Even in good economic times most new businesses are destined for failure. And now, with cash and credit less than liquid, it could be even more perilous for entrepreneurs.
But the odds and economic conditions aren't dampening the entrepreneurial spirit. It seems more people may be choosing this uncertain path now than when the economy was booming.
Philippe Sommer, an entrepreneurship professor at Darden School of Business at the University of Virginia, says it just makes sense that more people might try to make it on their own as major corporations and banks struggle.
"It's easier to make that decision when there aren't three bankers saying, 'Come work for us for $100,000 a year,'" said Sommer. "So in some ways it's much easier in a down economy to take the leap."
And, he says, entrepreneurs are the kind of people who always believe their businesses will thrive regardless of the odds.
A Hotel Search Engine Rewrites Its Budget
Two years ago, Adam Healey and a business school classmate founded the hotel search engine VibeAgent.com in Charlottesville, Va. Healy demonstrates how it works by typing "Prague" in the search window and clicking "search." He says with that move he's grabbing rates and availability from more than 30 different travel sites.
VibeAgent.com went live just about a year ago. Now it has 16 employees, and it recently wrapped up a $3 million round of financing.
"You know, it's fortunate that we got that done recently, before the current economic downturn," said Healey. He believes getting that kind of financing now would be a challenge. "Absolutely, it would be harder today."
Healey says VibeAgent has ditched plans for market expansion and is just working to make a profit.
"You know, last week we had a budget in place, which was focused on going out and raising another round of capital in 12 months," he said. "Today, that's not what we're going to do."
Healey, 33, was part of a different startup in 2001, during the last recession. That business didn't survive.
"The big companies that were being listed on NASDAQ that were going to come buy us — they all exploded, or imploded, rather," he says.
Healey certainly understands the perils, but he insists this company is well positioned to survive the downturn.
A Business For Golfers
Andy Tang, 35, came up with his golf-related business idea while out on the course. He is obsessed with stats and writes all kinds of extra information on his scorecard. Now he's in the final development stages for a small electronic device to help golfers track their scores, putts, fairway accuracy — and more.
"It's a digital scorecard that tracks more stuff," he says, holding a clear plastic prototype complete with an LED screen he soldered in himself. It will ultimately look kind of like a cell phone, with four buttons for entering data.
Once a golfer is done on the course, he or she can plug in the electronic scorecard using a USB cable and upload all the data to Tang's Web site: myfreehandicap.com. The site has a social-networking element, kind of like a Facebook for golfers.
Tang, who graduated in June from the Darden School of Business, studied under Professor Sommer. Tang passed over at least two lucrative job offers to chase this dream. So far, he has funded the whole operation with his own savings.
A few months ago, Tang says, outside funding seemed like an option, but now, not so much.
"People just are not comfortable to invest their money right now," he says. "The first thing they ask is, 'Are you generating any income yet?'"
But Tang is not giving up. He knows about struggle. He supported his family for years after his father's business in Hong Kong went bankrupt. And when he was in college, Tang opened two successful Chinese restaurants. But they weren't always successful.
"I started with nothing," he says. "I was really, really poor. At one time I was living out of my car."
Tang believes the upsides are far greater than the down sides, and he says he's willing to take the risk for a while.