Necessity Driven Entrepreneurs

After an interview almost three months ago, I recently found this great article on Necessity Driven Entrepreneurs, and as always, happy to be mentioned.

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Academics call them entrepreneurs motivated by Push factors. We call them necessity-driven entrepreneurs, they have different motivations than opportunity-driven entrepreneurs, and yes, we’re seeing more of them.

Ben Botes, director of program and service delivery at the South African Investors network in Gauteng, said the organization, which encourages would be entrepreneurs to start businesses, has seen so many people who have been laid off that it started a business start-up support program that regularly attracts 30 t 40 people who are looking for a helping hand with both the writing of their business plan as well as the crucial are of finding start-up finance. In 2009, attendance at the Centre’s “Exploring Entrepreneurship’’ sessions in Johannesburg, Durban, and Cape Town almost doubled in numbers from the previous year.

Barbara Nkosi was among the dozens of first-time entrepreneurs filling the seats at a beginner’s business seminar at the center. Nkosi said her job as an executive assistant will go away in March, when her employer, moves to another province and she has to find a way to make ends meat.

“Nobody is hiring,’’ she said. “I’m here because I’m taking care of my own destiny.’’

Sarah Buchannan from Durban who, between her and her husband, between them have decades of experience at local architectural and design firms, started getting together informally with a group of fellow designers and strategists last summer, after both were laid off.

“Initially, we just wanted to share our situation,’’ Buchannan said.

The group of eight women decided to collaborate, starting a business to offer clients multiple services, from print and architectural graphic design to strategic marketing. That led them to an investors network meeting.

“Because of the economy, we’re seeing more entrepreneurs who are pursuing opportunities because they don’t have to take that leap from a secure job,’’ Botes said. “They are already out of work, so why not pursue something that you’re passionate about?’’

“The people who were laid off ahead of us, none of them were getting jobs,’’ Barbara recalled. “So we knew we had to come up with a new plan, to beat the bad economy.’’

The couple honed their skills in the latest, most sophisticated 3D visualization software available, the kind that architects use to pitch projects. They also established ties to a large community of 3D designers locally. One good sign for their young business: they landed a big job before they even had a chance to print business cards or launch a website.

“It’s a little scary, but exciting at the same time,’’ Sarah said. “We’re trying to see this as an opportunity to turn adversity into an advantage.’’

John Gosling, their business coach said his advice to those planning to start a business for the first time is to give themselves “an honest self-evaluation.’’

“You should really be building on your experience, your skill sets, and your interest,’’ he said.

But he cautioned that entrepreneurship is “not a quick fix’’ for unemployment, adding that while he tries not to be “a dream crusher,’’ he often advises unemployed would-be entrepreneurs not to regard a start-up idea as 'fix all' solution.

“Even successful start-ups often don’t generate significant income for two or three years,’’ he said. “In fact, many require a significant investment up front.’’

The entrepreneurs are hoping that their fledgling enterprise will be able to overcome some of the issues that bedevil start-ups. The principals will work in “virtual teams,’’ from their home studios so overhead costs will be low.

Still the two first-time entrepreneurs admit that after years working in architectural firms, they are in unfamiliar territory as they plough through the documents that a new business requires.

They are also working through a business planning “homework assignment’’ from their SA Business Plans consultant that includes a business plan, a financial plan and a sales forecast.

“They each could have gone out on their own,’’ said Botes, “but they are better off as a team.’’

But he added that the group still has to fine tune its business plan, and possibly reduce the number of graphic services they will offer.

“They have a pretty good shot,’’ Botes said. “But it’s still a long road they have to travel.’’

Silver Lining Provided by Entrepreneurs

Those of us passionate about entrepreneurship will quickly tell you that the solution to any economic problem lies with the innovative thinking of the entrepreneur. Coming up with new, innovative and ultimately profitable solutions to current problems is what entrepreneurs are all about. Whether its a business finance, business planning, customer retention, product or services related or marketing challenge, somewhere there will be an entrepreneur ready with a answer.

A new study has confirmed it. A close look at our entrepreneurial history reveals that entrepreneurship is an engine for job creation and economic growth even during difficult economic times. The study, The Economic Future Just Happened reveals that more than half of the 2009 Fortune 500 companies started in a recession or bear market. Similarly, nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies were launched during a recession or bear market.

This new study by the Kauffman Foundation’s Dane Stangler suggests that policies that support entrepreneurship also support recovery. It also reveals that job creation from startup companies tends to be less volatile and sensitive to downturns when compared to the overall economy. Are there factors in economic tough times that encourage potential entrepreneurs to take the risk of translating their ideas into a startup?

Several are identified. First, firm founders might perceive that their prospective competition might be weakened. Second, entrepreneurs may view unemployment as an opportunity to start a company. In other words, they beat unemployment with a startup. Further, unemployment presents the opportunity to tap into a larger pool of potential employees.

Naturally, not all new ventures survive, not even during healthy economy times. But although the link between new firms and aggregate economic performance is not so straightforward — some of the startups experience an initial expansion only to contract in its second to fifth year before expanding again — in times of recession, the important contribution of new firms regardless of their ultimate fate constitutes their immediate positive impact on job creation. New firms also contribute to innovation, thereby driving economic growth and often restructuring the economy with new patterns of economic activity.

Companies that reach the Fortune 500 and Inc. fastest-growing lists demonstrate strength, innovativeness and flexibility. These companies were once invisible, but their founders were able to turn a problem into an opportunity. I encourage you to read about some of these success stories in “Profiles in Innovation” section. I would not be surprised if some of the entrepreneurs behind these big companies failed for various reasons beyond a depressed economic environment before successfully reemerging. The entrepreneurial process is complex, but as this new study shows, risk-taking offers big rewards in an entrepreneurial economy both to the entrepreneur and the larger economy.

Knowing this, is the government’s response to this recession supportive of entrepreneurs? Despite the spur of entrepreneurship during recessions, obstacles remain, potentially mitigating the positive contributions of entrepreneurs during such difficult economic times. On top of the list is perhaps the tight capital market. In this regard, Financing the Entrepreneurial Recovery: A Kauffman Foundation Summit, offered interesting insights. Its participants, which included economists, researchers, investors, and entrepreneurs, discussed and debated a wide range of policy recommendations. Most urgently, they called for relief from the strangling costs of providing health care and Sarbanes-Oxley compliance. When asked for new models of financing entrepreneurs, participants expressed strong support for the continuation of the SBIR program, federal support for university proof-of-concept centers, and a national tax credit for angel investments.

More is sure to come from this and other similar discussions, but one thing is certainly clear – entrepreneurship is the path forward to recovery.

Jonathan Ortmans is a senior fellow at the Kauffman Foundation where he focuses on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues.

Raising Foreign Finance

With foreign investors becoming more prominent and easily accessible for South African entrepreneurs today more start-ups are looking abroad when raining start-up funding.

Lourie Nel wrote a great Blog post on this recently, you can see
by clicking here