Starting a Business : is my Plan B

CALL them accidental entrepreneurs, unintended entrepreneurs or forced entrepreneurs. A year and a half into the Great Recession, with the jobless rate hovering near double digits, corporate refugees like Lisa Marie Grillos of San Francisco are trying to fend for themselves.

Along with her brother Hernan Barangan, Mrs. Grillos started Hambone Designs, after her full-time contract position with Williams-Sonoma as a production manager wasn’t renewed in January. The new company makes bicycle bags that hold things like keys, wallets and cellphones.

“You have the time — why not focus your energy on something, rather than just trolling Craigslist and sitting and watching TV?” Mrs. Grillos says. “It’s really taking matters in my own hands.”

Mrs. Grillos, 34, built a Web site called hambonedesigns.com, opened a virtual shop on Etsy.com, an online marketplace, and hit San Francisco street fairs. So far, between the online marketing and the street fairs, she and her brother have sold 70 bags, which retail for $20 to $40. Each sale results in a profit.

“We have been talking about mass producing, but we’re not there yet,” Mrs. Grillos says. “It is a whole other thing, approaching stores and having the inventory.”

To help make ends meet, Mrs. Grillos also does textile design and photography projects, and it helps that her husband has a full-time job.

Others among the unemployed are taking the entrepreneurial route. The most recent Index of Entrepreneurial Activity by the Kauffman Foundation showed a slight uptick of new businesses in 2008 — a full recessionary year — over 2007. An average of 320 Americans out of 100,000 formed a business each month, Kauffman said. What’s more, it found, the patterns “provide some early evidence that ‘necessity’ entrepreneurship is increasing and ‘opportunity’ entrepreneurship is decreasing.”

Accidental or by design, entrepreneurship is on the rise again this year. LegalZoom, the online legal document service, says the number of new businesses it helped to form was up 10 percent in the first half of the year, compared with the period a year earlier.

“We were surprised,” says Brian Liu, co-founder and chairman of LegalZoom. “We expected there to be a drastic downtick.”

LegalZoom’s top five areas of incorporation, he says, are real estate, consulting, Internet (including electronic commerce), retail, and construction and contractors.

To be sure, a vast majority of corporate workers who have been laid off since December 2007 have sought another corporate job. After all, starting a business in the worst downturn in decades seems especially risky. Only two-thirds of new small businesses survive at least two years, according to the Small Business Administration. That survival rate falls to 44 percent at four years, and to 31 percent at seven.

The silver lining may be that the survival rate is about the same in expansions and recessions, says Dane Stangler, senior analyst at Kauffman.

WHILE the Internet has made the formation process quick and inexpensive — papers can be filed with LegalZoom, for example, for $149 in addition to state filing fees — the costs of owning a business add up quickly. There are state and local taxes and fees, insurance, salaries and contract pay, overhead, inventory and the like. And these days, lenders are none too generous when it comes to forking over money to new businesses.

These factors, combined with the lack of a steady paycheck, often-inadequate health insurance and the sheer emotional stress of being unemployed, may prevent many people from setting out on their own.

But research on what is known as post-traumatic growth has found that some people become more resilient when faced with adversity, says Shawn Achor, a Harvard researcher. Creativity surges, he says, as they adapt to a new situation.

“Their brain is actually learning at a faster pace than when they are not challenged,” Mr. Achor says. “As a result of this, some individuals, the accidental entrepreneurs, they are the ones who in the midst of crisis actually respond with growth.”

In a report this summer on innovation, Ernst & Young wrote, “Experience shows that entrepreneurs should not give up on start-ups in a down economy.”

Many companies with billion-dollar market capitalizations were started during a recession, the report said, including Starbucks, Intuit and PetSmart.

Research from Kauffman in June found that more than half of the companies on the Fortune 500 list in 2009 and nearly half of the companies on the Inc. magazine 2008 list were founded during a recession or bear market.

Lynn Zuckerman Gray, 60, hopes to be one of the success stories of this recession. She lost her job at Lehman Brothers almost a year ago, when the firm collapsed. A former chief administrative officer of its global real estate group, she found herself competing with a rising number of job seekers for a dwindling pool of jobs.

Ms. Gray ended up participating in a New York City program, offered in conjunction with the Kauffman Foundation, called FastTrac NewVenture. The program, for employees displaced by the financial crisis, sent Ms. Gray in a direction she never thought she would go: starting an on-campus recruiting company called Campus Scout.

“I guess I had an entrepreneur simmering inside me because I’ve always been very creative,” she says.

The cost has been hundreds of dollars here and there, she says. Still, the reality of her financial situation is daunting. Her severance pay from Lehman ended this month, and she is now eating into her savings. So far, her new venture, Campus Scout, is in start-up mode and does not have any clients.

She says she is going to try to get part-time work, teach university classes and do some freelance writing to generate cash flow so she can keep her business going for at least two years.
Source: NYTIMES