America may be in a recession, but that’s not stopping thousands of would-be entrepreneurs from using their severance pay or savings to do something they’ve always hankered to do: be their own boss.
Even as more and more large companies hand out pink slips, budding do-it-yourselfers are starting new businesses – some of them far different from the jobs they used to hold.
A former Wall Street executive now is walking dogs instead of making deals. A laid-off banker is offering soothing massages. Earlier this month, a former marketing executive – and mother – started a business that helps other moms find work.
Small businesses have long been a key part of America’s economic makeup, representing the majority of the jobs created in the country.
Even now, as big businesses shed thousands of workers, small businesses are shrinking at a slower pace, recent economic data suggests. If Congress passes President Obama’s economic stimulus package, small businesses could get help in the form of an increased ability to expense their capital purchases, such as expensive printers or computers.
Several aspects of the stimulus package are designed to help small businesses, says Richard DeKaser, chief economist at National City Bank, part of Pittsburgh-based PNC Bank. Traditionally, he says, small businesses have been “more resilient” in creating new jobs, “and the past year has been no exception.” [Editor's note: The original version misidentified the bank that Mr. DeKaser is affiliated with.]
Data through the end of the third quarter of last year suggest the number of self-employed remained relatively constant, the Small Business Administration (SBA) Office of Advocacy reports. Since the mid-1990s, small businesses have generated 60 percent to 80 percent of net new jobs, the advocacy office says.
This is not to say the small-business community is as vibrant now as when the economy roars. After growing quickly in the past few decades, small businesses are experiencing a “modest” decline now, the International Franchise Association says. For 2009, the IFA projects a loss of 207,000 jobs.
The federal government defines a small business as having fewer than 500 employees. But of the 6 million small businesses with employees in 2006, 5.4 million had fewer than 20. Some 2.9 million had four or fewer.
And those statistics don’t include some 21 million “nonemployer” firms, single-person shops or small partnerships.
Anecdotal evidence suggests that thousands of Americans are considering starting their own business.
In most Decembers, “people are usually distracted from entrepreneurial things,” says Rich Sloan, cofounder of StartupNation.com. But this past December, the traffic on his website, which offers services to individuals interested in starting a business, was 80 percent higher than in past years. “We are seeing an incredible burst of entrepreneurial curiosity,” says Mr. Sloan, who lives in Sonoma, Calif.
Franchises often appeal to people who are accustomed to working for an established company. “It attracts people who have more operational experience, who are risk averse, [who] want to work with a formula” and be the person executing that formula, he says.
One of those people is Angela Dillen, who worked for 15 years at Citigroup in Dallas. She attended a “discovery” day for Massage Heights, a franchise business that offers individuals an opportunity to start their own small therapeutic spa businesses. “I liked their operations and how they support us,” she says. She has set up her business in Keller, Texas, a suburb of Fort Worth. “The customers come out glowing and happy, so it’s a nice environment to work in every day.”
Despite tighter bank lending standards, Ms. Dillen was able to secure a bank loan guaranteed by the SBA.
Running a franchise also appealed to Vickie Tompkins of Beaverton, Ore., who spent 30 years in production manufacturing and as a quality-control supervisor in the chemical and circuit-board industries.
She lost her job as part of a downsizing in December 2007. After eight months of research, she bought a franchise from Synergy HomeCare, which provides nonmedical help to people in their homes.
“I’ve had a marketer help me” launch the business, she says. “I go to functions, introduce myself to nurses, hand out fliers [and] business cards, and visit rehab centers. Now, I can’t wait to be able to help someone [else].”
Deborah Jack of Fort Lee, N.J., also wants to help people – and their pets. In 2006, Ms. Jack lost her job on Wall Street in a restructuring. In May 2007 she purchased a franchise called Fetch! Pet Care. Now, she walks dogs and employs people who dog sit or provide other pet care services.
“As much as I loved my clients on Wall Street, they were never jumping up and down when they saw me like my clients today,” she says.
Some former executives are using their severance money to fund their startups. That’s the case at Jobvana.com, whose founders used to work for Washington Mutual, the bank that is now part of JP Morgan Chase.
Jobvana, a social-networking website, matches people with services, such as an electrician with a homeowner. “eBay created a huge market for goods; what if we could do that for services,” says Peter Olson, chief marketing officer of the Seattle-based company.
Helping other people get work also appeals to Betsy Libby of Oakland, Calif., who started a website called Giveamomajob.com earlier this month. The former consultant dropped out of the work force and to start a family five years ago. She already has 120 moms signed up who are looking for work with flexible schedules.Many new entrepreneurs set up shop in a familiar place – their homes. According to the SBA Office of Advocacy, of the estimated 27.2 million small businesses, 52 percent are home-based.
In mid-November, he formed Fieldbrook Solutions, which provides IT support and backup to small- and medium-size businesses.
Because Mr. Dinerman has virtually no overhead, he can charge less than his competitors. “It’s going pretty well,” he says. “Some days I have more work than I can handle.”
For those starting a business that’s aimed at serving other businesses during a recession, finding a diverse roster of clients is a good idea, says Matthew Cheng, founder of eCoupons.com in New York City.
“You just don’t know who will survive all this,” he says.
Peter Rinnig, who worked for the Internet search company Lycos.com during the dotcom boom, bought QRST’s, a screen printing and embroidery company outside of Boston.
He advises budding entrepreneurs to prepare for tough times. “I took no salary for the first six months to make sure the bills got paid, and then a minimum salary for the next six months,” he recalls. “I didn’t get up to my Lycos salary for two years.”