Defying the Recession to Launch a Biz

When metal worker Ken Kash was laid off in July from his job at a theatre set company, he decided not to look for another full-time position
April 04, 2009 When metal worker Ken Kash was laid off in July from his job at a theatre set company, he decided not to look for another full-time position. Instead, he's pursing a longtime dream: launching his own company.

"I'm 48, and I feel that if I wait too much longer, I won't have the energy or ambition," says Kash, whose Hillsborough, N.J., company takes commissions for metal furniture and ornaments. "Now's the time to make the move."


Kash isn't alone. Entrepreneurship experts say many people feeling squeezed by the tight job market are looking to become their own boss.


Rich Sloan, who runs
StartupNation.com, has had a flood of traffic and e-mail inquiries on his site from people looking for franchise opportunities and business ideas.

"In these difficult times, options are narrow. People who had work and contract work no longer do," Sloan says. "They're being forced to go after business ideas that were gathering dust because they desperately need income."


For aspiring entrepreneurs, getting started in the middle of an economic meltdown isn't easy. Bank lending is
extremely tight, credit-card companies have hiked rates and cut credit lines, consumers aren't spending, and stock portfolios and retirement accounts that might once have provided business founders with working capital have been decimated. Want to borrow against your house to fund your company? Good luck finding a willing lender.

Growing an organic food empire

"There are real restraints that can reduce the number of startups," says Tim Kane, economist who studies entrepreneurship at the
Kauffman Foundation. "Self-employment rises in recessions, but entrepreneurship doesn't necessarily rise."

Starting small, Growing big

Entrepreneurship, in the classic sense, means starting a venture that eventually grows into a bigger company. Many of those going solo now will never expand their business beyond a sole proprietorship: Of the nation's 27 million small businesses, just 6 million have employees beyond the owner, according to Small Business Administration estimates.


Recessions are an especially challenging time to launch. A recent Kauffman Foundation study of economic cycles over the past three decades found that business startups typically decline slightly during downturns. But every business has to start somewhere, and a separate Kauffman Foundation analysis indicates that around 25% of young businesses with employees initially had no staff beyond the owner. Then they grew, and began hiring additional workers.


That's how Alex Garcia of Orange, Calif., sees his business progressing. Since he was 20, he's been a professional driver, and he's been saving up to start his own limo company. Now 28, Garcia owns a town car and has gathered the driving and business permits he needs, but he's still about $10,000 short on the capital to cover his operating costs and vehicle maintenance.


"I've decided not to over-think it and just go for it," he says. "I've got my marketing materials ready to go and I hope to start really soon, even though I'm nervous about the financials. But once my family sees the business is successful, they will help out with the startup costs. Then, I plan on hiring my brother."


Talk back: Would you launch a biz now?
Launching a business when consumer spending is way down requires strong discipline, says StartupNation's Sloan. There's no room for error.

"You need to be conservative with spending, and aggressive as hell with marketing," he says. "You need to be resourceful, and spend only where you see performance. [This] will make you a better business person. When things turn around in three years, your business will be built on solid fundamentals."


If it makes it that far. Ron Carroll, president of
Get a Grip America in Chicago, faced a tough reality check during the last recession, in the wake of the dot-com bubble bust.

At the time, he was owner of a cyber café business he founded in 2000. Carroll put Internet-connected computers in cafes around Chicago and charged 10 cents a minute for their use, splitting the profits with the store owners. For several years, business was good, but then the tide turned. Starbucks (
SBUX, Fortune 500) put a number of his coffee-shop clients out of business. Laptop prices plunged, and fewer people needed to pay for on-the-go Net access.

Carroll did everything the experts recommend. He was careful with his finances and creative with his marketing. He created an additional revenue stream by adding a screen-saver application that showed ads when the PCs were not in use. He monitored his expenses and budgeted for machines to be repaired and replaced. But Carroll couldn't keep his struggling company in the black, and in 2003, he was forced to sell it.


After he cut the business loose, Carroll hopped back on the entrepreneurial bandwagon and started Get a Grip America, which organizes athletic and social gatherings.


"I definitely learned lessons," Carroll says of his experience with his previous company. "I learned how to pick better business partners, and I also learned that I wanted the business to start only on my money. I had money from friends and family last time, but I didn't want to do that again."


Severance packages are a traditional wellspring for start-up capital - and right now, many corporate refugees are eyeing their final paychecks. Matthew Sarrel used his as a launching pad five years ago: When he was laid off, he hung out his shingle and opened the
Sarrel Group, a New York City consulting and development firm for tech companies.

"Between severance and money I'd saved for an apartment, I realized I could really do this," he says. "I was scared to use my severance and savings. But I accepted the risk because I felt that it would be more emotionally and financially rewarding than taking the safe job and working for someone else."


Even when the economy was good, Sarrel had to cut close to the bone - he quips that he "pulled computers from garbage" to provision his fledging business. He went in prepared to weather a slow start, with several months of living expenses socked away in the bank. Even with that, Sarrel recognizes the hazards of having no employer to fall back on.


"I'm not married and have no children. I do think if I had to put food on the table for my children, I might not have been able to do this," he says. "But being alone, no matter how bad it gets, I could always just move somewhere cheaper or save money another way - it was just me."


If the business fails, "there's no safety net in this economy," says Kane of the Kauffman Foundation. "You put yourself at risk."


Metalworker Ken Kash has been off to a rough start. The economy has only grown worse since
Ken Kash Designs opened for business this summer. The company is still running in the red, and Kash is having trouble pulling together the $50,000 he'll need to secure his own shop and machinery. But he's determined to get his business off the ground.

"I'm optimistic," he says. "I have the knowledge and the talent to do it - I just need to broaden my client base and find a place to do the work."


That kind of single-mindedness is critical. The key to making it as an entrepreneur in this economy is personal passion, says Charlie O'Donnell, a former venture-capital analyst whose Web site
Path101.com is poised to launch later this month.

"The people who say they want to have their own company for flexibility and to be able to call the shots - they have no idea," he says. "It's not as if I have my feet up as a business owner. You're always under the gun. Starting a company sucks - it's all about contracts and incorporating and cash flows and hiring and stress. But if you can solve a problem and you're passionate about solving that problem, it's awesome."