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While their friends stick it out in corporate America, thousands of young entrepreneurs are heading home--today's hottest start-up spot.
June 1, 1999
URL: http://www.entrepreneur.com/article/17730

Eric Poses was standing in his parents' Miami home, bottle of champagne in one hand, envelope in the other. It had been more than a year since Poses, then 23, had loaded up his '92 Honda Accord with camping gear and 30 T-shirts emblazoned with "Loaded Questions," the name of a board game he had invented.

With six cases of the game stashed in the trunk, Poses spent four months on the road, visiting toy stores and game shops and begging retailers for shelf space for the game he'd invented from his home office in Miami's trendy South Beach.

To launch the enterprise, Poses had tapped his life savings--and the $30,000 he'd hit mom and dad up for to cover the difference.

So here he was at his parent's home to pay back the tab in one lump sum. It was all that was left of the fat check Toys `R' Us had sent a few days before--after he'd cleared other debts.

"It was a nice day," admits Poses, now the 25-year-old president of All Things Equal Inc., his burgeoning game business.

It's a nice day for a lot of Gen X entrepreneurs. Although their parents and older siblings heard the siren songs beckoning them like drones to the corporate towers downtown, many in the younger generation have chosen to proclaim instead, "Not I." They've ditched business attire, daily commutes and corporate camaraderie and decided to launch their own companies from home.

"Those in the 20-something generation are starting businesses at rates previously unheard of," says Lisa Rogak, author of more than a dozen books on starting a business, including The Under 35 Guide to Starting & Running Your Business (Upstart, $14.95, 800-235-8866) and The 100 Best Businesses for the 21st Century (Williams Hill Publishing, $15.95, 603-523-7877).

"This is the first generation that has been able to flaunt the Establishment rules, make money and get respected for it," Rogak says. "They know nothing is written in stone, whether it's a job with a corporation or their own business."

Lonely At The Top

If working from home is anything, it's a '90s version of the game of "Life." But what's most likely to make you move back two spaces or jump ahead three is how you deal with the three key issues that dog homebased entrepreneurs: the isolation of working alone, the distractions that abound there and the difficulties in convincing people you're actually working--not just watching cable in your sweats.

For Poses, single and working alone, isolation is the biggest curse. He combats it by scheduling lunches with friends to get out of the house. And when it's time for research and development, he invites friends to spend an evening playing his prototype games over pizza and drinks.

The '95 Emory University history grad had no business experience when he started. Poses had spent just seven months in corporate America--three of which were with a public relations firm so he could learn how to pitch his product.

But for a business greenhorn, Poses has adapted to the isolation of an at-home gig pretty well: Loaded Questions has sold some 55,000 copies and grossed more than $600,000 since 1997. He's finally in the black and has just finished his second game, Group Photo. Along the way, he's created a lifestyle he can live with--even if it does get lonely on occasion.

"My business is very simple," Poses says. "I produce games based on order potentials and expectations. I also try to create interesting stories behind my games. [After] I see the [finished] product, I start all over again."

Attitude Adjustment

Poses claims he was too naive to recognize problems that might have spooked a more sophisticated entrepreneur. Jim McCarthy says the same liberal arts background stymied his back-office business acumen--but not his desire to succeed. The 31-year-old president of McCarthy Communications Inc., a homebased public relations firm in Washington, DC, left a large PR firm and borrowed $5,000 to start one of his own. His first employee was a bookkeeper--a grad student from Georgetown University who interned for experience and a meager paycheck.

McCarthy was also smart enough to realize he needed clients. So the then-27-year-old approached his soon-to-be-former boss and asked if he could take a pair of low-budget American-Indian clients with him. The boss obliged and continued to steer additional work to the fledgling entrepreneur. Today, McCarthy's niche specialty has blossomed: His company now represents 12 American-Indian tribes and interest groups. Three account executives--and his bookkeeper--work from McCarthy's rented home.

McCarthy's pet peeve? The perennial problem of homebased businesses owners: As Rodney Dangerfield would put it, they don't get no respect. First, it was other companies figuring he couldn't be "a real business" because he worked from home. He combated those prejudices by delivering results in a professional manner. Then the condo association refused to let McCarthy receive FedEx packages at his door. The "petty dictatorship" issued a warning for him to cease and desist complaining about their rules.

"I said, `Cease and desist this,' " recalls McCarthy, who's still homebased. "The next week, I rented a house and moved."

