Down times spark start-ups
Americans dealt pink slips chase new dreams, either by choice or default.
Last August, after a 15-year career in Internet software, Don Bender was laid off. Tired of the corporate world, he decided to use his three-month severance package to start a photography business, fulfilling a long-standing dream.Skip to next paragraph
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"This is something I've been contemplating for a few years, and this was the perfect opportunity," says Mr. Bender of Austin, Texas.
With that decision, he joined an intrepid band of pink-slipped workers who are trading 9-to-5 jobs with steady paychecks for independent business ventures. For some, like Bender, the switch to self-employment involves a deliberate choice. For others who are unable to find another job in recessionary times, it represents a default position. Either way, the move requires hard work and often a steep learning curve.
"Some will say they want the 'freedom' of coming and going as they please. Wrong. You'll put in more time than ever," he says. "And if you've come from a salaried position, you're accustomed to getting that paycheck every week or so, like clockwork. That's not the case when you have your own business. It does require a different mind-set – the difference between having an employee mentality and an entrepreneurial mind-set."
The latest data from the Bureau of Labor Statistics show that the number of self-employed Americans has fallen by an average of 74,000 per month since August. In February, there were 8.9 million self-employed Americans, down from a peak of 9.9 million in December 2006.
For Bender, preparing for his entrepreneurial venture included creating a website and enrolling in business classes. Even so, he has faced challenges.
"I'm primarily an action photographer, shooting high school football games and motocross events, and the equipment needed for this type of photography is costly," he says. "I ended up using much more of my severance money on equipment than I originally planned. That has forced me to look for contract work back in the high-tech industry. Becoming profitable has been a slow process, which has caused me to reevaluate my business plan and pursue some more profitable options, such as wedding and portrait photography."
When those who have been laid off say they want to start a business, Jim Malski, president of Action Coach, business consultants in Westport, Conn., asks an all-important question: "Why are you doing that?" He adds, "Running your own business is hard. Deciding to go into business as a last resort is a bad reason. A good reason is, 'This is something I've wanted to do for a long time.' "
Mr. Malski notes that 80 percent of businesses fail before Year 5, and 96 percent fail before Year 10.
"They must really define what business they are in," he says. "Many people haven't fully defined who their customers are, how they'll reach them, and how large the target market is." In addition, many who go into business don't fully analyze their competitors and what strength the competition has.
"A key question to ask up front is, 'Why would anyone buy this product or service?' " Mr. Henley says. During an economic downturn in particular, the biggest risk is that potential customers are not spending money.