Boston Globe

Fast times for small businesses
Technology and the Internet have given many start-ups a boost in making a go of it
By D.C. Denison, Globe Staff, 3/4/2001

When Michael Katz left a marketing job to launch his own consulting business, he had only three basic tools: a laptop, an Internet connection, and a telephone.

That was eight months ago. Today, Katz presides over a small business that looks more like a mini-conglomerate. His operation, based in an office near his home in Reading, includes a Web site he built in a single day, using free software. He spends a few hours every week updating it himself. Katz also publishes an e-mail newsletter, hosted by Microsoft, that costs him only $99 a year to operate. His 16-page marketing booklet, available digitally or on paper, is in its seventh edition.

Katz also uses a program that notifies him every time someone visits his Internet site, and allows him to chat live with the customer. That too was free. So was the online survey software he used to poll his newsletter subscribers. For immediate communication with clients and colleagues, Katz often relies on AOL's Instant Messenger, another free product.

''This is a great time to be a small business,'' Katz said.

Although the Internet boom has gone bust for many large and midsize companies, the benefits of online technology are trickling down to small businesses. And since many Internet-based providers are desperately looking for ''early adopters'' — online newcomers who can expand their user base — the services are often inexpensive or free. Which means the beneficiaries, in terms of increased efficiency, reach, and productivity, are often not large corporations, but small, nimble companies that can implement Internet advances quickly and cheaply.

''Access to resources has never been better for small businesses,'' said Ray Boggs, vice president of the small business/home office group at IDC, a market research firm. Every year, Boggs surveys 1,000 small businesses for IDC. Lately he's been watching Internet usage go through the roof.

There are 7.7 million small businesses — firms with less than 100 workers — in the United States, ''and two-thirds of those companies have Internet access,'' he said. ''That's like amazing. As recently as the end of 1997, only 20 percent had Internet access.''

Boggs could recall only two similar technology ramp-ups.

''The fax machine in '89 and '90, and the laser printer in '83, '84, and '85. What we're seeing now is equivalent to those very big changes in the small business space.''

Katz has found himself at the leading edge of the small business movement. A former director of regional marketing at MediaOne RoadRunner, he has aggressively sought efficiencies and opportunities on the Internet. Since launching Blue Penguin Development in July (''I like penguins, and the domain name was available''), Katz has tried out dozens of Internet-based products and services targeted at small businesses. Some of the research is homework: Katz focuses his consulting practice on helping traditional companies use the Internet effectively. But he is also ''generating constant word of mouth'' for his firm.

So far, the Web page, the e-mail newsletter, and the booklet are doing the job.

''Whenever I address a group, or attend an event, I can usually track the effect the next day,'' he said. ''I can see people visiting the Web site, I see a few more people signing up for my newsletter. That's satisfying.''

Katz also used the Internet to set up free, personal information feeds: e-mail headlines and news from sources like The New York Times, Internet.com, ClickZ, and emarketer.com.

''When you leave a big company like MediaOne, there's this fear you're going to miss the news that sort of circulates around the office. The e-mail feeds I've subscribed to have really filled that gap.''

When he's talking about his firm, Katz seems surprised at the resources he's been able to assemble. ''I'm not a techie,'' he said. ''The stuff I'm doing, it's like setting up a gas grill.''

Fred Macdonald has also been implementing a technology strategy for Marblehead-based Hestia Products, which sells custom miniatures.

''I guess it started with the accounting software we installed on our PCs,'' he said. ''We no longer need an accountant. Laser printers also allowed us to get into printing color notecards. Before laser printers came down in price, we couldn't afford the print runs printing companies demanded.''

A few years ago, Macdonald hired someone to build a Web site for the company. Recently he replaced it with one he built himself, using inexpensive software.

''It's cheaper, and I update it more often,'' he said.

Macdonald has just added an online payment system, primarily for the stores that order his merchandise.

''It hasn't been that popular, to tell you the truth,'' he said. ''Most customers prefer to use credit cards. But that adds 3 percent to our costs. With this new system we pay just $1.60 a transaction. On an order of $5,000, that's the difference between $150, for the credit card, or $1.60. So you can bet we're going to be encouraging our customers to give it a try.''

When Barbara Thornton graduated from Harvard Business School, she took two jobs in quick succession: first a position at a Silicon Valley consulting firm, then a $6-an-hour job at a shoe store. ''I wanted to see if I liked the industry,'' she said.

