Small Businesses Ignore Y2K at Their Own Peril

Large corporations may have poured billions of dollars into Year 2000 remediation, but there’s plenty of concern about smaller companies that can’t afford all-out Y2K efforts.

Last year, almost 900,000 small businesses in the U.S. finally did take some kind of action, a new study conducted by the Gallup Organization for the NFIB Education Foundation calculates. That means that so far, almost 2 million small firms – or 41 percent of small companies – have addressed the issue. But many of the remainder "still have no plans to assess their risks of falling prey to Y2K," says William Dennis, senior research fellow at the foundation and author of the study.

Another 5 percent aren’t even aware of the Y2K problem, he says, in most cases because small businesses simply don’t feel that the problem is serious enough to worry about.

Widespread use of newer software packages may be driving this complacency, Dennis speculates. Nearly Nine of every 10 small firms (89 percent) reported that their most critical software was less than two years old. Nearly all (95 percent) reported no critical software more than five years old.

"The rather impressive rate at which small firms have updated their critical software in the normal course of business may yield an unintended benefit," Dennis notes. "Relatively few small firms should suffer from software problems written in ignorance of the Y2K glitch."

However, this is not soothing the nerves of larger companies that depend on networks of smaller suppliers. Many have tried to reach their smaller partners with questionnaires, but to date, most are either returned inaccurate or go unanswered, says Dennis.

"Value chain exposure is the biggest Y2K issue businesses face," says Skip Tamke, managing project director for Millennia III. He believes small businesses are being too shortsighted in terms of Y2K. "If smaller vendors don’t start seriously addressing the Year 2000 problem right away, they can cause major disruptions to larger organizations," he warns. "Big businesses want to work with their value chain, but they can’t give hands-on assistance to thousands and thousands of small vendors. The small company is at risk of losing a lot of business to ‘Y2K-smart’ competitors."

The challenge to becoming Y2K-smart, however, is lack of time and money. Y2K consultants charge about $150 an hour, if they can be found. "Most solution providers are focusing on mid-sized and large companies. Small businesses, quite frankly, don’t have the capital to draw a solution provider of any size or reputation," Tamke says. This will leave many small businesses searching for ways to do it themselves.

One San Jose, Calif.-based bank has come up with a rescue package that may help some small companies achieve Y2K compliance. Comerica Bank-California announced it is offering loans to smaller companies for the purchase or upgrade of computer equipment. Unlike regular equipment loans, which generally amortize over three years, the Y2K loan is extended over a five-year period. "It’s evident that there is a real need for a loan like this," says Lynette Pattison, Executive Vice President of community business banking for Comerica. "The Y2K issue is not going to go away by itself. If ignored, some businesses may find that they will suffer serious disruptions including loss of business and worse."