The depths of the recession might not be considered the best time to quit a day job and jump into the entrepreneurial world. But retired Silicon Valley CEO Fred Glave knows a couple who each quit their jobs to launch a startup in 2008, and they're still at it today—and expanding.
Glave himself went from having a long career with a multinational firm to a startup of his own, and was forced to close his failing business. But like the people he now counsels, Glave came back from adversity to successfully stake a claim in the American small business dream.
The small business owner was desperate when he came to Fred Glave for counseling. His two-year-old startup was foundering, and the owner didn't know what to do.
Unfortunately, Glave had seen many others caught in the grip of the same economic crisis—the worst recession in more than 25 years.
Sales for small businesses declined 6.4% in 2009, gross profit margins fell two percentage points to 54.78% in 2009, inventory is staying on shelves four days longer than last year, and it's taking an average of three days longer to collect receivables over the last two years, according to a February 2010 study by Sageworks, Inc.
To stay afloat in this dismal environment, Glave advised the urgent task of trimming costs. The first order of business was the company credit cards—on which the businessman was paying 18% interest.
It was the beginning of a review that would help the operation stay afloat. Job one, Glave advised, was that the business owner consolidate his business credit cards and negotiate a lower interest rate.
Controlling expenses is the number one task of small business struggling in this challenging economy, but not the only one, according to Glave.
He should know.
“I've done everything,” Glave said. He has a Ph.D. in electrical engineering and spent 24 years with Nortel. Then he jumped to a Silicon Valley startup, a telecommunications firm, which lasted just three years.
“I know what it is to start a business and also what it is to shut it down,” said Glave. “It took us too long to get our product to market, and I couldn't come up with a third round of financing. I had to lay off 50 people.”
Glave managed another Silicon Valley telecommunications firm and then went “back East,” as he said, as CEO of a telecommunications equipment manufacturer.
Surprisingly, Glave believes a close review of business operations can lead to results that are counterintuitive. If business is bad, everyone is experiencing the downturn—a situation which can present competitive opportunities as rivals stagger or fall.
Another seemingly unlikely move—as cost control becomes more urgent for the very small business—is that hiring may actually be the answer. “Because the fixed costs are already covered in a small business, hiring an extra employee could produce quite a bit more revenue,” Glave said.
Capital for startups is the eternal problem, but Glave has seen existing small businesses successfully tap funding. Lenders and underwriters may require more diligence. Banks are generally looking for more collateral and significant existing financial participation by the owner. If the business owner has a reasonable balance sheet and has demonstrated an ability to control costs—even if growth is modest—lenders will loan.
“With sound fundamentals—maybe a little sounder than usual—business owners can get loans,” Glave said.
And startups can, and do, succeed. Glave, a counselor for the Service Corps of Retired Executives (SCORE), cited one business success that focused on the last portion of the economy to falter in hard times: high-end spending, in this case for home remodeling.
The couple Glave cited is from Washington, DC They quit their jobs in the teeth of the down economy to begin an unusual business: managing home-remodeling projects by providing a level of service between homeowners and general contractors.
Renovations, remodels, and basement-building projects involve more detail than many affluent homeowners desire. So the entrepreneurial couple offered to work with clients to design a project, bid it, and manage it from start to finish. They work at a level above the contractor, managing the bidding process and then overseeing the project itself. “They take on all of the responsibility that you or I would undertake if we were remodeling a kitchen. They take all the legwork out of the process,” Glave said. The couple has landed remodels that exceed $1 million.
“That kind of business will thrive even in a down market,” Glave said. “The high end of the market is more robust.”
Another success story is that of a woman who has become a nationally known expert on ADHD, attention deficit hyperactivity disorder. She entered the field when there were few persons knowledgeable about the disorder, she trained others, and she initially focused on pro bono work with nonprofit organizations. She developed an outstanding reputation, along with a network of contacts, and a cadre of students whom she trained.
But to transform her specialty into what became a thriving business, she needed to borrow $25,000.
“But she lacked the self-assurance to do it,” Glave recalled. She had never been in business and had no experience. It wasn't the first time Glave had run across a potential entrepreneur who just needed someone to talk to.
Speaking about what the small business owner needs to do in tough times, Glave concludes: “He can talk about his priorities and put them in order, and reaffirm what he's planning to do, so that he has the confidence to go out and do it.”