It's a familiar scene these days: The laid-off employee knocking on the door of a small-business development center, looking for advice on how to start his own company. That scenario is expected to become more common in the second half of the year as corporations continue to cut thousands of workers. But is a layoff the right motivation for going into business? Is the midst of a slowing economy the right timing?
Counselors at small-business development agencies, many of whom have seen an uptick in inquiries as layoffs climb, don't rule out jettisoned workers as good candidates for business ownership. Nor do they see the current economic climate as unsuitable for startups. They do, however, have some words of caution for corporate refugees considering going it alone. Those caveats fall into the categories of "know thyself" and "know thy market."
First of all, aspiring entrepreneurs need to look at their reasons for wanting to start a business. Anyone acting out of desperation doesn't make a good candidate. On the other hand, the 40-year-old middle manager who has long thought about turning his carpentry hobby into a business but couldn't quite give up his corporate comforts -- until the layoff -- might be a good candidate.
PASSION AND NEED. "You should want to start a business because you have a passion and there's a need for what you're offering, not because you've been turned down and beaten down," says Stanley Greene, counselor at the Small Business Development Center in White Plains, N.Y.
Entrepreneurs fall into three categories, says Jeanne Strain, executive director of the Cambridge Business Development Center in Cambridge, Mass. There are those want their own business under any circumstances. Then there are the people who will not strike out on their own as long as the labor market is good and salaries are rising. Finally, there are those who view self-employment as a last resort. "It's that pool of people you start to see in a recession -- as well as the next level down, who are the desperate ones, who are saying: 'Oh my God, I don't know what else to do,'" Strain says. "People who become interested in starting a business because they've been laid off generally don't go into it as cognizant of the risks/rewards as they might be."
To become cognizant, put together a business plan, the advisers say. That will help determine the market and the financials. Finding out if anyone wants what you aim to sell has to come first. The Michigan Small Business Development Center has full-scale market-research assistance to help would-be entrepreneurs decipher demographics and other data that could be pertinent, says State Director Carol Lopucki.
INFORMAL RESEARCH. In the case of the middle-manager/carpenter, for example, it might be possible to have student interns call potential clients to evaluate how well subcontractors are doing in the region, and to get an idea if the market is saturated.
Those without access to such research help should do what Greene calls "curbstone" market analysis: Talk to as many people as possible who know something about the line of business being considered. Also talk to potential customers. Tell them your plan and listen to their reaction or advice, some of which will be valuable. "You're not going to find the answers in the library," he says.
Adds Lopucki: "You have to have the technical ability, but the best carpenter can go under if he can't market himself, make the right partnerships, be astute about his billing." She sees her job as opening the eyes of would-be business owners. "They think it's about getting a license and the right tax forms and maybe a loan," she says. "It's about so much more than that."
YELLOW LIGHT. It's about money, for one thing. Is the severance check or the savings account big enough to cover insurance, equipment, advertising, operating expenses and, at least for a while, living expenses as the business is built? Exiles from the corporate arena lack a customer base and often underestimate how long it will take to get one. "Everyone thinks if they build the field, people will come," Lopucki says. "It takes time."
In an economic downturn, it could take even more time. Although a slowing business climate isn't a red light for startups, it's a definite caution signal. Unless an aspiring entrepreneur plans on catering to the very wealthy, who tend to be better insulated from economic ups and downs, he might be better off trying to fill a need rather than cater to a taste for luxury. Also, service companies tend to require less start-up capital than other businesses.
Timing does matter, says Lopucki. "Certain things are very fragile right now -- you don't want to start a dot-com business. If you're high tech, you've got to be in sync with the industry. If you're a mom-and-pop storefront, you've got to ask: 'Is this a necessity? What are people doing with their money these days?'"
ON THE MENU. Although entrepreneurship won't be the next step for the majority of those on the layoff lists, it's a viable option for some. Therefore, small-business advisers are starting to become an element of the outplacement services many corporations provide. The Small Business Development Center of New Jersey is talking to corporations about offering company-startup information to laid-off employees, says Mari Galvez de Cerdas, a regional director. And the Michigan center has been asked lately to provide business-startup seminars at several corporations.
"We help people be very realistic" about striking out on their own, says Strain. "If they decide not to get started, that's a good outcome. A wrong turn not taken is always a good move." By Theresa Forsman in New York