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USA Today

By Laura Petrecca, USA TODAY

Get ready to see more baked goods, custom-designed clothes, jewelry — and even horse saddle pads — on the market.

Those are some of the products that laid-off workers are hawking as they try to grow small businesses. And many more goods and services are likely to come as jobs disappear and the government encourages entrepreneurial ventures.

ADVICE: Wise tips for launching a biz

More than 5 million jobs have been lost since the recession began in December 2007. In March, the unemployment rate rose to a 26-year high of 8.5%.

Faced with bleak job prospects, many of the unemployed are hanging out shingles. One in four workers who have not found jobs is considering launching a business, according to a new CareerBuilder.com survey. (CareerBuilder is jointly owned by Tribune, McClatchy, Microsoft and USA TODAY parent Gannett.)

Among the budding entrepreneurs: Royce Evans. The former job recruiter had dabbled with the idea of selling shock-absorbing saddle pads, but once she was laid off in December, she went full-force into the venture. So far, she's sold about 150 pads — $85 to $185 — but needs to sell an additional 300 before she can turn a profit.

She's invested about $15,000 of her own cash in her venture, Equinity Performance, but is considering a small-business loan in the next three to six months.

Getting that money should be a bit easier given recent governmental changes. In March, President Obama announced a small-business financing plan that included reduced loan fees and incentives for banks to do more lending.

Since then, there has been an increase in SBA 7(a) and 504 loans. The 7(a) loans, SBA's largest loan program, offer working capital that can be used for a range of purposes. The 504 loans help businesses expand and can be used only to purchase real estate and other fixed assets, such as new machines.

In March alone, 234 lenders that had previously not made a 7(a) loan since September made such loans, according to the SBA.

But running a small business can be daunting.

There are more than 27 million small businesses in the country, with about 75% deemed "non-employer" — firms that have no paid employees. The remainder are "employer" businesses.

When the economy sinks, there's often an increase in non-employer firms and a decrease in employer firms, says Brian Headd, an economist at the SBA's Office of Advocacy.

Yet the success rate on both is low. Only about half of new employer companies survive five years or more. As for those non-employer firms, "Their survival rates aren't going to be as high," he says.

Thea Zagata, who started a New York City-based cookie business before the downturn, knows how hard it is to survive. She officially launched the business, now called Gumdrop Cookie Shop, in May 2007. Last summer, she voluntarily left her corporate job in public relations to work on it full time.

Among her many challenges, Zagata had to wrangle with the idea of taking out a loan or using her savings account for the business. She went with the savings and still debates if that was a good choice. "I always wonder, 'Gosh, if I took out a loan, I could have spent more on advertising,' " she says. "I struggle with what was the right decision for me."

She also had to deal with a host of other issues, such as a trademark dispute, hiring a strong website developer and finding an affordable, yet reliable, baker — because Zagata puts the icing designs on the cookies but doesn't bake them.

"It's tough," she says. And the rough economic climate makes it even more difficult.

Business slowed after February, which was her first profitable month. But sales are starting to come in again as folks order custom cookies for weddings and bridal showers.

Even so, Zagata is thinking of backup plans to make extra money.

"I do want to keep it going. I definitely do," she says. Yet, she concedes that keeping that dream alive does take a strong mental and financial toll.

"It's so much more emotional than working for someone else," she says. "It's your own money, and it's your livelihood. ... It's so scary."

WISE TIPS FOR LAUNCHING A BIZ

Thea Zagata says there is one area that is by far the most challenging when launching a business: going it alone.

"The hardest part is that there's no mentor," she says. She has to make all the decisions. USA TODAY reached out to small-business experts for advice about launching a venture. Their quick words of wisdom:

Have a written business plan.

"This is essential for you, even if you are not going for financing," says small-business consultant Edward Rosenfeld. "You need the discipline of a road map."

Conduct a test run while employed (if possible).

It's ideal to start a business while you're still working because you have an income," says Sara Blakely, founder of hosiery empire Spanx. She was working full time selling fax machines when she launched the company.

Scrutinize any potential partners:

"It's as important as a romantic relationship or a marriage," says Robert Tuchman, author of Young Guns, The Fearless Entrepreneur's Guide to Chasing Your Dreams and Breaking Out on Your Own.

Get up to speed on business financials.

"I can manage my own money," says Zagata, but running a business is a "completely different story. Understanding revenue and profits was completely foreign to me." To get up to speed, she took a class on business accounting. That financial know-how is a must for any small-business owner, Tuchman says: "The most important thing is keeping on top of your numbers, because at the end of the day that's what your business is going to be valued off of."

Plan for extra expenses.

Business comes with all sorts of unexpected — and expensive — surprises. "There is always something else," Zagata says. She recently had to pay a Web designer to fix her online shopping cart checkout, which set her back $300. "You have to be prepared for those kinds of things."

Differentiate yourself.

"Always ask yourself, 'Why/how am I different?' and make sure you can convey that to your customers in 30 seconds or less," Blakely says.

Trust your gut.

Instincts should "empower you, not intimidate you" — even when they seem different than what anyone else is doing, Blakely says. "Too often people do things the way they have always been done, and that's not always the best way."

Keep retirement funds separate.

"Don't cash in your 401(k) or cash value life insurance," Rosenfeld says. "These are asset-protected in the event of bankruptcy, and there are heavy penalties to pay if you cash in. Borrow on them if you must, but keep them intact."

Stay strong.

"It took me two years from the time I had the idea for Spanx until the time I had a product in hand ready to sell," Blakely says. "I must have heard the word 'no' a thousand times. … If you believe in your idea 100%, don't let anyone stop you."

 

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