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The following article appeared in the April 9, 2009 issue of The Hippo.

Congratulations, you’re fired!
How to go from laid off to entrepreneur
By Jeff Mucciarone, Hippo Press

The economy is putting plenty of people out of work nationally and in New Hampshire. The latest numbers say state unemployment is more than 5 percent, compared with the national rate a month ago of 8.1 percent. There’s no telling when the economy will pick itself up again.

In the meantime, those who are out of work need to make a living, but finding jobs in their field in New Hampshire — and anywhere else for that matter — may be proving difficult if not impossible. For people losing their jobs due to downsizing and poor profit margins, the options can be limited.

Business resource officials say more and more people — many of whom have never considered doing so before — are looking to open their own businesses. After all, no one likely missed every politician in America explaining how small business is the backbone of the country this past fall.

“There are a lot of people who have a great deal of ability and skill, and they do feel there is no opportunity for them at this time,” said Frances Allain, layoff aversion project manager with the New Hampshire Business Resource Center. “They’re looking to put their skills to best use. One decision is to start their own.”

Make a plan
When times are tough, said Christine Davis, executive director of the Women’s Business Center in New Hampshire, people should focus on what they can do to better the situation, rather than wallow in all the bad news.

“Forge ahead,” Allain added. She suggested doing some market research. People need a solid business plan and financial backing. She pointed folks to places like the Small Business Administration and the New Hampshire Small Business Development Center, places that provide guidance and consultation at low or no cost.

Getting some guidance is key, because while Davis said she has seen an increase in people looking to start a business, she’s also noticed plenty of people seemingly lacking business knowledge.

“They’re trying to start a business without proper preparations,” Davis said. “They need to have a business plan before they just jump into it.”

Julie Gustafson, executive director of the Amoskeag Business Incubator in Manchester, also stressed putting together a business plan, spending time researching the industry and making sure there’s a demand or a need for the product or service.

“If there’s a lot of competition, we need to make sure there’s a competitive edge,” Gustafson said.

Something that could be intriguing to new business owners is a “low-cost incubation” option provided by the Amoskeag Business Incubator. Gustafson said eight people have signed up just in the last month or so. She has noticed interest in her organization rising with the plunging economy, much of it due to layoffs, she figures. One of the biggest reasons businesses fail is cash flow, causing counselors and consultants at the Incubator to work with prospective owners to make sure they have sufficient funds, whether a loan or their own money, in place ahead of time, she said.

Randy Roody, Manchester chapter chairman of SCORE, a business counseling service, said the organization’s workshops have been busy, including the one on starting your own business and two on developing successful business Web sites. The most recent business plan workshop saw three times the usual attendance. Not every attendee is out of work, but Roody said many are preparing to be jobless.

Roody said SCORE’s concern is the business success rate, which isn’t all that high. About 50 percent of new businesses will still be in operation five years from now, he said.

“And that’s optimistic,” Roody said. “That’s the data. There’s many reasons for that. Sometimes it’s a lot more than people think it’s going to be and it can be a little overwhelming for them.”

Making that plan can be a little overwhelming itself, but the rewards are easy for business owners to see.

“The most terrifying thing can be jumping off that cliff,” said Mark Berthiaume, who started his first business, MJB Technology Solutions, two years ago. Berthiaume went through the Amoskeag Business Incubator for business counseling and support for his business, which specializes in technology support. “There are a lot of things, when you work for other people, that you don’t have to worry about. When you work for yourself, you have to wear all the hats. Do your homework. Try to understand as much as possible about what you’re getting into. And forget about holidays and vacations for a while.”

Get some skills
As SCORE counselors go through the different things new business owners need to consider, some withdraw. Roody said the goal is to get people organized ahead of time so they can be successful. Business counseling at SCORE is free and workshops cost $25 per person.

Just because people might not have a strong business sense now, that doesn’t mean they can’t acquire the necessary knowledge, Davis said, but it’s not going to happen overnight. She suggested taking a business plan development course, such as the one they offer with Sheila Kabat of the Women’s Business Center — “It’s a great first step to get the ball rolling,” Davis said.

Kabat works with people in a variety of business situations to help them develop constructive business plans — some people have owned businesses for many years and never created a plan. It’s never too late.

“It’s a discipline,” Kabat said. “It’s a discovery process.”

She says entrepreneurs need to do their market research: “Is there anyone else out there doing it?”

In the class, which is typically six sessions of two hours each, students work through a template for launching small businesses. “You’re taking that discovery and putting it into a document,” Kabat said.

People must think about what makes their business unique, and about pricing, vendors, services, products and funding.

“It’s really a mindful exploration,” said Kabat, who often meets with students prior to class and with students individually as needed.

Other business resource groups also provide guidance for developing a plan. Business support groups can help people research the industry and the market. It would also be important for people to have their financial situation in order, hopefully with enough money saved to live on for a while, Davis said.

“There’s a lot that goes into it,” Davis said.

But there are some simple things people can do to get things started, many of which simply involve asking for help.

