Is That Unemployment or Opportunity Knocking?

Stephen DeAngelis

June 21, 2010

Robert B. Reich, a professor of public policy at the University of California, Berkeley, and a former Secretary of Labor, wrote an interesting op-ed piece about the number of start-up companies formed last year [“Entrepreneur or Unemployed?New York Times, 1 June 2010]. He begins:

“Last year was a fabulous one for entrepreneurs, at least according to the Kauffman Index of Entrepreneurial Activity released last month by the Ewing Marion Kauffman Foundation. ‘Rather than making history for its deep recession and record unemployment,’ the foundation reported, ‘2009 might instead be remembered as the year business startups reached their highest level in 14 years — even exceeding the number of startups during the peak 1999-2000 technology boom.’ Another surprise is the age of these new entrepreneurs. According to the report, most of the growth in startups was propelled by 35- to 44-year-olds, followed by people 55 to 64. Forget Internet whiz kids in their 20’s. It’s the gray-heads who are taking the reins of the new startup economy. And if you thought minorities had been hit particularly hard by this awful recession, think again. According to the report, entrepreneurship increased more among African-Americans than among whites.”

In my experience, you don’t use words like “fabulous” if your tongue isn’t firmly planted in your cheek. If Reich sounds skeptical about the “fabulous” figures for entrepreneurship, it’s because he is skeptical. He continues:

“At first glance, all this seems a bit odd. Usually new businesses take off in good times when consumers are flush and banks are eager to lend. So why all this entrepreneurship last year? In a word, unemployment. Booted off company payrolls, millions of Americans had no choice but to try selling themselves. Another term for ‘entrepreneur’ is ‘self-employed.’ According to an analysis of Bureau of Labor Statistics by an outplacement firm, Challenger Gray & Christmas, the number of self-employed Americans rose to 8.9 million last December, up from 8.7 million a year earlier. Self-employment among those 55 to 64 rose to nearly two million, 5 percent higher than in 2008. Among people over 65, the ranks of the self-employed swelled 29 percent. Many older people who had expected to retire discovered their 401(k)’s had shrunk and their homes were worthless. So they became ‘entrepreneurs,’ too.”

Reich’s point that “self-employed” is another term for “entrepreneur” is fairly made. Just as fairly, he doesn’t judge people who have been forced into self-employment as inferior to those who pro-actively seek to become entrepreneurs. He does note, however, that not all newly self-employed people are happy with their circumstances, nor should they be. He explains:

“Maybe this is a good thing. A deep recession can be the mother of invention. These Americans are now liberated from the bureaucratic straitjackets they thought they had to wear. They can now fulfill their creative dreams and find their inner entrepreneurs. All they needed was a good kick in the pants. But this upbeat interpretation doesn’t include lots of people who don’t particularly relish becoming their own employers, like an acquaintance whom I’ll call George. George was an associate partner at one of the world’s largest technology and consulting firms until he lost his job last year in a wave of layoffs. For months, George knocked on doors but got nowhere because of the deep recession. Finally, his old firm got some new projects that required George’s skills. But it didn’t hire George back. Instead, it brought him back through a ‘contingent workforce company,’ essentially a temp agency, that’s now contracting with George to do the work. In return, the agency is taking a chunk of George’s hourly rate. Technically, George is his own boss. But he’s doing exactly what he did before for less money, and he gets no benefits — no health care, no 401(k) match, no sick leave, no paid vacation. Worse still, his income and hours are unpredictable even though his monthly bills still arrive with frightening regularity.”

I know a lot of people in George’s situation — people who would love a full-time job with benefits, but who find themselves caught in netherworld of temp work. Such individuals are not truly entrepreneurs. Entrepreneurs are people who create businesses, jobs, and, sometimes, even whole new economic sectors. Temp workers cannot be counted in that category. According to Reich, they are not really counted in any category.

“The nation’s official rate of unemployment does not include George, nor anyone in this new wave of involuntary entrepreneurship. Yet to think of them as the innovative owners of startup businesses misses one of the most significant changes to have occurred in the American work force in many decades. Typically each year, large numbers of Americans leave their old jobs to find new ones. Unemployment rises during recessions mainly because companies hire fewer workers, not because they lay more people off. But this Great Recession has been different. Layoffs by mid-sized and large companies have surged while hiring has almost disappeared. These companies have used the sharp downturn as an opportunity to cull their payrolls for good — substituting labor-saving technologies and outsourcing to workers abroad or to contract workers here. This explains why almost half of America’s unemployed have been jobless for more than six months — a greater proportion than at any time since the Great Depression. It also explains why so many people like George have joined the ranks of the self-employed. Yes, a growing number of Americans went out on their own before the recession, but clearly their numbers have vastly increased. While some are happy about their new status, most are worse off than they were before. It’s one thing to be a contingent worker in good times and when you’re young; quite another in bad times when you’re middle-aged.”

People in George’s situation need the government to foster conditions that allow real entrepreneurs to flourish. Companies need to be rewarded for creating permanent jobs. Reich makes the point that the kinds of policies needed to promote entrepreneurship are very different than the programs needed to help people like George survive economic bad times. He concludes:

“New businesses are vital to job growth, and entrepreneurship does fuel the economy. And surely some of America’s new independent workers will build their own companies. But when the economy is still so hard on so many, it’s important to distinguish between entrepreneurial zeal and self-employed desperation.”