When Thornton and the shoe industry hit it off, she started planning an outlet for fashionable women's shoes in large sizes.

''That was where I really started using the Internet, for research,'' she said. ''I did a tremendous amount of research on the Internet, and the information was as good as the material I was getting at [Harvard Business School] and the consulting firm.''

Thornton opened her shop, inVestments, on Newbury Street in August 1997. She continues to search the Internet for industry information. ''I'm on it all the time,'' she said.

When it came time to build a Web site, Thornton tapped a couple of people who owed her a few favors.

''My daughter and son built the Web site,'' she said. ''My daughter was in college, and my son in high school. And they both owed me for all that driving around I did for them.''

Today, Thornton's site (www.designershoes.com) is simple but practical, with a variety of departments (bridal shoes, heels and pumps, sport shoes, etc.) and a number of marketing features. A ''Shoe-Lovers Survey'' allows customers to leave their preferences for future offers; an ''e-mail this page to a friend'' encourages customers to spread news of the site around the Web. Recently, Thornton started ''linking partnerships'' with other companies that cater to big and tall women.

''This company would be impossible without the Internet,'' she said.

So many small businesses are getting on the Internet these days that it's growing into a business itself.

''We see the small business market as a huge opportunity,'' said Eric Sall, vice president of marketing for Trellix, a Concord Web page software company that partners with large Internet sites to facilitate Web page creation. Sall estimates that ''hundreds of thousands'' of small businesses have used the software to put themselves online.

According to Sall, the fastest growth is in the smallest categories.

''A lot of the entrepreneurship that's going on is happening in the very small businesses,'' he said. ''These are people who might have a day job and are selling their stuff at night, or maybe they are consulting on the side, or they have a hobby and have turned it into a little business on the side.''

Many of these micro businesses are looking to create a very simple Web presence.

''There's a big difference between having a Web site and selling your products online,'' according to Sall. ''Think about how people research things on the Net: You want to know what's out there, but you don't necessarily want to close the deal online. If you're a consultant, you're not going to be selling online; if you're a caterer you're not going to be selling online. But many small companies want to have a professional Web presence, to let people know what they do and how to contact them.''

Trellix often directs users to Web-accessible services that offer customized maps, e-mail marketing services, online scheduling, message boards, and e-commerce store-building services. Katz links to nearly a hundred ''online resources'' for small businesses on his site (www.bluepenguindevelopment.com).

Of course, without an effective business model, none of these resources is of much use, and the current wealth of online services can tempt some entrepreneurs to put the cart before the horse.

''There are definitely some productivity aids out there that are making a difference,'' said Don Peters, a counselor at the Service Corps of Retired Executives. ''The Internet has made it easier to get information at a high, abstract level, but the real job is figuring out who your customers are likely to be and getting information about those customers,'' he said.

''If I was trying to sell a used car,'' Peters said, ''I could use the Internet to get a lot of information on the status of the automobile market in the US, and data on what the price of the car should be. But in terms of who might want to buy my car, and where they are — that takes a lot of groundwork.''

John McKiernan, director of the Small Business Development Center at Boston College, agreed.

''The danger is that people think that when they create a Web page, they have a strategy,'' he said. ''That's not the case. You really have to think through a strategy. You only want to leverage the Internet when it really makes sense.''

Apparently, the Internet is making sense for more and more small businesses.

''What we've found is that it's a ramping-up process,'' IDC's Boggs said. ''A company starts off with e-mail, then they get into poking around the Web, examining competitors' sites, benchmarking their competitors' prices compared to their own. Maybe they put up a Web page. Pretty soon they are ordering supplies online.''

Boggs said a recently completed IDC survey revealed that two-thirds of the small businesses on the Internet purchased goods or services online last month to help run their companies. ''And they were happy with the result; they plan on doing it again. That's significant,'' said Boggs.

How long before small businesses move even more of their business onto the Internet?

Boggs says his survey also asked whether small businesses were using the Internet to buy insurance, outsource human resources functions, or seek legal and accounting services.

''We discovered that right now there's more interest than activity.'' Is that bad news for all of the Internet companies hoping to provide these services?

''Not really,'' Boggs said. With 5 million small companies now online, ''the Internet is moving to the mainstream for small business.''