The New Rags to Riches

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The New Rags to Riches

November 01, 2004Author: Clayton Collins
Source: The Christian Science Monitor

The new rags to richesEntrepreneurs still pursue the American dream. Only now, many are pushed into it by a sour economy.
Imagine a one-time corporate climber who wound up in a job that revolves around buckets and mops, and you might expect a tale about a professional fall from grace - more sad residue of a long economic slump.

In Richard Hill's case, you'd be wrong. Mr. Hill spent 11 years at Integris Metals, becoming Pittsburgh plant manager for the Minneapolis firm, which was riding the 1990s boom. The $50 million outfit became a $2 billion behemoth - and so layered with red tape that it became almost unrecognizable.

"You've got these great ideas - and they'll even tell you they're great ideas," Hill recalls. "But because you've got so much bureaucracy to go through, it either takes forever to come to fruition, or it doesn't come to be."

So in November 2001, as Integris began layoffs, he jumped to a Chicago-based steel service company, which was worse. Micromanagers stalked the halls; nepotism ran rampant. A year later, the firm began closing plants and laid him off.

Hill assessed his skills - working with clients, ordering materials - and opted to shrug off the corporate grind. He bought a six-year-old franchise of Maid Brigade, the cleaning firm based in Atlanta, expanded it, and two years later has passed the critical break-even point.

But if becoming an entrepreneur is the American dream, it comes these days with a decided twist.

Instead of reaching for it, many entrepreneurs feel pushed into it. Corporate layoffs and job insecurity have made owning one's own business look like the more promising career path. In some cases it's even seen as a safety net.

Postrecession, this phenomenon could mark an enduring shift in the way America's white-collar workforce views employment and security.

"The comparative risks ... between starting your own company and working for a large company are diminishing," says Tim Faley, managing director at the University of Michigan's Zell-Lurie Institute for Entrepreneurial Studies. "So you look at the other side of the coin, and you say 'Those [guarantees of corporate life] were the things I was giving up or putting at risk by doing my own thing. But [now] if I do my own thing, and I'm able to drive it personally to success, I win.' "

This "push factor" may help explain why entrepreneurship, flat for several years by some measures, is headed back up, some experts suggest. More than 11.3 percent of adults in the United States were involved in entrepreneurial activity last year - an increase after two successive years of declines, according to the Global Entrepreneurship Monitor, funded by the Kauffman Foundation. The share of entrepreneurs peaked at 16.7 percent in 2000.

The elusive 'why?'

But the link between dissatisfaction with the corporate world and a rise in entrepreneurship is difficult to prove with statistics.

For example: The Census Bureau reports that the number of US "nonemployers" - the smallest small businesses - jumped 2.2 million between 1997 and 2002. But the bureau does not track why these companies were started.

"We have numbers that are subject to a range of possible interpretations," says Paul Zeisset, a researcher at the bureau. "Somebody who wants to paint the economy in rosy terms will hear [only] that this kind of business is ticking up nicely, and somebody wanting to detract from the situation will say 'Well, these are people who have [had] to start their own businesses.' "

Tales from the field

Anecdotally, though, some career counselors note a swelling interest in solo operations that may keep growing in the current climate. Even a measure of economic recovery may not restore faith in the old system, they add.

"There is no more loyalty from corporations, and as a consequence people don't have loyalty toward the corporations," says David Bowman, chairman of TTG Consultants in Los Angeles and a former corporate executive himself.

Probably 25 percent of his new clients are people seeking work in which they will be responsible for their lives, says Mr. Bowman.

"They're all interested in more security," he says. "And how do you get that? Well, don't you look within?"

Bowman cites one client, a senior production executive at a major entertainment studio who has developed new technology for television and film. The client, he says, is leaning toward taking his idea and running.

"There's so much churn in the entertainment industry, and he's experienced that churn in his career," says Bowman. "He's going for the brass ring, and he's one of many."

Going for broke

Bowman's clients in many ways represent the bold.

Cutting loose is not without its own set of hardships, he cautions, and only the well-prepared survive. Licensing, zoning, and insurance take time to master, even for those who buy into existing franchises. Plenty of would-be entrepreneurs, he says, ultimately slink back to corporate life.

Many displaced or "underemployed" white-collar workers also maintain solid bridges to corporate entities through part-time arrangements or consulting, according to Maria Minniti, a professor of economics at Babson College in Wellesley, Mass., and coauthor of a recent report for the Global Entrepreneurship Monitor.

Danger in the demographics

Ms. Minniti maintains that the real driver of big-picture entrepreneurship in the US remains opportunity, not necessity, though she acknowledges that her statistics do show a slight increase in new entrepreneurs who "felt they had no better opportunity."

Minniti points to another trend: Many less-educated workers - including new immigrants - may have been forced into starting micro-ventures because of the lack of job opportunities. Often unregistered, she notes, these do not show up in official statistics.

Even among experienced mid-career workers, a certain danger lurks in the demographics.

Many of those who find corporate options closed are just not hard-wired for entrepreneurship, says Ed Pendarvis, founder of Sunbelt Business Advisors, a network of business brokers based in Charleston, S.C.

"By definition, an entrepreneur is a risk-taker," says Mr. Pendarvis. "If I'm 45 years old, and for the first time in my life I don't have a job, the last thing in the world I want to do is risk my life savings."

Pendarvis says these "forced entrepreneurs" keep burning through capital, having concluded that they need to make something happen on their own.

"It's been a big shift," he says. When he entered the business-brokering game in 1982, he says, no more than 3 to 5 percent of clients were looking to go into business for themselves.

"Now I would say 60 to 65 percent of folks over 40 who feel insecure in their jobs or have already been downsized look at going into business as a viable alternative to just getting another job," he says, "because five years from now you might be laid off from that job," and wind up close to retirement with no income.

Solution for business?

Mr. Faley of the University of Michigan even sees this evolving approach to work as one that may mesh well with the future of US business. Brand-name corporations, he says, could essentially become distributors atop a "symbiotic, more relationship-driven" system - "more of an integration of isolated entities than these big behemoths."

For some, the move to self- directedness has already paid off. Dan Hill looks back on his corporate past with no animosity - and no regrets.

"It was a good training ground," he says. "I wouldn't say I'd never see myself there again if the right opportunity came along. But put it this way: I'm not looking."

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