Revisiting the Face of 'Necessity Entrepreneurship'

With the unemployment rate steady at 9.7%, not many Americans turn down job offers these days—especially those who have been laid off. Art Wells is an exception. The Portland, Ore., Web developer has left two job offers on the table in the last year. He chose instead to stick with the freelance business he started in late 2008 after being laid off by lighting manufacturer Rejuvenation. Although he starts most weeks not knowing who he will be working for, new clients keep ringing. "Two new jobs called in this morning," Wells said during a 9:30 a.m. interview on a recent Friday.

An unknown number of Americans who lost jobs in the Great Recession responded as Wells did—by creating their own. We profiled 26 such ventures one year ago. Over the past month, we reached out to all of them to find out how they've fared. Of 23 who responded, 15 are still pursuing their original businesses full-time. Five have returned to full-time jobs, some keeping their startup ideas as side ventures. Others took less expected turns: a round-the-world-trip, for instance, or a career shift to teaching yoga.

The rate of so-called "necessity entrepreneurship"—people starting businesses because other income opportunities are gone—increased sharply in the U.S. during the recession, according to the Global Entrepreneurship Monitor, a research project that tracks entrepreneurship. Necessity was a factor for 24.7% of new U.S. ventures in 2009, according to GEM surveys, up from 16.3% in 2007. For some of these entrepreneurs, getting laid off presented the opportunity to pursue business ideas they had long considered but didn't want to risk leaving a job for. "They really have everything to gain if there are no other good prospects for work," says Donna Kelley, professor of entrepreneurship at Babson College, who has worked on the GEM project. "You start to see a decline in necessity entrepreneurship when there is a healthier economy."

"I think I'm supposed to get paid"

The 42-year-old Wells is a recession success story. Laid off from a position where he was unhappy, he now earns more in his own business, with revenue of $95,000 in 2009. Even so, he says building his business in a rough economy was not easy. Early on, some months brought in no work.

Many entrepreneurs we interviewed struggled in the last year. Tom Hodge, a 35-year-old toolmaker who worked for 12 years at the General Motors plant in Moraine, Ohio, started his own machine shop after the carmaker left the city at the end of 2008. His customers are manufacturers, and "there's not a lot of manufacturing going on," he says. He's trying to supplement that work with making his own products to sell directly to consumers—custom motorcycle parts, trailer hitch covers, and other accessories.

Since making his first sale in July, Hodge brought in $26,000 in the second half of 2009. He's still building relationships with customers, and believes his firm is on the path to sustainability. Hodge says he has a bailout plan—a point at which if his business does not seem viable, he'll shut down and look for work. He hopes not to need it. "I'm certainly not profitable yet, but I'm almost to the point where the business can maintain itself and pay the employees," he says. "At some point, I think I'm supposed to get paid."

For some, rebound ventures proved useful bridges between jobs. Ryan Kuder, 35, a former Yahoo! (YHOO) marketer, spent a year and a half working with a business partner on a Web startup called Koombea. He was glad to return to full-time work in February as vice-president of marketing for Biz360, a company that makes social media-monitoring software. But Kuder doesn't regret his entrepreneurial venture, especially in a period when jobs are hard to come by. "Nobody was getting rich but we were able to pay the bills," he says.

For a look at where each venture is now, flip through this slide show.

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