Zoomer entrepreneurs face tough times
If you’re a fan of The Dragon’s Den and The Shark Tank, you already know there’s no age limit on innovation. While it’s interesting to see the parade of businesses looking for cash from investors, the off-camera reality is that more and more people are going into business for themselves — including those over the age of 45.
It’s not a new trend, but what is new are the major challenges entrepreneurs have been facing since the economy took a nosedive last year. So how is the recession affecting the self-employed?
More workers going it alone
Think a recession would slow enthusiasm for starting a new business? Not so, according to the latest numbers from Statistics Canada. Between August 2008 and August 2009, the number of self-employed workers in Canada increased by 3.5 percent — that’s over 92,000 people. (In comparison, the number of paid workers fell by 2.7 percent.)
If those numbers still seem a little modest, consider this: Between 1987 – 2005 the increase in self-employment was an average of 2.2 per cent each year, and the number of paid workers rose an average of 1.4 percent annually. Currently, there are more than 2.7 million self-employed workers in Canada, up from 2.5 million in 2005.
If you’ve been following the trends, you already know that boomers are a driving force behind the numbers. They’re re-thinking their retirement, and that can mean freelancing and consulting, starting a new career and even launching a new company. And why not? Boomers have the experience, the skills and the business savvy, not to mention the creativity and greater financial freedom. In fact, previous studies have shown that people over 50 are more likely to be self-employed than their younger counterparts. (See Mind your own business for details.)
Boomers are also key to economic growth. A recent report from the UK National Endowment for Science, Technology and the Arts (NESTA) found that entrepreneurs between the ages of 50 and 65 were responsible for more than a quarter of the companies founded between 2001 – 2005 — that’s over 90,000 companies and 400,000 new jobs. The findings also noted that these “third age founders” were eager to give back to society, and just as willing to take risks as younger entrepreneurs.
Enter the recession…
We all know a lot can happen in a year. For many boomers and seniors, staying in the workforce has become a financial necessity after their savings took a major hit. In addition, people of all ages have faced job losses — especially men. Finding a new position can be tricky with layoffs and hiring freezes, so many people are creating their own opportunities instead.
“You see an influx of seasoned individuals who may have [been] let go from larger corporations who’ve always had a desire to start their own business,” says Howard Grosfield, VP & General Manager, Small Business Services at American Express Canada, in an interview with CTV News. “The downturn [in the] economy has given them an excuse to get out there and give it a try.”
There is also the opportunity to provide new products and services tailored to this market, like consulting for companies who have downsized, or launching a company in a sector that’s still growing — like energy, recreation and technology.
Funding drying up?
The one downside to these increasing rates is that there are more people looking for funding — and at a time when people aren’t so quick to part with their cash. Family and friends may be less likely to kick in some start-up cash, and getting a loan at the bank may be more difficult.
You might understand why friends and family are holding on to their money, but what about investors whose business it is to fund start-ups? According to reports in the New York Times and the Detroit Free Press, these angel investors and venture capitalists are also being more careful with their cash. They too saw a decrease in their net worth thanks to the downturn, and they’ve often been required to sink more money into their current projects.
In addition, those big payoffs they’re hoping for are slipping further into the future as growth is slow and the larger companies that usually buy out the “smaller fish” aren’t spending as much either. The New York Times reports that venture capital in the U.S. is at its lowest rate in decades.
As a result, many potential entrepreneurs are relying on “bootstrapping” — that is, tapping into their own financial resources like credit cards, investments and even forgoing a salary. Taking on debt and making personal sacrifices can be increasingly risky.
However, the news isn’t all bad — many suppliers and customers are willing to work with new businesses to help them make a go of it. There are also government grants, loans and subsidies available, and new forms of lending like microloans and peer-to-peer loans are helping people find some cash despite tough times.
“That which does not kill us…”
The economy is taking its toll on new and veteran small business owners and start-ups, but recent surveys have found that despite the hardship, entrepreneurs are dedicated to — and passionate about — their work. The latest American Express Small Business Monitor survey found that entrepreneurs are doing whatever they can to cut costs, even if it means at the expense of their own salary or personal savings.
It’s difficult times for many people, but the sacrifice is worth it. The April 2009 edition of the Small Business Survey reported that more than three quarters of business owners felt that the rewards and opportunities of being their own boss outweighed the challenges, even in the tough economy.
So should you hold off starting your own business or embrace a new opportunity? There is no definitive advice on the subject because it depends on the kind of business (starting up a company versus starting up a side business) and what industry. The recession certainly isn’t deterring people, but the risks could potentially be higher until the economy turns around.
(Thinking of giving it a go? See 10 ways to finance a start-up for funding ideas and cost-cutting measures).
Sources: New York Times, CTV News, CARP, NESTA, Detroit Free Press