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Defying an Unsteady Economy, Entrepreneurs Venture Forth
In these tough economic times, people are backing down on their spending, investing less and saving more. Cash flow just isn’t what it ought to be.
So it may seem too perilous for people to strike out on their own and start their own business. Who wants the risk?
As counterintuitive as it may seem, however, now is probably one of the best times to get entrepreneurial.
“One reason people start their own businesses in a down economy is because they have to,” said Marsha Bailey, executive director of Women’s Economic Ventures, an organization that helps new entrepreneurs — women and men — get the skills and the knowledge they need to start up their own business. In fact, she said, WEV started in the middle of a deep recession in 1991, when work was scarce and one of the few alternatives for people was to create their own jobs.
“People are still going to get haircuts, people are still going to take their kids to the babysitter, they’re still going to buy food,” she said.
It might not be the hot-shot small business that takes the world by storm, the kind in which venture capitalists are going to want to invest millions of dollars. But since potential big-time investors have become more risk-averse these days, starting a very basic small business could be easier — and more productive — than hunting for the large sums of cash to fund a more grandiose scheme.
That was the case for Victoria Murphy, who started her own window-washing business. When she was laid off more than a year ago, she decided to take the opportunity to pursue her dreams to become her own boss.
“I’m very positive about it, even in a bad economy,” the former waitress said. “We live in Santa Barbara, and it’s always going to be expensive. So this is nothing new.”
For other microenterprise entrepreneurs, starting their own business is a way of recession-proofing their lives. Randi Hilliard, for instance, turned a necessity into a hobby, which then became a livelihood that has managed to buck the current trend of declining jobs.
“What I kept in my mind was the ‘lipstick factor,’” she said. The so-called “lipstick factor” is the concept that originated in the Great Depression, when people would indulge in small-ticket items that they could afford to make themselves feel good, as opposed to lavish purchases.
Hilliard’s business, Rand Hill Naturals, has taken advantage of that concept, to the point where she will soon be moving out of her kitchen, where she makes her organic soaps and other items, and into a space dedicated to manufacturing her products. She’ll also be hiring an employee or two in the near future.
Still, starting a microenterprise, no matter how basic, is not for the faint of heart. Statistics say that half of all small businesses fail within the first 18 months.
“What we tell all our clients is that they have to carefully examine and explore all the risks involved in starting their own business,” said George Ruznak, chairman of the local chapter of SCORE-Service Corps of Retired Executives, a nationwide organization that mentors small business owners on the ins and outs of running a business.
What sets the successful entrepreneur apart is that he or she takes the time to become knowledgeable of the market and the pitfalls that can be encountered, Ruznak said. For instance, he said, in this economy, businesses that are connected to housing or real estate — interior design, furniture retail, lansdcaping — are riskier than businesses in other growing industries, like green energy.
Another pitfall of the current economy, of course, is getting the cash to make a go of one’s own business.
“We tell our clients that getting the money is going to be more difficult and more expensive to get,” said Ruznak. In the best-case scenario, he said, new entrepreneurs would rely on their own resources. For those who aren’t flush, there are microloans available. But the name of the game these days to keep the cash flow steady: renegotiate existing contracts if possible, no unnecessary outlays, lease instead of buy.
To a certain degree it just comes down to perspective. Starting a business may be difficult these days, but the notion is that if you can sustain an even moderately successful business in this economic climate, chances are when the economy gets better, the business will be even stronger.
“Whether or not you succeed as a company, sometimes it’s easier when there’s only a few of you around,” said Bob Johnson of the Central Coast MIT Enterprise Forum, an organization that tackles the challenges of tech startups in the region.
Santa Barbara, said Johnson, is a particularly interesting area because people tend not to want to move away, even if it is expensive and there could be other opportunities elsewhere. One strategy in the local tech industry has been to stay relatively physically small, like, say, a software company, but have a market that extends beyond the local region.
It may make for more intense competition, but according to Johnson, it’s a trial by fire that can prove a a company’s worth.
“In some ways you can argue that when it’s hard to get money, those that do actually get a better shot at succeeding,” he said.
Write to sfernandez@noozhawk.com
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