From the May 2001 issue of Startups

Economic indicators are pointing toward a downturn, start-ups are on the wane, and investors are avoiding dotcoms like a bad cliché. Nobody in their right mind would start a homebased business now, right? Well, not exactly. First-quarter layoffs left many highly skilled people out of work, and congressional legislation passed earlier this year makes it easier for small-business owners to secure government loans. So don't scrap your home office plans just yet; a self-employment boon may be just around the corner.

 

"We've seen a slide, statistically, over the past couple years," says Terri Lonier, president of San Francisco-based Working Solo Inc., a consulting firm that advises companies on the SOHO market. "But what's interesting is that we're getting into SOHO version 2.0. Many people are now looking at having a homebased business as a career transition and expect to have a homebased operation at some point in their life."

Much of the purported downturn can be attributed to the strong economy of the late 1990s. Low unemployment rates resulted in a slight decrease in entrepreneurship, but thanks to the recent economic slide, homebased start-ups should once again be on the rise. "In the past few years, entrepreneurs saw the lure of stock options and other benefits [of working for a corporation] and were saying, 'I think I'll go try this for awhile,'" says Lonier. "But I think homebased start-ups are going to grow at a very rapid pace, particularly businesses that use technology to serve other small businesses."

Technological advances in information and telecommunications devices are eliminating time and distance constraints, making it easier for entrepreneurs to scale their home businesses at faster rates. Start-ups can promote their products and services via the Web or e-mail advertising, which is less expensive and more effective than traditional mediums, such as direct mail or print ads. In addition, new technologies are accelerating market research, allowing entrepreneurs to better investigate consumers and competitors, thereby facilitating sales and customer service. Business owners also have easier access to information about input sources for use in production and service, which translates into lower costs and less time spent searching for suppliers.

According to Lonier, some of the new technologies can be especially beneficial to small businesses based in rural locations. "Rural areas are showing a greater increase in homebased businesses," she says. "People are realizing it no longer matters where your business is located."

Two programs launched by the SBA at the beginning of this year should also benefit rural entrepreneurs. The New Markets Venture Capital (NMVC) and BusinessLINC programs will make $180 million available for small businesses located in rural or inner-city areas. In late December, President Clinton also signed a congressional bill encouraging private-sector lenders to make smaller loans more readily available to small businesses. The bill raises the guaranty percentage for small-business loans from 80 to 85 percent and increases the maximum amount of a "small" loan from $100,000 to $150,000. The bill also increases the maximum amount for SBA microloans from $25,000 to $35,000 and allows the SBA to expand the number of lenders in the microloan program from 200 to 300.

While many of these programs were initiated by the Clinton Administration and the 106th Congress, Lonier hopes President Bush and the new Congress will also encourage small-business development. "It's encouraging to see that Congress is promoting some new small-business legislation: full health care deductibility, for example," says Lonier. "Those are issues we've been talking about for a long time."

Lonier also thinks new technologies will give more entrepreneurs the freedom to work from home. "In the next five years, broadband is going to take off," she says. "Once home offices are connected 24/7, we're going to see more application service providers, which will lead to a transition I've dubbed SONO: Small Office No Office. Small business owners won't have to work at home. They can carry their laptop or Palm with them and have access to work when and where they want it. The boundaries between work and life will dissolve to a much greater extent."

Goodbye, Limitations

For entrepreneurs like Sara Lewis, those boundaries are already disappearing. Lewis launched Pasadena, California-based KinderStart.com last summer with co-founder Victor Goodman (who now runs the site) after spending most of her adult life as an executive in the film industry. KinderStart evolved from Lewis' desire to create a centralized online resource site for parents, caregivers, teachers and relatives. The decision to leave a well-paying corporate job came after Lewis' son, Matthew (now 4), became seriously ill just prior to his first birthday, while his mother was in Europe on business.

Learn More
Will there be a recession? Either way, you need to be prepared. Check out "Coming Down" and "Is the Economy Losing Steam?" to find out how.

"Dealing With a Downturn" doesn't have to be painful. Really.

"It was a hard thing to deal with, and it put a lot of things in perspective," says Lewis, who had her second child, Lily, this past October. "I liked traveling around the world, but I didn't realize what I was missing at home. Now I can work around my family."

KinderStart.com receives more than 5 million hits per month and is listed as an official child resource site by state agencies nationwide. All of this gives Lewis reason to smile, but it's the change in lifestyle that makes her happiest. "People get so caught up in their corporate structures, they don't know who their neighbors are," she says. "You might have to give up a major income to start a homebased business, but it's worth it. I have a better sense of community and family, and I'm not coming home late at night anymore."

According to Lonier, entrepreneurs like Lewis represent the changing face of homebased business owners. "Most people with homebased businesses are choosing the lifestyle," says Lonier. "People are becoming increasingly concerned with their quality of life, and homebased businesses give you the opportunity to follow your passions, not just profits."