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Special Event

Prospering in the New Economy: The Survival of Small Business

Aired May 24, 2000 - 10:00 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ANNOUNCER: The new economy: It's fast-paced, high-tech, generous to winners, vicious to losers. For small business, it's the first crucial puzzle of the 21st century. It can create new challenges...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: You can either be for it or against it. I've embraced it.

(END VIDEO CLIP)

ANNOUNCER: ... new opportunities...

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: We needed something that was going to take this business to the next level, and the Internet is hopefully going to be the way to do that.

(END VIDEO CLIP)

ANNOUNCER: ... and new threats...

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The Internet is going to be the end of my business. It's just a question of when.

(END VIDEO CLIP)

ANNOUNCER: Tonight a CNN/CNNfn town meeting: PROSPERING IN THE NEW ECONOMY: THE SURVIVAL OF SMALL BUSINESS.

Now from the Alexander Financial U.S. Custom house, in the heart of New York's financial district, Here's Jan Hopkins.

JAN HOPKINS, HOST: Good evening. We are here in the rotunda of this historic tonight to explore the new economy. It's a term that we hear often these days, but what exactly does it mean? We'll define it. What impact will it have on the way we do business?

We chose this location for a purpose. Built at the turn of the last century, the custom house here the U.S. waterfront was designed as a monument to the prosperity of the growing nation. Now as we enter the new century, the nation's economy is roaring like never before, creating new wealth, but also new pitfalls.

To help us sort all this out, we are here in New York with small business owners and others who work in this new economy. We will also hear from different parts of the country, and we'll take questions from those who join hear from different parts of the country and take questions from those who join us online at CNN.com/neweconomy.

On our panel this evening, Aida Alvarez, head of the Small Business Administration; John Peterman, founder of the J. Peterman Catalog; Hang Gilman, editor of "Fortune's Small Business Magazine;" Darien Dash, founder and CEO of DME Interactive Holdings, an organization that helps bring computer technology to minority communities; and Chip Austin, founder of I Hatch Ventures, which helps launch new business. They'll help us study the many facets of the phenomenon we call "the new economy."

But there are also millions of experts across the country, small business owners trying to solve that new puzzle every day.

CNN's Brooks Jackson went to one town to see how it's going.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): You might think this is a dinosaur, an independent local pet store in an era of national discounters an dot.com e-tailers. But Roy Wood is surviving nicely in the new economy, using technology to cut waste, eliminate waste and improve service.

This is Annapolis, Maryland, but could be anywhere, and some see new technology as a threat.

DAVID KNEUSS (ph), MUSIC STORE OWNER: The Internet is going to be the end of my business. It's just a question of when the records companies themselves are going to start selling all their music. People will be downloading it.

JACKSON: People are ordering dog food online too. And chain discounters operate a couple miles from Woods store. But with cheap computing power a off-the-shelf software, he's becoming more competitive. A scanner prints price labels, so the goods get on the shelf in half the time. Ordering from suppliers now takes just seconds. It used to take hours. Overcharges are eliminated. Items receive show in red, items not received in green.

ROY WOOD, PET STORE OWNER: On a weekly basis, we're getting hundreds of dollars in credits from our suppliers for products that we ordered, we paid for, but weren't delivered.

JACKSON: The computer keeps track of what's selling and what's not, and printouts of lowest cost suppliers help Woods slash his buying costs 8 percent.

WOOD: An eight percent reduction translates into two things, one, a better bottom line, and two, better prices for the customer. JACKSON: The technology is cheap -- he spent only $15,000 on his whole system. Besides lowering costs, it helps him offer personalized service, including a digital catalog of 49,000 items.

WOOD: We can special virtually any product that's made in the pet industry.

JACKSON: And so Wood is prospering. He's just opened a second store, and is planning a third.

(on camera): I think what I see here is you're making money an Pets.com isn't.

WOOD: Well, that's a true statement. I think we beat Pets.com by a few million dollars last year.

JACKSON (voice-over): Brooks Jackson, CNN, Annapolis, Maryland.

(END VIDEOTAPE)

HOPKINS: We throw around this term the new economy, but we have to get some definition, so, Chip, give us a quick one.

CHIP AUSTIN, I HATCH VENTURES: The new economy is swirling around us as we speak. It's the fundamental transformation of how people lead their lives and how business are conducted, all enabled by new technology and network infrastructure being built.

HOPKINS: John, what do you say?

JOHN PETERMAN, FOUNDER, J. PETERMAN CATALOGUE: I don't think there's really a new economy. I think it's the same economy. I don't think people are going to change. I think that the economy has done three things. It's vaporized billions of dollars into ether. But secondly, I think that's a good thing, because that's how you build something. And thirdly, I agree with Chip, I think it's an exciting new way to go of the.

HOPKINS: And, Darian, how do you define it?

DARIEN DASH, FOUNDER & CEO, DME INTERACTIVE HOLDINGS: I think the new economy is fast, it's automated, and it's very competitive, and it's something that people really need to make sure they're in tune to.

