Laid Off? Start a Business
Be your own boss and thrive -- even in a recession.
Wayne Salk was already thinking that what he'd saved for retirement wasn't enough. But at age 64, he wasn't sure how much longer he wanted to keep his job as a distribution manager for a real estate magazine. "I wanted something of my own," says Salk, who lives in Sebastopol, Cal., near San Francisco. "I had some money set aside, and I'd been looking for a business for some time."
Then, like so many other workers these days, Salk got a nudge in the form of a pink slip. "The door opened and I was pushed out," he says.Now Salk, an avid birder, is scouting a location for a Wild Bird Center franchise. The stores sell seed, feeders and other accessories for backyard bird buffs.
He likes the proven formula of a franchise: He can draw on expertise from the main office and enjoy bulk-buying discounts in exchange for a percentage of his sales. Salk estimates the store will cost $140,000 to $150,000 to set up -- most of his retirement savings and a small inheritance.
Bucking the economy
The midst of a nasty recession may seem like the worst time to start your own business. But history shows plenty of corporate legends, including Microsoft, Genentech and Southwest Airlines, were founded during economic downturns.
By one measure of success -- eventually selling shares to the public -- it makes no difference whether a company is born when the economy is healthy or when it's ailing. And while the credit crunch is making it harder for those without severance or savings to strike out on their own, the recently passed economic stimulus legislation includes a number of measures to loosen the financing logjam.
The odds favor some businesses over others. In its outlook for franchises in 2009, PricewaterhouseCoopers forecasts that the number of establishments will contract by 1.2%, while the number of jobs will shrink 2.1% overall. The jobs outlook is bleakest for automotive businesses, retail food operations, and retail products and services --- each is predicted to lose more than 5% of workers. But fast- food and full-service restaurants will grow in number and log a net increase in employment, and personal services won't suffer much.
Within those broad categories, variations make all the difference. Retailers of luxury goods might struggle, but those that sell necessities or affordable extras -- like, say, a bird feeder for the backyard -- might fare better. George Petrides Jr., vice-president of franchise development for Wild Bird Centers of America, says sales at 80 franchises were up 4% overall last year, and up nearly 20% in January versus January 2008. "That's a minor miracle in retail these days," says Petrides.
Some franchisors are reaching out with incentives. Orlando-based SKYShades, which makes sun shades for homes and businesses, will refund its $75,000 fee if store sales fall short of $1.5 million over three years. Texas-based CiCi's Pizza waives a $25,000 fee for existing CiCi's franchisees who buy another franchise. Wild Bird Centers will take $10,000 off the $23,000 franchise fee and provide $10,000 in financing for store build out in selected markets, including Dallas, Atlanta and the Washington, D.C., metro area.
Franchises, however, are but a part of the small- business universe. Some 52% of small businesses are home-based; some 21 million have no employees beyond the founding entrepreneur. Such businesses range from eBay sellers and dog walkers to tutors, real estate agents and consultants, including government contractors. While employer firms tend to move in lock step with the economy, one-person enterprises tend to move in the opposite direction.
Says economist Brian Headd, of the Small Business Administration: "Non-employer firms have the highest growth when the labor market struggles and the lowest growth when the labor market is doing well." Because loans are a small part of such start-ups, he sees no reason why "the data won't follow similar patterns" in the current recession.
Indeed, retired small businessman Martin Lehman, who counsels would-be entrepreneurs at Score, an SBA affiliate, says business has increased. He's seeing a lot of people teaching children at home or trying to open a studio to help people with exercise or personal training.
Getting a loan
For budding magnates who need to shake the money tree to get started, the stimulus package could help. The bill sent $730 million SBA's way, some of which will be used to temporarily eliminate or reduce fees on SBA loans. And the SBA will now guarantee 90% of small-business loans made by banks, up from 75%. The legislation should also boost micro loans of up to $35,000 for firms with fewer than ten employees, provide refinancing opportunities for loans on land or machinery, and provide 100% SBA guarantees on bridge loans of up to $35,000 to help firms having trouble paying non-SBA loans.
In this economy, friends and family, by far the most common sources of start-up funding, may not be as easy a touch as they might have been a few years ago. Likewise, lenders who take a flier on a friend or a brother-in-law should consider such loans more gift than investment.Still, for those willing, Prosper and Virgin Money can help structure and administer such loans, so that your business arrangements have less chance of wrecking your Sunday dinners.
Don't overlook the many other resources available to start-ups. Score has 12,000 mentors, mostly retired, located in 390 chapters nationwide. They will advise you for free, in person or online (www.score.org). A nationwide network of Small Business Development Centers, a joint effort of the SBA, colleges and universities and state and local governments, provides management assistance at some 1,000 locations nationwide. Local business schools or entrepreneurship programs may have students eager to consult on real-world projects.
And the same advice that career counselors give job seekers applies double to entrepreneurs: network. Local Rotary Clubs or Chambers of Commerce are good starting points, as are online networking sites such as LinkedIn -- often called the Facebook for professional contacts. Also check out sites devoted to small-business communities, such as StartupNation.com.