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					San Diego Regional Chamber of Commerce

San Diego
Small Business
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                     conomic research bureau

Letter from the President:

June 2, 2010

Dear Regional Stakeholder,

Welcome to the San Diego Regional Chamber of Commerce’s inaugural San Diego Small Business Barometer.

Nearly 95 percent of businesses in San Diego County are small businesses. It’s imperative that we understand
the challenges they face in doing business and adding jobs in our region. One of the big lessons from this survey
is that most small firms in the county are cautiously optimistic about the state of the economy and are convinced
that local, state and federal government are not friendly toward small business.

Some interesting highlights from the survey include a 12 month outlook, small business views of government,
and what businesses need to achieve success.

The Chamber will be using these findings to better advocate at the local, state and federal levels for support of
small business and job creation in San Diego. To learn more about the Chamber please visit us at

Ruben Barrales
President & CEO
San Diego Regional Chamber of Commerce

                                                                San Diego Small Business Barometer                  2
Chamber Board of Directors:
Chairman, Tom Wornham               Darragh J. Davis                     Karen Hutchens                        Doug Sawyer
Vice Chairman, Vince Mudd           Vice President and General Counsel   President                             President & CEO
                                    Petco                                Hutchens PR                           United Way Of San Diego County
Mike Abary
Senior Vice President, Home         Theresa Drew                         Donna Jones                           Gerry Seelman
Division                            Managing Partner                     Partner                               Director, Western Region Programs
Sony Electronics, Inc.              Deloitte & Touche LLP                Sheppard, Mullin, Richter &           MACTEC
Leticia Aguilar                     Walter F. Ekard                                                            Bob Sexton
Senior Vice President/Market        Chief Administrative Officer         Keith Jones                           President
President                           County of San Diego                  Principal                             Sexton Communications
Union Bank                                                               Ace Parking Managment, Inc.
                                    Dan Feldman                                                                Robert Smith
Darin Andersen                      Vice President                       June Komar                            CFO
Chief Operating Officer             Sunroad Enterprises                  Corporate Executive Vice President,   General Dynamics Nassco
ESET, LLC                                                                Strategy and Administration
                                    Mark Ficarra                         Scripps Health                        A.G. Spanos
Sam Attisha                         Vice President of Sales and                                                Executive Vice President -
Vice President - Business           Marketing                            Mark Leslie                           Executive Officer
Development & External Affairs      San Diego Union-Tribune              Vice President                        San Diego Chargers
Cox Communications                                                       AT&T
                                    Andrew P. Fichthorn                                                        Maureen Stapleton
Majgen Ronald L. Bailey Usmc*       Executive Vice President and         Jane Mcauliffe*                       General Manager
Commanding General                  General Manager                      Chief Academic Officer                San Diego County Water Authority
MCRD/WRR                            Seaworld San Diego                   Bridgepoint Education
                                                                                                               Tom Sudberry
Ruben Barrales                      Stephen Fluhr                        Mark Mckinnon                         Chairman
President and CEO                   Development Director                 Publisher                             Sudberry Properties
San Diego Regional Chamber of       Westfield LLC                        San Diego Home/Garden Lifestyle
Commerce                                                                 Magazine                              Joe Terzi*
                                    Radm. W.D. French, Usn*                                                    President & CEO
Phil Blair                          Commander                            Michael A. Morton, Jr.                San Diego Convention & Visitors
Executive Officer                   Navy Region Southwest                President and CEO                     Bureau
Manpower Staffing ServiCes                                               The Brigantine Restaurant
                                    Gary Gallegos*                       Corporation                           Juan B. Tintos Funcke*
Thella F. Bowens*                   Executive Director                                                         Director of Public Relations
President/CEO                       Sandag                               Vincent E. Mudd                       State of Baja California
San Diego County Regional Airport                                        President & CEO
Authority                           Juan M. Garcia                       San Diego Office Interiors            Bill Trumpfheller
                                    Public and Government Affairs                                              President
Jackie Bradford                     Manager                              Christopher B. Neils, Esq.*           Nuffer, Smith, Tucker Public
President and General Manager       Chevron Corporation                  Partner                               Relations
NBC 7/39                                                                 Sheppard, Mullin, Richter &
                                    Tom Garfinkel                        Hampton                               Thomas V. Wornham
Rick Bregman                        President & COO                                                            Executive Vice President & Regional
Market President                    San Diego Padres Baseball Club       Michael R. Niggli                     Manager
Bank of America San Diego                                                President & Chief Operating Officer   Wells Fargo Bank
                                    Karen Garsson                        SDG&E
Bernd Brust                         Vice President Of Corporate                                                Julie Meier Wright*
President, Commercial Operations    Responsibility                       Joe Panetta*                          President & CEO
Life Technologies                   SAIC                                 President & CEO                       San Diego Regional Economic
                                                                         Biocom                                Development Corporation
Dennis Burks*                       Dan Gross
Principal                           Executive Vice President of          Edward F. Plant                       Charles D. Wurster*
Burks Associates                    Hospital Operations                  President                             President/CEO
                                    Sharp Healthcare                     San Diego Refrigerated Services       Port of San Diego
John Chalker                                                             Harborside
Managing Director                   Benjamin A. Haddad
Lm Capital Group, LLC               Partner                              Jerry Rebel                           *Ex Officio Directors
                                    California Strategies                Executive Vice President And Chief
Brittain Cheney                                                          Financial Officer
Vice President                      Chuck Hansen                         Jack In The Box, Inc.
The Irvine Company                  Vice President Community Relations
                                    Viejas Enterprises                   Ted Roth
Nikki Clay                                                               Managing Director
Partner                             Paul J. Hering                       Roth Capital Partners
The Clay Company                    Managing Principal/CEO
                                    Barney & Barney, LLC                 Dennis Ryan
William Davidson                                                         Director, Public Affairs
Senior Vice President, Global       Robert B. Horsman                    Pfizer La Jolla Laboratories
Marketing And Investor Relations    Regional Chairman
Qualcomm, Incorporated              US Bank in San Diego