HOPKINS: Aida, how do small businesses take advantage of this new economy?

AIDA ALVAREZ, SBA: Well, this new economy is high tech information technology. It's incredibly diverse. You have more women and minorities participating than ever before, which also brings up the issue of the digital divide, and it also has tremendous opportunities in the global marketplace, and small businesses are taking advantage of this new economy.

HOPKINS: Hank, you agree? HANK GILMAN, "FORTUNE SMALL BUSINESS" MAGAZINE: Yes, I agree one hundred percent. I mean, for my reader, It's all about going from local to global, so you know, you're not only selling your dog food and cookies to your friends around the block, but all over the country, but you don't have to doing business on the Internet to take advantage of all this. You could be getting all your services, you could be getting your airline tickets, you could be getting bartering, you could be going to auction sites, anything to help you do business better. You don't knee to be selling on it.

HOPKINS: So the Internet is involved, but you don't need to be selling to be involved in the new economy, Darien?

DASH: Yes, that's absolutely true. I think that the new economy is electronic in a lot of ways, and the way that we buy and sell things is a part of that. And when you look at consumers and you look at businesses, the consumer proposition is different today in the new economy than it was in previous times, where you really have to have an electronic currency and you have to participate in the digital environment. Businesses have to adapt to that and grow.

HOPKINS: There's a lot of change and it's happening very quickly, a lot of information.

AUSTIN: Actually, it's all about network information. I think Darien is right. And commerce is a part of it, how people interact, how businesses interact, and it's enabling it to happen much faster and in broader markets to be addressed by existing people or businesses.

HOPKINS: But, John, the same business principles that we've known for years and years apply to the new economy, don't they.

PETERMAN: Absolutely. I don't think that the consumer is going to change. They're still going to want quality. They're still going to want customer service. They're going to want the things they had. They may want it more rapidly. There's a lot more opportunity for exposure to information, and it will benefit the consumer in the long run.

HOPKINS: Let's take a question from the audience. State your name.

QUESTION: Kiku Lumas (ph) from Fashion500.com.

I'd like to ask the panelists how and if at all is the new economy going to changes the fundamental rules of business?

GILMAN: You know, I'm one who thinks that they're not going to change the fundamental rules of business. You know, the funny thing is you hear speeches now on the subject, and everybody talks about you have to move fast, you have to be smart, you have to be innovate, you know, you have to hire really good people, you have to make them feel comfortable with their jobs. But you know what, I've been covering business for a long time now, and during the '80s, for instance, which seems like a long time ago now, those same principles applied. I mean, If you remember when Wal-Mart first came on the scene, they were number one in innovation, computers, customer service, and they were eating lunch of K-Mart and Sears. They were doing everything that companies should be doing now. So in that regard, things haven't changed.

HOPKINS: And you have to be profitable, too? I mean, is that what the market is saying to us now?

GILMAN: Absolutely.

ALVAREZ: On the other hand, if you want the competitive edge, you better not ignore this new technology. We know from studies that the companies that are engaged in technology have a much faster growth than those that are not, and this week, we celebrate national small business week in the United States. A hundred percent of our winners use technology in businesses, even if they're not dot.com companies.

DASH: I agree with that. The fundamental infrastructure that business is being transacted on has changed with technology, but the principles are always going to be same. I mean, my grandfather used to always say, "There's nothing new under the sun," and you've got to increase your margin and decrease your expenses if you want to be in business, and you have to build a good that's sound and makes sense. So those fundamentals are still there. Maybe the infrastructure and the delivery mechanisms have changed.

HOPKINS: Let's take another question from the audience.

State your name please.

QUESTION: Yes, I'm Rick Heightman (ph).

I was wondering, do you see many companies that are offering products, services and some infrastructure and part of the network, which are actually accelerating some of the new an small businesses which are cropping up?

DASH: I would say yes. Look at companies like Oracle, which are leaders today in driving the underlying software and the databases that drive business. When you looked at the package in the beginning, you saw people with inventory of thousands of pieces of product. All of that is coming from a database, so when you look at companies that are enabling on the back end and they're creating this dynamic environment from a technological perspective, they've absolutely helping to expedite the new economy and give the business owner more diverse offerings and abilities to track what their products are doing.

ALVAREZ: The business-to-business opportunities that are occurring using this new technology -- better prices, just more efficient ways of doing things. There are so many examples of opportunities that make small businesses competitive, even with big businesses.

HOPKINS: We have to take a break now, but we're going to continue this discussion. And coming up next, some of the pitfalls to doing business in the new economy.

ANNOUNCER: More than 99 percent of all U.S. employers are small businesses. Those small businesses employ 52 percent of all private- sector workers in the United States.

(COMMERCIAL BREAK)

HOPKINS: You're looking at the ceiling of the Customs House rotunda. The murals here, painted by New York artist Reginald March, trace the course of a ship carrying goods into New York's harbor. Before income taxes were imposed in 1916, Customs duties were the greatest single source of revenues for the U.S. government, and the board of New York was the country's most prosperous trade center.

