So now 12 years after she had slowly built a successful chocolate business—one that was in high demand in the corporate world and the hotel industry during the glorious dot-com days—Dewey has been forced to close. This 56-year-old, small-time entrepreneur will now move south to Visalia to be closer to her daughter and probably start her business again there.

Dewey's story is not unique in Sunnyvale. Small businesses like hers have taken a heavy hit in this struggling economy—and Sunnyvale is a city of small businesses. Some 95 percent of businesses here employ 25 or fewer workers.

For these small businesses to thrive, the large businesses around them must thrive as well.

Suzi Blackman, president and CEO of the Sunnyvale Chamber of Commerce, says that the synergy that existed between big and small businesses during the economic boom is missing. "It was not just the sales dollars, it was people eating lunch, people getting dry-cleaning done," she says. "It was getting your shoes repaired. But now, restaurants see nobody coming for lunch. If people don't have to drive to get here to work, then whose cars are our auto people going to repair? Who's going to buy our gasoline?"

Though the overall forecast for the economy appears to be cautiously optimistic, Blackman says many small businesses are not feeling the trickle-down effect. "Many have gone into their reserves," she says. "While I think things are getting better, I don't know how much more people have left to help them through this last stretch of the economic recovery."

Dave Mackey has been running Safety Check Automotive, an auto service and repair shop on Evelyn Avenue, since 1990. Mackey says that his net earnings have dropped by 30 percent in the last year and he has laid off two of his technicians. One of them was his son.

"Even the earlier recession was not this bad. I see a lot of people moving away to Walnut Creek and Sacramento because of lack of jobs here. What we need now are more jobs. The city needs to bring in people for businesses like mine to pick up."

To make his situation worse, Mackey is locked into a lease agreement for the shop he rents. He signed the lease at the height of the valley's prosperity. And with oil costs increasing, Mackey says he's unable to compete with chains like Jiffy Lube that buy everything in bulk.

New and home businesses

Ironically, business at the Chamber of Commerce is picking up. Even as these small businesses struggle, there is a surprising surge in the number of people starting new businesses in the city. This surge is not an indicator of a positive turnaround in economic circumstances. Most of these new entrepreneurs are people such as marketing specialists and graphic designers who have been laid off and not found a job and are trying their luck with a small consulting business that they will operate from home.

"These days we have people coming to the Chamber and asking us how to start a business," says Blackman. During the boom we had around 500 members, but now we have 700 members. We are adding anywhere between 15 and 20 new members every month," says Blackman. "Back [during the boom] we'd call people to advertise with the Chamber—but they had more business than they knew what to do with. People were so busy they did not have time to come here."

This trend is not surprising, says Mike Curran, director of NOVA, a federally funded employment and training agency that is administered by the city of Sunnyvale. The agency provides employment support to a seven-city consortium that includes Sunnyvale, Santa Clara, Cupertino, Palo Alto, Mountain View, Los Altos and Milpitas. "The stock values of many of the high-tech companies have gone up in recent months. But the hiring rates at these companies remain stagnant. Large corporations are beginning to show profits. But that's because they are working within the available resources and manpower they already have."

According to labor-force statistics released by NOVA, the unemployment rate in Sunnyvale fell from 5.7 percent in November to 5.1 percent in December. But the numbers are deceiving, says Curran.

"These statistics do not reflect the number of people who have stopped looking for work or who have moved away from this area. Five years ago, it took a laid-off employee an average of 15 weeks to find another job. But now it takes a year." Curran says 62 percent of laid-off workers coming to NOVA for career counseling or job training hold bachelor's, master's or sometimes even doctoral degrees.

Though Rick Bowman does not strictly fall into this category of laid-off employees starting a new business, he created Marcom Technology Marketing last May. His company is a one-man operation in which Bowman works out of his home and provides marketing-communications services for other companies. After difficulties at work, Bowman quit his job as a marcom (marketing-communications) manager from Infineon Technologies in San Jose to start his own firm. "When I left the company, I had two clients, and I thought over time I would add more clients. But things have not grown. I mostly have repeat business," he says.

