Small Businesses Dodge Web

Jim Henry
USA Today
December 2002

Millions of small companies continue to snub the Web - potentially limiting their growth and that of e-commerce and the economy.

Nearly 70% of small businesses don't have Web sites, says an annual survey by Verizon Communications. That's on par with 1999 - the first year the telecom company did its survey.

Many companies, hobbled by the economic downturn, are wary of investing in e-commerce projects that might not boost revenue. And unlike at big companies, a Web presence isn't always seen as a marketing must-have.

Craftex Protective Coatings in Tuscaloosa, Ala., says its custom-made industrial parts are aimed at a niche market. For new business, it relies on referrals from existing customers, often engineers who are unlikely to shop the Internet, owner Ronny Rhodes says.

The USA's 5.6 million small employers are the nation's economic engine, producing a majority of new jobs and often leading the nation into economic recovery.

Trailing in tech

Yet, their growth could be pinched if they fall behind in adopting technology such as Web sites, especially in an increasingly global economy where foreign competitors can more easily dip into U.S. markets through the Internet, says Bruce Phillips, senior economist at the NFIB Education Foundation.

Why small businesses are slow to adopt the Web:
  • Reality trumps fantasy. Many companies in the late 1990s dot-com boom mistakenly thought they could launch a site and become the next Amazon overnight. "There was this irrational thinking about what they should be doing online," says Patrick Marshall, head of marketing for Verizon Information Services.
Now, companies realize that a Web site is just one of several ways to reach customers - not the only path to fast growth, Marshall says.
  • Investments get closer scrutiny. More small companies, like big corporations, don't want to spend on Web sites and other tech projects that don't guarantee a payoff. That's a shift from the go-go 1990s, when businesses poured millions into tech based on untested promises of big profit and productivity gains.
Such skepticism might be warranted. Verizon, while mostly bullish on the value of Web sites, says fewer than half the companies in its survey had revenue gains after launching a site. The figure was even smaller, 24.4%, in an NFIB survey last year.

Verizon surveyed companies with fewer than 50 employees; NFIB surveyed those with fewer than 250.

Just 30% of small firms surveyed last month by the NFIB plan any kind of capital investments soon. That figure hasn't budged for three consecutive months.

"Profits, an important driver of capital spending, are still in the tank," says NFIB chief economist William Dunkelberg.

Companies with Web sites in the Verizon survey typically spent $500 developing them, and $112 a month on maintenance. Costs can be much higher, depending on the site's complexity. About 11% of companies in last year's NFIB survey spent as much as $10,000 for design and $500 or more on monthly maintenance.
  • Scant expertise. Most small companies, unlike big corporations, don't have technology managers or marketing directors to focus on e-commerce.
Display Structures in Troy, Mich., has as few as six employees building store fixtures for retailers. Co-owner Diane Dearing handles bookkeeping and husband Steve manages production. "Neither of us have any sales or marketing know-how," says Diane — and no e-commerce background. "I don't have a (tech) person on staff who knows anything about this."

Also, the company doesn't have a lot of cash to invest. Many of its customers are in the Detroit area's automotive sector, which has been hard-hit by the downturn, costing Display a lot of business. Annual revenue this year will be no more than $500,000 vs. a high of $950,000 in 1997. The Dearings might launch a site next year if company finances stabilize.
  • Incomplete deployment. Many businesses launched Web sites that didn't let customers place orders and pay, limiting their use, the NFIB survey found.
Just 24% of small company sites let customers order online, leading the NFIB to warn that such sites were little more than a "dangling appendage without purpose."

That's partly why Go West Courier, a delivery company in Washington, is relaunching its Web site with features that will let customers track order status, much as they do with big corporations such as FedEx. Go West doesn't expect to get more customers from the revamped site. Still, owner Gary West says, "It's another way that I can keep my clients happy."

Certainly, some businesses say information-only sites have benefits. Anderson Communications, an Atlanta marketing firm that helps Fortune 100 companies reach African-American consumers, uses its site to showcase work during sales calls. That helps it compete against bigger competitors.

"We're always fighting the recognition battle," founder Al Anderson says.

Growth possibilities

Companies that design and host Web sites for small firms see lots of growth potential.

Annual spending could hit $1.2 billion by 2006 vs. an estimated $273 million this year, says Matthew Berk, a senior analyst at Jupiter Research. That's attracting more attention from companies such as Yahoo, which make money from development and services such as help with order processing.

Affinity Internet in Fort Lauderdale, which says it's No. 3 among Web-hosting companies, says there are as many as 16 million firms, including those without employees, that could have sites. "It's a vast marketplace," says Jim Collins, chief operating officer.

Verizon says 26% of companies without Web sites in its survey say they likely will launch one next year. The telecom's SuperPages.com online directory sells Web development services to small and midsize companies.

There's plenty of jockeying among companies targeting the market.

Interland, a Web-hosting company in Atlanta, recently bought competitor Hostcentric for $25.8 million in cash and stock. In October, Affinity snapped up Bigstep, a San Francisco company that also targets the small-business sector, for an undisclosed sum.

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