Welcome back to the U.S. Customs House for this town meeting on the new economy and small business.

Let's take a question from the Internet.

"How can a small business compete with the megaconglomerates now?"

Can we get some answers from the panel?

ALVAREZ: Sure.

HOPKINS: Aida.

ALVAREZ: Absolutely better than ever. They don't have the overhead. They have tremendous flexibility. They're often able to price their products better than big companies, and anyone can have access through the Internet. It's an amazing turnaround.

HOPKINS: Some examples anybody -- John.

PETERMAN: I don't know about an example, but I think small companies have always had the flexibility to move faster than larger companies, because larger companies when they make a mistake make a big mistake, make a big mistake, and when smaller companies move quickly and it doesn't work, then they just regroup and go on again, and the Internet absolutely gives these small companies an edge.

HOPKINS: Hopkins.

GILMAN: I think it's absolutely level playing field for lot of small companies, and you know, especially on the Internet, nobody has to know you're small.

HOPKINS: That's right, everyone last the same doorway basically, right?

GILMAN: Right. You could be producing sweaters in your basement, but you could still offer one-day delivery through Federal Express, so -- and have a beautiful Web site. So in that regard, it's done a lot.

DASH: If you look at the small business that started on the Internet, they are today megaconglomerates. I mean, look at America online for example. A couple years ago, nobody expected that business to survive. They didn't think it was going to be able to last long, and now today, they're parent company of Time Warner. So to see companies like that, that were small businesses not too long ago grow so quickly because of the Interest and how it's leveled the playing field, I mean, that's the best example that I can possibly think of.

HOPKINS: Go ahead.

ALVAREZ: If you look at the fact there has been a tripling of the number of small business exporters over the last 10 years, and I think it's directly tied to technology, they can do thinks overseas they could never do before.

HOPKINS: We have a question from the audience. State your name please.

QUESTION: Hi, I'm Savio Chattum (ph), eLearningIT.com.

When you're spending all your energy and the time to build a new business for the new economy, how do you maintain momentum of the existing small business?

DASH: If you could bottle that answer and sell it, you'd be a very wealthy man. I think for us as a small business there's a lot of turbulence as an entrepreneur that you have to deal with. I mean, our company has gone through tremendous barriers of entry getting into even the digital economy, and you just have to, I think, continue to persevere, and it's like any other business, whether it's a digital company or it's traditional business, you have to continue as an entrepreneur to persevere and stay the course, and there's going to be a lot of turbulence that you're going to have to deal with. I just it's based on your model is and your ability to grow.

HOPKINS: John.

PETERMAN: I agree. And I think also when you talk about AOL or Amazon.com, they spent billions of dollars creating this thing in advertising and creating this brand, and I think one of the we have to be careful of on the Internet and the Web business is just because you put up a Web site doesn't mean that you have a brand, and most small businesses they say it's a half a billion to a billion to create a brand with your name recognition. And I think that what's going to happen is you're going to see not just a Web site, but there's going to be other things -- the old-fashioned direct mail, that old- fashioned thing called television, the old-fashion thing called publishing, and all these things are going to come around to group to create brands and drive people to the Web sites.

HOPKINS: Aida.

ALVAREZ: Well, I think one thing that small businesses can do is form alliances and partnerships with bigger businesses and well-known businesses, and then businesses referred to them, because they're credible, that relieves you of the responsibility for the heavy-duty overhead and costs, and you can sort of ride the coattails of the companies that are spending the big money that have the brand name recognition. So these partnerships really can take a load off.

GILMAN: Which is a tremendous trend right now on the Internet.

ALVAREZ: And it works, yes.

HOPKINS: I want to John's story as a pitfall, but not necessarily of the new economy. J. Peterman and company went bankrupt a couple of years ago. Was it because of the new economy? You had retail stores. What was it?

PETERMAN: No, we fell into the classic mistake of expanding too rapidly, and everything worked, but we ran out of money.

HOPKINS: And this is something that a lot of people in this room have to deal with, right?

PETERMAN: It's a very, very good lesson, and it's something that you, as you're building, and you're growing, and there's great excitement in growing an everything is wonderful, and so you don't stand back and gain perspective and objectively look at, are we growing too fast? Well hell, we're growing, we're just going to keep growing.

HOPKINS: Well, you were on "Seinfeld." You had had more than 15 minutes of fame. Did that actually give you kind of a wrong impression of where you were and where you want to go?

PETERMAN: Probably yes and no. I'm only saying yes because I'm sure I'm denying something in my mind. But no, I thought it was wonderful being on "Seinfeld" and 50 million people see your name. But most of the people who watch "Seinfeld" didn't realize that we were a real company. Our customers did. And it was only years later they began to realize that really there was a J. Peterman Company and there really was J. Peterman. So it's that overexpansion too rapidly, and the same thing applies to the Internet business.

HOPKINS: That's right.

