Six small businesses talk about how they’re coping with the tough economy

The Dallas Morning News set up a panel of six small business owners to discuss the issues they considered most important today and to talk about how they’re adapting to the tough economy. Here’s the newspaper’s report. At the end is a look at members of the panel.

DALLAS — Dallas entrepreneur Nikhil Nilakantan is trying to hire two people now and more next year.

Fellow startup founders Shama Kabani and Steven White each plan to hire about 10 people next year.

They’re not waiting for, nor do they expect, government help.

They and three other small-business owners interviewed by the Dallas Morning News say the federal government’s attempts to help small businesses through various incentives and programs, especially tax credits, are ineffectual.

The six business owners discussed the biggest issues facing them at a roundtable discussion last week hosted by The Dallas Morning News. Their experiences provide a behind-the-scenes glimpse into how small businesses adapt to a challenging economy.

Congress is working this week to extend a payroll tax cut paid by employers and employees that’s set to expire on Dec. 31.

If the payroll tax cut is not extended, “it would be bad for the economy,” President Barack Obama said last month in New Hampshire. “It would be bad for employment.”

Some small-business owners don’t see it that way.

“It wouldn’t deter us from hiring someone, nor would it encourage us to hire someone,” said Kabani, who started Marketing Zen Group in Dallas in 2009. “If you don’t qualify for what we need, then no amount of money will get me to hire you.”

White is co-founder of Anna, Texas-based Image Vision Labs, which develops software to detect pornographic images and video. He said he’d like the government to offer programs to help him generate more revenue instead of programs to help reduce his operating expenses.

Apparently, he’s not alone. More than a quarter of U.S. small-business owners cited poor sales as their biggest business problem, according to a survey by the National Federation of Independent Business.

All six businesses took steps, such as cutting staff and expenses, reducing their own salaries and finding new markets, to survive the recession. Three of the six are virtual, meaning they have no physical office, which helps keep costs low. Three of the six companies were created during or just before the recession, so their owners have never known anything other than uncertainty.

Some have seen the economy rebound; others have not. But they’ve all become smarter about controlling expenses and looking at new sales models.

After losing half of its public relations business in the last three years, the Cooper Smith Agency cut costs and went from 10 to four employees. Since then, owner Cooper Smith Koch has expanded his product placement and social media work, but he’s still cautious and is planning to move into an even smaller office.

As consumers cut their discretionary spending, it has hurt companies such as House of Lane Catering &Food and IntelliGender, which makes kits sold at drugstores to test the gender of a fetus.

“Our product is a like, not a need,” said Teresa Garland, who co-founded Plano, Texas-based IntelliGender in 2006 with husband Don and another couple. This year, she expects revenue to decline about 30 percent from 2010 because of the economy.

In response, IntelliGender has reduced its number of contractors, renegotiated terms with vendors and is looking at adding a new product in 2013 to generate more revenue, Garland said.

Kira Lane, who owns the Dallas catering firm, expects revenue this year to be down 20 percent to about $400,000, partly because of fewer holiday parties.

“I have to find very creative ways to get business,” Lane said. So this year, he began offering free tastings to attract more customers.

All six entrepreneurs bootstrapped their companies. Three companies have tried to raise private growth capital with some success.

Garland, who recently began talking to Texas angel investors, said they’ve focused on how much IntelliGender has “hedged its risk.”

“We’ve hedged the risk on an investment pretty significantly,” she said. “We already have a very solid, established revenue stream, an integrated supply chain, the infrastructure is in place, yet I can still see in their eyes that they want more.”

Dallas-based MoreTap, which develops mobile applications for customer relationship management, raised about $250,000 from local angel investors this year, said co-founder Nilakantan. But he acknowledged the difficulty of raising early-stage capital in Dallas.

“Seed and early-stage capital in Dallas and Texas in general is almost nonexistent,” Nilakantan said. “The conversations you have with investors in Dallas are very different from the conversations on the West Coast. Here, it tends to be a lot more about traction, how much you’ve executed, how much revenue you have and how much validation you have before you go out to raise cash. On the West Coast, if you want to go raise $500,000 and you have a good team and a fairly good idea, you’re more than likely to get it.”

Image Vision Labs raised most of its capital in California.

Last year, it landed more than $2 million from San Francisco-based Walden Venture Capital and other private investors. It also attracted a $250,000 grant and loan from the Anna Economic Development Corp. to move to that city. White expects to top $1 million in revenue next year.

Image Vision Labs plans to raise more venture capital next year and is already talking with investors in Dallas, Austin and California, White said.

The nation’s more than 27 million small businesses create about two-thirds of all net new jobs a year nationwide. But a study by the Kauffman Foundation found that firms are starting with fewer workers and adding fewer as they grow — an estimated 1 million fewer jobs in the next decade than historically.

Three of the six entrepreneurs participating in the Dallas Morning News’ roundtable discussion are expanding, two are hiring now and at least four plan to hire next year. All of them said hiring is a challenge.

“I hired eight people this year, and to find the right people was a struggle,” said White, whose company has 12 employees. Competition is intense with larger technology firms here and in California. Image Vision Labs has hired some university students, who seem “a lot lazier,” he said.

Kabani, 26, said she sees the same among the people she hires from her own generation. Running a virtual Web and social media marketing business, she has never even met some of her 28 employees.

“It’s not unusual for someone to be out of school for two years and have had six jobs,” she said. “Now, that’s the first thing I look at on a resume — what your track record is.”

Kabani starts all employees on a contractor-to-hire basis for 30 days. “You have to prove your chops,” she said. “And we also get to see the company cultural fit. We have to find people who can take initiative and don’t need baby sitters.”

Nilakantan is trying to hire a full-time salesperson and engineer to add to his staff of three.

“It’s very difficult to find high-quality engineers and technology people right now,” said Nilakantan, whose 2-year-old company is in the process of changing its name from Memory Reel. “You’re fighting Facebook and Google and every other startup that’s raised $30 million to hire people.”

Lane has found help hiring seven people through a program offered by the Urban League of Greater Dallas.

Under the On the Job Training program, a North Texas small employer must train an unemployed person for a certain occupation for up to six months. The Urban League screens applicants, pays for background checks and drug tests, and underwrites up to 90 percent of wages based on a company’s total number of employees.

“It’s something that works,” Lane said.

The panelists

These six Dallas-area business owners participated in a small-business roundtable with The Dallas Morning News:

Teresa Garland: Co-founded IntelliGender, a Plano-based developer of baby gender tests in 2006. The five-employee company generates more than $1 million in annual revenue.

Shama Kabani: Founded the Marketing Zen Group, a Dallas-based Web marketing and social media firm, in 2009. She has 28 full-time employees and plans to hire 10 people by the end of next year.

Cooper Smith Koch: Founded Cooper Smith Agency, a Dallas-based public relations firm, in 2002. The four-employee firm generates annual revenue of less than $500,000.

Kira Lane: Owner of House of Lane Catering &Food since 2000. The five-employee firm won contracts for 2011 and 2012 Super Bowl VIP tailgate parties.

Nikhil Nilakantan: Co-founded Memory Reel in Dallas in 2009 but has changed the company name to MoreTap and its focus to customer relationship management apps. Its staff and annual revenue are growing.

Steven White: Co-founded Anna-based Image Vision Labs in 2008 to develop software to detect pornographic images and video. The 12-employee, venture-backed firm plans to top $1 million in revenue next year.