Planning to go into business for yourself? Now is a good time to get underway -- industry consultants say -- despite a weak economy that has many established businesses reeling. New businesses are opening their doors in record numbers across the nation.
"A young, aggressive company can come in without all the baggage carried by older, bigger competitors," says John Freyhof, director of venture development for Enterprise Corp. of Pittsburgh, Pa. "They're already fighting for survival, so they have to be lean and sharp. The new business has a built-in advantage."
Which isn't to say that anyone can start up a business and expect to succeed. Most new businesses fail within three years.
"Those figures can be misleading," says Freyhof. "In a given week, there are 30 to 50 new companies opening in Pittsburgh. But many of those are dead before they've started. They don't know what they want to do, how they need to go about doing it, or what it will take to get there. They have no business plan. They're already saying, 'It's not on paper, but believe me, it's in my head.' We're pretty ruthless about getting them to put it on paper."
Once a prospective entrepreneur looks at the facts and figures on paper, frequently he or she will decide more preliminary work needs to be done, he points out. They will rethink and go at it another way. In some cases, they may realize that it isn't such a good idea after all.
Why are so many new businesses coming into being now? Experts credit the nature of recent layoffs. Many of the people in large organizations who lost their jobs in the last several months were middle managers and junior executives.
"Since the first quarter of 1990, one of four middle managers outplaced by companies has started his or her own business," says Gerald Celente, director of the Socioeconomic Research Institute of America, a trend-tracking firm in Rhinebeck, N.Y. "That's a much higher percentage than we've ever seen before."
Many of these executives, says Celente, are likely to succeed.
"In the 1990s, niche marketing is where it's at," he explains. "Look, we've been raised with the idea that bigger is better, but that's not always true. Imagine a hole in the ground. If you fill it with sand, there will be no spaces between the grains. But if you fill it up with boulders, there's lots of space between them.
"In business, that space is where the big companies aren't serving the market, for one reason or another. There's plenty of room for smaller companies to make money filling those needs."
The mergers, acquisitions and leveraged buyouts of the last decade have left many once-loyal employees disenchanted, +V Celente believes.
"People have learned that they may have a new boss tomorrow, and that the new boss may put financial needs over human needs. They grow to look out for themselves. This leads them, too, to want more control over their own lives and destinies."
Both Celente and Freyhof believe that a lot of new companies are likely to be successful because the people starting them already have business backgrounds. Because of the kinds of people who have been thrown out of work (or, in some cases, offered early retirement or other kinds of buyouts), there is a degree of business savvy that accompanies them into new ventures, they say.
"They realize that even if they're the best in the world at sales, they're nowhere without a product," says Freyhof. "Or that they may be wonderful product developers, but they don't know a thing about selling. Or maybe they can't manage operations.
"It's important for them to take a hard look at the areas that need to be bolstered, and to find someone who can do the job.
"What's important for anyone starting a new business to remember is that while you can reduce risk, you can't eliminate it. It's not easy. You'll work twice as many hours and it will cost you much more money than you ever thought.
"But if you plan carefully and stick with it, you can create something that is of financial value, and of real value beyond that. That's where you find the real satisfaction. That's why people do it."