PETERMAN: The business lesson on what makes something successful and what makes it unsuccessful don't change.

HOPKINS: Chip, do you see that in some of the companies that you nourish?

AUSTIN: Absolutely. He's right on point. We see two things happening. One is we see businesses that just don't have fundamental business propositions and they break the rules that have built businesses in the past, and then we see companies who just don't know how to grow as fast as they want to, from a funding stance, from a scaling of the business. It's two separate issues, but we see people stumble on both.

HOPKINS: Aida.

ALVAREZ: I think there are two things. First of all, the Small Business Administration focuses on providing technical advice and business counseling to small businesses. Sometimes people get focused on having access to the money. You know, there's a lot of money out there, but if you don't have a plan and if you can't pace yourself, all the money in the world won't help you. And so, we really focus on entrepreneurial development.

The second part of it is we are fortunate to be in a country where you can go bankrupt and you can start again. Just travel around the world and see how...

HOPKINS: John is doing it.

ALVAREZ: Right? You started all over again.

HOPKINS: Right.

PETERMAN: Absolutely.

HOPKINS: We'll continue that story in a moment.

ALVAREZ: Yes.

HOPKINS: We have to take another break.

And we're going to go to Michigan next, find out about a local car dealer and how that company is dealing with the new economy.

(COMMERCIAL BREAK)

HOPKINS: Welcome back to the U.S. Custom House in lower Manhattan and a town meeting on the new economy and small business.

Let's go to Wayne, Michigan, a Detroit suburb, and a story of a second generation car dealership.

As CNN Detroit bureau chief Ed Garsten found out, this small business was not done in by the Edsel, so there is nothing to fear from the Internet.

(BEGIN VIDEOTAPE)

ED GARSTEN, CNN DETROIT BUREAU CHIEF (voice-over): Bill Demmer's family has been getting it done, beating the odds since 1957, when it owned one of the few successful Edsel dealerships. Well, now, 43 years later, Demmer is dealing with the latest threat to the survival of the neighborhood motor car merchant: the Internet.

BILL DEMMER, AUTO DEALER: You have to remember, you can either be for it or against it. I've embraced it.

GARSTEN: Embraced it by hiring full-time Web masters who manage the dealership site, aplanheadquarters.com. Demmer, like other dealers, faces a threat from the auto makers themselves who are also embracing the Internet, they're spending millions to beef up their Web operations in hopes of marketing directly to buyers, freezing dealers out of the process.

But so far, at least two dozen states have bolstered their franchise laws to protect the dealers. There is also the threat from established online auto sites such as AutoBytel, and the new alliance between AOL and AutoNation, all dealing with a new set of rules.

DEMMER: The approach is done from the customer side now and the customer is probably armed with more information and more knowledge about that car from facts that he's picked up along the Internet than what some of the salespeople have.

GARSTEN: Demmer just had his best month on record in March, 613 cars sold. He is confident by playing the same game as his online competition he'll have more record months to come.

Ed Garsten, CNN, Wayne, Michigan.

(END VIDEOTAPE)

HOPKINS: We should add that Ford and other car makers insist that they plan to continue working with dealers, not competing against them on the Internet.

Joining us now from Detroit is the owner of that dealership, Bill Demmer. Welcome, Bill.

DEMMER: Hi, Jan. How are you?

HOPKINS: I'm good. I bought a car recently, got information online about other deals that were further away from where I lived, went to my local dealer gave them those offerings and he had to match it or he wasn't going to get the sale, but he had to make a lot less money from me and I have a feeling that you're seeing the same thing.

DEMMER: Well, of course we are seeing the same thing, but the people are armed with better information. They come in. They control the sale and they really know what they want, so it makes the sales process much, much easier.

HOPKINS: What about the salesperson? Are they going to be out of jobs in the future with this Internet?

DEMMER: Oh, not at all. In fact, I think you'll see more of those salespeople giving more personalized service than ever before and answering e-mails much quicker. One of the keys to the Internet sales is make sure that you get back with that customer within 12 hours or less.

HOPKINS: So you've had to add staff, right, to basically man the Internet?

DEMMER: Well, what I basically did is I said I need to separate some of the old ideas from the new ideas, and by setting up my own Internet staff I was able to stay away from some of the old ideas and let them try new ideas in selling and getting back with people, and it's really emerged quite a bit. It went from, you know, where you think it would be a revolution to an evolution.

HOPKINS: Let's bring the panel in and see if anyone has a question or a comment -- Hank.

DEMMER: Yes, OK.

GILMAN: Yes, Bill, I know you're selling more cars now, but how has this affected your profit margins? Are you still getting the same prices, are you still making as much money per car?

DEMMER: It's dropped slightly, but not very much. What I've done is I've targeted -- being across the street from three of the Ford plants, I've targeted the A plan purchaser, which gets a discount on the deals anyway and the commission is paid by Ford, so by having a set price going in what we've done is it's much easier to deal with the customer.

