
Denise Hayes, Senior Marketing
Program Manager Sidnee Peck, Director and
Instructor, Entrepreneurial
Linda Murphy-Lessor, Principal Initiatives
Market Research Project
Manager WestGroup Research
Katy Gallert, Research Analyst
Glenn Iwata, Executive
Vice President
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4. OVERVIEW
NEW STRATEGIES FOR SUCCESS In other words, is there a “new normal” that is being
established as a result of the past four years? This year’s
Businesses across the country have spent the past four years study, “2011 Metro-Phoenix Business Study: New Strategies
“re-inventing,” “right-sizing,” “re-skilling,” “re-branding,” for Success,” focuses on the issues and steps these survivors
“viral marketing,” “organically growing” and using a have taken.
multitude of other buzzword
strategies to survive. This study is the result of collaboration between SRP and ASU,
According to the along with support from a number of endorsing organizations.
“Our Arizona small
businesses are doing
National Bureau of The purpose of this collaborative effort is to provide a resource
extraordinary things, even in a
challenging economic environment. Economic Research, to companies, government agencies, educators and supporting
It is so important to give businesses an organizations that want to help develop solutions for
opportunity to tell their story. the recession
Organizations like SRP and ASU pulling officially began in businesses in the midst of the economic slowdown.
their resources together allows businesses
to do that without having to turn away December 2007 The findings in this report are based on input received from
from what is most important to them — and ended in June
running their business.”1 833 Phoenix-area businesses. Interviews were conducted
20092; however, the primarily by telephone with business owners and management
Kristen Wilson, COO,
Arizona Small Business reality has been a from August–November 2011. Most of those interviewed were
Association
painful, four-year considered “small businesses.” Respondents were contacted
economic slowdown that has and given the option of participating in the research using
forced businesses to change the way they operate. phone or Web methods. Quotas were set by industry type and
Businesses in metropolitan Phoenix have been especially number of employees to achieve a representative sample of
hard-hit by this slowdown, with real estate and construction metro-Phoenix businesses. When applicable, results from this
sectors leading the downturn. Dennis Hoffman, Director of the 2011 study were compared with a 2007 study conducted by
L. William Seidman Research Institute at ASU, observed: SRP, ASU and WestGroup Research.4 In addition, one-on-one
interviews were conducted with local business experts and
“Housing and construction slowed to a standstill in late focus groups were held with area businesses to provide
’06/early ’07; there wasn’t much going on … so we perspective to the issues businesses are facing.
lost jobs in virtually all sectors. Retail sales adjusted in
a fashion that it’s never adjusted. … The pace of The following highlights key findings from the research.
growth drivers like utility hookups plummeted. … It’s
the worst recession in the postwar period.”3 CHALLENGES
A number of questions arise when considering the impact on ❯❯ Refocus/rethinking — In 2007, the top challenge facing
businesses was managing cash flow (21%); only 1% had
area businesses during this slowdown.
concerns about the economy. In a comparable unaided
❯❯ What are the biggest obstacles facing businesses? question asked in 2011, 56% mentioned being affected by
❯❯ What steps are businesses taking to survive? the economic slowdown. This figure grew to 86% after
businesses were directly asked, “How has the current
❯❯ Which strategies are successful?
economic environment/conditions affected your business, if
❯❯ How will businesses operate differently going into the future? at all?”
❯❯ Barriers — Businesses were asked to rate a series of
specific “challenge” questions (an “aided” version of the
most significant challenges they face).
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5. M OST SIGN I F I C A NT C H A LLE NGE S ( A IDED)
IM PACT
Total 2011 Responses
❯❯ Shrinking businesses — The most significant impact on
Access businesses from the economic slowdown is the “shrinking”
to capital
41% 19% 34% 6%
of businesses. Seventy-one percent experienced a decrease
Growing business/ in sales/profit/customers because of the economy, resulting
retaining customers
35% 40% 23% 2%
in businesses being smaller today than they were a few
Marketing/ years ago.
34% 41% 23% 2%
promoting business
❯❯ Suppliers — Although most businesses did not feel the
Planning for
financial future
29% 43% 26% 2% economic environment has had an impact on supplier
Managing relationships, more than one-third (38%) feel their
27% 31% 41% 1%
cash flow
relationships have been affected in some manner and
Finding/retaining
22% 24% 41% 13%
11% feel suppliers are more stringent in their policies.
employees
Six percent gave the opposite view and said suppliers
How to
21% 28% 49% 2% provided more leeway with credit policies, increased
run business
Managing services or found ways to improve customer relations.
staff size
16% 21% 44% 19%
Applying
new technology
15% 34% 47% 4% ST RAT EGIES
Negotiating 15% 26% 50% 9% ❯❯ Retreat or attack — Companies tend to take one of two
prices
strategies in order to survive — retreat or attack — and
Significant Somewhat Not a challenge Don’t know most have chosen to retreat in the economic downturn
(cutbacks were mentioned by 39% as their primary
❯❯ In order, the most significant challenges are: strategy). The attack/aggressive strategy involves the
opposite approach — expanding operations, increasing
• Access to capital (41% consider this a significant
advertising/marketing, launching new products/services
challenge; combining the top two responses, 60%
and adding new locations (mentioned by 28% as their
consider this either a significant or somewhat of a
primary strategy). Businesses feel the
challenge) — The limits on available capital will result in
attack strategy is more risky than
growth occurring at a slower pace.
retreating and is not always
• Rebuilding the customer base (34%–35% significant “You can’t
as successful. (shrink) forever. You
challenge) — Businesses are still trying to figure out how to shrink to survive, but in the
❯❯ Limits on retreating —
market and build their customer base in this new economy. long run, the way capitalism
Companies can become works, that’s a death spiral.”
