What’s the current landscape look like for small businesses in our region? What’s positive? And what’s perhaps not so positive?
WTOP Business Reporter Jeff Clabaugh finds out in his discussion with Jack McDougle, president and CEO of the Greater Washington Board of Trade, and Alex Austin, president and CEO of the Prince George’s Chamber of Commerce.
They joined Clabaugh in our studio to share their insights and perspective as the kickoff for WTOP’s second annual Small Business September.
Interview transcript:
Jeff Clabaugh: Let me just start by asking about the overall state of the small business community in our region.
Jack McDougle: Small business was especially hit hard during the pandemic, as you know, and we saw significant closures. But they’re coming back. The region as a whole is coming back.
Overall employment numbers look pretty good. We’re at about 2.6%. We’re about a whole percent below the national average, so that’s good. And even with small businesses, small business employment is coming back as well, particularly in hospitality. Between spring of last year and spring of this year, the region added about 30,000 jobs in hospitality. That’s a really good sign.
A year ago, if you were to go out to a restaurant, most of them were really struggling to put staff in, and they weren’t being able to service customers. That’s moderated quite a bit.
There’s still pockets of it out there. There are still concerns, but generally things are headed in the right direction. That doesn’t mean there aren’t headwinds because there are, and I’m sure we’ll have a chance to talk about those. But generally, things are headed in an OK direction.
Jeff Clabaugh: You bring up hospitality — leisure, hotels, restaurants, bars — they seem to get a lot of the attention when we talk about small businesses, but how diverse are your members? They’re way more than just bars and restaurants, right?
Jack McDougle: I use hospitality as an example because they were probably the hardest hit. No one was going out. Everyone was at home. But when you look at small and medium-sized businesses across the region, they cover every industry, so cyber technology, bio, health, business services. It does cover the entire spectrum.
Jeff Clabaugh: And a small business isn’t necessarily a dry cleaner. It can have 50 or 100 people.
Jack McDougle: There are lots of different definitions, but generally it’s about 500 employees or fewer, which is actually pretty big.
Jeff Clabaugh: Alex, Prince George’s is so diverse and big. How do you keep track of what’s going on?
Alex Austin: It’s really through partnerships. We look at all of the data that is at our disposal and try to really understand how it all makes sense. And then, it’s how we engage with the various businesses.
We have a little over 25,000 registered companies that are in the county. A good portion, more than half of my members, are businesses and professional services. They’re not actually hospitality, restaurants. We have a large number of hospitality and restaurants and retail in the county as well. So you know, it’s just looking at what the region’s doing, having partnership and conversations with the Greater Washington Board of Trade, internal partnerships within the county, and saying, “OK, how do we make sense of all this data? And then how do we craft messaging that matters to those particular small businesses?”
Jeff Clabaugh: What opportunities are there in your county for small businesses right now?
Alex Austin: Tremendous, tremendous. It really depends on where you’re operating. If you are a hospitality, retail or food and beverage establishment, there’s new ones opening up every day, but also manufacturing. We have 1,900 manufacturers listed in our county. We have a good number of transportation, and distribution and warehousing businesses.
With the New Carrollton Station coming up as it has, that gives us a lot of opportunity to connect D.C. and Baltimore. You have the MARC train that goes through. We have several large installations that do a lot of fulfillment; Amazon’s there. So there’s tremendous opportunity.
Jeff Clabaugh: I know that data centers aren’t a big job creator, but is that something that your county is going to pursue as well?
Alex Austin: I do know, just for my partners over at the Economic Development Corporation, that data center is definitely on the agenda. And I would say with some of the large opportunities we have around cyber and data management or data mining, you have four colleges in Prince George’s County or four institutions that focus on just information technology and data mining. So it makes sense.
Jeff Clabaugh: The educated workforce, is there.
Alex Austin: Absolutely.
Jeff Clabaugh: We talked about the overall state of small businesses in our region, inflation is still a concern.
Jack McDougle: Yeah, it’s a number one concern right now for small businesses. We’ve seen that in a number of different surveys.
Jeff Clabaugh: Adding to inflation — maybe costs for businesses — Montgomery County and the district recently raised their minimum wages aggressively. They’re among the highest in the nation. That’s great for retention and attracting employees? Is that just another budgetary pressure for small businesses?
Jack McDougle: It creates a lot of pressure, particularly Maryland’s done it pretty quickly. And it hasn’t allowed businesses to adjust to that. And so it’s not so much that there’s opposition to increasing wages. But it’s really, what’s the pace at which you can do it so that they can absorb those costs?
And it’s mixed. You have pressures on the one hand because of inflation, so all your costs are going up. And so, for small businesses to actually make ends meet, they need some relief in the in the mix because they’re not necessarily able to charge accordingly for their services. So their costs are going up more so than the revenues, and we have to be careful about managing that.
