Keeping company

Small businesses are somehow coping with competition from big chains.

store shopping 298.88 (photo credit: JP archive/ illustrative photo)
store shopping 298.88
(photo credit: JP archive/ illustrative photo)
The nondescript deep red awning protruding slightly onto the sidewalk of the main thoroughfare in Jerusalem's Katamon neighborhood is a staple of the scenery on Rehov Hapalmah. Behind it sits a small, unadorned coffee shop in which a fiercely loyal clientele stops by as part of their daily routines. Most customers don't linger for hours; they come to read the paper, engage in conversation with other customers and, of course, drink a bit of coffee and eat a bit of cake. In business for over 36 years, the family-owned Duvshanit is one of Jerusalem's oldest and most traditional coffee shops. With a quintessential small-town feel, customers are greeted by name and the staff knows the orders of all the regulars. Each month one can view a fresh display of amateur photographs on the walls as part of the shop's policy to give hobbyists a chance to exhibit their work. Its hallmark cakes and cookies are baked fresh on the premises each day, and despite entreaties from colleagues in the business to adopt the more restaurant-style offering found in many coffee shops today, manager Nuriel Zarifi steadfastly refuses to change the traditional protocol that has long defined its atmosphere. Founded by Zarifi's father, Yossi, and his cousin in 1970, the shop has weathered numerous challenges over the years, including national wars and the unstable security situation that has plagued Jerusalem in past years. Perhaps more threatening to its livelihood, however, was the opening of two modern-style coffee shops within the past three years on the same street, one of them on the same block. Both of those shops, like Duvshanit, are small, privately owned businesses. Neither of these new enterprises has been around long enough to be measured against a global five-year benchmark of success. According to the Israel Small and Medium Enterprises Authority (ISMEA), less than half, or around 40 percent, of small businesses in developed countries survive more than five years, and the ISMEA confirmed that the rate was comparable in Israel. By this statistic, Duvshanit has thoroughly beaten the odds against its survival, and its business model is not one to be easily dismissed. With the onset of Internet shopping and the growing dominance of chain stores, however, the competition for small businesses is becoming tougher, both globally and for the small coffee shops on Hapalmah. Just a few months ago, Angel's Bakery, a well-regarded Israeli bakery chain, opened up a branch not 10 meters from Duvshanit, selling the same staple items - bakery goods and coffee. Zarifi acknowledges that while the opening of the other coffee shops didn't really disturb him, he found the move by Angel's to be especially nasty. "Even in a business where people aren't always nice, this is particularly not nice," he says. "They could have gone to any neighborhood where there are numerous shops and customers, but to choose this street is not pleasant." The National Federation of Trade in Israel finds the trend toward chain stores to be alarming enough that it issued a warning earlier this year about the lagging ability of small businesses to compete in this new environment. Small businesses, though, still comprise the backbone of Israel's business economy. The ISMEA estimates that the 400,000 small and medium-sized businesses in operation make up 96% of all the country's business, employing 1.1 million of the country's 2.6 million workers. Despite the increasing competition for small business, there is some clear evidence that when small business owners are given the right educational and financial tools, their chances for success are greatly increased. The efforts of the Mati Jerusalem Business Development Center in this regard are a prime example. Currently celebrating its 15th anniversary, Mati, under the tutelage of well-known Israeli businessman Uri Scharf, provides critical financial and educational assistance to existing establishments and entrepreneurs seeking to open new businesses. The organization has built an impressive 15-year track record. According to its own data, it has provided significant assistance to 6,000 new and expanding business and supported the efforts of 24,600 other applicants through the 130 courses and workshops it offers in business development each year. The most recent data provided by Mati shows that 87% of Jerusalem businesses opened with its help are still operating after three years, compared with a 50% survival rate for those who do not receive its support. The Jerusalem branch (there are now 23 branches around the country) was initially founded at the urging of then-Jerusalem mayor Teddy Kollek primarily to assist the influx of Russian immigrants with entrepreneurial development. In its first year, 82% of the organization's patrons were new immigrants compared with only 11% today. Nevertheless, Mati offers courses in a number of languages in addition to Hebrew, including