Today, McCarthy enjoys a lax dress code; he often goes for days without wearing shoes. Each afternoon he naps for an hour or so while the troops hold down the fort. (He's the boss; he can do these things.) After that, his batteries are recharged and his mind is clear.

He's found success breeds success: The Winnebago tribe of Nebraska spread the word about his business, and McCarthy Communications' sales are set to top $350,000 this year.

For a time before he left his job, McCarthy wondered how he would make a go of it and whether his start-up would be successful. Like some peers who never make the leap, he was fearful of "jumping the wall" and leaving corporate America to go it alone.

"I'm an arts and letters grad from Notre Dame and had utterly no idea how to run a business when I started," McCarthy says. "I've never balanced a checkbook or been able to fill out a tax return. But my salary quadrupled overnight. There's no office politics or corporate ladder. It's just amazing to me the list of things that got markedly better overnight."

Balancing Act

Like the condo commandos at McCarthy's first home office, the neighbors in North Yarmouth, Maine, near Sarah Steinman's first homebased designer soap manufacturing gig, were miffed at her operation. The city didn't require a permit and welcomed her arrival. But her neighbors complained about the 18-wheelers delivering 55-gallon drums of essential oils, says Steinman, 35.

So when she moved to Cumberland, Maine, with her husband, Adam, and their two daughters, Steinman polled her future neighbors ahead of time to gauge reactions. Thumbs up, they told her. So she got her city occupational permit.

But Steinman is sensitive to the impact her business has on the community. She now schedules the semis to arrive on a single day each week and makes sure the empty drums are stashed in the new $3,000 shed she bought. Her only foes now: the sanitation workers who truck away her debris. "The garbage [collectors] don't like me very much," she admits.

Casco Bay Herb Co. will gross about $80,000 this year, selling to everyone from Jacobson's, a department store in the Midwest, to TV shopping channel QVC. Achieving success, though, required Steinman to master a delicate balancing act between business and family life.

Although her scented soap company is run from her garage and basement, paperwork is completed in a common area where home and business often chafe. Batches of products ruined by chemical reactions, slow-paying clients, even the need to bring on 10 part-timers when QVC ordered 20,000 bars of soap--all these problems were easy to deal with compared to her daughters' demands on her time.

"Nordstrom's personal-care buyer is no match for a 2-year-old's tantrum," Steinman says. "I've lost clients because my child was out of control."

Today, Steinman has learned to work around 7-year-old Jessalyn and 5-year-old Theo Jane's needs. If a crisis is erupting, she'll delay calling a customer or let voice mail pick up incoming calls until the episode passes.

She's also learned not to take it personally when a client can't accept the way she does business. "You have to say to yourself, `I'm not going to lose sleep over the fact that some people have a problem with [a homebased business],' " Steinman says. "[It's better] to let those jobs go."

Loosen Up

Going with the flow, as Steinman found, is key for homebased entrepreneurs. If you get freaked out by the unique rhythms of working at home, then maybe you should go back to corporate America. The most successful homebased businesspeople learn to adjust their businesses to the texture of their lives, and vice versa.

For Steinman, that means letting her daughters work with her, wrapping soap. For McCarthy, it means bringing employees in-house--literally. And for Poses, it means inviting pals over for pizza and R&D. Success at home requires nontraditional thinking, and that's exactly where Generation Entrepreneur excels.

"[Gen E] cares less than their predecessors about how [their businesses] look," Rogak says. "I think they're more likely to succeed because they can follow their inherent quirks and not have to squish their square-peg selves into somebody else's round hole. They can start a business from home, work all hours, eat pizza at 2 a.m. and still succeed."

Cover Your Assets

If a fire swept through your home office or a thief stole the equipment vital to your business, would an insurance company be there to cut a check? Has your data been backed up and safely stored at another location? What if one of your clients fell and got injured on your property? What if you injured yourself?

These are some of the most important questions entrepreneurs need to ask themselves. And yet, insurance is one of the necessities most overlooked by homebased business owners, says Trina Pulliam, a homebased sales trainer and founder of SOHO Station (http://www.sohostation.org), an association for people who work from home. Pulliam recommends entrepreneurs look close to home for the three crucial areas of coverage:

1. Medical: A spouse or parent whose health insurance policy can extend to cover you is the ideal option, Pulliam says. Otherwise, investigate joining your industry trade association or local chamber of commerce; many offer significant savings on health insurance.

2. Business equipment and liability: To insure your equipment and protect your home office against liability if a client is injured on site, contact the company that issued your existing homeowners or renters policy and see if you can purchase a rider on your current policy to provide property and liability coverage. If you're getting new coverage, shop around for a price, since costs vary widely.

