Executive Decision

A volatile business climate continues to drive corporate refugees into entrepreneurship.
Magazine Contributor
10 min read

This story appears in the July 1996 issue of Entrepreneur. Subscribe »

In a business climate fraught with constant change, corporate layoffs have become a common business practice. For many corporations, outsourcing business functions is more cost-effective than handling them internally. At the same time, new technology is allowing big business to replace bodies with machines, robbing workers of their jobs. And with the bottom line often the top priority, profit-driven job cuts are now in vogue.

As more workers continue to fall off the corporate ladder, many displaced executives are discovering only one way to land on their feet: become an entrepreneur. Challenger, Gray & Christmas, a Chicago-based corporate outplacement company, estimates the number of layoff victims who have turned to entrepreneurship has roughly doubled in just two years, ballooning from 6 percent to 8 percent in 1993 to 12 percent to 15 percent in 1995.

While the rate of layoffs slowed between 1993 and 1994, economists acknowledge layoffs are still continuing at a much higher pace than was the case a decade ago-and there's even been a slight acceleration in layoffs in recent months. Overall, economists believe not only is this phenomenon likely to continue, but also that, in part, its effects will be more far-reaching than in years past.

"What is different about the last few years is that job instability is creeping up the ladder," says Robert Solow, professor of economics at Massachusetts Institute of Technology (MIT) in Cambridge. "It's moving from blue-collar and clerical workers to include managerial people and even some technical people."

What's also unsettling about today's round of cutbacks, say economists, is that unlike the series of layoffs in the 1980s, which was largely concentrated in the automotive, steel and rubber industries, '90s-style layoffs are occurring in industries across the board.

"What's going on now is that it's happening more broadly and more frequently," explains Ken Goldstein, an economist at The Conference Board, a New York City economic research firm. The reason? "There's more emphasis on achieving and maintaining a competitive edge in a globally connected and intensely competitive environment."

Economists agree cutbacks will continue in industries facing stiff international competition or deregulation, or undergoing rapid change. They point to such fields as telecommunications, computers, insurance and banking as particularly vulnerable.

A spate of mergers in recent months is feeding the trend as well. According to Challenger, Gray & Christmas, a whopping $866 billion worth of mergers took place in the United States last year, setting a new record; these mergers resulted in more than 72,000 layoffs. And there's no sign of any slowing: By the first quarter of this year, there had already been $208 billion in mergers.

Take all these factors into consideration, says Goldstein, and this unstable business climate is here to stay well into the foreseeable future. "The competition big business faces today isn't going to get any better in the next five or 10 years," he contends. "If anything, it'll get even more intense. The very factors that drove [corporations] to do what they did in the early '90s will still be there [in the future]. Not only are things unlikely to change in the next five or 10 years; they're not likely to change in the next 50."

That's hard news to swallow for many corporate employees-but news that must be accepted nonetheless. "I think the general public still has the sense that once this [layoff trend] is over, it'll all go back to normal," says Dixie Darr, editor and publisher of The Accidental Entrepreneur, a Denver-based newsletter for downsized-execs-turned-entrepreneurs. "But today, this is business as usual. There's just a lot of change going on, and it's going to continue."

Hats Aplenty

Armed with ample management experience, years of industry knowledge and a vast array of contacts, corporate executives are leaving their corner offices-whether by choice or by force-to start their own businesses. Despite the decidedly different working conditions, the rewards, they say, are vast.

While Solow estimates most executives who are laid off land their next jobs at salary levels about

15 percent lower, the earnings potential for entrepreneurs is much higher. Plus, owning a business allows ex-execs to use their existing skills, remain in positions of authority, and work in an environment free of the fear that today's the day they'll be handed a pink slip.

Even so, after deciding to jump off the corporate track, executives who don entrepreneurial hats often have their work cut out for them, say experts. One of the biggest hurdles they must learn to overcome? Moving from a narrowly defined job focus into that all-encompassing role of entrepreneur.

"The people who are really good at working in corporate life are going to have trouble adjusting to being on their own," says Darr. "They have to get used to being responsible for doing everything themselves because most [entrepreneurs] start out on their own or with very few [employees]."

David Keillor can vouch for the adversity that comes with emerging from the corporate cocoon. After 30 years working for IBM in Rochester, Minnesota, the senior engineer says he "saw the writing on the wall" and accepted a buyout package in July 1993. Less than a week later, he and his wife, Ina, 57, and two other ex-IBMers started Technology Concepts Inc., a software company that develops multiple listings software for the real estate industry. While starting a business in the computer industry was a natural move for him, Keillor says, juggling such a vast array of responsibilities, frankly, wasn't.

"In a small company, you truly wear a lot of hats," admits Keillor, 56, whose company brought in $180,000 in 1995. "Everything from business plans to purchasing a telephone system to stocking supply cabinets and ordering furniture was challenging. It was something I initially wasn't used to."

