Writers' strike cripples small businesses

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(FORTUNE Small Business) -- Writers aren't the only ones sacrificing paychecks to the ongoing strike launched by the Writers Guild of America last month: The work stoppage is also crimping the cash flow of small businesses like History for Hire, Pam Elyea's vintage rental business in North Hollywood, Calif.

Even though Elyea and her husband began planning for the impending strike a year ago, they aren't sure how their company will survive if the strike drags on past December.

"There's only so many ways you can cut," said Elyea, who has seen revenue at her $2 million company drop 50 percent since the Nov. 5 strike start. "If the strike goes on, we are going to have to mortgage our home."

The entertainment industry generates $80 million a day in Los Angeles, making up 7 percent of the area's economy, according to the Los Angeles County Economic Development Corp (L.A. CDE). One $70 million film creates an average of 928 jobs, 231 tied to the production and 697 indirectly related, according to the L.A. CDE's statistics.

"People don't realize how many businesses are related to Hollywood," said Mark Deo, executive director of the Small Business Advisory Network., a Los Angeles consulting firm. He's already seeing crippling effects from the strike: "Some companies that are totally dependent on the film industry have gone out of business," he said.

History for Hire is trying to avoid that fate. The company supplies props for about 350 clients each year, including television shows such as The Office, Heroes and Cold Case and films like Good Night, and Good Luck. Having survived the 1988 writers' strike, which lingered for nearly five months, the 22-year-old company saw this year's work stoppage looming and prepared in advance.

Over the past year, Elyea and her husband didn't replace employees who left and cut back on big expenses like computer upgrades. When the strike started, they laid off six part-time workers, leaving their company with 12 employees, and got rid of overtime pay. They cut their own salaries 15 percent and limited this year's holiday party to employees only. To retain the trust of their staff and keep morale up, the couple began sending out a weekly memo updating employees on sales figures and new cost-saving measures.

Even with that game plan in place, uncertainty hovers over Elyea's company. Before the strike started, History for Hire sent shipping containers full of equipment to Thailand for Oliver Stone's movie Pinkville, a Vietnam War film that halted production because of the strike. Now, with the containers waiting to come back, Elyea doesn't expect the production to pay its full bill. She's hoping to make enough simply to cover costs.

The strike has required businesses to come up with new survival strategies and creative solutions to the cash crunch, said Hollywood career coach David Brownstein. With their production projects on hold, many of his clients are taking the time off to brainstorm about new financing options and think about their career trajectories.

"They are now forced to look at where there are new business opportunities," Brownstein said.

Going door to door

Oren Ashkenazi has been going door to door to drum up business for his company, TVC Television and Cinema Wardrobe Cleaners. With client shows like CSI, Boston Legal and 24 off the air, Ashkenazi's 18-year-old company has seen its business drop by nearly 70 percent.

Ashkenazi laid off six of his 18 workers and is now trying to get work from companies outside the entertainment industry that need uniforms laundered. He's also soliciting wholesale business from other cleaners. "Because we're in an industrial area, it's not like I can open the place to the public," he said. "But we're trying, because we have to start a whole new business."

Battery Hut owner Jim Tessmar realized years ago that the movie business's fickleness affects more than just starlets. Tessmar's Burbank, Calif., company started out in 1992 exclusively making power packs used in film-set lighting and video equipment. But four years ago, he decided to broaden his customer base and began actively cultivating prospects in other markets like telecommunications. The diversification plan worked, and Battery Hut now sells products for several different industries, but movie productions still account for a quarter of Battery Hut's sales. Revenue has dropped 20 percent since the strike started.

Tessmar is picking up the pace on his expansion plans by having engineers in his film division research the logistics of moving beyond sales and into manufacture of battery packs for new markets like medical devices and cell phones.

"This strike is making me wonder whether we should be part of the comeback," Tessmar said. For now his answer is yes, but he hopes that by the end of 2009 movies will make up only 10 percent of his business.

Deo, of the Small Business Advisory Network, is urging his clients to broaden their customer base beyond the entertainment industry. Even if the writers' strike ends imminently, another work stoppage looms: the Directors Guild of America has its own contract negotiations on deck for next year. If the current strike endures or a new one hits, businesses could find their short-term survival tactics morphing into long-term game plans.

"It's time to plan for diversification and put contingency plans in place," Deo said.