On the retail side, what we've done is we've set up our own pricing matrix to take care of that so that we are enabled to do the same type of discounts. One of the things that we've seen in this market is that there are many rebates that are only for certain regions, so even though we are on the Internet, say if you live in Georgia perhaps, you might not have the same rebates down there as what we have up here in Detroit, so eligibility rules do apply and that's something you have to keep in mind.

HOPKINS: Any other questions from the panel? Go ahead, Chip.

AUSTIN: I think one question, Bill, would be how more important has after market sales and support become to your model, because some people would say the guy who makes the sale and has the relationship then has a nice, long-term annuity coming back to him which is the after-market sales and support?

DEMMER: Well, one of the things that this has done for us is this has broadened our market. We are now talking to people that we've never talked to before because they have the confidence in what they get, the information from our Web site and as far as pricing goes, and the ability for us to communicate back and forth with them by e-mail.

There's a confidence, a relationship that's already being built there where we are getting information to these customers. They are thanking us, first off, for answering back quickly.

Secondly, they're asking if we have any service specials. So it's another area that we are developing right now that we are creating databases where we can e-mail information back quickly when we have service specials or sales specials on certain models to these people.

HOPKINS: We have an audience question from an owner of a toy store to the panel rather than to Bill Demmer. He gets to stand by and listen. QUESTION: Hi. My name is Paul Nippus (ph) and I have two stores in Manhattan called Kidding Around. And my question is this, what is the panel's assessment of the survivability of traditional brick and mortar retailing once the e-commerce sector has carved out their eventual market share?

Specifically, in order to grow my business, should I expand my brick and mortar business, should I -- in fact, am I compelled to compete in the e-commerce arena, or is all this futile and should I simply get online and buy as many shares of eToys as I can?

(LAUGHTER)

HOPKINS: John.

PETERMAN: When movies came on in the early 1900s, the book business was going to die and nobody was going to read books. And when television came, then the movies were down the tubes and definitely the books were out. And as far as I know, book sales are at an all-time high and movies are making money hand over fist and television seems to be around quite a bit. I don't think you're going to change the basic consumer.

I mean, there's -- consumers -- I know I had a catalog, I had retail stores and sometimes consumers would buy out of the catalog and sometimes that same consumer wanted to go into the store, or sometimes they didn't have time to go into the store and they bought out of the catalog. And if you're selling toys over the Internet, are you going to be squeezed out because, you know, you've got these brick and mortar stores? My opinion is, and it's only my opinion, no.

HOPKINS: Very quickly.

GILMAN: I have to throw a question back to you. How do you -- you have two stores. How do you survive? The toy business is pretty dangerous these days.

QUESTION: Well, I survive pretty well, but I think it's largely a factor of being in Manhattan where we are immune to a lot of the mega stores.

HOPKINS: We need to take another break. Stay with us.

We are going to talk about the digital divide. We'll take more questions from the chat room online and from the audience.

(COMMERCIAL BREAK)

HOPKINS: Let's go right to a question online, the question to our panel: "Why are so many new Internet stocks hailed as the direction of our economy, yet fail to make a profit?"

GILMAN; Well, I mean, Aaron, I think people are placing a lot of bets on these stocks, betting that some of these companies are going to make a profit in the future and they want to get on the train right away. Whether they're right, wrong, I mean, who knows? I don't know and nobody else does either. But I think that's what's going on. I mean, there's no doubt, I mean, the Internet is here to stay, but a lot of companies that are around today are going to be goners.

AUSTIN: I think it's very black and white. As you say, the funding community has said it's OK not to make a profit and to forego those in the early stages of building up the new economy. I think that's changing now though.

HOPKINS: Because the market is being -- the other investors are being more impatient, right?

AUSTIN: Right, and you're really seeing now very much you have to show a self-sustaining business, back to good old business rules.

HOPKINS: So was it a bubble?

DASH: I don't know that it's so much of a bubble. There were a lot of people in the market that probably shouldn't be there, but I would say that this is a marathon and this is a new economy and it takes time for economies of scale like what we're talking about. I mean, we are really having a complete paradigm shift in this country and this is a revolution that is going to take time and it is important for venture funders to be there to back these companies in the public markets.

I mean, I'm the owner of a public company and, you know, I've experienced the turbulence of the market as well and I know that we have a real business and that over time real businesses will survive and the ones that aren't real businesses will get shaken out.

AUSTIN: And the money is still pouring in.

DASH: And the money is still there.

GILMAN: That's right.

DASH: The money is still there, there's no doubt about that. But I think that the money is smarter on the consumer side as well as on the venture side.

HOPKINS: We have an audience question. State your name please.

QUESTION: Yes, hi, good evening. I'm Charles Pyle (ph) from the Greater Harlem Chamber of Commerce. Our congressman, Charles Rangel, has stated that the struggle to access the information technology will be the civil rights movement of the 21st century.

I'm concerned about the issue of literacy. As we grapple with the question of literacy in our schools, what efforts are being made? I know what SBA is doing actually. But what efforts are being made by the private sector to address the question of technology illiteracy amongst many businesses?

