Experts weigh in on life after downsizing
According to Jim McConoughey, president & CEO of the Heartland Partnership, this recent downsizing represents a different mindset not just in Peoria, but across the country,
Today, downsizing is different from past layoffs. McConoughey explained that employers are now faced with the moral issue of informing employees that their jobs are not coming back.
Your Job Isn’t Coming Back
From an emotional standpoint, people are now realizing that perhaps they are permanently losing their means of employment. McConoughey said, “In many ways it means that (an employee) may not be able to be rehired because that whole sector is losing their jobs.”
He went on to say that we have seen in this recent downturn across the county, and not just in here the local marketplace. “We now have employers saying, ‘Your job isn’t coming back,” McConoughey explained, “and it is a moral issue for us to tell you that although you may be enjoying the summer layoff your job is not coming back as it has in the past.’“
From an emotional standpoint, people are now realizing that job loss is final. Job hunters may not be able to find similar employment because that whole sector is losing their job.
McConoughey went on to explain that, after downsizing, people tend to go toward things that help them take control of their own destiny. “That usually means small business or entrepreneurial activities,” he said, “or they head into industry segments they know are growth industries like becoming a chef. That’s a growth industry. People are eating out more. That’s a more tenacious industry. It’s recession proof, more or less.”
Many people never entertained going into business for themselves until their job disappeared. “It’s very very painful for them,” McConoughey said.
That generates anxiety. He pointed out that half of all entrepreneurs or small business owners survive. “Those people who start a business with a lot of anxiety have an 80% failure rate because you have to be optimistic because you get pounded so hard as a small business,” McConoughey said.
A Dose of Reality
While there are many resources in the Peoria area to assist small businesses and entrepreneurs, one of their tasks is to add a dose of reality. For instance, a business plan to make handmade earrings and sell them for $10 a pair, with the goal of bringing in revenue of $50,000 a year, may not be realistic.
To generate that kind of income would require making 5,000 pairs of earrings each year. That leaves no time for marketing, shipping earrings to customers, working trade shows, or ordering raw materials.
Then, about one-third of that revenue goes for taxes. Now that income drops to $33,000.
From that $33,000, the business still needs to buy packaging, advertising, and the raw materials to make the earrings.
Kip McCoy, speaking on behalf of Central Illinois Angels, advised, “I would not just decide to start a business. I would do a self-assessment about what I’m good at or interested in. It could be anything. A restaurant or an engineer.”
When people approach the Heartland Partnership, McCoy said, “We refer them to the Small Business Development Center or SCORE to help them get additional assistance in putting their plan together. It’s hard to fund an idea. You need to know the market. You need to know where you’re going to make money. You need to know more than if I build it people will buy it.”
McCoy confirmed that $2,000 is a realistic cost for the absolute minimum startup, even for a home-based business. Franchises cost much more and that cost does not account for any equipment or training.
“For a phone line, a domain name, and getting a business set up as a corporation, or whatever, requires a couple thousand dollars and a lot of planning. It’s more than just hanging out a sign,” he said.
He said that the Heartland Partnership works with companies that are devoting months, and even years, to implementation. He said, “The physical process of putting the business plan down on paper and thinking it through takes a long time. Even if you want to do something out of your home, it takes a couple thousand dollars. And where do I find $2,000 if I’ve been laid off?”
Finding Capital
Kyle Ham, president of Peoria Next says, “The number one failure for business not to go forward is not having enough capital.” While many people have heard of angel investors, they typically only fund companies
Angel investors are generally only interested in investing $250,000 to a million dollars into a business that has provided evidence that it will grow by 10 or 15 times in a five-year time period. McCoy said, “That is just not the case for most business startups or small businesses. It’s a very niche type of fund-raising initiative.”
Funding an idea is a challenge. “You need to know the market. You need to know where you’re going to make money. You need to know more than if I build it people will buy it.” McCoy said. “Regardless of whether it is angel investing or banks or even if someone comes to you and offers the money, they are going to ask who is going to buy it and why are they going to buy it. It’s important to know all of those things.” That evidence needs to be in the form of a business plan.
“I don’t think a lot of people consider the market itself. They think something is a good idea — and it may be a good idea –but it may not be a good idea that people are willing to pay money for,” McCoy explained. “It is important to understand who is really going to pay money for your idea and whether you can make a go of it in business.”
McConoughey admits he has spent a lot of time trying to talk people out of their small business ambition because they are putting their family in harm’s way. If the job of last resort is to open a small business, he predicts that people are equally likely to fail at that as they are at finding traditional employment.
McConoughey advised, “You should only be getting into a small business if you have a fire in your belly and the passion to read all the books and do the research and focus on customers in terms of revenue and not in terms of the business model you dreamed up.”
“I don’t want anyone facing bankruptcy just because starting a business is the job of last resort,” he said. “People have lots and lots of opportunities after they get laid off about different choices they can make. They think the biggest choice they have is to decide to move forward, meaning to get another job. It’s motivating to them to get another job because they have a family situation and a mortgage and all that other stuff.”
For those who are determined to start a small business with little capital, McCoy advised, “Get creative about the network that you have. Going on LinkedIn doesn’t cost anything but it does take a lot of time to set up. The networking part can be huge.”
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