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Brian Dacy insists he did not have a mild case of temporary insanity when he quit a secure job with Senderra Funding last fall and took the entrepreneurial plunge in the midst of one of the worst recessions since World War II.
"I admit it does sound a little crazy," Dacy said with a laugh as he sat recently in the living room of his Gaithersburg home, where he and his wife, Marni, run an InXpress discount shipping franchise.
So far, the new venture has worked out fine, he said.
"Our customer base went up about 30 percent in February from January and probably will go up 100 percent in March from February," Dacy said. "I'm happy with how it's gone."
Brian Headd, an economist with the U.S. Small Business Administration, said his agency does not track how many people start new jobs after leaving secure positions in a recession, as opposed to being laid off. But the number who quit to launch a venture during the downturn is likely not too high, officials with local business groups said.
Marylanders tend to start more new businesses during recessions than in the previous year, bucking the national trend, according to federal figures. For those who took the plunge voluntarily in the past year or so, the decision was a difficult one that came down to figuring that it was better to take more control of their own career destiny than wait around for a pink slip.
"I wanted more control of my personal life," said Dacy, 41.
Most recently, he was a regional vice president in the Rockville office of Senderra, a division of investment bank Goldman Sachs Group. He had been in the mortgage banking business for almost 20 years.
"My job wasn't in jeopardy, but as the mortgage industry softened, I began to think about what I would do for my next act," he said.
‘Control my own destiny'
While Ingar Grev opened his business coaching franchise, The Growth Coach, before the recession began in late 2007, the Annapolis man said it was natural to harbor second thoughts about what he was doing in leaving a secure job. In corporate positions with companies such as Bell Atlantic Corp., which later merged to form Verizon Communications, Grev had to lay people off himself. He also knew what it was like to be on the other side of a pink slip.
"That reinforced in my mind that the best way for me to control my own destiny as much as I could was to have my own business," said Grev, 41, a former Navy submarine officer and former football coach and instructor at the Naval Academy who earned master's degrees in business administration and systems engineering at the University of Maryland, College Park.
For Kathy Hardy, it was a chance to have something for herself.
"I worked hard at making other companies successful," said Hardy, who worked for companies such as Bethesda hotelier Marriott International and mortgage giant Fannie Mae before she decided last year to open a Caring Transitions senior relocation and transition service franchise that serves part of Montgomery County. "I wanted to do it for myself."
An economic downturn can be an opportune time to launch a new company, because of less competition, lower costs and a larger pool of highly skilled employees to tap, some consultants say. Businesses that started during the 2001 recession include Rockville biotechnology company Trophogen, which is still in operation.
Columbia security software developer Sourcefire opened its doors two months before the 2001 recession officially started. That company hit a record $75.7 million in revenue in 2008 and increased its work force last year during the current recession by 17 percent to 281.
"It's always tough to start a new business," Dacy said. "But if you do it right and get it running, you will be ahead of others who start a business when times get better."
Grev, whose coaching franchise covers Greater Washington, including parts of suburban Maryland, agreed. "The economy will turn around, and those best-positioned to take advantage when it turns around will be that much farther ahead," he said.
Taking special care during a downturn
In good times or bad, it is important for budding entrepreneurs to think through their venture carefully, develop a detailed business plan and have more than enough cash, said Robert Greenfest, a principal at Santos, Postal and Co., a certified public accounting and consulting firm in Rockville.
Those precautions are magnified when starting a venture in a recession, said Greenfest, who advises clients on how to cut costs and manage debt and writes a blog at bobgreenfest.wordpress.com.
The median amount of funds that solo entrepreneurs said they needed to launch a company was $6,000, according to a recent SBA survey. For team partnerships, that climbed to $20,000. Budding entrepreneurs are expected to gain more help from the federal government, as President Obama this week unveiled a plan to boost SBA lending programs and have the SBA purchase up to $15 billion in small-business loans made by community banks using some of the $700 billion in bailout funds that Congress approved last fall.
Having expertise in an entrepreneur's chosen field is recommended, though not always essential, consultants say. Being in the Navy, where he learned to be a leader, was really useful in his own company, Grev said. The business actually has a guarantee that minimizes the risk for clients, he said.
