Q: I was recently laid off and am torn between looking for a new job and starting my own business. What are my chances for success in this economy?
Cheryl K., Amarillo, Texas
A: Would you believe me if I told you that right now is a great time to start a business? Well you should because it's true. Recessions are typically among the strongest times for new
business startups. Consider:
- 16 of the 30 corporations that make up the Dow Jones industrial average started during recessions.
- Disney began during the recession of 1923-24.
- Hewlett-Packard was begun during the Great Depression (in 1938).
- Microsoft began during the 1975 recession.
In fact, it is this tendency of unemployed and under-employed individuals to become more entrepreneurial during recessionary times that creates the steam that moves the economy out of
recession. New businesses that begin during a recession create the jobs that move the economy back on track.
Take the last major recession for example. During 1991-92, self-employment was at an all-time high of 7.7%. During 1999-2000, it hit a 50-year low of 6.6%. Moreover, during the last
recession, it was the laid-off white-collar executive who was most likely to start a business: In the early 90s, roughly 25% of downsized managers over 40 started their own company.
This trend seems to be occurring again. According to the outplacement firm Challenger, Gray & Christmas, in the first six months of 2002, 11.4% of jobless managers and executives started
their own businesses.
For sure, part of the reason for so much entrepreneurship during lean years is that people often are left with little choice. Like you, the thought of looking for work when no one seems
to be hiring is not too appetizing. Given an alternative between that and starting a new business, the new business often wins.
But there are other, more fundamental reasons why new business begin and succeed during recessions. For one, labor is discounted during an economic down cycle. With unemployment high and
the economy fairly stagnant, wages are depressed, which is good news for the entrepreneur.
The high wages and benefits that were so common during the go-go '90s are gone-gone today. People now will work for less, especially those employees who are willing to work for a new
startup. In fact, it was reported in USA TODAY just last week that tech workers in the Silicon Valley are now working for free, simply to keep their skills sharp.
But wages are the only discount you will find if you start a business right now. Goods and services can be had at discounted prices as well if you look. Even better: rent should be very
reasonable. As office vacancies rise, rents fall. Nationwide, office vacancy rates have jumped above 11% from 7% only a year ago, according to Cushman & Wakefield.
What all of this means is that your odds of success increase dramatically if you start a business now because your overhead will be much less than if you were to it in boom times. And
since keeping your overhead low is a basic component of small business success, this bodes well for today's entrepreneur.
So it just may be that now is the best time to start a business. Who woulda thunk it?