What if you fit into both categories? That is, what if you have been laid off and possess the entrepreneurial spirit? Then the Great Recession might, in fact, be opportunity knocking at your door. Luke Johnson advises that you be ready to act when the right opportunity presents itself [“Be ready to pounce if opportunity knocks,” Financial Times, 26 May 2010]. He writes:

“I have always believed that opportunity comes knocking for almost everyone. The difference is that only some choose to open the door and welcome opportunity inside. In certain cases, the breakthrough is an idea for an acquisition. For some, it is an invention or a new product; for others, it is the forging of a partnership, a second chance, an escape route; and for others, it is simply a meeting that provokes them to become an entrepreneur.”

In the cases discussed by Reich, it’s forced redundancy that made them “self-employed.” Sometimes opportunity comes knocking at your door; but, I think that is rare. More often than not you have to go knocking on a lot of other peoples’ doors. Regardless of how opportunities present themselves, Johnson’s point is that you must be ready to act. He provides some very interesting vignettes of how some successful entrepreneurs did respond when opportunity knocked.

“For Tiny Rowland, that chance came when Angus Ogilvy asked him to become joint managing director of the London and Rhodesia Mining and Land Company – ‘just a ranching company with a couple of tin-pot mines’. Mr Rowland persuaded the sleepy board of what became Lonrho to swap £200,000 worth of their shares for some car dealerships he owned. Within 20 years, his shareholding had multiplied in value 1,000 times, and Lonrho was one of the most famous businesses in Britain.”

The fact that Mr. Rowland had “some car dealerships” indicates that he already possessed the entrepreneurial spirit. He also possessed something else that most successful entrepreneurs share: vision. It takes vision to see greater possibilities in a company that owned “a couple of tin-pot mines.” Lonrho’s current vision, according the company’s website, is “focused on the fact that Africa is developing as one of the strongest global emerging markets. African growth is primarily driven by the expanding mineral, oil and agriculture sectors, and a significant internal economy being generated by a population that is approaching one billion people. Lonrho only invests and builds businesses in Africa, and the corporate strategy is to help facilitate the development of the Continent. Lonrho operates in five industry sectors; Infrastructure, Transport, Agribusiness, Hotels and Support Services. These important industries provide some of the building blocks and foundations required for successful economic growth. Lonrho has built tangible operational businesses that promote job creation, assist poverty reduction, and are an integral part of African economic development.” In fiscal year 2009, Lonrho had a reported revenue of £90.9 million (nearly $133 million).

The next vignette provided by Johnson is about how romance opened the door to opportunity.

“In the case of William Procter and James Gamble, their defining moment came when they met – because they courted and then married sisters Olivia and Elizabeth Norris. Their father-in-law suggested that the candle- and soapmakers should merge their business interests, and so on Halloween 1837, the legendary Procter & Gamble Company was born. It is now perhaps the most admired business in the world.”

In his third vignette, Johnson discusses how chance and timing can play a role in furthering opportunities.

“Sir James Goldsmith set out to get rich after leaving the army. He developed a modest pharmaceutical concern that went well for a while. But he over-traded, and by late July 1957 the Paris-based business was on the edge of going bust. Late one Thursday night Sir James went to bed having run out of time and money. Yet the following morning, opportunity presented itself when a bank strike was announced: it meant his loans were not called and the fledgling tycoon had time to refinance – and continue his ascent. I mention Sir James partly because he provided inspiration to me about a quarter of a century ago. As a restless young man I sought his advice, and he invited me to tea at his grand house in Ham, near London. Small children were running around – one of whom must have been Zac Goldsmith, the new local Conservative MP. Sir James told me in no uncertain terms to stop working as an employee and go into business on my own account, which I proceeded to do.”

Although that is an interesting story, don’t count on fate to intervene when it comes to paying your debts. The real point of the story is that Sir James beat the bushes and refinanced his collapsing enterprise. Johnson writes, “Estimates say that about one in 10 people becomes an entrepreneur.” I daresay that most of those who sought to become entrepreneurs did so willingly and were not forced by redundancy to become self-employed. If, however, you have the entrepreneurial spark and find yourself in a position to take advantage of an opportunity, Johnson recommends remaining alert to those possibilities. He concludes:

“For many, that spark lies latent until it is ignited by an unplanned meeting or a lucky opening. That is all it can take to light the fuse. To take advantage of such situations, one must be alive to possibilities, willing to take risks, and a believer in the motto Fortis imaginato generat casum – a strong imagination begets the event. In previous eras, the young were inspired by explorers and adventurers. Today, I hope their role models are not just reality TV stars, but entrepreneurs who build real companies and create jobs – to trigger more defining moments.”

Being self-employed and building real companies that create jobs are not necessarily the same thing. The world needs more entrepreneurs because it needs more jobs. Johnson’s main point is that you can make a success of your life beginning with an apparent failure (i.e., being laid off). Winston Churchill once wrote, “Success is walking from failure to failure with no loss of enthusiasm.”