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Executive Summary:
Generally, San Diego County’s small business people have adopted a cautiously optimistic outlook. Things
would be better, the survey shows, were it not for the perception that government is more in the way than lending
a helping hand. The initial results suggest deep misgivings about the posture local government is taking towards
small business. The sense is that small business people feel their backs are to the wall as they deal with taxes,
regulations and healthcare costs while fighting through the recession. This study was conducted between April 21
and 23, 2010, and surveyed 500 businesses with 50 or fewer employees.

More than two-thirds of the firm representatives interviewed were the CEOs or owners of the small business, in-
dicating that our responses generally come from the top of the organization. Another 16% of the interviews were
conducted with office managers and 9% came from upper management.

Providing Healthcare

Two-thirds of San Diego County small businesses offer healthcare insurance to their employees and another 4%
plan to provide it in the next year. Most of the rest feel that the cost is holding them back from offering healthcare

                                                                 San Diego Small Business Barometer                 4

The average number of workers employed by San Diego County small businesses is 7.3, but the range in size
is wide. Only one in six are “mom and pop” operations, having just one or two employees. One-third currently
have more than 10 workers on the payroll. Analysis shows that the most useful size threshold for understand-
ing small businesses is 10 employees. Firms with 10 or fewer employees – which account for two-thirds of San
Diego’s small business universe -- tend to see things differently than those with more than 10. Unless we refer to
a different segmentation scheme, we will use this threshold in our analysis.

There is a strong and clear relationship between firm size and whether the firm offers healthcare to its employ-
ees. More than half of the mom and pop and three-person outfits do not provide healthcare. However, a small
bump up from that size to having four or five employees creates a situation where most companies offer cover-
age, as 61% provide healthcare. This suggests that the moment a business owner looks outside of his or her
family or inner circle for help, healthcare insurance becomes more important and it is a way to attract and retain
employees. Among firms with more than five employees, 80% offer healthcare. The takeaway for prospective
employees who are looking for healthcare as part of the package is to look to businesses with more than five em-
ployees. For very small businesses who wish to grow, growing the firm will likely require the company to include
health insurance as part of its compensation package.