For 20 years, Leslie Lawton has been running a transcription business that employs women working out of their homes. Lawton gets video or audio copies of speeches of corporate leaders and then transcribes them. Her clientele includes some big names—Hewlett Packard, Apple, Oracle, IBM and Sun. But Lawton says her business has dropped dramatically, by 30 to 40 percent, over the past few years.

"Right after 9-11, we felt the effects. Companies cut back on their international travel, and we began to receive less and less work," Lawton says. Earlier, because of the intensity of work, Lawton says she employed up to six women at a time. But now she employs two to three, and the workflow is never certain.

City efforts

It's not just small-scale businesses in the private sector that are dependent on big companies. The city, too, has been badly hurt by the downturn in the economy.

Traditionally, Sunnyvale receives 50 percent of its sales-tax revenue from business-to-business sales (transactions between big corporations). But when companies started cutting costs, this lion's share of the city's tax revenue fell to 39 percent.

The effects of that cost cutting and the demise of smaller businesses can be seen all over Sunnyvale. "For Lease" signs are posted on the fronts of office buildings on almost every block. An estimated 20 percent of office buildings in the city are vacant.

When Karen Davis, Sunnyvale's Economic Development Manager, presented a report to the city council on Feb. 10, she said that the biggest disadvantage to Sunnyvale in the current economic climate was the lack of class A office space. Class A buildings are the huge office spaces occupied by companies like Juniper Networks and Yahoo. Currently only 17 percent of the office buildings in the city fall under the class A category. "Given the current asking lease rates [which are considerably lower today], companies are looking to upgrade from class B or C to class A. But due to the lack of class A space in Sunnyvale, companies are forced to look elsewhere," Davis says.

To overcome the problem, Davis says, the city is looking to increase the number of class A buildings in Moffett Park, which is attractive to high-tech companies because of its proximity to NASA. Davis says that the city is also partnering with the brokering community to market the buildings in Sunnyvale. "We provide marketing materials that explain the advantages of doing business in Sunnyvale. We respond to questions they have. It's an ongoing dialogue with them."

The city is also trying to balance its sales-tax revenue sources by not being so heavily dependent on business-to-business sales tax. It is now trying to restore this balance by working with the retail- and small-business sector to pump up the business-to-consumer tax revenues. The city is now seriously focusing on several outreach programs to help small businesses in certain target areas like El Camino Real and downtown.

In the last quarter of 2003, 30 percent of the city's sales-tax revenue came from retail outlets on El Camino Real. "This is a very strong corridor for the city. We have a less than 5 percent vacancy rate on El Camino. We are working with businesses in this area to inventory their needs and learn how to better promote this area." The economic development department is currently working with auto dealers along this stretch of El Camino.

The downtown area has been a heavy economic drain for the city for some time. Donna Dewey says that while the economy slowly strangled her chocolate business, the location did nothing to help. She says, "After 9-11 and with the mall closing and all the construction and with few retail stores around, there was not much reason for people to come to Murphy Avenue."

The construction of the new mall and downtown is likely to take another couple of years, time that can be very testing for small-business owners in the area.

Karen Davis says that her department runs an outreach program to help businesses transition through the construction phase. "We are supporting businesses, looking at what the makeup of businesses is going to be in the new downtown. It will be a good balance between local independent stores and the major stores the developers will be bringing in," says Davis.

Davis says the summer music series that was started five years ago was part of the effort to bring people downtown. "If businesses want to benefit in the long term, they have to stay there for the short term," she says.

Future prospects

But looking to the future of the city and the valley, Davis says the next wave of innovation will be in the convergence of information technology, biosciences and nanotechnology. Davis points out that 33 percent of venture-capital funding in Silicon Valley is currently going into life science. In June, the city will participate in an international bioscience convention, called BIO 2004, to be held in San Francisco, at which the city, as part of the valley, will showcase itself as an attractive location for bioscience companies. "I think Sunnyvale is really well positioned to take advantage of the next growth industry, since a majority of the biotech companies are medical-device companies and we already have a cluster of them here. We are close to the NASA Ames research center, and we also have a proven, cutting-edge technology workforce."

But for now Davis sees constant economic monitoring as the way to weather the current financial turmoil. "Whether at the state level or local level, one of the solutions is to support the business community and help the growth of the business community—it will be a part of the solution to the situation we are in."