"A lot of great businesspeople don't really know how to lead," Grev said. "We know how to set the right program in place and keep clients accountable to doing it. It's not that we are better leaders or managers, but we can coach them on how not to design their business so it's all about them."
The Dacys did not really have shipping experience before buying the InXpress franchise. After consulting with a business coach to learn about startup options, they narrowed their potential companies to a few and settled on the discount shipping franchise.
Among the appealing factors were minimal overhead and being involved in a business that companies still need in a recession. Their clients' shipping expenses are cut by 20 percent to 50 percent by using national volume discounts, the Dacys said.
"It's somewhat recession-proof. Businesses still need to ship during downturns," said Marni Dacy, whose background is in public relations and marketing. She was ready to re-enter the work force after several years as a stay-at-home mom, but wanted something with more flexibility.
"We are at a great point in our lives to work together and put our combined knowledge and experience to work," she said.
Added her husband: "The sizzle to our sales is the savings. Our clients also like the personal attention we provide that they typically don't get from a larger company."
The Dacys' client list is up to about 100, with some in other states. They have a full-time salesperson and also find customers through networking events such as leads groups and referrals from established clients.
The Dacys are the first owners in the Washington region of a franchise with InXpress, whose headquarters is in Salt Lake City. They do not have to actually do the shipping, as that is done by the customer through Web-based technology, but they train clients and consult with them when needed.
"It's more important than ever to build personal relationships these days," Dacy said.
Some still feel tempted by security
For some entrepreneurs, the temptation to jump back in the corporate world is too much. Hardy said she could not turn down a job offer to work in reverse mortgages, which she had done for Fannie Mae, for the U.S. Department of Housing and Urban Development late last summer.
"I couldn't walk away from that," Hardy said.
She works with real estate agent JoAnne Baick, who has a Caring Transitions franchise that serves Potomac and Gaithersburg, as Hardy handles the Washington region, including Bethesda and Rockville. "Since we both have other jobs, we help each other," Hardy said.
Still, as some pull back a bit, others stand ready to take their place and take the plunge.
Geoff Mirkin recently sold his established Gaithersburg home improvement company that was earning him a good income. With some partners, he plans to start a new solar venture this summer, likely in Columbia, taking advantage of the alternative energy trend that carries a 30 percent federal tax credit for solar panels in residential projects.
"Any time you open a new business and invest a lot of personal money, there is inherent risk in doing that," said Mirkin, 40. "But with our background, client base and ability to market and sell, I feel very confident."
Marylanders start more ventures during recessions
In the first six months of 2008, the number of new companies that formed in Maryland increased by 11 percent, to about 14,000, from the same period in 2007, according to the latest federal statistics available. That contrasted with a 2.2 percent national decline.
A similar trend was seen in the midst of the last recession in 2001 from April to September, when the number of new companies increased in Maryland as they declined nationally. The figures were seasonally adjusted.
Tips for starting a business in a recession
Robert Greenfest, a principal at Santos, Postal and Co. who advises clients on how to cut costs and manage debt and writes a blog at www.bobgreenfest.wordpress.com, offers the following tips for today's entrepreneurs:
Don't jump off a ledge. Go into a new venture after thinking it through in a comprehensive manner. Develop a business plan that both articulates the business in prose and quantifies it in numbers.
Have more than adequate working capital.
Be diligent about following up on proposals and collecting accounts receivable.
Be cognizant of clients who are not paying you according to terms — this may be a sign you won't get paid.
Take advantage of discounts, if cash flow permits, that vendors offer. Ask vendors if they will accept a discount if you pay promptly.
Use social and business networking sites such as LinkedIn, Facebook and Twitter to keep more people informed about your new venture.
Roll over your prior company's 401(k) plan into an individual retirement account and never touch those funds for your business.
Resources for entrepreneurs
U.S. Small Business Administration: www.sba.gov/smallbusinessplanner/start
Maryland Small Business Development Center, Wheaton, College Park offices: 301-403-0501, www.capitalregionsbdc.umd.edu
Service Corps of Retired Executives, Frederick chapter: 240-215-4757, www.scorefrederick.org
Entrepreneur Media: www.entrepreneur.com/startingabusiness
