December 18, 2009
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Who among us doesn’t know someone who’s been downsized and gone on to start a business? Perhaps that describes you.
In recessions and times of high unemployment, greater numbers of people start their own businesses. There’s actually research to support this.
The latest research, hot off the presses from the U.S. SBA’s Office of Advocacy this month, found a clear correlation between high unemployment and business starts. The report, called, "Nonemployer Start-up Puzzle" (PDF) found:
“Detailed examination of the coefficients shows that unemployment is the strongest driver of nonemployer firm start-up activity. A 1 percent increase in the rate of unemployment increases firm births by 0.04 points.”
Translation: people go out and start businesses more frequently when unemployment is high.
That’s interesting information that confirms what many of us already believed.
But what’s even more interesting is “WHY” people start businesses. Let’s look at 5 common reasons people give for starting a business during tough economic times, and see whether they are good reasons for starting your own business.
Reason #1: Can’t Find a Job
Many of us tell ourselves we can’t find a job. “We have no choice,” we think. I don’t know how often this is really true. But I will say this: if that’s your sole reason for starting a business, you probably will be dreadfully unhappy in that business. You’re running from something, instead of enthusiastically toward something.
If this describes you, I’d recommend you either embrace starting a business without hesitation – or look for a job harder. Do some freelancing or consulting on the side if you must, but stay in the job market. You’ll be less conflicted; and happier.
Reason #2: Want to be Your Own Boss
“No more layoffs, no more RIFs, no more bosses’ dirty looks”… to paraphrase that old ditty. We think we won’t have to answer to anyone anymore – pointy-haired bosses included. No more worries about being the pawn in some company’s lower earnings – or… so we hope.
‘In my own business I only have to answer to myself,’ you think.
Well… welcome to the real world. If you’re in business, you’re getting money from customers and clients. They’re your new bosses. ‘Nuff said.
Reason #3: Want to make more money
So you’re out of a job, you need to pay your bills, and the job market is in the tank. You decide to start a business because you think you can make more money on your own anyway.
There’s a problem with that plan, however. Starting a business is not a fast replacement of income. It takes months -- more likely, years -- before your income will be steady enough and big enough to replace a corporate salary and bonus package. Sometimes it never does. (See: “Entrepreneurship: The Road to Riches and Poverty.)
If you are looking for replacement income in the next couple of years, then you’re usually better off working harder to find a job. You’d replace your income much faster… and be able to keep up that lifestyle to which you’ve become accustomed. Whereas, if you start a business, you and your family will have to sacrifice at first.
In later years, the situation may be reversed. Your earning potential in later years may not be nearly as high in a job as it would be with business ownership. You could hit it big with business ownership after the business grows -- 10 or 15 years from now you could be a person of independent means.
But short term most people would have more money working for someone else in a job.
Reason #4: Entrepreneurship is the “In” Thing
Let’s face it, America is gaga over entrepreneurs. We romanticize being an entrepreneur. We’re so excited to get our business cards printed up, with a brand spanking new logo and that CEO title we whipped up, that we convince ourselves that starting a business is easier than it really is. We’re sure we’ll buck the trend of high startup failure rates.
Unfortunately, many startup entrepreneurs are naïve. I know I had a touch of naïveté when I started my business.
We think we’re prepared for that startup phase. But we’re not really. We end up mildly shocked as the bank account slowly dwindles down, while our businesses seem to take 10 times longer to grow than we ever imagined.
Falling for a romantic idea of entrepreneurship may not be the best reason to start a business, but in a way it’s not so bad. If we really knew how difficult it was going to be, many of us never would start in the first place. Better that we don’t know how hard it is!
Reason #5: Need to Create Your Own Reality
I have observed that the people who seem happiest in their businesses are those driven by an internal desire – no, a need – to create their own realities around them. They want to create something outside of themselves; make dreams become real.
That something may be a single-person consulting business; or a tech business with the potential to become the next Google.
Not everyone driven by this need is going to be successful. But if this is your main reason for starting a business, I can almost guarantee you will end up feeling satisfied. You’ll have a sense of purpose. You won’t feel empty. You’re less likely to doubt yourself. You’ll be filled with energy and enthusiasm. (For more about this state, read the classic book “Flow: The Psychology of Optimal Experience” by Mihaly Csikszentmihalyi.) Successful or not, you will feel more fulfilled.
Mihaly Csikszentmihalyi (Author)
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Anita Campbell is the Editor of Small Business Trends, an online community for small businesses.
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Anita Campbell 2 years 1 months and 23 days ago
Dawn, Your point about "opportunity entrepreneurs" is a good one.
I've seen so many people from the corporate world want to take me to lunch and discuss options when things get tough. And I always do it, and I watch while the wheels spin as they think about entrepreneurship.
Few of them actually follow through on starting a business after they start adding up the mortgage payments coming due. Of those who do, the majority of them eventually end up going back to corporate employment.
And I think that's fine. They have to do what is right for your family and their own situational needs.
Those who are driven to be entrepreneurs regardless of economic situations -- the opportunity entrepreneurs -- don't hesitate. They just do it...
- Anita