• Financial planning (29% significant challenge)/managing only so small and still stay Brian Cary, SRP Manager,
cash flow (27% significant challenge) — The uncertainty in business. Businesses Forecasting, Research &
of the marketplace makes it difficult to forecast and appear to be at a point Economic Development5
prepare for the future. Cash flow represents one of the where they have stretched
key financial factors affected by this challenge. the productivity of their
• New rules/new tools (mentioned by 15%–22% as workforce and have already tried
a significant challenge for each one listed) — Once cutting costs.
businesses reach beyond the survival stage, they want
❯❯ Leading the recovery — Larger companies (20-plus
to know the impact of new rules (e.g., health care
employees) appear to be more likely to lead the economic
reform) and tools (e.g., social media) to help with their
recovery. These companies tend to be more optimistic about
operations. Also included in this list are how to retain
their economic future and more likely to expand than
and hire employees, manage staff and negotiate
smaller companies (those with one to four employees).
with suppliers.
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6. O VE R VI E W CONTINU E D
T H E F U TU R E T ECHNOLOGY
❯❯ Optimism — Businesses are anxious to return to the boom ❯❯ Actively using social media — Three out of four of the
years. Half of businesses (50%) anticipate their financial businesses maintain a website, and half of them actively use
position will improve in the next 12 months; only 12% social media. Facebook and LinkedIn are the top business
expect their situation to become worse. Almost half (46%) social media tools.
are expecting to expand within their next planning cycle, ❯❯ Advertising/promotion/communication — Businesses are
and another 46% plan to stay about the same size. primarily using social media for two purposes:
❯❯ Flexibility — Most of these businesses have relatively short • As a marketing tool to advertise and promote their
planning cycles. More than one-third (38%) can make services — For example, 45% of Facebook users said
significant changes to staffing within a year’s time; 67% they apply social media to market/promote their business.
have planning cycles of two years or less. Younger, smaller
• To communicate with customers — For example, 63% of
companies appear to be more flexible and can adjust
LinkedIn users said they apply social media to stay in
quickly to changes in the marketplace.
touch with their customers.
IN F O R M A TI O N R E SO U RC E S ❯❯ Trying to figure it out — Most businesses are still trying to
determine how social media can benefit them. They see
❯❯ Staying in-house — One-third of the businesses rely on
great potential but need more information about how to
outside resources for advice about how to plan and run
apply social media and measure its success. Among active
their business. Those that do are most likely to use industry
Facebook users, 14% said they added more customers and
publications and trade organizations to get information
8% experienced an increase in sales because of their
specific to their business (26%). Even fewer have taken
Facebook involvement.
advantage of government-backed resources.
❯❯ Marketing/forecasting — Businesses that have sought help SUST AINABILIT Y
from outside organizations need help regarding marketing
❯❯ Beginning stages — Some businesses (59%) are making
and supporting the growth of business (25%). Businesses
efforts to be more environmentally sensitive in their
also need forecasting information to help them understand
processes and operations, with 21% saying they recycle.
the impact of future trends and enable them to plan
Almost half of businesses (41%) admit to not taking any
accordingly (22%).
steps to be more environmentally conscious or are not sure
what steps their company is taking.
❯❯ Low- and no-cost solutions — Most companies undertaking
sustainability efforts are using low- and no-cost solutions,
such as recycling office products and turning off lights.
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7. CONCLUSIONS
S U R VI VA L STRA TE G IE S T HE NEW NORM AL
❯❯ Shrinking — Compared with pre-recession days, today Most businesses want the future to look more like the
businesses have lower sales revenues, tighter profit margins, pre-recession days of growth, profit, more employees, more
smaller operations, and fewer product and service lines. office space, available resources (both human and financial),
Companies had to shrink in order to survive. and greater demand for their products/services. The new
❯❯ Flexibility — As organizations became smaller, they also normal will involve growth but with the following challenges.
became more efficient, with less overhead and shorter
❯❯ Slower growth — The availability of resources such as
planning cycles. Bottom line, they found ways of staying in
commercial office space and an underemployed workforce
business using fewer resources. Companies that have
will help with growth; however, limitations from credit
survived the past four years have had to be more flexible in
markets will rein in the temptation to quickly expand. Even
order to adapt to lower customer demand and compete for
during stronger markets, businesses considered access to
the limited number of profitable products/services.
capital and cash flow management their two most
❯❯ Risk taking — Some businesses have successfully taken significant challenges.
more aggressive strategies and grown during this
❯❯ New rules/new tools — Businesses need help marketing in
slowdown. Businesses that have successfully executed these
this slow-recovering economic environment. Although
strategies tend to be smaller (in terms of annual revenue)
demand for products/services will naturally increase as the
but not necessarily home-based. They are also more likely
economy strengthens, marketing strategies and methods
to be active on social media.
have changed over the past four years. Businesses will
need to figure out how to use social media and new
technology and then implement these strategies in order to
reach their customers.
