Starting over: Creating opportunities after suffering job layoffs

Feb. 6, 2009
Denver Business Journal

Renee McGraw | Read the story here

John-Paul Maxfield lost his job at a private equity firm about four months ago. In any other year, he would have looked for another job. Instead, he has cashed out his IRA, traded the family Volvo for a pickup truck and is starting his own recycling business: Denver-based Waste Farmers LLC.

“The job market is dismal,” Maxfield said. “So I said, ‘you know what? It’s time to take a shot. Just do it.’”

Maxfield isn’t alone. The number of phone calls from would-be entrepreneurs to the Denver office of the U.S. Small Business Administration (SBA) has more than doubled since last summer, according to spokesman Christopher Chavez.

“Call volume is up 100 percent from six to eight months ago,” Chavez said. “Before, we might have gotten 25 calls a day; we’re now at 50 or 60 a day. Our workshops through SCORE, their numbers are up 100 percent. In August or September, they maybe had 15 people; now they’ve got 30 or 40 people in a workshop.”

Businesses die during recessions, of course. But others are born, as laid-off workers and struggling business owners re-invent themselves.

“We’ve definitely seen a surge of inquiries from workers who were let go and are choosing to open their own businesses,” said Derek Woodbury, spokesman for the city of Denver’s Office of Economic Development.

So far, that hasn’t translated into an increase in business incorporations. Filings for trade names and various types of business formation fell by 11 percent in the second half of 2008 compared with the same period in 2007, according to the Colorado Secretary of State’s Office. Filings in January, at 10,341, were down 7 percent compared with January 2008.

Business formation usually rises during high-layoff periods, said Michael Williams, a Denver-based attorney who handles business formation and incorporation.

“In the past, when a major employer in the area has laid off workers, we’ve seen several folks come through that want to set up businesses,” Williams said. “It remains to be seen whether that’s going to be the case in a downturn as severe as this, though.”

One good source of recent business for Williams, and other business lawyers, is existing entrepreneurs who want to establish sideline businesses to deal with the recession.

“I haven’t seen new clients come in any more often, but I’m seeing existing clients taking on different projects, and forming new entities to do that,” said Harmon Graves, a Littleton-based lawyer. “I just had a builder in who is now buying up distressed properties.”

Some folks who started a business during Colorado’s last recession, in 2002 and 2003, say they’re glad they did.

Rob Ridge and his wife, Lynne, opened English Tealeaves, a Parker cafe and online tea retailer, in 2002. At the time, Ridge was working as a vice president of marketing for a Swedish company, but he believed his job soon would be eliminated.

“We’re pretty dumb. We did it at the wrong time,” Ridge said, laughing.

He can afford to laugh. English Tealeaves is now successful enough — business grew 14 percent last year, Ridge said — that the company is selling its first franchises.

“One couple is very, very interested, but the big issue for them is financing,” Ridge said. “A lot of people had so much equity in their house [that is now gone]. When you go for a loan, the banks ask you all these questions about the business, but they’re really not that interested. What they’re interested in is what equity do you have, what savings do you have … in case you default.”

Tight credit is among the obstacles to starting a business now, said Chavez of the SBA.

“In the 20 years that I’ve been doing this, there have always been ups and downs,” Chavez said. “But right now you’ve got an even more difficult situation, because you’ve got a tightening credit market, you’ve got an economy that’s slowing and consumer confidence has dropped. The majority of the people we’re counseling right now, we’re probably advising them against starting a business, just because of the risk involved in the current economic conditions.”

Williams, the lawyer, agreed that there are challenges in the current economy. “But certainly it’s a major opportunity to take risks, at this moment,” he said. “A lot of things are cheaper than they’ve ever been or ever will be — advertising is cheaper, costs of assets are cheaper. Things are available now that weren’t available before. Sometimes people can outfit their whole business just through Craigslist.”

For Maxfield, who’s still looking for investors, there’s no time like the present.

He’ll use his own retirement savings — and the help of his wife, Carrie, a teacher — to launch Waste Farmers.

“I’d sure as heck rather invest in me than in the market,” Maxfield said. “A lot of great businesses in this country were started with one pickup truck, with one fruit stand. You can throw a bunch of money at something and figure out how to spend it, or you can just start and do it.”

John McFadden, owner of Craftsman Extraordinaire LLC in Denver, was in a similar position after being laid off from Qwest Communications International Inc. in late 2001.

He’d worked for the company for 33 years, ultimately becoming supervisor of a T1 line crew that served downtown Denver, including the Pepsi Center, the City and County of Denver, and Denver Public Schools.

After six months of sitting around at home, he dusted off his tools and hung a shingle as an independent carpenter and builder. Volunteer work through his Kiwanis club was especially helpful in generating referrals and word-of-mouth business.

Today, he earns nearly as much as he did at Qwest, but with far less stress and fewer hours, he said.

“It truly was the best thing I ever did,” McFadden said. “I wish I’d done it sooner.”