Small-business owners keep faith, despite economic crisis
Residents start up small businesses, despite economic doom and gloom
Before the doors to Lawrence’s Massage Envy opened in July, Amy Gilliland’s husband and business partner were nervous about an economy that was on the decline. Six months before, as Gilliland was looking for space to house the franchise business, her father warned that the country was headed for a recession.
But all that news of economic doom and gloom didn’t make much of a difference for Gilliland, who was too busy getting the business ready to open to worry.
“How many hard economic times have we lived through?” she said. “And we have always come out of it.”
Gilliland is among the entrepreneurs in Lawrence who, despite an economy that was headed for an historic downturn, made the decision to hang an open-for-business sign.
In 2008, the Kansas secretary of state reported 16,618 new business filings, which is less than a 1 percent decrease from the year before. And it’s a slight increase over the number of new businesses that filed in the financially stable year of 2006.
Recently, Beth Johnson, vice president of economic development for the Lawrence Chamber of Commerce, has received more calls from people looking to start their own business. A large number of those inquiries come from laid-off workers in the construction field who are thinking about venturing out on their own doing handyman or remodeling jobs.
Typically, in weak economic times activity for the Kansas Small Business Development Center goes up, said state director Wally Kearns.
For starters, people who have recently lost their jobs take the opportunity to act on long-lingering business ideas. It’s also the first time that some small businesses have been faced with a down market, so they come into the state’s centers looking for advice.
Keeping the doors open
In truth, the economy didn’t have much to do with Gilliland’s decision to start her own business. The stay-at-home mom was preparing for her youngest to begin school full time, and the family decided they wanted something they could own.
The franchise’s market research — and feedback that Gilliland gathered separately — indicated a massage business would be well-received in Lawrence.
Her business plan was to change the image of a massage from an elite, luxury service to one that is affordable and has lasting health benefits. So far, it’s a model that has worked. Her massage therapists are booked, and she is looking to hire more so she can keep true to her advertising promise that clients can make same-day appointments.
“There is absolutely nothing that tells me I need to close my doors,” she said.
Feeling the crunch
With tight credit, low consumer confidence and high unemployment, it’s a tough world for the small-business owner, said Wally Meyer, director of Entrepreneurship Programs at Kansas University.
“In many cases, small businesses and certainly start-ups have a tendency to feel the crunch even more because so many of the challenges of working in a down economy are magnified on the small business,” he said.
Small businesses can be reliant on lines of credit and a steady supply of cash to operate, which banks have become more wary of giving out. And many small businesses offer those nice-to-have versus need-to-have items.
“The only guys that seem to be doing even half well are McDonald’s on the food side and Wal-Mart on all the other sides,” Meyer said. “At the opposite end of the spectrum are small businesses that demand a premium price.”
Small business loans are harder to come by these days, but they’re not impossible to get.
Regional banks continue to be well capitalized and have more than enough liquidity, said Doug Gaumer, community bank president for Intrust Bank. But underwriting standards have put more restrictions on loans.
Compared with a year ago, people wanting financing for small businesses will need more collateral or equity to get it.
Giving it a go
A few store fronts over from Massage Envy sits Eileen’s Colossal Cookies at the intersection of Sixth Street and Wakarusa Drive. The franchise store, which sells elaborately frosted cookies and tubs of cookie dough for fundraisers, opened Jan. 12.
The country’s financial meltdown fell between June, when Michael Neth proposed the idea of opening a cookie shop, and this month, when the first cookie sold. While the turmoil was on Neth’s mind, it didn’t stop him.
“We had so much confidence in what we were doing and how we were going to do it that we never blinked at it one bit,” Neth said.
Sean Passmore, owner of Bling Drop-off Store, is hoping he has a somewhat recession-proof business. More than a year ago, the former newspaper ad salesman set up shop in a basement at Ninth and Massachusetts streets. For people who want the bidders but not the hassles of Web auctions, Passmore takes in items and sells them on eBay. In return for a 30 percent commission and other fees, he will post the item online, oversee its selling and ship it to anywhere in the world. He hopes that people looking for extra sources of income will come to him.
His start-up costs weren’t much: the rent, a computer and a few lamps. He had a little help from his parents, but didn’t have any loans.
“I’m operating on a wing and a prayer,” he said.
Regardless of the economic conditions, Will Katz, who is regional director of the KU Small Business Development Center, said the three M’s — management, market and money — have to be in place before starting your own business.
And the ones who are going to do best are those who can differentiate their business from others and market it to a well-defined group, not to the masses.
For new businesses that are able to weather this economic storm, the rewards could be plenty, Katz said.
“If you can get a foothold now, when the economic times improve, you will be on solid ground,” he said.