❯❯ New markets — During the slowdown, companies
commented about reducing their products/services to only
their most profitable core offerings. Businesses could not
afford to take too much risk during an era of tighter profit
margins and uncertain customer demand. If businesses want
to jump-start their growth in this new normal, they will need
to broaden their products, test new markets and take some
risks in their approach. At some point, they need to step
beyond the conservative, safe approach.
❯❯ Losing efficiencies/flexibility — Another challenge
businesses will face as they grow will be maintaining the
efficiencies and flexibility they have attained during the
economic slowdown. For example, adding staff or
increasing office space would mean increasing payroll or
locking into lease agreements. These types of growth steps
reduce flexibility and potentially add long-term expenses.
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8. C ONC L U S I O N S C ONTINU E D BACKGROUND
P R I O R I TI E S What is the history behind the study?
Businesses provided a clear list of priorities to “supporting” The 2011 Metro-Phoenix Business Study is the fourth in a
organizations that want to help them navigate through the series of business research studies that began in 2005
new normal. sponsored by SRP, in collaboration with ASU, and conducted
by WestGroup Research. The original study was conducted as
❯❯ Finding capital — The No. 1 priority is obtaining capital in
part of an annual tracking study conducted through the
this tight credit market. Businesses, financial institutions and
Hispanic Research Center at ASU. The study evolved from
policymakers need to find solutions to make both short- and
2005–07 to include both Hispanic and non-Hispanic
long-term funding available. It’s a simple formula: No
minorities as well as women-owned businesses. From
capital means no growth.
2007–10, SRP and ASU chose not to conduct the research
❯❯ Marketing in the new economy — The second priority is
after earlier trending analyses identified minimal changes in
rebuilding customer bases. Businesses seem anxious to find
demographics and attitudes from year to year.
ways to reach potential customers. They need help
identifying new opportunities, learning how to use new tools
Why did SRP and ASU conduct this research?
and technologies (e.g., social media and iPads), and
changing the way they market their products/services. In 2011, SRP and ASU took a different angle than in previous
What worked in 2007 may not work as well today.
years. Instead of focusing the research on specific target
Supporting organizations need to educate businesses about
groups (e.g., minority businesses), this year’s study researched
the new basics of marketing.
the impact of the recent economic downturn on businesses in
❯❯ Re-learning how to run their business — The third priority the Phoenix area. The study was designed to be a resource for
is a natural progression that flows from the marketing step.
a broad range of audiences, including government officials;
As companies move past survival mode, they need help with
planners and analysts; business and community leaders; and
the infrastructure to support them. Growth means more
educators who want to understand the marketplace better.
planning and forecasting, responding to new regulations,
managing staff and finding resources. In the same way This research provides a snapshot of the challenges businesses
companies learned how to operate with less during the past face during a slow-recovering economy as well as the
four years, they now need to learn how to grow with new
successes experienced. Findings provide a blueprint of where
rules, new demands and new opportunities. A significant
to focus efforts to support Phoenix-area businesses as well as
challenge for supporting organizations is teaching owners
possible opportunities and solutions for businesses to consider.
how to run their business when they do not have the time or
SRP and ASU have made significant long-term commitments to
patience to learn.
providing resources to support local businesses. This research
is just one part of their continuing efforts.
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9. How will the findings be reported? What businesses participated in the survey?
Study findings will be incorporated into SRP’s Business
Resource Center (BRC) and ASU’s KnowWPC online business BUSINESS CHARACT ERIST I C S OV E RV I E W
resource. Stakeholder groups will have access to this
TOTALS
information through a number of different channels, such as
Number of completed interviews 833
the websites, workshops and press releases.
Ownership:
The SRP BRC provides business solutions in one location to
Sole proprietorship 33%
help businesses become more successful. It includes locally
Corporation 17%
focused information, such as the economy at a glance, local
business resources, legislation updates and advice from local S corporation 18%
business experts. Partnership 9%
SRP BRC: srpbizresource.com LLC 20%
ASU will be writing articles and providing information from Other/refused 3%
this study through the W.P. Carey KnowWPC website, 2010 median revenue $241,400
knowwpcarey.com. Median number of employees 3
Median age of company 14 years old
Business descriptions:
Home-based 40%
Not-for-profit 8%
A breakdown of industry type and number of employees is
listed in the “Methodology” section (Page 33).
Primarily small businesses — The majority of the Phoenix-
area businesses that participated in this study are organized
as a corporation (limited liability company [LLC], corporation,
S corporation or C corporation). It should be noted that an
LLC can also be considered a corporation, S corporation or
C corporation. The companies are relatively small, with a
median of three employees and revenue of $241,400 in
2010; 40% are considered home-based businesses.
There were minimal changes in overall company
firmographics between the 2007 and 2011 studies.
Firmographic comparisons between 2011 study results
and 2007 census data were also comparable.
