Down but not out, laid-off workers look to self-employment programs
Gracey Levine moved from California to Portland, Ore., in March 2013 to do catalog and Web design for a home decor company, but at the end of last year, the company had lay-offs. As the newest designer, Levine was let go.
"It was an ego blow," says Levine, 26, who has been doing design work for a decade. "But really it was a blessing in disguise."
Instead of looking for new work, Levine used the opportunity to go after her dream job — working for herself. She learned that Oregon is one of five states — including Delaware, Maine, New Jersey and New York — that offer innovative self-employment programs, in addition to traditional unemployment programs, that help laid-off workers start their own businesses.
"I was overjoyed because I didn’t want to look for another job — I wanted to start my own company. This was exactly what I wanted," says Levine.
Under self-employment assistance programs, also known as SEA programs or SEAPs, would-be entrepreneurs get financial aid equal to their unemployment insurance benefits for up to 26 weeks. They also get a boost in launching a business, including developing a business and feasibility plan. Levine, now just three months into the program, has already launched Gracey Levine Illustration & Design and started taking on clients.
In 2012, 586 hopeful self-starters enrolled in New York's SEA program, and 363 of those started their own businesses, according to the New York State Department of Labor. In Oregon, half of the successful SEA participants have created an average of 2.63 jobs, and the state was just awarded $332,576 by the U.S. Department of Labor to expand its program to entrepreneurs like Levine. Critics of the programs question whether SEA programs create real jobs, but proponents see them as a boost in an otherwise sluggish job market.
How it works
Levine's business plan isn't your typical corporate document; it has all the touches you'd expect from a designer: A Venn diagram in pink and green captures her company's core message, including words like "feminine" and "whimsical," as well as "quality," "intuitive" and "on-target" in varied stylish fonts. The cover sports a green chevron pattern border and her initials surrounded by a stylized wreath and flowers — her company logo.
The business plan wasn't just a creative project, though. It was crafted with the help of her SEA-assigned adviser and was a requirement for the program. First Levine had to make a 10-page "mini" plan, and then a full one. "It was an intimidating process, to be sure, but I am so glad I went through it and I have a lot more clarity now about where I am going, and what sort of services I will be offering," says Levine.
In order to qualify for SEA, most states require that applicants be eligible for unemployment benefits, are unlikely to return to their previous jobs and have a feasibility plan for a viable business idea. Pilot programs like Levine's also offer bi-weekly meetings with a business adviser.
Since starting the program in January, Levine has been required to go through a series of unfamiliar exercises — projecting cash flow, anticipating business expenses and sizing up the competition. "It's intense," says Levine, but she sees the work as key to her success, especially since she has a creative background, not a business one.
Not for everyone
Cameron Keng started his first business when he was 14 years old selling bubble tea mix to shops in his neighborhood in Queens. He ran a brisk business until he was undercut by competitors from China, and that was the first time one of his business ventures failed. Since then, he's started several businesses, from restaurant supply services to a small janitorial firm.
When he was a candidate for New York's SEA program during the initial economic downturn in 2009, he seemed like the perfect target. But Keng turned it down.
Why? For one thing, Keng had existing businesses in the works, and the program required that the business be started after he applied. He also felt like the required orientation and training would feel like "red tape" for someone who had already started a business.
Keng, who now runs his own accounting consultancy and writes about tax issues for Forbes, says that he doesn't think the program works for a lot of people. About half of small businesses fail after four years, according to the Bureau of Labor Statistics, but not always for the reasons that you think, says Keng.
"What makes a business fail a lot of the time isn't that the business is failing, it's that you burn out," he says. "You don't want to do it anymore. It's not for everyone. When the phone rings in the middle of the night it becomes second nature to check it. A lot of people don't realize that you don't make money right away, and this is normal for the first one to three years."
Sales and fundraising are also problem spots for new business owners, says Keng. Asking people for money is awkward and intrusive if you're not used to it, he says, and it's hard to get a business off the ground without a loan, and those are hard to come by now. "No one wants to give a loan to a business that hasn't been around for three years or more and has no record of income. Even if someone coaches you on how to do it, you're not qualified from the outset."
The number of small business loans, defined as $1 million or less, declined 5 percent in 2012, according to the Small Business Administration. The dollar amount of those loans slid by 7 percent.
"If you can't get a loan, you're just wasting time you could be making money or looking for a job," says Keng.
The right conditions
Levine had several advantages that made her a model candidate for SEA, she says. For one thing, she already had most of the equipment that she needed to start her design business. She also had 10 years of experience in her industry and knew how to make her own website, so she got her online business up-and-running without a hitch.
"I need to make money because I can't just sit on my duff," says Levine, who was the breadwinner for herself and her husband before she lost her job.
She also has the benefit of having a mother who is a serial entrepreneur. "I went into it with the expectation of knowing it won’t be sunshine and roses, and knowing there will be weekends like this one where I work through the whole weekend because that’s what clients need," she says. She also did her research and found that Portland is much better than Los Angeles, for example, because it's not as oversaturated with artists and designers, so it's easier to get good-paying work.
As to whether self-starters like Levine will create more jobs in the economy, that's still hard to gauge — a growing number of startup founders are only employing themselves, according to the Census Bureau. A majority of small businesses are "nonemployer firms" or have no employees other than the founder.
Keng says that in his experience it's hard to do business without employing people, and he currently hires 15 to 20 people to assist with his business."The question isn't whether small businesses provide jobs, what you should ask is if I'm hiring people to be fully employed, or anywhere close. Hiring someone for five hours a week doesn't mean much, but 30 hours a week does."
Tom Fuller, communications manager for the Oregon Employment Department, is hopeful about job creation. He points to the Oregon program's big success story, Urban Airship, a mobile marketing company that now has over 100 employees. In the past five or six weeks he has visited a Portland company that got started in the SEA program that now employs 20 people, and one in Vancouver that employs four people who were previously unemployed. A laid-off security guard in Corvallis, Ore., started his own security business that now has 20 full-time employees.
"There is a multiplier effect," says Fuller. "At the height of the recession we had eight unemployed people for every job opening, and that has dropped significantly. This program can't be credited for all that, but every little bit helps."