5 Reasons to Start a Business in a Recession

Kimberly Palmer

Does becoming your own boss sound especially tempting now, with jobs less secure and benefits being cut? If it does, you're hardly the only one: Research by Federal Reserve economist Ellen Rissman finds that men are almost twice as likely to become self-employed when they are already unemployed. Working for themselves is temporary, however: Within one year, about 2 in 10 workers return to paid employment.

That doesn't mean the recession is leading to huge upticks in those who call themselves self-employed. Overall, the self-employment rate has dipped a bit during the current recession, although it still remains close to 11 percent, where it has hovered for most of the past decade. Steven Hipple, economist at the Bureau of Labor Statistics, says that while some people are drawn to self-employment as a way to avoid unemployment, there are also many self-employed businesses, for example in retail or construction, that are going under during the recession. That's why the net effect appears to be a slight decline in self-employment, explains Hipple.

But don't let those numbers discourage you. Going against the tide and starting your own business in a recession not only lets you escape from the corporate grind, but it also can be easier than it would be during boom times. Here are five reasons to consider going solo now:

Extra protection from dreaded pink slips. In 2004, when Susie Fougerousse was a stay-at-home mother of two, she realized that she loved decorating her children's rooms and she thought she could make a business out of it. She noticed that it was hard to find pieces she liked in the stores near her, so she launched an online business that sells upscale furniture and décor. While the $10,000 in start-up costs was scary at first, she says starting a business is what ended up saving her family financially.

The company, Rosenberry Rooms, is now a multimillion-dollar company, while her husband's former industry, textiles, has all but dried up. "It's a huge blessing," says Fougerousse, 34, who lives in Cary, N.Ca. "He would have lost his job with how things went in that industry. You think you're on the safe track [by working at a big company], but that turned out to be the most risky," she says. Her husband now works full time on Rosenberry Rooms as well.

"It feels very beneficial to have multiple income streams right now," says Michelle Goodman, author of My So-Called Freelance Life: How to Survive and Thrive as a Creative Professional for Hire, who has worked as a freelancer for almost two decades. Goodman has four to five writing gigs a month, including work for ABC News and the Seattle Times. "With a full-time job, if you get laid off, that's the whole thing. But if I got laid off from one of mine, I could still have 50 percent of my income left," she says.

But just because earning money on your own provides income doesn't mean you should ditch your day job just yet. Pamela Skillings, author of Escape From Corporate America and a career coach, recommends moonlighting on the side to test the waters before becoming self-employed full time. She says that approach lets you find out, "Is it something you want to do full time? Does it have market potential?"

You set your own income. If you're working for the man, you have little control over your salary--all you can do is request a raise, which can be turned down. But Skillings says that as someone who is self-employed, "I have full control to shift and come up with a great idea or find a new client. I could double my income with one good idea or connection."

Your start-up costs are lower. "The cost of failure right now to start a company or start something entrepreneurial is very low," says Tim Ferriss, entrepreneur and author of The 4-Hour Workweek. Since the economic situation is so tough, no one would think less of someone who started a company and failed, since so many are failing, he says. He also points out that networking sites Facebook and LinkedIn were both started during the "dot-com depression" of 2000 to 2001. Plus, he adds, advertising and service providers are cheaper because everything is on sale.

Not only does the recession make it easier to find discounts on the capital needed to start a new business, but ithas also brought the old-fashioned practice of bartering back into style. Trading services is a great way to take advantage of the bad economy, says Kimberly Seals-Allers, author of The Mocha Manual to Turning Your Passion Into Profit and creator of MochaManual.com, especially if you're starting a new business and need help with website design or accounting, for example. "You'll have a large number of highly qualified individuals [offering their services] who you couldn't have afforded before. It's an opportunity to find talent and negotiate things," she says.

To find a willing partner, visit sites such as JoeBarter.com and Craigslist.com. You can post what you're looking for and what you have to offer and then wait for responses.

It's easier to find partners. Fougerousse inspired her younger brother and his wife, Tim Bradley and Anne Morrison Bradley of Ferndale, Mich., to start The Premium Pet, an online pet décor store that launches in August. As they form relationships with vendors, whose products they will sell through their website, they've found that the recession has made vendors more willing to give them a chance. "When things are going well, they're more selective, so for us, it's an advantage right now because we can get more products right off the bat," says Tim Bradley.

It's gratifying. This one is just as true during boom times as during a recession, but becoming self-employed provides a sense of satisfaction that's hard to come by when working for someone else. "The whole construct of going into an office and working 9 to 5 felt too rigid," says Goodman. "I got bored with the monotony of projects."

Skillings says that even though she's working harder than she did in the corporate world, she finds more value and satisfaction in what she does. She says, "In my corporate job, it didn't feel meaningful. It wasn't something that resonated with me."


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