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10. FINDINGS
THE CHALLENGES, THEIR IMPACT AND STRATEGIES
This section reviews the challenges Phoenix-area businesses have been facing over the past few years, the impact these issues have
been making on businesses and the solutions businesses have tried to overcome the difficulties.
THE CHALLENGES
What a difference four years makes — Not surprisingly, the
What are the most significant challenges
top challenge among Phoenix-area businesses today is the
Phoenix-area businesses have faced over
economic downturn/recession. Even those not specifically
the past few years?
mentioning the economic downturn list other factors that could
These responses represent businesses’ “top-of-mind” reactions be affected by the economy. The chart highlights businesses’
when asked about their most significant challenges. Results severe shift in focus over the past four years. In spring 2007,
were compared with a similar 2007 study6 conducted by SRP, cash flow was the top challenge businesses were trying to
ASU and WestGroup Research (see “Methodology” section) address; only 1% mentioned the economy. Companies still
that involved responses from 850 Phoenix-area businesses. A considered cash flow a top issue in 2011, followed by
more detailed and “aided” version of these challenges is listed building or rebuilding their customer base.
later in the report.
MO ST SIGNIFICA NT C H A LLE NGE S ( U NA I DED) *
Overcoming economic 1%
downturn/economy 56%**
Cash 21%**
flow 14%
Finding/retaining 14%
customers 11%
Rising 0%
expenses 10%** 2007
Marketing — 7% 2011
how/costs/ROI
6%
Increasing 6%
competition
5%
Finding/retaining 18%**
employees
5%
Question: To begin, what have been the most significant challenges or barriers you
have faced in your business in the past two or three years?
*Note: Top responses mentioned; based on multiple responses.
**Significantly different at 95% confidence level between 2007 and 2011.
■ 7

11. An “aided” version of the question was asked by reading BUSINESS COMMENT S
businesses a list of potential challenges and having them rate
each one as a significant challenge, somewhat of a challenge “The economy (is the top challenge); how the economy has
or not a real challenge. gone up and down. People do not want to spend money to
buy bikes and repair bikes. People are hanging on to their
MO S T S I GN IFICA NT CHA LLENG ES (AIDED) money.”
Total 2011 Responses
Bicycle repair company
Access
41% 19% 34% 6%
to capital “The biggest barrier would be rising costs and not being able
Growing business/ to keep up with the economy. The cost of the product and
retaining customers
35% 40% 23% 2%
using the material that is in demand (has been rising). For the
Marketing/
promoting business
34% 41% 23% 2% customer, not being able to use the money for things that are
broken, they are using (the funds) for other day-to-day use.”
Planning for
29% 43% 26% 2%
financial future Glass replacement business
Managing
27% 31% 41% 1%
cash flow “The challenges are whether I should grow and hire
Finding/retaining
22% 24% 41% 13%
employees or just continue on my own without employees.
employees
Also, being so busy that I might have to turn away potential
How to
21% 28% 49% 2% new clients because I’m the only employee. (Another challenge
run business
Managing
16% 21% 44% 19% is) keeping quality at a level so that people won’t check out
staff size
the competition.”
Applying
new technology
15% 34% 47% 4%
Investment company
Negotiating 15% 26% 50% 9%
prices
“Renting the units (is the top challenge), because there are a
Significant Somewhat Not a challenge Don’t know lot of people losing their jobs!”
Apartment complex
Question: For each one, please indicate how much of a challenge — if any — you
find this area by rating as a significant challenge, somewhat of a challenge, not a
real challenge or don’t know/does not apply. “The tire business is way down. With the cost of tires going
up, the service side is going up. The economy has not hurt us
Top priorities — Businesses’ ratings tend to cluster around
too bad. We are not generating as much on tires. Our (profit)
four categories in the following order:
margins are down. We had our first sales decrease in
❯❯ Capital — Where and how to borrow money is the most
24 months.”
significant challenge.
Tire retailer
❯❯ Growth — How to grow and marketing/promoting the
business are the top challenges when combining the top two “I would say the economy. My clients have gone out of
categories — significant and somewhat of a challenge — business. Clients have had to downsize, and I had to
together.
downsize at one point. I had five employees, and now I’m
❯❯ Financial management — Planning for the future and down to myself.”
managing cash flow are in the third level of challenges
Accounting firm
businesses face.
❯❯ Knowledge — The fourth level involves know-how in
running the business — human resources, management
skills, negotiating skills and technology applications.
8 ■

12. The 2011 study asked businesses to rate some of the same Big challenges for smaller companies — Younger and smaller
challenges as the 2007 study . 7
companies (in terms of revenue) are significantly more likely to
have challenges gaining access to capital.
MOST SIGNIF I C A NT C H A LLE NGE S ( A I D ED) *
A CCESS T O CA PITA L (AI DED) *
Access 28% AGE OF BUSINESS
to capital 41%**
1–9 years 50%**
Growing business/ 25%
retaining customers 35%** 10–19 years 38%
Marketing/ 21% 20+ years 33%
promoting business 34%**
2007 2010 ANNUAL REVENUE
Managing 23%
cash flow 27% 2011 < $100K 51%**
Finding/retaining 42%** $100K–$1M 43%
employees
22%
$1M+ 37%
How to 26%**
run business 21%
Percent rating as a “significant challenge”
*Note: Top responses mentioned; based on multiple responses. *Note: Responses in each category are mutually exclusive.
