VOL. 125 | NO. 201 | Friday, October 15, 2010
Despite Poor Economy, Business Startups on Rise
LESLEY YOUNG | Special to The Daily News
A down economy doesn’t mean it’s necessarily a bad time to start a business.
In fact, according to business counselor G.E. “Russ” Russell, many Fortune 500 companies got their start during the Great Depression.
“J. Willard Marriott started the Marriott Corporation during the heights of the Great Depression. He saw government workers brown bagging it to work, because they didn’t have the cafeterias they have today, so he opened what were called Hot Shoppes so they could get a hot lunch,” said Russell, who is chair of the local chapter of SCORE, a free counseling service for new and existing business owners. “Half of our Fortune 500 companies today started during a recession or a down market.”
The latest recession, sometimes termed the “Great Recession” and many times compared to the Great Depression, is no exception.
According to the Kauffman Index of Entrepreneurial Activity, business startups reached their highest level in 14 years in 2009, higher than the tech bubble of the late 1990s.
“The fact is people in this country are incredible entrepreneurs, even in the depths of a recession,” said Dr. John Gnuschke, director of the University of Memphis Sparks Bureau of Business and Economic Research. “People who start small businesses are adventurous even in the best of times, but in difficult times even more so. They’re taking a tough time period and turning it into future earnings and success.”
While Oklahoma and Montana saw the highest rates of activity in the index, both at .47 percent, and Mississippi the lowest, at .17 percent, Tennessee hovered in the
middle with .36 percent, up from .33 in 2008.
“I know we’re absolutely covered up in requirements for counseling,” Russell said. “I have 15 accounts that in some way, shape or form are going forward to open their doors, and a lot of other counselors are the same.”
Doug Wright, a CPA and partner with accounting firm Cannon Wright Blount, which serves 2,500 small businesses in the Memphis area, has also seen a boost in new businesses in the area.
“We’re seeing an increase in startups, mainly in the service sector,” Wright said. “Whether it’s caused by displaced professionals or an increase in job loss, people are jumping out there and taking the risk.”
New business licenses filed in Shelby County grew 5.9 percent from 5,702 in 2008 to 6,039 in 2009, according to real estate information company Chandler Reports, www.chandlerreports.com.
“What I’m hearing from our members is that they’re positive, passionate and working hard,” said John Duncan, vice president of development and member services at the Greater Memphis Chamber. “They’re trying new things, new ways to change and grow. It’s a tough challenging market, but they’re not quitting.”
The majority of local business startups fall into the service industry category, keeping company with some other varieties.
“There’s a nice sprinkling of retail and several importer/exporter types tapping into the global economy, and there are a few manufacturers, but not many. I wish there were more,” Russell said.
Added Wright: “I recently saw a group of former employees of a biofuel company go out on their own and start another biofuel company. I’ve also seen a group of entrepreneurs start up a hotel venture.”
Job loss and the dispossession of retirement funds are cited as the main causes for new business ventures.
“We have seen that because of losses in retirement accounts, a lot of people are postponing retirement and jumping out there,” Wright said.
There are other reasons.
“A number of people with a certain skill set get laid off and say they can’t go back, but I wouldn’t put that as the prime reason. Still a lot of people who have jobs are taking themselves out of the job market to follow their dreams,” Russell said. “Others are looking at the overall big picture. The cost of labor and rent is down, so it’s a good market for leasing a building and finding labor. Plus, computing and telecommunication is vastly cheaper to get.”
The recession has also encouraged creativity in finding funds to start a new business.
“The difficulty to obtain funding is obvious, so entrepreneurs are seeking it from alternative sources, such as private investors or angel funding,” Wright said.
Gnuschke said the numbers point to recovery. Russell agreed.
“Entrepreneurship is not dead by a long shot,” Russell said.