The San Diego Union-Tribune (California)
By: Tanya Mannes
October 12, 2010
As high-level corporate jobs dry up, some executives are embracing the idea of trading rush-hour traffic and hectic schedules -- as well as steady paychecks -- for a chance to be their own boss.
The economic collapse has eliminated millions of jobs, slashed pension programs and gutted home equity and stock portfolios, making the idea of self-reliance more attractive.
Peter Siegel, founder and chief executive of BizBen.com, a California business-for-sale website, is seeing a surge of former executives -- many in their 40s, 50s and 60s -- seeking a business with an adjusted net income of $100,000 or more.
"Joblessness in California is at an all-time high," Siegel said, "so they're basically buying themselves a job."
Siegel said about three-quarters of the 22,000 buyers in his database are people making a transition from the corporate world.
In San Diego , for example, a laid-off Toshiba executive bought a postal store, a graphic designer took over a tattoo shop, a restaurant chain vice president established his own consulting business and an advertising executive launched an online referral service.
No one is saying that the transition from desk jockey to entrepreneur is easy. Start-up costs can be substantial, and the first challenge for most buyers is a shortage of capital. People have less home equity, shrunken stock portfolios and less money in the bank. Some drained their savings looking for a job. Since the banking crisis, it remains difficult to get loans, which means sellers have to offer financing to get most deals done. That means the seller "carries" a loan with the buyer making regular payments with interest directly to the seller, instead of to a bank.
Not surprisingly, some people get in over their heads. One former executive, who didn't want to be identified, used personal savings and loans from family to buy a scrap-metal business for half a million dollars. The business failed, and he is attempting to sell it at a loss.
Another challenge is the limited number of businesses for sale. Some owners have decided to wait until the economy improves before selling. "It's difficult to find a business making $100,000 where the owner is willing to sell at a reasonable price," said Chris Seaman of First Choice Business Brokers in San Diego. "That's what most buyers are looking for, but we don't have the sellers."
Yet these hurdles aren't deterring a growing number of people from buying businesses.
Some of these new entrepreneurs have visions of dollar signs, while others are focused on a lifestyle change. Other buyers, who were laid off or left their job voluntarily, perhaps through early retirement or by accepting a severance package, want a new challenge, on their terms.
"They're either tired of playing golf, or they've been working 60 to 70 hours a week in corporate America," Siegel said. "Why work that hard for someone else when you can build 'sweat equity,' and invest in your own future?"
Most new entrepreneurs work long hours and get by with few employees or none. In the beginning, they might do everything themselves, from sweeping floors to printing their own business cards on a home computer. After years working for a company with separate departments for finance and human resources, it can be overwhelming to face responsibilities from licensing to payroll taxes and buying independent health insurance -- not to mention understanding how the business itself works. It can take years to begin turning a profit.
Some of these middle-aged executives have few choices, however.
California unemployment has been above 12 percent for more than a year, the worst numbers since the Depression. There are not enough jobs being created for the population as a whole, much less for executives nearing the end of their careers. The nation lost 8 million jobs during the recession and now is adding back jobs at a painfully slow pace of around 90,000 new jobs per month this year.
Mike Handelsman, general manager of the the Internet's largest marketplace for buying or selling a business, BizBuySell.com, said the rise in unemployment has fueled interest in business ownership among well-educated people with good business experience. Those people have plenty of skills that they can leverage in their own businesses, he said.
Even with all the risks of being self-employed, some people feel safer being in control of their jobs, rather than at the mercy of corporate boards or stockholders.
"It doesn't seem to me that people are thinking about being multimillionaires," said Deborah Sweeney, chief executive officer of MyCorporation, a national company that handles incorporations and the formation of limited-liability companies. "They say: 'I worked in a cubicle before, and now I just want to get out there and be my own boss.'"
Sweeney said that many of her customers are not confident in their jobs. "Some fear a double-dip recession, and ironically they're leaving their jobs before they get fired."
Because of the difficulty in getting financing, many savvy buyers these days are looking for businesses with a low upfront investment, perhaps without a brick-and-mortar location. That might mean a consulting business operated from home, trendy concepts such as mobile "cupcake trucks" that advertise their location on Twitter, or an eBay "virtual store."
There are also service companies, sometimes operated out of a van, in which people offer help with anything from birthday parties to computer servicing. Spiritual "lifestyle" businesses -- "yoga-type stores and anything organic" -- are also popular.
Seaman's brokerage recently sold a business that extracts gold from circuit boards, a pet cremation enterprise and several franchises. There's a strong interest in food-related businesses, including restaurants and bars, although those can be expensive, he said: "If it has a full liquor license, it's very desirable."
Siegel said it's a good time to buy a business because sellers have lowered prices and often are willing to negotiate.
"Even though we're at the bottom of the market, people should think about buying now because the pricing of small businesses is so good," Siegel said. "I foresee that after the election and when things start settling down a little bit with the economy, things will get better and people will reap the benefits of their purchase."