**Significantly different between 2007 and 2011. **Significantly higher than the other categories.
Shifting challenges — There has been a significant shift in
priorities in five of the top six “significant” challenges over the
past four years. In 2007, the priority was focused more on
finding/retaining employees (42% rated it a significant
challenge). In 2011, priorities changed to finding capital
(41%), growing the business/retaining customers (35%) and
marketing/promoting the business (34%).
More challenges — In general, businesses are more likely
now than in 2007 to consider the items listed in the chart
above as significant challenges. Economic conditions appear
to be increasing the intensity of these challenges.
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13. IMPACT OF THE ECONOMY BY INDUSTRY
The economic slowdown significantly affected all industries A further look at these six industries highlights ways the
over the past four years. Most of the top challenges, impacts economic slowdown has affected them.
and solutions mentioned by the businesses were common
across industry types. For example, one of the top challenges RET AIL
encountered by all six industries in this analysis was gaining
❯❯ More experiencing declines in sales/revenues/profit and
access to capital. How to grow the business/retain customers
number of customers (84% vs. 70% for all other businesses)
and marketing/promoting the business were also among the
most significant common challenges.
ACCOM MODAT IONS/F OO D SE RV I C E S
TOP CHALLENGES (AIDED)* ❯❯ More likely to feel retaining/finding employees is a
PERCENT RATING AS A significant challenge (34% vs. 21% for all other businesses)
SIGNIFICANT CHALLENGE
❯❯ Among those most affected by the economy (68% unaided
Marketing: 34% vs. 55% for all other businesses)
Professional/scientific
Access to capital: 33%
n = 129** ❯❯ More likely to actively use Facebook for business (50% vs.
Growth: 32%
31% for all other businesses)
Access to capital: 36%
Health care/
Financial planning: 35%
social services HEALT H CARE/SOCIAL SER V I C E S
Growth: 31%
n = 118**
Marketing: 29%
❯❯ Less likely to mention being affected by the economy
Access to capital: 47%
Retail (44% unaided vs. 59% for all other businesses)
Growth: 41%
n = 96**
Marketing: 41%
REAL EST AT E
Accommodations/ Access to capital: 46%
food services Marketing: 36% ❯❯ Among the industries more likely to feel affected by the
n = 80** Retaining employees: 34%
economy (65% unaided vs. 56% for all other businesses)
Access to capital: 39%
Real estate Growth: 39% FINANCE/INSURANCE
n = 72** Marketing: 31%
Financial planning: 31% ❯❯ More likely to increase marketing efforts as a way to
Access to capital: 43% address the economic slowdown (43% vs. 27% for all
Finance/insurance
Growth: 36% other businesses)
n = 56**
Marketing: 36%
*Note: Responses in each category are mutually exclusive.
PROF ESSIONAL/SCIENT IF I C
**The top six industries with the largest sample size representation are listed in
this analysis.
❯❯ More likely to feel accessing capital is not a problem
(49% vs. 31% for all other businesses) nor is finding/
retaining employees (50% vs. 39% for all other industries)
❯❯ More likely to actively use LinkedIn (38% vs. 16% for all
other businesses) and less likely to use Facebook (8% vs.
20% for all other businesses)
10 ■

14. BU S I NE S S C O MME NTS THE IMPACT
“We have a couple of part-time contractors that we had to lay
How have Phoenix-area businesses been affected
off. Sales volume is down 40%.”
by the economic downturn?
Nonprofit industry alliance organization
“I put out coupons and do as much online marketing as IMPA CT / CHA L L ENGES
possible, and I have seen a dramatic decrease in phone calls OF CURRENT ECONOMY *
as of May. But the traffic on my website has gone up.”
Real estate 71% Decrease in sales/profits/customers
“Our customer is the federal government. When you see the 9% Prices for supplies/inventories increasing
federal budget go down, these opportunities for government
5% Finding new business opportunities
contracts go down, so our budget is really tied to the federal
government.”
4% Had to lower prices
Technology/personnel company
4% Tougher to get loan
“There are a lot of winter visitors here in Arizona. With the
current economic environment, a lot of these patients haven’t 4% Difficult to collect on payments
been back. A lot of them come down and don’t see the
physician, where they used to come down and get the Note: Companies that did not mention anything about the economy in the first
question were specifically asked, “How has the current economic environment/
(treatment) they needed.” conditions affected your business, if at all?” The responses to this question were
combined with those mentioning something about the economy in the first question to
Physician (private practice) provide the findings in this table.
*Note: Top responses mentioned; based on multiple responses.
“We often rely on volunteers, and there are more people that
are in need of jobs than are volunteering. “ Shrinking companies — Most Phoenix-area businesses (86%
Nonprofit that supports senior citizens unaided and aided combined) have been affected by the
current economic conditions. The economy’s most significant
“The economy affected our cash flow; our customers are impact is the shrinking of businesses — lower revenues,
getting paid slow, so our receivables have increased. smaller profits and fewer customers.