As soon as someone has an idea, he or she can swing by SCORE, the Amoskeag Business Incubator, the Small Business Development Center or one of the state’s other business resource groups. Professionals can provide an experienced business mind to give guidance in fleshing out a new idea. Counselors can help people develop a revenue plan, Roody said.

“We will work over several meetings to kind of interview the client,” Roody said, adding they’ll make sure the person understands the competition and how he will differentiate his business and market services.

For smaller businesses, SCORE offers a simplified business plan worksheet that’s about two pages long. Bigger businesses — say, businesses looking to borrow $500,000 to get started — will have a more in-depth, 27-page outline of a business plan. The simpler business plan template is targeted for very small businesses, such as prospective hairdressers or landscapers, Roody said.

“That was a very enlightening process,” Berthiaume said of developing his business plan, which took him six to nine months to complete. “It makes you think about sales and marketing and identifying demographics. I definitely recommend it. It helps you see that whole picture.”

Berthiaume added that the Small Business Administration, which is where he obtained a start-up loan, requires prospective business owners to have a business plan before granting loans. Since he had a business plan, Berthiaume said he was probably more prepared for any surprises than he would have been without one. The business plan also forced him to consider how he would differentiate his company from other similar businesses.

Davis advised against selecting a business solely on the basis that you might think it’s going to be successful.

“You have to do something that you love,” she said. “Really successful people are doing what they love. Go with what you’re passionate about.”

When Davis first opened her personal training business, she met with people in the industry. She took them out for coffee. She asked them questions about challenges in the profession, benefits, what to look for and how it was changing. The more educated a prospective business owner can become, the better, she said.

With the construction industry nearly at a standstill right now, Roody has seen many tradesmen look to open their own contracting business. The times make it tough to break in “unless you’ve got something very different,” Roody said. The manufacturing industry in New Hampshire has also been hit hard.

Find some start-up cash
Regardless of the industry, Roody said he’s always encouraged when someone can get started without having to invest much money initially. “I’ll encourage that to go along,” he said, but added that if someone has to spend $15,000 to $20,000 or more initially, he’s going to scrutinize that plan more.

Davis said people need to investigate their marketplace and their region. Find out what’s in need and see if it matches with peoples’ business interests. If someone has always wanted to open a coffee shop and his or her town doesn’t have one, it could be a good match. If a community has several coffee shops already, the entrepreneur may want to tweak the plan to offer something unique.

Getting the money to open the business can be difficult. While banks and lenders may help get people started, there are currently no grants available for new businesses, Roody said.

“Banks will help, but they are often going to require some personal collateral for you to get a loan,” Roody said. “People who start a business and borrow money often borrow against their house or some other asset they have.”

That doesn’t mean Roody is trying to dissuade anyone from jumping into the business world; he just wants people to think it through.

One option for prospective business owners is to obtain a business loan from MicroCredit-NH, which is a non-profit program of the New Hampshire Community Loan Fund. Tara Bishop, who handles marketing and communications for MicroCredit, said she has seen more people looking to start businesses since the economy dipped.

The organization, which specializes in working with businesses with one to five employees, provides three main services to businesses: networking; education, and loans of up to $15,000. For loans less than $5,000 there usually is no credit check or collateral required, making it a solid option for people in need of small-dollar loans to get things moving. Bishop said people might need $250 to $500 to buy some supplies. Such loans “can be good stepping stones,” Bishop said.

MicroCredit also offers a variety of educational resources, such as tutorials describing how to create cash flow statements or a business plan. The organization connects prospective owners with a group of business peers to help them develop their business. Bishop said MicroCredit, which has three membership levels, is the only place offering loans and education together.

“These are people that are in the trenches with you,” Bishop said, adding MicroCredit also offers a variety of workshops. “If you can teach people these skills, they’re more likely to succeed.”

For loans less than $5,000 it’s solely the peer business group, of which there about 60 statewide, that makes the decision on whether or not to grant the loan, said David Hamel, MicroCredit-NH director.

“They are there to learn and support one another in a variety of ways,” Hamel said. “They have accountability and responsibility to the group.”

The peer business groups tend to include diverse business owners.

“The benefit is that you have a different set of eyes and ears that are not ingrained into the industry that you are in,” Hamel said. “All the other components and elements of doing business are the same for everyone.”

MicroCredit is part of an informal collection of microbusiness resource partners that share programs and refer people back and forth among themselves, including the Small Business Administration, the Small Business Development Center and New Hampshire Made.

“We realize we all have to be on the same page in order to provide the best services,” Hamel said.

“People really don’t know what’s out there,” Bishop said, adding that MicroCredit holds at least six networking sessions each quarter statewide. “There’s such a variety of groups...”

“If somebody just has this idea, or if they want to take a hobby to the next level ... [MicroCredit has] some of the resources and tools they can use,” Hamel said.

Davis agreed with the importance of networking and pointed out that businesses need to be visible. If someone calls a business the “best-kept secret,” that business owner isn’t networking enough, she said.

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