This is a guest post from Peter Dunn of Green Candy. If you like what you see here, please check out his weblog and consider subscribing to his RSS feed.
It’s no secret that our economy is cyclical. Whether you like it or not, there will be good times and times that couldn’t be possibly described as good. But it’s what happens in the not-so-good times that dictates how and when the economy recovers. Many mega-corporations have been at the epicenter of this meltdown, but it will be small business that brings us back.
Millions of people have been laid-off, and the fear of unemployment continues to be real. But if you dig a little deeper and try to understand the basics of business, then you will see some forgotten truths once again show their face. More importantly, though, you will see how the unemployed will actually drag us out of this financial quagmire.
Any time that you choose to have a conversation about money and/or commerce, then the discussion must begin with risk. Risk is the forgotten element. I’m not talking about market risk, which is where most people’s mind goes to. I’m talking about risk in its purest form. The essence of risk is that there is a possibility that something unwanted or unpleasant will happen. Yet it’s those people that take and manage risk that actually help create commerce. And when you have lost your job and you are unemployed, then your tolerance for risk is reset, and you are in a great position to take a calculated risk and start a new business.
The truth is that there aren’t a great deal of surplus jobs out there. In fact, there is a job shortage. Therefore, many people are forced into finding a way to make a living. Thousands of laid-off workers are starting their own businesses. If you think about it, almost all big businesses started out as small businesses. They began with an idea, and a person that was willing to take a risk. And when you are unemployed, and you don’t have much to risk, then you are in a great position to build something great. Our entire capitalistic system was built on ingenuity and risk-taking. Over time, however, the risks being taken have shifted primarily to big business.
There is a lot of upside for those people that have nothing to lose, and it will be their ability to look at risk a little differently that will pull us out of this recession. Competition is alive again. Price and service finally matter again. These factors all contribute to the inevitable success of small business. Remember, those that take the risk get the reward. And when you don’t have a lot to risk, then the reward is that much sweeter.
I agree completely. The job shortage forces people to innovate in order to find ways to make a living. That’s the strength of capitalism.
This is so true. I’ve recently been searching for some new ways to earn some extra cash, such as starting my blog, because my company cut everyone’s pay. Necessity is the mother of invention!
I take the point about innovation springing from desperation – but I worry about the other ingredients necessary for a recovery. Along with ingenuity and human resources – we also need capital. And the capital market’s tolerance of risk right now is at a low. Good ideas and good people are great – but they also need help.
This post is right on the money! I am a big believer in self-sufficiency and creating your own bailout using defensive entrepreneurship.
Defensive Entrepreneurship is starting a business or businesses as a hedge against job loss or other financial setback.
These “spare time” ventures are usually conducted at night (“moonlighting”) or on weekends. They are sideline businesses that provide extra cash in good times that supplements your full time gig. However, they can provide stop gap help in tight spots in the event of a job loss. This happened to me a few years ago– I had a sideline business that I did full time as I looked for a new job after a layoff.
To KC:
I disagree with using local retailers simply because they are local. If they provide a better service or product than the national chains, then you should use them. Its up to the consumer to be aware of all their options, local and national, and then make the decision that best suits them.
For example, when I first moved to Tucson I rented movies from a national chain that was close to my house. But when I wanted an older movie, the national chain didn’t have it. I found a locally owned video store that was only a few blocks further, which not only had the old movie I wanted but had every old movie I could possibly want to watch. And they had plenty of new releases. Finally they rented movies at a cheaper rate for a shorter time ($3.50 for 3 days rather than $6 for a week). That was exactly what I needed in a video store and I never went back to the national chain.
It is up to the local retailers to provide services and products that people want and will pay for.
Dana, what would those sustainable industries be? I and many other engineers, programmers, architects, accountants, etc already have education and experience, but US corporations would rather bring in foreign workers on H1-B visas and pay them far less. It’s one thing to outsource, but to actually bring the foreign workforce here is detrimental to our economy and welfare.
I agree, the unemployment reflects the structural adjustment going on in the economy. Perhaps some of these laid off workers can now get training in industries that are more sustainable and create real value economy going forward. That will ensure the foundation behind the employment numbers and future asset appreciation are based on real growth, and not the debt-induced bubble we’ve seen the past decade.
And thats even more reason to support your local economy. Go out to a restaurant that just opened (not a chain). Or hit a local store instead of a big box retailer. We’re doing pretty well in this economy and I’m making it a point to spend more money than I normally would, but I’m spending it locally with local businesses and small owners.
When its dark out there, we think the darkness will last forever. But it doesn’t. Thanks for reminding us all.
Absolutely right! I read recently that for many industries, starting a new company is about as expensive as being unemployed — so lots of people will try it.