Sometimes I feel that commercial construction is done on the
❯❯ The 14% unaffected by the economy are distributed equally
backs of contractors and suppliers; owners are
across a number of categories, including industry type,
undercapitalized to get their projects done. If it weren’t for the
company size and length of time in business.
government work we (had) last year and into this year, our
financial condition here would be really bad.”
Wholesale supplier for manufacturer
■ 11

15. How has the economy affected the growth Another factor to consider is that the typical business has
of companies? only a few paid employees (a median of three in 2011).
Smaller businesses would have difficulty cutting back on
current staff levels.
COM PA NY S I ZE I N PA S T S I X MONT HS
A DDED EMPL OY EES IN PA ST S I X MONTHS *
NUMBER OF EMPLOYEES
Don’t
Increased know 1–4 5%
13% 4%
Decreased
19% 5–19 22%
20+ 41%**
2010 ANNUAL REVENUE
Stayed the same < $100K 4%
64%
$100K–$1M 13%
$1M+ 28%**
Question: In the past six months, has your business seen an increase or a decrease in *Note: Responses in each category are mutually exclusive.
the number of employees?
**Significantly higher than the other categories.
The number of employees has held even — The impact of the Larger companies are more likely to have grown — Larger
economic downturn has leveled off. Most companies have companies (in terms of employee size and annual revenue)
already laid off workers and cut expenses. A slightly higher are more likely than smaller organizations to have increased
percentage of businesses have decreased rather than the number of employees in the past six months.
increased their workforce (19% decreased/13% increased),
but most stayed the same size.
12 ■

16. BU S I NE S S C O MME NTS How has the current economic environment
affected supplier relationships?
“The economy has definitely put a strain on my suppliers. It
has limited us on asking favors. It has made negotiating IMPA CT OF ECONOMY
agreements difficult.” ON SUPPL IER REL AT IONSHIPS*
Restaurant Top responses
Not affected/
“They are more restrictive in their ability to extend credit and did not recall/ 62%
not mentioned
don’t do extra things. They limit their products to smaller core
products and services. Their product inventory is much less
Buying less/
and (they) have longer delivery times. They are slower and 11%
more strategically
less available.”
Printing company More stringent policies/ 11%
higher prices by suppliers
“I’ve done a lot more searching for better pricing for the
products that I have to buy, and I also negotiated with my More flexible policies/
6%
lower pricing by suppliers
primary shipping for better rates.”
Automotive parts supplier
Question: How has the current economic environment/conditions affected the
business relationships or arrangements you have made with your suppliers/vendors,
“It hasn’t affected me. I guess some of my vendors are in the if at all?
same boat. I think the vendors are getting out and visiting me *Note: Top responses mentioned; based on multiple responses.
more to get more business. Of course the economy has slowed
The economic environment has had a mixed impact on
them down as well.”
supplier relationships — More than one-third (38%) of
Insurance agent businesses feel their relationships with suppliers have been
“I would say we are becoming less flexible on terms of payment.” affected. While most of those who have been affected
mentioned a negative impact (e.g., increased costs), some feel
Propane distributor
the economy has had a positive affect (e.g., suppliers are
“For us, the economic situation actually gave us the more flexible with payment terms).
opportunity to make relationships stronger, because they
Business suppliers appear to have taken one of two routes
looked to us for advice about what was going on.”
with their strategies during the economic slowdown.
Commercial real estate
❯❯ More stringent — Eleven percent mentioned that suppliers
took this approach. These suppliers want to minimize losses
and lessen risk/exposure. They tend to raise prices, cut
supplies/services or tighten credit practices.
❯❯ More flexible — Six percent mentioned that suppliers
took this approach. These suppliers want to find ways
to build their business and provide more leeway with
credit policies, increase services or find ways to improve
customer relations.
■ 13

17. THE STRATEGIES More aggressive — The aggressive/growth actions include
increasing advertising/marketing (12% of the 28% that
What steps have businesses taken to address the mentioned aggressive/growth actions) and changing pricing
current economic conditions? strategies (10% of the 28%). Other growth strategies include:
❯❯ Becoming more diverse/trying new products/adding
STE P S TO A DDR E S S E C ONOM I C C O NDIT IONS *
product lines
Top responses
❯❯ Expanding the business in general
Cutbacks 39% ❯❯ Hiring more employees
❯❯ Looking for new ways to grow
Expand/
28%
more aggressive ❯❯ Spending more time on sales
No steps taken 15% More individual sacrifice — The fourth category of responses
involves more individual sacrifice from business owners.
More individual sacrifice Responses that fell into this category include:
5%
❯❯ Working harder/taking on more of the workload
Change processes/ 4%
practices ❯❯ Becoming more efficient
Question: What steps, if any, has your company taken to address the economic ❯❯ Getting another job to supplement the income
environment?
❯❯ Using retirement money
*Note: Top responses mentioned; based on multiple responses.
❯❯ Getting family members to help out
The main solutions businesses have taken fall in two divergent
categories: cutting back their operations or taking more Changing processes/practices — Responses that fell into this
aggressive actions. category include:
❯❯ Changing suppliers
Cutbacks — The top responses that fell within the “cutbacks”
category include cutting back on costs in general (21% of ❯❯ Setting up own website
the 39% that mentioned cutbacks) followed by layoffs (14% of ❯❯ Offering payment plans to clients
the 39%).
