Personal Finance

After recession, wave of 'accidental' entrepreneurs

Nancy Mann Jackson, special to
Image Source | Getty Images

In 2011, budget cuts forced elementary school teacher Vernetta Freeney to leave her job. "I didn't have a Plan B," she said.

To find her way out of what she viewed as a hopeless situation, the long-time educator began blogging about her experience as she applied for "countless" positions and went on numerous interviews. After a couple months of blogging, she said, she was offered a chance to write a post for pay, and she realized she could turn her struggle into a business.

She's since created information products, events and even a national tour for women who work from home. "Leaving education was the hardest thing I had gone through up until that time—I was crushed when I was forced to resign," Freeney said. "But having that door slammed in my face opened a door I didn't even know existed and placed me on the path to a purpose-filled life."

As it turned out, she said, she discovered that being an entrepreneur "is something I am built for."

Millions of others displaced by the recession are getting the chance to find out if they are, too. "The Great Recession caused many businesses to close their doors or file for bankruptcy protection, but the rapid rise in unemployment also drove an increase in entrepreneurship," noted Robert W. Fairlie, professor and chair of the Economics Department at the University of California, Santa Cruz. "For many people across the U.S., the potential opportunities from opening a new business outweighed the alternatives," he wrote in a study on how the Great Recession spurred entrepreneurship.

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Last year, almost 13 percent of the U.S. working-age population was in the process of starting or running a new business, according to the most recent Global Entrepreneurship Monitor study by Babson College—a slight decrease from 2012 but a jump of 67 percent from 2010. And more than 1 in 5 of those starting a new business in 2013 said they did so out of necessity rather than opportunity.

Vernettea Freeney
Source: Vernettea Freeney

The Kauffman Index of Economic Activity, another leading indicator of new business creation in the United States, found 21 percent of entrepreneurs last year had come directly out of unemployment (a slight dip from the year before but higher than prerecession levels).

"In essence, entrepreneurship looks more attractive when the next best alternative isn't so promising," said Donna Kelley, professor of entrepreneurship at Babson College. "People running their own businesses can have some element of control over their lives, particularly when the job market doesn't look so predictable or secure. Even if started out of necessity, some may have had ideas percolating and perhaps weren't ready to leave steady jobs with good benefits and pensions. But after losing a job and seeing few good prospects, their latent ambitions may get the push they needed to get started."

For some recession-era entrepreneurs, that was the case: Getting downsized became a catalyst to do something they'd only dreamed about, the opportunity to try a new adventure.

"No one really wants to get laid off," said Kevin Michael Gray, who launched software development company ApproveMe after being laid off from his job as an ad agency project manager. "What people don't realize 
is that what the Renaissance period was to the arts, recessions can often
 be for entrepreneurs. Recessions force entrepreneurs to re-evaluate 
the financial security—or lack thereof—in the workplace."

Mitchell Stern, who left his job as a journalist in Washington, D.C., in advance of an impending lay off, moved to California as he tried to figure out what he wanted to do next. Intrigued by the new medical marijuana industry, he ended up taking a job at a licensed marijuana dispensary. There, he learned to grow his own plants and persuaded friends to invest $5,000 to help him start his own business.

Three years later, his Burning Bush Nurseries supplies licensed marijuana dispensaries with live seedlings and employs four workers. "Being able to be part of this new, growing industry and choose the direction of my company has been so freeing," Stern said. "Being an entrepreneur comes with stressors, but the rewards are so worth it."

Mitchell Stern founded Burning Bush Nurseries in 2011.
Source: Mitchell Stern

For many, the most difficult part of self-employment is finding balance. "If I stop working, the business stops working, and the bills don't stop coming in, so I need to work as much as possible," said Luke Watson, who launched a marketing consulting business in New York after getting laid off from a major fashion company. "Financially, it is still stressful because there is no certainty, but it is far less frustrating because I don't feel like I'm stuck with an income cap waiting in line for a raise that may never come."

Angela Daidone, who became a freelance writer and marketer after being downsized three times from public relations and marketing jobs, said self-employment has been an emotional roller coaster as well. "You go through bouts of depression because you're always worried about paying the bills," she said. "When jobs don't come through, you see it as a failure."

On the plus side, she can find time to exercise and sing, both of which help her cope with the uncertainty that comes with trying to build a business. She said she prays too—not necessarily for a great job offer, "but for strength and peace to be able handle the situation."

For many of those who launched businesses out of necessity, getting that great job offer can become a growing challenge the bigger their business gets. There's the pressure to keep their venture going and to take advantage of each opportunity that comes along. But doing so also means taking time away from the job search and can put some recruiters off—why pursue someone who has their own successful business?—moving them further and further away from the safety net of a regular paycheck and a company-sponsored 401(k).

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Luke Watson
Source: Luke Watson

And while self-employment has been a lifeline during the recession, many entrepreneurs-by-necessity say they would still prefer a full-time job. For instance, after Cynthia Lieberman was laid off from an entertainment studio job in 2009, she has found success with Cyberwise, a technology company for parents and teachers. But, she said, she still "pines to be part of a bigger organization again that 
involves staff, interpersonal collaboration and resources."

Attorney Shane Fischer started his own law practice in 2007 after two layoffs in six months. While his business is profitable, he misses the camaraderie, structure and guaranteed paycheck of his former work for a government agency. However, after seven years of self-employment, job searching isn't easy. Fischer said he's applied for more than 100 jobs.

When he gets interviews, he's usually asked why he wants to close his business. "My response is always the same," Fischer said. "I enjoy practicing law but am tired of the administrative headaches associated with running a business. Unfortunately, the majority of the people I'm being interviewed by have never had their own business, so it can be hard for them to appreciate the sincerity of that statement. Their initial reaction is that I must not be a very good attorney if I can't make enough money to run a business. I have to explain that I'm making enough money to keep the business profitable but am just tired of being responsible for everything and just want to be a lawyer."

After 32 years in management roles, Tom Smith of Raleigh, N.C., lost two director-level jobs at large corporations in 2010 and 2012. In between jobs, he began working as a management consultant to pay the bills. While he's been successful as a consultant—doubling an ad agency's revenue in two years and enabling an 850-person sales team to achieve their 12-month goals in less than three months—he still hopes to find full-time employment for another 10 to 15 years. "The greatest challenge is not knowing if a potential client is hesitant to hire you if they know you are looking for full-time employment and if an employer is hesitant to hire you because you have a consulting practice," Smith said. "No one is willing to tell you the truth. [But] I'm looking for a full-time job because I prefer 'doing work' more than 'looking for work.'"

At 56, Smith said he thought he'd be close to retirement now, playing golf and going to basketball games. Instead, due to his layoffs and the ups and downs of self-employment, he can no longer afford to do either. "Financially all thoughts of retirement are out the window," he said. "I will be consulting, working to generate revenue for the rest of my life."