The reasons why very small companies do not provide healthcare vary. A few say cost is the issue, but that is
not the overwhelming reason they do not carry coverage. However, cost is the big reason medium and large
companies do not provide healthcare. Almost 80% of the firms employing more than three individuals say cover-
ing them would be too expensive. In terms of offering healthcare packages to small businesses, the one-person
firms appear to be too small to be target customers, while the large firms (four employees and up) need to be
sold on price. That leaves the two and three-person firms as the sweet spot for insurance providers because
relatively few of them do not currently provide coverage and because cost is not the sole reason they are being
driven from the market.

                                                           San Diego Small Business Barometer               5
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Type of Business

San Diego is home to a wide variety of small
firms. The largest category is the business ser-
vices group. One out of every five firms is in this
segment, which includes engineering, consulting,
accounting, research and management firms.
Companies involved in wholesale trade (durable
and non-durable) constitute 15% of San Diego’s
small business landscape. They tend to employ
fewer workers than other types of businesses with
an average of 5.9. Thirteen percent of San Di-
ego’s small businesses are involved in manufac-
turing or repair operations that are not concerned
with transportation, which, at 11%, warrants its
own category.

The manufacturers are typically larger concerns,
employing an average of 8.6 workers. Another
11% of small businesses provide consumer ser-
vices. This includes restaurants and food service,
as well as firms involved in health, medicine,
sports and leisure, and these are among the larg-
est employers. Consumer service firms average
9.5 employees. We divide construction-related
firms into two segments, with 9% of the small
business community involved in construction spe-
cialties (for example, roofing and dry walling) and 7% focused on general construction. The latter are now some
of the smallest firms in the county, with the average number of employees coming in at 5.9. Rounding out the list
are retailers (7%) and finance, real estate and insurance firms which combine to account for 6% of the County’s
small businesses. Using this categorization scheme, only 2% of the businesses could not be classified.

While larger businesses are much more likely to offer healthcare than smaller firms, some types of businesses
are more likely to offer healthcare regardless of their size. Specifically, employees of firms providing business
services are significantly more likely to be covered by a healthcare plan. Since employees in this group are
almost universally professionals, it is not surprising that they can command the coverage. On the other hand,
builders are far less likely to offer healthcare insurance, as only 41% cover their employees. Their main com-
plaint is that it costs too much.

                                                                San Diego Small Business Barometer                  6

Forty-five percent of the small businesses in the County are located within San Diego’s city limits. Because (as
per the US Census) 41% of the general population resides in the city of San Diego, it is clear that, by this gross
measure, resident location and business location tend to mirror each other. If anything, the City enjoys slightly
more than its per capita share of small businesses.

However, building and construction firms have nearly deserted San Diego. A mere 5% of firms within the city lim-
its are involved in specialty construction and only 4% are builders. Manufacturing is another business type that is
relatively rare to find in the City of San Diego. Only 9% of its small firms qualify as manufacturers. On the other
hand, the city is home to more than its share of firms that provide services; both business and consumer. One
quarter of all the small businesses in the city are business service companies and another 15% are service firms
oriented to the consumer. So the City of San Diego, consciously or not, has turned away from the more traditional
industries, as they have moved to the more outlying communities to be replaced by the service economy. This
may be a good trade for the City. That is because San Diego companies are larger than those in the rest of the
county. Forty percent of San Diego firms employ more than 10 workers, and firms here average 7.8 employees.
It appears that San Diego enjoys the benefit of bigger – and therefore more stable and revenue producing –
small businesses, while also getting what might be “cleaner” industries.

The south suburbs have been the recipients of a lot of the manufacturing firms. A striking 29% of the small busi-
nesses from National City to Imperial Beach are manufacturers. But, although we have found that manufacturing
concerns tend to employ more workers, the south suburbs are actually home to significantly smaller firms. Two-
thirds of the firms have five or fewer workers on the payroll and the average is only 5.4.

The east county area is where many of the building and construction firms have ended up. A whopping 55% of
the small businesses in east county are construction related/ That is one reason why we do not find many of the
larger firms in the east county: only
14% there employ more than ten

The east suburbs, which include La
Mesa, Lemon Grove, Spring Valley,
El Cajon, Santee and Lakeside, also
tend to contain more construction
firms, though the bias is really toward
the specialty side of the business rath-
er than the builders. The larger point
is that the entire area east of the City
of San Diego is apparently more hos-
pitable to construction-related firms.

The north suburbs (generally the
communities along Interstate 15 from
Poway to Fallbrook) tend to be home
to smaller firms: only 24% there have
more than 10 employees.

