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Economic downturn may mean a spike in entrepreneurship and innovation
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By: Hannah Kokjohn, Quasi Preneur
Thursday, Febuary 12, 2009

Despite the steady stream of bad news on the jobs market, the current pattern of mass layoffs may not be spelling total doom for the U.S. economy.

Getting laid off can actually provide great opportunities for individuals looking to start a new business, which in turn can be the shot in the arm for the economy, according to Daniel Meyerov, CEO of Onlybusiness.com, a Los Angeles consulting firm specializing in startup online businesses.

Meyerov said his company is seeing a rise in innovative entrepreneurial activity.

“We are at an economic wartime level,” Meyerov said. “Now [laidoff workers] are going to have no other choice. Now they’re going to say, ‘I can't afford to be complacent.’ I think we’re going to see some great ideas come out of this.”

The number of small businesses increased during the last recession. From 2002 to 2003 the number of U.S. establishments without paid employees that are still subject to federal income taxes increased to 18.6 million in 2003 from 17.6 million in 2002, according the U.S. Census Bureau.

Although the data for 2008 is not yet available, a similar trend is likely occurring now, said Dawn Rivers Baker, editor and publisher of the MicroEnterprise Journal, a trade publication.

David Deeds, Schulze professor of entrepreneurship at the University of St. Thomas, said “necessity-driven” entrepreneurship usually climbs as the economy heads south.

Entrepreneurship in general is positive, Deeds said, but necessity-driven entrepreneurship can have “higher mortality rates and grow a little slower.”

The economic stimulus bill might lead more people to start new businesses, Deeds said. Between the money given for people laid off and the contracts written into Obama’s bailout/stimulus package that will be specifically designated for small businesses, Deeds said startup companies are a popular option.

A recent entrepreneur, Mike Halloran, CEO of Cincinnati entertainment Web site Zipscene.com, said he found his startup company to be more secure than his prior job in the corporate world.

“We’re more at the more mercy of ourselves than some CEO who wants to downsize,” Halloran said. “I think some people think of [corporations] as a safe place to go.”

Allison Holleb, owner of Bess & Lois, a handbag and accessories shop in Chicago, opened her store in 2007 after working at shops in New York. All shops, she said, were struggling, but being small meant lower operating costs.

“Because I’m only two years old, my expenses are still pretty low,” Holleb said. “I’m better able to manage than bigger businesses with higher payrolls.”

Although the startup opportunities are available, Samuel Gerace, CEO of Cleveland's ticketing company Veritix, and a three-time entrepreneur, said the current economic crisis was different than previous recessions.

Entrepreneurs, he said, often borrow startup capital against their savings, or their 401(k) plans, but because of the failures of companies such as Lehmen Brothers Holdings Inc., many 401(k) plans have been drained.

Still, Gerace said, the downturn is a great time for entrepreneurs to “jump in and fill a niche,”

especially since large companies have cut back on spending and new ventures.

One way entrepreneurs are getting by without much startup capital is by using established Web sites to sell their products.

One of these sites, Shopify, an Canadian online company that gives individuals the web space to sell their own products, has seen a spike in new sign-ups, some from the Chicago area, according to Dimitri Onistsuk, vice president of marketing.

Onistsuk said the increase in business was most likely due to higher unemployment numbers.

“We’ve seen sign-ups from regions where there have been higher layoffs,” he said. “There are people that go online and sell products to create a supplemental income.”

When the threat of auto industry layoffs hit Detroit in 2008, Onistsuk said more individuals from that region signed up for Shopify’s services.

Like Meyerov, Onistsuk said unemployed individuals were motivated to sell products they had always wanted to because “now they have no reason not to.”