HOPKINS: Darien.

DASH: Our company specifically, we are the first African- American Internet company to be publicly traded in history and that says a lot about our economy and it says a lot about this issue, and for us, our focus, we just partnered with America Online developing urban-branded ISP called Places of Color, and our focus is around literacy, training, distance learning, certification and job placement.

I firmly believe that if we don't go out and train people and make them technologically literate that we are running the danger of really destroying this new economy and destroying our country overall, so we are very concerned about that.

HOPKINS: And is there a digital divide?

DASH: Yes.

ALVAREZ: Yes, no question about it, and I think just today we signed a partnership agreement with Secretary Riley, the Department of Education, because we want to concentrate on helping young people become computer literate and to think about it in terms of entrepreneurship.

And we have a partnership agreement with Sandy Weil's National Academy Foundation, where we are placing young people from high schools in businesses so that they can also operate. It's about hands-on experience and practical applications. You don't want education that's not targeted to the real world.

DASH: It's also about the survival of this country and our economy, because you have 800,000 jobs that went unfilled or will go unfilled this year in the tech sector and somebody has to fill those jobs. We can't continue to go outward -- outside of our country and bring all these HIB visas. I think that's good, but at the same time there is enough people here in this country that need to be employed and made literate.

So, you know, it's a big issue and it affects everybody's business, and it's also good for business. It's a digital opportunity as much as it is a digital divide, because there's a very big market share here.

ALVAREZ: The president and Speaker Hastert this week announced a new markets initiative, new legislation which will create tremendous economic incentives, tax credits and the like for big businesses to locate in communities that are experiencing the digital divide more acutely. Those big businesses will play a role in helping with the literacy aspect in those communities.

HOPKINS: We have another question from a business student from Barnard College.

QUESTION: Yes, I'm a student, a rising junior at Barnard here in Manhattan. I'm wondering if the gender gap that you see in the corporate sector of the economy is reflected in the small business economy, and how that's changing with the new both globalized and digital economy? ALVAREZ: Well, I think there's really good news for women on the horizon. They are definitely part of this new economy. We see that women are growing businesses and starting businesses faster than any other group. There are now nine -- over 9 million women-owned businesses in this country generating $3.6 trillion in revenues and sales.

And believe me, everywhere I go, women are involved. We now see women getting involved in venture capital. which has never happened before. It's a very exciting time for women.

HOPKINS: We have to take another break.

We actually will hear a success story of a woman-owned business. That's coming up next.

(COMMERCIAL BREAK)

HOPKINS: Welcome back to our town meeting on small business in the new economy.

Here's a fact from the Small Business Administration: Nearly 80 percent of the next new jobs have been created by small business. But in something of a contradiction, e-commerce also let's budding companies do more with less. One example is Uneal Smith's accounting firm in Atlanta,

CNN's Brian Cabell reports, that it's an operation that plans to stay small as it's bottom line gross.

(BEGIN VIDEOTAPE)

BRIAN CABELL, CNN CORRESPONDENT (voice-over): Five years ago, Uneal Smith's little accounting firm was grossing $35,000 a year. This year, thanks to the Internet, her vision and hard work, revenue will total about $500,000.

UNEAL SMITH, OWNER, SMITH FINANCIAL ENTERPRISE: By the end of next year, with everything combined, I'd say a million, million and a half, maybe two million easy.

CABELL: She has only four full-time employees, but her client load has grown from a handful to more than 200, even though she's spent little on advertising.

SMITH: I do lot of searches on the Internet, through Mindspring, Yahoo!, different services, and just peruse the Internet and get business.

CABELL: She e-mails companies she sees as potential clients. Some come into her office to conduct business, but now about 60 percent of them are linked up via the Internet. She's urging others to do the same.

SMITH: You'll be able to download your disk back and forth.

I've got your e-mail name, your new e-mail set up.

CABELL: Smith is now in the process of rebuilding her own Web site and expanding her business services, not only tax work and bookkeeping, but financial computer training for entrepreneurs. All this she has done with virtually no driving required. She just logs on.

SMITH: With this, I can be one place, but I can be 50 places all at once, you know, so I don't see how I could work otherwise.

CABELL: And even if even if it could, she says, it would be a lot more stressful, more appointments, more running around, a more demanding and unforgiving schedule. The Internet has provider her, she believes, with a stable lifestyle and peace of mine.

Brian Cabell, CNN, Atlanta.

(END VIDEOTAPE)

HOPKINS: Joining us now from Atlanta Uneal Smith.

Welcome.

SMITH: Hello, Jan.

HOPKINS: Uneal, it seems, though, that being online means that you have to answer questions more quickly, people expect things from you perhaps at all times of day and night. How do you keep a normal life?

SMITH: Not all times of the night. We do have a cutoff period. They do e-mail us and send files back and forth, so I might get things through the night, but then when I come in in the morning, that's when I answer pack. So we do have a regular schedule.