Arabic, French, Russian and English, along with separate classes for men and women in the haredi population. For Scharf, who successfully ran his family's fur business in Israel for over 20 years, the ingredients for managing a successful small business haven't changed significantly in the past 15 years. "Most small business failures are the result of mistakes that the owners make," he flatly states, explaining that outside variables are secondary to the success rate. "We invest a lot in training to remove these obstacles." Eli Bentata, deputy general manager of the ISMEA, backs up Scharf's assertion, claiming that over 94% of small businesses in Israel close because of problems with management and the rest because of external security issues. The number one management problem according to Bentata: marketing and customer service. The second biggest problem is financial management. "Many new owners don't manage their finances beyond a few weeks. We try to get them to forecast one or two years in advance," Bentata explains. Scharf recalls the challenges Mati faced during the early years of its operations in explaining the basics of entrepreneurship to Russian immigrants who had only recently arrived from a defunct communist economy. "We realized that they weren't familiar with many of the business terms we would put into our initial questionnaires," he says. Today, a significant amount the staff's time is devoted to helping aspiring business owners conduct feasibility studies. A large part of ensuring a high success rate is convincing at least one-third of the 230 people who call each month that their ideas are better left untried. Some of the more eccentric ideas rejected by Mati include the opening of an airport in Jerusalem and a "kosher" conveyor belt to take residents from religious neighborhoods to the Western Wall on Shabbat. For those hopeful entrepreneurs who do get past the initial feasibility study, Mati will help them develop a comprehensive business plan and secure specialized funding from banks and government sources, including public and private funds. Many of the funding sources will provide lower interest rates, easier guarantees and allow for payment in installments spread over shorter periods of time. The average new business receives a loan of NIS 80,000 with the help of Mati, Scharf says. Twenty-seven-year-old Guy Kimhi recently opened up the Latin-Mexican restaurant La Boca in the Germany colony with Mati's support. His idea was well received because he had experience as a chef and traveled South America extensively learning the different foods. For him, Mati's classes in management were invaluable. Business owners who enter into their endeavors by choice rather than as a result of being unable to find employment elsewhere are more likely to thrive, Scharf notes. Kimhi, who spends more than 15 hours a day in his new restaurant, fits the prototype, explaining that the restaurant had always been his dream. "This restaurant is not only about the money," he says. Despite Mati's emphasis on management skills, all of Jerusalem's major business organizations are in agreement that Jerusalem does present small businesses with unique challenges. A large part of Jerusalem's residents are from populations with low socioeconomic standing, explained Uri Halfon, director-general of the Jerusalem Chamber of Commerce. In addition, more so than other cities in Israel, a high percentage of the remaining population works in public service, collectively bringing down the purchasing power of the city as a whole. Many of the proposed solutions to this endemic problem have always centered on the revitalization of the city center to boost small business and create new jobs. The municipality, in conjunction with Jerusalem's main business organizations, has been working on initiatives to do just that for some time. "One of the tasks of small business is to provide employment, which brings about growth," Halfon explains. Recently, in cooperation with some of Jerusalem's small business umbrella groups, Halfon offered specific ideas to the municipality, including the creation of specialized industrial zones, financial breaks and allocations for land that he says would improve the standing of small business in the city. The municipality is currently in talks with the groups to discuss the viability and execution of these ideas. Ultimately, both Bentata and Scharf say they believe the creativity of small business owners can help them prevail in light of the numerous challenges, including the threat of major chains. "A specialty shop must utilize its comparative advantage. What is the government supposed to do - put in jail the managers of big chains who lower their prices?" Scharf asks. Marina Savitsky, who relied upon Mati's backing to open her own flower shop in Beit Hakerem, acknowledges that understanding how to develop the art of personal service has tested her skills. "The hardest thing is customer service," says the Russian immigrant, who came to Israel more than 15 years ago. For traditional coffee shops like Duvshanit, however, that lesson was learned long ago.