Jeff Clabaugh: Did you think Montgomery County was equitable in basing the minimum wage increase on the number of employees — companies with five to 49 or 50 employees and over?
Jack McDougle: We’ll have to see how that works out over time. I mean you don’t want to create further disparities, and you don’t want to put certain companies at a disadvantage over others just because of size. So, you just have to keep an eye on that.
Jeff Clabaugh: Here’s something from the U.S. Chamber of Commerce. It reports that the small business index shows revenue expectations are the highest they’ve been since at least 2017 and that 71% think that next year’s revenue will increase. That’s pretty optimistic, isn’t it?
Jack McDougle: Well, it is optimistic. I think there’s a couple of things going on there. One, as we come out of the pandemic, we’ve been so flat, and so most organizations are looking up.
But I also think that small businesses in particular are extremely resilient. And the people that start businesses and run small businesses, they fight really hard for what it is that they’re doing. And so they’re generally a lot more optimistic about what their outlook is.
If you think about it, the number of people that are willing to go out on the street and start a business is pretty small. So those are folks that are really thinking positively about what their prospects are, and they’re pushing against that every single day. And so, those are really interesting numbers, but also, those same people are worried about whether or not they’re going to get the investments that they need and how they’re going to grow. So there’s some mixed perspectives out there.
Jeff Clabaugh: Let’s talk about business investment because access to capital is the lifeblood of many small businesses. The landscape has changed. It is tougher to find access to traditional sources. What kind of resources do your organizations provide?
Alex Austin: What we create is just kind of a consortium or a database of where certain capital allocations are at the federal level, the state level, at the private level.
But also, it’s one thing to say, “OK, I need access to capital.” It’s another thing to be sustainable. And I think that’s also a conversation you have to have. Once you have access to it or knowing where you are an economic cycle, is your business in a position to sustain or weather any storm? Because capital will dry up, and then you’ll need more capital. So how do we prepare our businesses to know, “OK, where we are in the cycle?” Or, when interest rates are increasing, and there’s going to be a tightening of access to capital: “How do we pivot, shift or even create more of a local market ecosystem” where capital is not necessarily your first search result but maybe your secondary search result?
Jeff Clabaugh: We hear a lot about mentoring. And for a lot of people that word just kind of goes over their head because they’re trying to unload the equipment for the kitchen from the pickup truck that they borrowed from their dad so they can get their business started, or whatever it is. But groups like boards of trade and chambers of commerce are great things for young entrepreneurs to join. Because well, first of all, there’s the free food and cocktails at the events. Second of all, you get to rub shoulders, and you get to talk to people who actually can be beneficial and give you answers to questions that maybe you don’t even know you should be asking. Is mentorship a key component of what your organizations do?
Jack McDougle: Networking is critical and the ability to get out there — and particularly across industry lines — because most industries now are facing similar challenges and opportunities. It’s how do they interpret those, which can be different, but you can learn and borrow from. We think about in D.C., for example, hospital systems and universities are the biggest employers, but they run like businesses. They’re nonprofits, but they run like businesses. And so there’s a lot that we can learn from each other. And so we provide those types of opportunities so that we can share those experiences and best practices.
Jeff Clabaugh: Maryland and Virginia are among leaders for minority business ownership. In the district, I think 28% of startups are minority-owned. What does that say about our region? And are there resources available that make that possible?
Jack McDougle: I would say that we do OK. We still need to do better. So there’s still a lot of opportunity out there. But I would suggest that this region does pay attention to those issues and does create programming that helps to encourage that. Alex, you probably have some more specific examples.
Alex Austin: I think it’s a combination of leadership at the state level recognizing the need for small businesses, but what we’re also seeing in certain industries is a collaboration of working professionals that also have a business. So you’re seeing a lot of that carry over where some of that capital infusion, some of the resources, are happening because you have both a working professional, who also has a consulting business, and one partner may be working one versus the other. And then when you look at the kind of diverse mix of how Maryland as a whole is made up, it just kind of speaks to the numbers.
Jeff Clabaugh: Let’s change tracks altogether and talk about artificial intelligence. You’re going to have to school me on a lot of this because ChatGPT is not something that just rolls off the tongue. But artificial intelligence is going to have a profound effect on small businesses. Are there resources organizations like yours can stand up to help steer small business owners through this mystery that will have an effect on their business?
Jack McDougle: One of the things that’s happening right now is speed. I recently had lunch with the global AI lead for Deloitte, and he was telling me if I had asked him in January how long it would take ChatGPT to pass the bar, he would have said about two years. It took less than two months. We’re not used to that level of speed. That’s a new dynamic.
I wouldn’t say that we yet have the resources fully in place, but we’re looking at that, and we’re moving toward that. Again, your point about the ability to network, share best practices, who’s learning what to get out in front of those right now, is the best opportunity to do that.