3. Data: Backing up data is another form of insurance, says Pulliam, who uses Iomega Zip disks to store hundreds of her business's files.

Pulliam's final insurance recommendation: Make sure you keep a fire extinguisher handy. "It's such a no-brainer and so inexpensive," she says.

The following groups and associations can provide helpful resources for homebased business owners seeking insurance:

The American Home Business Association: (800) 664-2422, http://www.homebusiness.com

Co-op America: (202) 872-5307

Home Business Institute: (888) Dial-HBI, http://www.hbiweb.com

National Association for the Self-Employed: (800) 232-NASE, http://selfemployed.nase.org/nase

Small Business Service Bureau: (800) 343-0939

Zoning In

Before Jim McCarthy launched McCarthy Communications in Washington, DC, he checked with district code officials to see if having employees and client visits would be tolerated. It would, they told him. Ditto for Sarah Steinman, who runs Casco Bay Herb Co. from her home in Cumberland, Maine.

Both entrepreneurs benefited from local governments attuned to the needs of the modern working family, they say. In fact, with DC in dire financial straits, Congress created dual-use or enterprise zones to keep white-collar workers in the city. "I'm located in one of these, so zoning hasn't been a problem," says McCarthy.

Many cities nationwide allow homebased businesses--with a few caveats. In the most restrictive areas, expect bans on signage, customer visits, manufacturing or storage of goods on-site--or anything else deemed to negatively impact a residential neighborhood. Your first call should be to the county or city code enforcement office to learn how your neighborhood is zoned and whether--or what type of--home offices are allowed. If your city prohibits homebased businesses--or your type of business specifically--you can appeal to the zoning board or city commission. Create an argument that outlines how your business will benefit the neighborhood and what little negative impact it will have.

If homebased businesses are allowed in your area, expect to pay for an occupational or business license from both the county and municipality. Hiding out to save on license fees isn't wise, warns Trina Pulliam, founder of SOHO Station, an association for people who work at home. "You're setting yourself up for a fine," she says. License fees vary widely, from $10 to a few hundred dollars annually. Whatever the cost, it's a small price to pay for staying on the right side of the law.

Smart Deductions

To be deductible, your home office must be used "exclusively and regularly" as a home office--and not do double duty as a bedroom or playroom. It must also be the principal place your business functions are performed, or at least the site of significant administrative or managerial functions such as paperwork, billing, appointments and other record-keeping duties.

If your situation fits, a percentage of your monthly mortgage or rent can be deducted as a business expense. Say the room you use solely for business is 100 square feet, and your home is 1,000 square feet. Your home office takes up 10 percent of the home. Just using the corner of a room isn't deductible, according to IRS guidelines, says Lewis Weinstein, president of TaxLogic (http://www.taxlogic.com), an online tax service.

Using IRS Form 8829, compute the allowable, deductible share of utilities, maintenance, real estate taxes and insurance, mortgage interest and other expenses. Business telephone lines--or business calls made on personal lines--are often completely deductible. IRS Publication 587, Business Use of Your Home, explains the nitty-gritty. (Call 800-829-3676 or download it at http://www.irs.gov)

While deducting your home office reduces the amount of income your business pays taxes on, it also reduces the cost basis on the residence. That means greater capital gains liability when you sell your home. (If you rent, you're off the hook.)

Whether or not you take the home office deduction, office furniture, equipment and supplies are all deductible--just keep your receipts. And if you entertain customers at the home office (and such visits are allowed by municipal zoning), home upkeep might be partially deductible.

A tax deduction for health insurance premiums is being phased in over the next several years. By 2003, you will be able to deduct 100 percent.

Trina Pulliam, founder of SOHO Station, an association for people who work at home, says she saves $1,000 a quarter by doing her own taxes with QuickBooks (http://www.intuit.com) and accounting software from Peachtree (http://www.peachtree.com). Don't think you're that tax-savvy? Consult an accountant or tax attorney for specifics on your situation.

Contact Sources

All Things Equal Inc., (305) 538-1103, http://www.loadedquestions.com Casco Bay Herb Co., (207) 829-4071, soapmaker1@aol.com McCarthy Communications Inc., 5022 Klingle St. N.W., Washington, DC 20016, mccomm@clark.net Jeffery Zbar (jeff@goinsoho.com) is the author of Home Office Know-How (Upstart Publishing, $12.95, 800-235-8866) and publisher of Home Office Success Stories, a free e-zine about working from home (http://www.goinsoho.com).