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Views of Government

Fifty-seven percent of small
business owners consider the
local government in their area
to be unfriendly to small busi-
nesses. In addition, the same
percentage would look outside
San Diego County to start a
business. Taken together,
these two survey results
constitute disturbing evidence of rampant dissatisfaction; local small business owners feel their backs are against
the wall.

Those along the north I-15 corridor and in the eastern suburbs tend to sense even more of a trend towards less
business friendliness. Although no portion of the County gets a pass, the results in the east suburbs are poor.
There 78% say local government is getting less friendly to small firms and 44% say the trend is “much less

CEO’s are also more critical of local governments. Those in the lower
management echelons are actually split on this question of how friendly
local governments are to small business, but slightly more than 60%
of the folks at the top of their organization say the trend is heading in
the wrong direction. It’s possible that the actual business owners have
more contact with local government officials, so they may be giving the
more accurate responses on this point. This would mean the survey
actually under reports the disenchantment with how local governments
relate to small firms.

The reluctance to start a new business in San Diego is pretty much the
sentiment across the board. It is a bit stronger in the east county and a bit weaker in the north coastal area, but
generally there is a prevailing attitude that this is not the place to start a business. The attitude is certainly largely
driven by the perceived lack of governmental friendliness to small businesses. Among those who see local
government as trending in the much less friendly direction, nearly 80% say they would look elsewhere to start a
business. If local governments want to keep local entrepreneurs from looking across the border, they will have to
reverse the perception that they are unfriendly.

                                                                    San Diego Small Business Barometer                  8
Views of Government continued

When small business people are asked about the job their local government is doing to create or maintain a
healthy environment for small businesses. the San Diego City Council, the County Board of Supervisors and
local cities outside the City of San Diego all get poor marks.

However, everything is relative: these three entities look better alongside the federal and state governments.
Both of these last two come in for withering criticism, although the feds seem to get a bit more of a “pass” from
small business owners. “Only” 66% believe the federal government is doing a bad job (46% say “very
bad”), which is better than the state. One of the things that might be taking a small amount of heat off the
federal government is the newly passed health care reform bill. The numbers for the federal government
are less bad among those firms who offer health care coverage to their employees. The overall results
for California are truly hideous: 76% say it is doing a bad job, with 51% characterizing its performance as
“very bad.”

Combining the job performance results for all levels of government gives us an overall read on how small
firms perceive government in general. The results are striking.

                                  Government Job Performance Combined
           Very bad         Somewhat bad         Neutral/Mixed         Somewhat goof         Very good

           21%                                   46%                               20%               12%

   0%                 20%                  40%                   60%                   80%                 100%

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With 56% predicting that their company’s revenue will increase over the coming twelve months, small business
people are optimistic that 2010 will be an improvement on 2009. However, the operative word here is “caution,”
because small businesses will be playing things close to the vest. Although spending – either generally or on
business development -- and employment are expected to rise, they will not keep pace with the rise in revenues.
It appears the worst is over, but few expect to emerge from the recession with a roar and they are not going to
spend freely again. The use of credit will expand very slowly in 2010.

San Diego County Small Business Outlook Index

We combine these elements into the San Diego County Small Business Outlook Index. The Index ranges from
-200 on the lowest end (the gloomiest outlook possible) to +200 at the high end (that would occur if every small
business believes all five of the metrics will increase a lot over the next twelve months). The dead center of the
Index is zero which would indicate that, on average, small firms see business prospects as neither increasing
nor decreasing within the coming year.

Currently the index stands at +20, which dovetails with
our mantra of cautious optimism. The more robust rating
for revenue growth (+44) is dragged down by much lower
scores for overall spending (+8) and the use of credit (+4).
In between the highs and lows are spending on business
development (+23) and employment (+20) which sits right
at the Index’s overall average.

The main factor driving small outlook is how these firms
view government. One key about this is that all levels of
government contribute to the outlook. Said another way,
although state government comes in for the harshest criti-
cism, the perceived job performance of local, county and
federal governments are all responsible for how small firms
view their business prospects.