Rather than calling someone to fix problems or purchase equipment the way he had at IBM, Keillor says he was stuck dealing with "1,001 little things that added up to big stuff." His strategy for coping? Jump in feet first. In the start-up phase, Keillor chose to assume much of the burden of daily operations, while the other founders handled the technical and human resources aspects of the business. Thankfully, now that the company is on more solid ground, Keillor is slowly beginning to delegate.

"At least I don't have to vacuum the floor anymore," Keillor laughs. "We just hired someone."

Lonely At The Top

During the start-up phase, ex-execs often get caught up in the millions of details involved in getting their businesses off the ground. Yet once the venture is up and running, many find the novelty of being on their own begins to wear thin. Loneliness, says Darr, is a common grievance among former executives who pursue entrepreneurial avenues.

"I had to get used to not having the social interplay with people on a regular basis," says Wanda Schiele, owner of Celebrate All People, a leadership and diversity consulting firm in Aurora, Colorado.

Unsatisfied with the technical emphasis her job as project manager with US West had taken on (and two years short of full retirement), Schiele accepted a partial buyout package in October 1993, after 23 years with the company. She sank $5,000 into computer and telecommunications equipment, contacted past clients, and even did a lot of free jobs to get started. Still, business was slow. And while she appreciated the free time and the chance to visit more with her grandchildren, Schiele, 54, missed the frequent social activity she'd enjoyed as a trainer in a bustling corporate environment.

Business has since picked up, but Schiele still makes a concerted effort to reach out for human contact on a regular basis-an effort, she says, she didn't have to make when working in a large corporation. For instance, she frequently meets people for lunch, attends networking events and rekindles old business friendships. Says Schiele, "I have learned to search out people for social interactions in a way I didn't have to before."

You're The Expert

A natural move for many execs-turned-entrepreneurs is to start a consulting business. With years of industry experience under their belts, plus the added attraction of low start-up costs, becoming a consultant is often the most obvious choice. However, experts warn it's not always the smartest choice.

"There are so many people today who call themselves consultants and come from a large corporate environment that it's an extremely crowded field right now," says Molly Thorpe, chair of the executive committee of the Caltech/MIT Enterprise Forum and owner of Thorpe Associates, a Canoga Park, California, business planning consulting firm. "Any consultant who starts out today has a real tough time of it."

What are the most effective ways consultants can compete? Develop an area of specialization, advises Thorpe. "As an independent consultant, you have to have a specialty and not say you do everything," she says. "Too many consultants say they do 20 things, and maybe they do, but when people think of them, it's too unfocused."

Still, even specialized consultants are likely to run up against challenges. For example, while Schiele's focus is quite narrow (she chose cultural diversity and leadership management training), she's found plenty of competition in her field. In fact, she admits sometimes her focus can be somewhat limiting.

"It's been rewarding and a struggle at the same time," Schiele confesses. "I'm able to do what's important to me, but there's a real glut of diversity consultants. I don't get as much business as I'd like, but at least I'm doing what I want to do."

Having an alternative means of financial support is an important consideration before launching a consulting venture, says Thorpe. In addition, consultants are more likely to succeed if they've researched their target markets ahead of time and tried to find ways to serve them. Possessing a healthy dose of patience while building your credibility and establishing your client list is vital as well.

Above all, be prepared to put on your sales hat and promote yourself. "You have to learn to market yourself, and a lot of former executives aren't comfortable with that," says Thorpe.

Somewhat uneasy in a sales role, Schiele hired a broker early on to make contacts and set up meetings with new clients. Says Schiele, "The broker really makes the whole process a lot easier."

Silver Lining

While corporate workers are continuing to be laid off with a lot of economic and emotional pain, some still see a silver lining to this troublesome story. For one, as more executives explore entrepreneurship, many are getting a chance to finally pursue a lifelong dream. Technology Concept's Keillor, for instance, always yearned to start a business of his own-he just never had the right opportunity. Likewise, he says, as many of IBM's casualties continue to open their own companies, scores of them are finding a whole new world of possibilities.

"In the short term, [the layoffs were] very painful to the Rochester community," Keillor admits. "But in the long term, I think it took a lot of underutilized talent and unleashed it. Putting [that talent] out on the streets is going to be one of the best things to ever happen to Rochester economically."

Darr agrees that while many former executives start businesses out of necessity, others discover they were cut out for entrepreneurship all along. "Once they start a business, they realize they should have done it earlier," she says.

Out of a bad situation, it seems, has sprung a new legion of entrepreneurs. No longer content to take their unfavorable job situations sitting down, countless corporate workers who've been laid off, downsized or bought out are now seizing control and striking out on their own. As Darr puts it, "There's just a kind of entrepreneurial fervor that's gripped the whole country."

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