❯❯ Screening buyers
Other comments that fell within this category include: ❯❯ Investing more conservatively
❯❯ Cutting back pay/salaries Other solutions mentioned range from going back to school
❯❯ Reducing work hours/days of operation for more education to praying more.
❯❯ Decreasing advertising/marketing efforts
❯❯ Moving to smaller/less expensive locations
❯❯ Cutting less profitable inventory
❯❯ Stopping the hiring of new employees
14 ■

18. BU S I N E S S C O MME NTS How effective have these strategies been in
helping businesses?
“We negotiated with our landlord to lessen the rent.”
Restaurant
EFFECT IVENESS OF ST EPS TAK EN
“All of my therapists are trying to take on more clients; they T O A DDRESS ECONOMY *
are working more. We’ve cut back on some materials that we
Cut pay 87%
would normally buy, such as therapy tools for the children.”
Cut back on costs 85%
Counseling service
Lay off employees 85%
“We have trimmed our expenses. We do more email marketing
and provide more discounts to our existing customers.” Cut hours 82%
Beauty salon
Lower prices 75%
“Building customer relationships — going back to older clients
Increase advertising/
and reconnecting with them.” marketing
59%
Office communications supplies
Note: Small sample sizes on each response, especially cut hours (n = 23) and lower
“(We) reduced the number of printing from quarterly to twice prices (n = 48).
a year and raised the prices by 50%.” Question: Has this step been effective in helping you address the economy?
*Note: Responses in each category are mutually exclusive.
Rehabilitation facility
Cutbacks have worked so far — Most feel the steps they
have taken to address the economic downturn have been
effective. Cutting back business expenses has been the most
effective method.
Some success with greater risk —Those trying marketing
strategies (lower prices and increased advertising/marketing)
are willing to take risks (e.g., increasing costs in order
to increase revenue), and some experienced success with
these efforts.
The chart below identifies the types of companies that
successfully implemented a more aggressive approach
(increased advertising/marketing or expanded).
SUCCESSFULLY IMPLEMENTED AGGRESSIVE STRATEGY
Smaller (median gross revenue) $105,000
Not as likely to be
Only 27% home-based
home-based businesses
Active on Facebook 49%
■ 15

19. K E Y F I NDING S
❯❯ Refocus — The economic downturn has drastically changed ❯❯ Barriers — Although companies would like to return to
how businesses think and operate. Four years ago, the top doing business as they had in the past, the new normal will
challenge facing businesses was cash flow management include more restrictions and slower growth. The main
and less than 1% had concerns about the economy. Today, barriers companies face are:
surviving and overcoming the economic slowdown is the top • Access to capital — Limits on available capital will cause
objective of most companies. slower growth.
❯ Shrinking businesses — • Rebuilding the customer base — Businesses are still
“Businesses
Seventy-one percent trying to figure out how to market and build their
that have weathered
these challenging economic experienced a decrease customer base in this new economy.
times are coming out stronger,
more focused and with a better in sales/profit/
• Planning — The uncertain marketplace makes it difficult
foundation to effectively manage customers because of
growth when things really start to turn to forecast and prepare for the future.
around. They will be able to react and the economy,
adapt quickly to new opportunities and • New rules/new tools — Once businesses reach beyond
resulting in businesses
challenges — making them extremely the survival stage, they want to know the impact of new
competitive in the local, regional and being smaller today
global market.”8
rules (e.g., health care reform) and leverage tools (e.g.,
than in 2007. The top social media) to help with their operations. Also included
Kristen Wilson, COO, survival strategy has
Arizona Small Business in this list are how to retain and hire employees, manage
Association been to shrink the business staff and negotiate with suppliers.
to match decreasing revenue.
❯❯ Suppliers — Most businesses’ relationships with suppliers
❯❯ Retreat or attack — Companies tend to take one of two have not changed significantly over the past four years.
approaches during the economic slowdown: retreat or While some suppliers have been more stringent in their
attack. Most have chosen to retreat, hence the shrinking approach to credit, others have provided more leeway with
businesses mentioned above. The attack/aggressive strategy credit policies, increased services or found ways to improve
involves the opposite approach: expanding operations, customer relations.
increasing advertising/marketing, launching new products/
services and adding new locations. This aggressive strategy
is more risky than retreating and not always as successful.
❯❯ Limits on retreating — Companies can become only so
small and still stay in business. Businesses appear to be at a
point where they have stretched the productivity of their
workforce and exhausted cost-cutting measures.
16 ■

20. PROFILE
SHERRY MICHAELS,
MICHAELS & ASSOCIATES DOCNTRAIN LTD.