HOPKINS: And also you, as we said in the package, avoid the commuting time, so you have more time to actually just work. I mean, is there a problem with the difference between work and not work when you have this kind of business?

SMITH: Not really. I have more pleasure time now. I can have a life with my family, because before I was working almost 24-7, especially during tax season, whereas now I can download files. I can even download them at home and work on things and not have to be up an down in traffic or going to client sites. I can work a lot at home.

HOPKINS: Let's bring in the panel see if anyone has a question for Uneal.

ALVAREZ: I'm just curious about -- she's talking about before and after, and was it her previously hectic lifestyle that led her to transition into this new business?

SMITH: It did. I was spending a lot of time on the highway going back and forth to client sites or when they would have systems or they need to be trained, I have to be there on site, whereas now with the Internet, we can train over the Internet, we can download files back and forth, so it saves a lot of mileage and stress, you know, the road rage and the whole bit.

HOPKINS: Darien, you have problems with work consuming a lot of your life and having trouble spending time with your family, right?

DASH: Yes, that's very true. I mean, it's a hectic path being a entrepreneur, and you have to dedicate a lot of time. And I try to spend as of time with my wife, and my sons and my daughter as I possibly can. I've got a new daughter now, so I really try to get home as much as I can.

So if you're listening, I'm trying to get home soon.

(LAUGHTER)

HOPKINS: So yes, absolutely. It's a lot of dedication that you have to give to your business. And you know, the Internet, while it enables people to be free and it really helps them to change, and grow and better their lifestyles, at the same time, when you're build a business, those are the things that don't change, so you do have to be there.

HOPKINS: Let's take another audience question.

Would you state your name please?

QUESTION: (OFF-MIKE) Branford (ph) Properties, and I'm wondering how the virtual office or the home office, with the addition of digital phones an the Internet, is going affect the traditional workplace.

GILMAN: Well, it's affected my workplace. I mean, I've run a magazine that is very small and very entrepreneurial. I have an editor who I just hired a number of months ago who works in Wellesley, Massachusetts and works three days a week, and the arrangement works out fine, and it allows me to hire people that I might normally not be able to hire.

ALVAREZ: I can tell you that as a federal agency, we now have nine million hits a week to the SBA Web site, www.SBA.gov, and that I believe has accounts for the increased volume of activity that we're seeing. We do interactive counseling through our home page, so it's changed our lives.

HOPKINS: Another audience question.

QUESTION: Hi, my name is Leon Wapenewicz (ph). I'm with Global (ph) Technology, which is a four-year computer college, and I have a question to Ms. Alvarez.

In view of tremendous deficit in qualified trained professionals, what kind of solution the Small Business Administration would offer to small businesses to overcome problem with staffing the skilled labor, and in other words, are they any kind of funding available for the training of qualified professionals. ALVAREZ: Well, you know, we work closely with the Department of Labor an the Department of Education because they're more in the business of funding for training and labor, but what we're discovering is that in the past, sometimes people were trained for jobs that didn't exist. Now there's really a dialogue going on, and in the welfare-to-work initiative, we managed to get trained welfare recipients off of welfare placed in small businesses, and it was a perfect solution for the small business people who were screaming they didn't have personnel. We're really starting to talk to one another, and I think that's the solution.

HOPKINS: You know, there is a problem with getting good workers for any company these days.

Talk about your experiences. Darien, do you have...

DASH: No issues. I'm actually very fortunate, very blessed, that the people who work for us are so committed and they really believe in the vision and the passion of the company.

HOPKINS: Plus you give them stock options.

DASH: Plus we give them stock options, and that doesn't hurt. But at the same time, people really do have to believe in what they're doing and they have to buy in.

I think you touched an important point when you talked about welfare to work. You've got so many people that are coming off of welfare that have to get into the work force, and then we've got 800,000 jobs that need to be filled. So there are great opportunities to marry those two things.

So for me, I haven't had any employee nightmares yet -- knock on wood -- but I do know that it's hard and there's plenty of people.

HOPKINS: John?

PETERMAN: I think it boils down to, whether it's new economy or the old economy, people will work at someplace where the culture is positive, where it's open, where they are reward for creativity, where they can get involved and feel part of what they're doing. That hasn't changed for hundreds -- well, I don't know about hundreds of years, but for 50 years.

HOPKINS: But it can be a problem for small business if you're not public and can't offer stock options. Maybe you can't offer the same kind of benefits that a large company offers.

PETERMAN: I've heard that, but I don't agree. I think a small business has a great opportunity to offer an atmosphere and a learning atmosphere, a lot of benefits that in a very small environment that you can't get. A small business has a lot of opportunity for flexibility with employees. They have more opportunities than they have drawbacks, and they just have to take advantage of it.

HOPKINS: Hank. GILMAN: I agree with that. I think the big problem among our readers is hiring people too fast and getting people who just aren't skilled enough to work in those companies, getting those -- trying to get those a players, an they end up with c players, and that's a very big company problem. And I see that a lot with the dot.coms that we cover is that they are just hiring people on the fly and just making a lot of mistakes as a result.