For smaller businesses, that’s a challenge. One thing that we’ve suggested potentially is the formation of guilds, for example, or a guild-like structure where small businesses could get together and pool their resources. Because these things are expensive — to deploy these and to get the expertise that you need. And so we may see the emergence of really new and interesting types of business organizations and formations so that we can deal with those types of things.
Jeff Clabaugh: I’m concerned about the pressure that will be put on small business owners, who are notoriously not spending money on things like cybersecurity or investing in technology because they don’t have the resources or the staff to do it. It’s a concern. It also presents great opportunities for small businesses. Such as what?
Jack McDougle: You’d be surprised at the number of small businesses that invest in R&D. A really significant proportion of them do.
One of the problems we have right now though is that, in 2022, Congress passed a law that removed the ability to write off your R&D expenses in the year they occur. Now, you have to amortize them over five to 10 or 15 years. That’s impossible for small businesses to do. They need that right away. Otherwise, that just ties up their resources, and so they can’t continue to reinvest. So we’ve got to get that reversed, particularly now so that they can make those kinds of investments.
Jeff Clabaugh: Interesting. But what are the opportunities that artificial intelligence–like technology offers for small business?
Alex Austin: To be quite transparent, we’re still researching just how ChatGPT will work or how to integrate artificial intelligence. I’ve talked to several of my members of how this works that are in the IT community. And one of the main reasons is it allows you to kind of duplicate yourself or to automate processes that really will take additional time.
If I’m a small business and I’ve got less than five employees, nine times out of 10, I’m wearing multiple hats. And so a ChatGPT or, say, an automated process will allow me to take off one of those hats and then refocus my energy into another sector. We’re talking, again, about R&D. We’re talking about ways to develop new processes, new languages around marketing, ways to integrate or automate your messaging.
If you’re a busy entrepreneur, even if a one-person shop, this will allow you to maybe be one half of yourself, right? I’m not a social media person. People will tell you I’m not. But my team will use automation to extend our message because it’s very, very difficult for a small staff to be in the market every day and grow the business.
Jack McDougle: AI and other disruptive technologies will displace some of the workforce. I mean, that’s inevitable. We’ve seen that across industries over time. It always works that way.
But AI in particular — what Alex is saying — it becomes more of a partner. It enables you to do more with less. And so for small businesses in particular, that’s going to be a real advantage for them, because now they’ll be able to increase their capacity and scale more quickly once they figure out the right process to do that — and ultimately in a pretty cost effective manner, in a way they couldn’t do before. So, it will open up opportunities in the long run.
Jeff Clabaugh: Are there inequities when it comes to technology like that?
Jack McDougle: I would say just understanding how it works, how to implement it. There are certain advanced systems that are pretty costly. But we’re talking about the basic ChatGPT model. It’s free. I think the pro model is like $20 a month, so it’s not super taxing on your balance sheet.
But when you get into more advanced models. If you’re doing more advanced AI or if you’re doing quantum computing, obviously that’s going to take some investment. But primarily, I think the biggest equity challenge is winning back your time. How do you balance out the needs, and how do you apply it to the time that you need to win back to grow your company?
Jeff Clabaugh: What’s going great for Prine George’s County?
Alex Austin: Well, one, we have excellent leadership. We have new legislation that I think is going to help position the county, on the county level, where we’re looking at industries of the future. We have great partnerships with Economic Development Corporation, workforce partners. Prince George’s County, I believe, is well positioned to just be an eminent partner but also to help to drive the regional economy.
Jeff Clabaugh: How do companies become members of the Board of Trade? And what are the advantages?
Jack McDougle: We’re a little different than other organizations in that we take a strategic approach to the region. And so we look at Northern Virginia, suburban Maryland and D.C., and we’re always looking to improve the competitiveness position for companies operating in those jurisdictions.
Some of the challenges that we tackle include things like broadband deployment, 5G deployment, artificial intelligence and pending legislation around algorithms that’s going to guide a lot of the deployments of artificial intelligence. We look at transit and transportation issues, everything from the American Legion Bridge to the Metro system — so a lot of the key building blocks for our economy and how we’re going to move forward.
We’re very concerned right now around commercial real estate. What’s that going to look like going forward, particularly in D.C. and other sort of downtown pockets across the region?
Long-term prospects, I think, are really strong. We’ve got some short-term hurdles that we’ve got to navigate through. One thing that’s really striking that we need to think about is that the Council of Governments came out with their recent population growth projections, and they’re projecting right now that our region will add 1.5 million people in the next 28 years. So that causes us to think very differently about: What are we going to do with all those people?
To discover more insights for entrepreneurs, startups and SMBs shared during WTOP’s Small Business September, visit our event page.