                                                                San Diego Small Business Barometer               10
Outlook continued
Interestingly, although firms that cast the job performance of government in unremittingly negative tones are
down on their prospects, they are not unremittingly negative about those prospects. Similarly, firms that perceive
governments as doing only a somewhat bad job are actually more optimistic than pessimistic about their own
outlook. It certainly appears that many small businesses are optimistic – to the extent they are – in spite of the
performance of government. On the other side of the government job performance scale, those firms that regard
government as a positive influence on small business are widely optimistic about the future of their businesses.
The problem is that very few firms are satisfied with the job government is doing. The takeaway here is that until
government itself becomes seen as a part of the solution and not part of the problem, the business outlook will be
hard pressed to move out of its “cautiously optimistic” range.

Another point to be made is that those governmental entities which take their role as small business promoters
seriously will see limited rewards (in the form of greater optimism) as long as other levels of government do not
adopt similar roles. The City of San Diego, for example, does not work in a vacuum when it comes to engender-
ing more confidence among small businesses.

A few other observations from the data regarding outlook:

        Size matters: Larger firms (with more than 10 employees) are much more optimistic than small firms.
        The most logical explanation for this is that they have weathered the worst of the recession with a size
        able workforce intact and feel more stable than small firms. However, it is possible that larger firms may
        know (or may think they know) something that smaller firms do not. Larger firms may have a better finger
        on the pulse of the economy than the smaller businesses and might be picking up traces of a turnaround.
        Only time will tell.

        Construction is still hurting: The slowdown in the construction industry is reflected in the negative
        outlook from the builders (-16) and a dead even outlook from the specialty firms. The light at the end of
        the tunnel remains dim for the construction business. Both construction sectors are very bearish on their
        spending, both on business development and overall. They tend to see them, as well as their use of
        credit, as going down over the next year.

        Consumer service firms are less tentative: Although not displaying the pessimism of the building
        trades, those who market their services directly to consumers are tentative in their outlook.

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What Businesses Need In Order To Achieve Success:
From a perspective of business needs, small businesses generally recognize that economic improvement is
the key to their business improving. More than three-quarters feel that local economic improvement is very or
extremely important. Interestingly, the results for wholesalers evince independence from the overall economy, as
more than half buck the overall trend and say it is not very important for their success.

Respondents also tend to focus on tax reduction (seen as more important to those in the transportation industry),
streamlined regulations, more lobbying in Sacramento and lower healthcare costs. As might be expected, those
who provide healthcare coverage to their employees are much more interested in achieving lower costs in this
area. Seventy-two percent say doing so is very or extremely important to them.

                                                               San Diego Small Business Barometer             12
What Businesses Need In Order To Achieve Success continued
With a few notable exceptions, the results for business needs apply to all sectors of the small business land-
scape. Here are the exceptions:

        Those in the manufacturing and repair sector tend to place more importance on government investment in
        education. Nearly three-quarters regard that as very or extremely important to achieving their business
        goals. Additionally, the very low importance they assign to gaining more business advice from experts
        suggests they value building from within.

        Transportation-related industries are far more interested in building a business voice at City Hall. A
        whopping 80% of these firms see this as more than somewhat important and 41% say it is extremely

        Dovetailing with our earlier observation that consumer service firms are less optimistic about their outlook,
        they tend to see hiring more employees as anathema to their goals. This signals that they are serious
        about freezing hiring and may be overloaded right now.


Because the majority of companies in San Diego County are small businesses, we must understand the obstacles
they face in doing business and adding jobs in our region. Most small firms in the county are cautiously optimis-
tic about the state of the economy. While more than half of businesses surveyed expect an increase in revenue,
overall spending is only expected to increase in 35 percent of businesses. This reflects the cautious optimism
that’s apparent throughout the data. In addition, 57 percent of small business owners consider the local govern-
ment to be unfriendly to small businesses, which impacts willingness to start or grow a business in San Diego. It
is apparent from the survey that in order to succeed, small businesses are looking for improvement of the local
economy, reduced business taxes, streamlined regulations and bureaucracy, and stronger voice for small busi-
ness at city hall and in Sacramento.

                                                             San Diego Small Business Barometer               13

San Diego Regional Chamber of Commerce:

County of San Diego:

City of San Diego:

California Small Business Advocate:

U.S. Small Business Administration:

                                                  San Diego Small Business Barometer   14

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