AUSTIN: Absolutely. It's not a new challenge, but it is exacerbated by the relative immaturity of what we are all getting involved with the new economy. There aren't a lot of skills to draw from. It's all opportunity. And you're a lucky man, because you can provide vision really for people to circle around.

GILMAN: It's a young economy.

HOPKINS: We need to take another break.

We're going to look ahead, have some predictions for this new economy going forward.

(COMMERCIAL BREAK)

HOPKINS: Welcome back to our town meeting on the new economy and small business.

Now let's look ahead and see what our panel members have to say about the future -- Hank.

GILMAN: Well, I mean, the future is not debatable. I mean, the Internet is here to stay, and it's going to be part of our lives, our business lives, our private lives. But for business, I mean, it's going to be a lot of the new economy is the same as the old economy. Small business people have to know things. They have to have ideas, but they're going to have some of the same worries, hiring, firing, taxes, health care benefits, government red tape. I mean, those things just aren't going to change.

ALVAREZ: Less red tape now.

GILMAN: Thanks to you.

HOPKINS: Your predictions?

ALVAREZ: I think -- I'm very optimistic. Twenty million new jobs in this country, the majority have been created by small business. The small business community is ever more diverse and we see lots of energy and great ideas coming from women, minorities, young people, and global opportunities.

We now have an office in Cairo funded by USAID, because in Egypt they want to create an SBA type of agency because they know that small business is the key. We see that all around this planet. We just have to make sure we get there before they do because it's a very competitive marketplace.

HOPKINS: Darien.

DASH: I'm optimistic as well, I mean, I'm really excited about the future. I think that this economy is going to continue to grow and roar, and hopefully grow at a steady pace. And, you know, I would just say that to young people as they look to become entrepreneurs and don't look to become consumers, and to use the Internet and integrate it into their ideas.

And I think that the people that are using the Internet today have to know the next generation of the Internet and really prepare themselves for the broadband wave that's coming, the wireless environment that will be upon us very quickly, and look toward completely network solutions for their businesses. But it's very exciting and I'm definitely looking forward to where we will be five and 10 years from now.

HOPKINS: John Peterman, what about you?

PETERMAN: I agree. I have to be optimistic, I'm going into the Internet business, so I do believe. I think it's a new wave, it's a young economy, it's exciting, at the same time, there are a lot of the principles that have been around forever, that are going to be swept forward and maybe done more efficiently, maybe done differently. But the principles are all going to be there and the same, and this whole new economy is going to go through its growing stages and its gawky stage and it's going to settle out and we are going to have a pretty good deal in a few years.

HOPKINS: And there's always a second chance, is that what you learned?

PETERMAN: And there's always a second chance. You know what Winston Churchill said, success is merely going from one failure to the other with enthusiasm.

(LAUGHTER)

HOPKINS: Thank you -- Chip.

AUSTIN: I like that. No, I think it's good news all around. We all tend to agree on that is that this is the first couple laps in what is going to be, as you said, a marathon, a 30-50 year phenomenon which is going to just sprout more and more opportunity. I do think you are going to see more and more melding of traditional skill sets, traditional brands, traditional businesses and the new businesses. But most of all, this is the entrepreneur's playground, so jump in.

HOPKINS: Anything else?

ALVAREZ: Well, I have to tell you, John, you know, in London, if you've gone bankrupt you cannot be a taxi driver.

PETERMAN: And let me tell you, in France it's even worse.

(LAUGHTER)

HOPKINS: So there's a lot of culture...

ALVAREZ: But in the U.S. it's a sign of creativity and it just means you're a lot smarter the next time around.

PETERMAN: That's right, absolutely.

HOPKINS: You're all very optimistic. There have to be some losers though?

DASH: There will be losers and...

AUSTIN: Lots of them.

DASH: Yes, there will be lots of losers, but, you know, I think that entrepreneuring is a game where, you know, you take all your winnings and you risk it on one turn of pitch and toss, and you have to be willing to take that risk, and you have to be willing to jump in with both feet and commit your life to what you want to do.

And I just wanted to say something to all the kids that live in inner cities and that don't necessarily understand the Internet and understand how all of this works, it's still basic and nothing has changed and, you know, distribution models have changed. Now, you don't have to sell the CD out of your car, you can sell it online, and instead of selling it to people that are around the car, the 20 people that may be there, you can sell it to the 20 million people that are on the Internet.

But you still have to use your mind and be creative and keep your common sense and keep the basics about you and surround yourself with the technology.

HOPKINS: Thank you all, that was great.

That's all the time that we have time for. I'd like to thank our guests, our live audience, our chat room participants. The chat room will stay open for another half hour, joined by Aida Alvarez and Hank Gilman.

Stay with CNN now for "SPORTS TONIGHT" with Vince Cellini and Bob Lorenz.

Good night from the Alexander Hamilton U.S. Custom House in New York. I'm Jan Hopkins, thanks for joining us, see us on "STREET SWEEP."

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