THE BUSINESS
Michaels & Associates Docntrain Ltd. is a consulting business
that develops customized training solutions specific to individual
businesses’ needs. The company consists of a network of
instructional designers, programmers, media specialists and
technical writers who build and execute training and
■ 17

21. information systems for large corporations, such as Avnet and THE STRATEGIES
MetLife Bank. The company provides a full range of services,
Michaels had to cut back her expenses in order to survive. A
such as needs assessments, training systems design, online
concern she had was how to cut expenses without affecting her
portals, tutorials and other various training tools for its clients.
core business or product quality. Since personnel costs
The company has 16 full-time and eight part-time employees,
represent a significant part of her company’s expenses,
who all work from home and are connected by webcams,
Michaels met with her staff and determined the best ways to cut
online conference systems and Internet-based communication
salaries and hours and still stay in business. Michaels speaks
tools. Michaels & Associates positions this technology to access
highly of the sacrifice and commitment her team made during
a pool of talented, hardworking, at-home professionals while
this time in order to keep the business alive.
minimizing the company’s operating costs (e.g., there’s no need
for office space). In addition to making cuts, Michaels evaluated her business
model and took steps to reach new markets through innovation.
THE BEGINNING One major step involved investing heavily in the development
of an online learning management system. She also changed
Sherry Michaels began her career in a technical position,
her company’s website during this time.
where she learned aspects of her job through self-paced
tutorials. It was in this position that she developed her Another important move was to change marketing strategies.
understanding of how training affects an employee’s Michaels and her staff determined that the best way to grow
performance and ability to execute the job in a manner the company was through the networking efforts of the
consistent with the company’s goals and standards. executive team, rather than through a sales force. The executive
team was more familiar with the training processes and more
After a 30-year career in the training industry, and upon
effective in selling and servicing the clients.
moving to Arizona, Michaels left her former employer and
decided to start her own business. In 1998, she started
THE LESSONS
Michaels & Associates to pursue her passion for employee
training and has built a successful consulting business over the The past four years have taught Michaels about persistence,
past 14 years. especially during hard times. She points to the length of time it
took Steve Jobs to bring the iPad to the market as a great
THE IMPACT OF THE ECONOMIC SLOWDOWN example of the persistence businesses need to demonstrate in
order to survive.
One of the biggest challenges Michaels has faced is selling the
value of custom training development, because it can be Another lesson Michaels learned is to include employees in
difficult to demonstrate a financial return on investment from decisions and solutions. Her employees’ commitment and
these efforts. Custom training budgets tend to be “soft budget” involvement with the organization are critical for its survival
dollars and are among the first to be cut, especially during tight and growth.
financial times. When the recession hit, revenues declined. Or
Michaels and her executive team are now more deliberate in
as Michaels describes it, “When the music stopped, the
their decision-making process. New ideas are evaluated more
business literally froze for Michaels & Associates.”
carefully using feasibility studies and business planning.
Employees are still encouraged to be innovative but need to
justify the risks.
18 ■

22. THE FUTURE Businesses remain optimistic — Businesses are cautiously
looking ahead to the next 12 months. Only 12% said they feel
Businesses were asked to forecast their financial future and they will be in a worse financial situation by the end of 2012;
broadly set forth what they plan for the coming years. half feel their situation will improve. In 2007, forecasts for the
next 12 months were significantly more positive than in 2011
What do businesses predict will happen to their (69% felt their situation would improve vs. 50% in 2011).9
business in the next year?
FINA NCIA L SIT UATI ON
FUTUR E F I NA NC I A L S I T U AT I ON WIL L IMPROVE IN 2 0 1 2 *
NE XT 1 2 M ONT H S ( 2 0 1 1 )
AGE OF BUSINESS
1–9 years 59%**
Don’t
Become know 10–19 years 47%
worse 4%
12%
20+ years 41%
Stay the same
34%
NUMBER OF EMPLOYEES
1–4 45%***
Improve 5–19 57%
50%
20+ 64%
*Responses in each category are mutually exclusive.
**Significantly higher than the other categories.
***Significantly lower than the other categories.
Younger and larger businesses tend to be more optimistic —
FUTUR E F I NA NC I A L S I T U AT I ON
Companies younger than 10 years old and those with more
NE XT 1 2 M ONT H S ( 2 0 0 7 ) *
than four employees tend to be more likely to feel their
Become financial situation will improve in the next 12 months. See the
worse
4% “Ready to Grow” feature for more information about these
Stay the same Don’t
26% know optimistic companies.
1%
Improve
69%
Question: Thinking about the next 12 months, do you anticipate that your company’s
financial situation will improve, stay the same or become worse?
■ 19

23. How far in advance do businesses plan? Planning cycles vary widely among businesses — Most
businesses have relatively short planning cycles. More than
L E NGT H OF PLA NNI NG C YCL E one-third (38%) may make plans to expand or contract in less
than one year; 67% have planning cycles of two years or less.
> 5 years It is interesting that 13% admit to not doing any business
4%
3–5 years planning. Smaller (based on employee size), younger
No 12% Don’t
business know companies appear to have shorter planning cycles.
4%
planning
13%
PL A NNING CYC LE
OF L ESS T HA N ONE YEAR *
1–2 years AGE OF BUSINESS
29%
< 1 year 1–9 years 43%
38%
10–19 years 45%
20+ years 30%**
NUMBER OF EMPLOYEES
1–4 39%
Question: How far in advance does your business plan to make decisions
regarding expanding, maintaining or decreasing the size of your business?
Do you plan less than one year, one to two years, three to five years, more than 5–19 44%
five years or not at all?
20+ 29%**
*Note: Responses in each category are mutually exclusive.
**Significantly lower than the other categories.
20 ■