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The End of Entrepreneurship as We Know It?

Yeah, dotcoms have made the venture capital market volatile; sure, corporate employees are offered entrepreneur-esque development opportunities; but if I recall, we got into this game to take the risk and own our own businesses!
September 1, 2000
URL: http://www.entrepreneur.com/article/31432

Date: Tuesday, April 21, 2000. Time: 8:00 a.m. Like many business owners, you've seen the headlines on CNBC or in your local paper's business section and your stomach churns as young dotcom companies take a beating on the NASDAQ exchange. Any business owner knows what deep corrections in the stock market mean for young companies. Venture capital dries up. Frustrated sellers, unable to unload shares, stop buying stock in companies like yours. Consumers resist the urge to pull the old Visas out of their wallets and buy your products. Inventories pile up, cash gets tight and pink slips appear on staffers' desks. At times like these, owning a business ranks right up there with root canals and tax audits on the list of life's undesirables.

In fact, it makes getting out look pretty good. These days, many companies tired of losing workers to the entrepreneurial life are encouraging free-thinking employees to implement their marketplace ideas inside rather than outside corporations. That trend, coupled with flextime, ample opportunities for stock options and other entrepreneurial perks for employees, is bringing some entrepreneurs back to the corporate fold.

"Why not consider going back to work for someone else if they're offering you significantly more freedom and money than you ever had in the corporate world before, and they're the ones taking all the risk?" says Ethan Winning, author of Labor Pains: Employer and Employee Rights and Obligations (TFM Publications).

Still, most entrepreneurs are resisting the siren song of corporate life. "Who can think about leaving when there's so much to do?" asks Roger W. Sigley, 35, president and CEO of Cybertech Group Inc., an Oxon Hill, Maryland-based computer support services company. "My [entrepreneurial] experience has exceeded my expectations, but there are still things we have to accomplish as a new firm. We've only scratched the surface of our goals."

Running the show is why Sigley decided to gather $50,000 worth of funding back in 1998 and go into business for himself. "I wanted the ability to effect significant change, not only for myself and my family, but for my employees," he says. "To do these things, you have to be the one calling the shots."

Tougher Times

That has to be a strong incentive, considering the obstacles to starting and running a business in this economy. "Launching a new business is a pretty difficult task," notes John Ferber, the 26-year-old co-founder and chief Internet officer of Advertising.com, a Baltimore-based Internet advertising business that earned $11.4 million in 1999. Ferber believes Internet companies that got in early and now have a 12- to 15-month head start provide a barrier to new start-ups. "We've seen every idea that's come down the pike in recent years," he explains, "and right now I don't see much that's giving consumers something new."

Other business owners agree that starting new businesses today is tougher than it was only a few years ago. They also place the lion's share of the blame on Internet culture.

"You could almost see the air leaking out of the new business market when the NASDAQ was falling," says John Mueller, the 35-year-old owner of The Idea Factory Inc., a Menomonee Falls, Wisconsin-based home products company.

Back in 1995, Mueller got a fast start selling his product, the Rinse Ace, thanks to a "Best of the Show" spot on the home shopping network QVC. "It was easier for me to start my business then than it would be today," he says. "The sad part is, when the Internet market suffers, the rest of us do, too. In [the consumer products market], we've never been able to compete against the dotcoms in terms of getting funding."

Challenging both new and entrenched entrepreneurs these days are venture capitalists' high expectations. "It's crazy out there right now," says Scott Harris, the 37-year-old CEO of Toy Craze Inc., the Cleveland toymaker whose "Crazy Bones" toys are about to be marketed by McDonald's in a massive promotional giveaway later in 2000. "We're experiencing 15 percent annual growth rates, and that's not good enough for a lot of people. With some Internet companies reporting 100 percent growth, venture capitalists weren't even looking in our direction."

Harris stops short of saying new entrepreneurs can't make it today-he just warns it's going to be tougher. "Let's face it," he says. "If you're in the service or Internet sectors, times are tough. The landscape is capital-intensive, and a lot of the customer base has consolidated rather than expanded. If you have realistic expectations, a good business plan and are tight with a buck, starting a business today shouldn't be impossible. It just depends on how bad you want it."

Does that mean Harris would consider giving it all up and going back to a kinder, gentler corporate world? "Umm, no," he answers, without missing a beat. "That thought never entered my mind."

Thinning the Ranks

After the boomers are gone, who will start businesses?

In the next 10 to 15 years, entrepreneurial companies could start inching the way of the dinosaur, according to a recent study. The main reason? Boomers are getting older, which means if they don't own a business, they're less likely to start one, and if they do own a business, they'll start seeking ways to get out, explains Todd McCracken, president of National Small Business United, one of the study's sponsors.

In any given year, 9 percent of businesses close, says Richard W. Oliver, the study's principal investigator and professor of management at Vanderbilt University. "They don't necessarily fail," he clarifies. "Sometimes they merge or the business owner retires." Meanwhile, about 10 percent of businesses are start-ups-this 1 percent margin actually keeps the entrepreneurial community growing and thriving. But demographic changes-namely, fewer people in the 25-to-44 age range-could result in an increase in the closure rate by 2 to 3 percent and a corresponding decrease in openings.