Small Business Thrives in Arizona

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The view from the inside of Fed by Threads, a small clothing store started in 2012 in Tucson, Arizona.

The entrepreneurial spirit thrives in Arizona as new small businesses continue to emerge in an atmosphere that fosters their growth and development more than in any year since 2008.

In 2011, Arizona had 506,365 small businesses employing 928,155 workers, which was more than two-fifths of the states’ private workforce, according to a Small Business Profile published in 2014 by the Small Business Administration’s Office of Advocacy. This number was lower than larger states like California, New York and Texas, which all had about half of their workforce employed by small businesses.

“Arizona is one of the best places in the country for entrepreneurs as an entire state,” says Jerry Bustamante, the Southern Arizona director of the Arizona Small Business Association.

Nationwide, Arizona experienced the fastest 12-month growth of state small business hiring at 2.79 percent, according to 2013 data called the Small Business Jobs Index complied and published by Paychex Inc., a company that offers its data collection and analysis services to businesses. This growth recorded over the past year was due in large part to Phoenix, which was by far the fastest growing Metro area in terms of small business hiring at 2.9 percent, compared to the next closest which was Houston at 1.31 percent.

Of the more than 20 different industries mentioned by the SBA survey, the three with the highest number of small business employment in were: health care and social assistance, accommodation and food services and construction.

The health care and social assistance industry employed 143,771 workers, which made up about 16 percent of the 928,155 workers employed by small businesses in total.

The accommodation and food services industry had 133,602 employees, or 14 percent of the total small business workforce. A reason for the large percentage of small businesses in food services is the low barrier of entry, according to Bustamante, since it is relatively easy to find the ingredients and employees necessary to open a restaurant.

Since the end of the recession, small firms comprised of 20 to 499 people accounted for about 60 percent of the new jobs created, according to the Bureau of Labor Statistics.

Starting a businesses is never easy or guaranteed. Fewer than 50 percent of small businesses make it to the four-year mark. About 35 percent fail before two years, according to the Bureau of Labor statistics. Bustamante says that the statewide embracing of new emerging businesses has encouraged more businesses to either be created or move to Arizona.

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Fed by Threads was started in Tucson, Arizona by Alok Appadurai as a way to sell clothing that used natural and vegan materials.

The friendliness is partly due to major tax advantages the state offers that have caused some small businesses to move from states with higher taxes like California.

A Tucson clothing store called Fed by Threads is one of these small businesses that began in Arizona, although it now ships its products nationally. The stores owner and founder, Alok Appadurai, says that once he decided to open a store in May of 2012, he realized how large of a venture he was undertaking.

“I put my life savings into starting a business, so when you have so much on the line it’s important to do as much as you can to plan and develop your business,” says Appadurai.

The retail trade is the fourth largest employer in the state amongst small businesses, employing 83,177 workers. For businesses like Fed by Threads, the competition is tough, as small businesses only employ 27 percent of the total workforce in the retail industry. Small businesses not only have to compete against larger companies in terms of the prices on products they sell, but also on salaries and benefits that they are able to offer employees to avoid losing them to more lucrative offers.

One very important tool that has allowed smaller businesses to compete with larges ones is the use of online advertising, often through social media.

“Small businesses are in a much better place now to compete with larger companies because of social media,” says Bustamante.

Businesses are able to use online marketing to reach customers, rather than expending larger amounts of money on production and advertising costs through traditional advertising.

Another tool being utilized by newer businesses is e-mail marketing, with the aid of companies like Constant Contact.

“Small businesses are getting really good about collecting their customers data,” according to Bustamante. “Places like restaurants are able to collect e-mail lists, where they can send out weekly specials and offers in order to bring back customers, which can be difficult in an industry where customer loyalty is hard to obtain.”

Data can be useful in helping businesses find their target audience or stay connected with customers. Appadurai says that it is important to keep all component of the business in mind, ranging from the product itself to costumer interactions and relationships with supplies.

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Appadurai attends to work in the location of his clothing store, Fed by Threads, a small business in Tucson, Arizona.

“There isn’t an easy business out there, those that succeed are able to be unique and get a certain market excited about their product or service,” says Bustamante, “Success comes down to planning. The best way to avoid failure is to make sure you have all of yours ends covered.”

Among these he includes not only a good business plan, but a good plan for marketing as well. New businesses need to understand what the potential profitability of the product or service they are offering actually is, as well as what the potential profit margins might be when taking into account inventory and storage costs.

Another detail Bustamante includes is a solid understand of a businesses cash flow. Many businesses that fail don’t have enough money to sustain any problems, and are unable to cover any unforeseen issues or droughts in business that may occur.

“One of the most important things in starting and developing a business is relationships,” says Appadurai, “sustainability is built off of working with good people who can help you take on plan and moving towards your goal.”

 

Reach the reporter at hbleff@email.arizona.edu

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