Tips for Starting a Small Biz in a Recession

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By Joyce M. Rosenberg, AP Business Writer

NEW YORK (AP) — While much of the business world struggled with cutbacks and layoffs during 2009, many people saw opportunity. Undaunted by the recession, they started their own companies.

Entrepreneurs are by and large an optimistic lot, with faith in their ideas and their ability to execute them. So it's understandable that they would find reasons why it made sense to start a business in a sickly economy. Among them: It's easier to rent commercial space at a discount when landlords are hungry for tenants.

Still, many had some scary moments as customers stayed away or money ran low. A look at how four new business owners fared last year:

WAITING FOR THE CONSUMER TO SPEND

Mike Sweeney had what he thought was a great idea for a new product: Clipa, a hook that people use to hang pocketbooks and other bags from restaurant bars or counters.

The recession didn't faze him. "I thought it was actually a good time," said Sweeney, who saw advantages in starting a company during a recession. Rental space was cheaper, suppliers were hungry for business and there was a pool of good job candidates.

But when the Irvine, Calif.-based entrepreneur began selling Clipa in April, he discovered how hard the retail business had become. Some consumers were willing to spend the $20 for his product, "but not in the volume we expected."

"We went to some trade shows and the response was less than we expected," Sweeney said. By August and September, he was feeling uneasy because "we were burning through money," the personal funds he raised to start the company.

Since then, business has gotten better as consumers have started feeling better about spending. "It's been growing every month. We're getting up to where we expected to be initially," Sweeney said. He's selling Clipa online and his sales reps are getting it into stores. And he's feeling optimistic enough to start selling another product later this year.

WORKING THROUGH THE BAD TIMES

After more than 27 years co-owning a public relations firm, Henry Feintuch and his partners went their separate ways as 2008 ended. On Jan. 2, 2009, his new firm, Feintuch Communications, opened for business.

"It was very scary," Feintuch said, recalling that at first, he didn't know which of the old firm's clients would migrate to his new venture. "We lost money consistently for the first half-year, as you'd expect in a new business."

There were several times when "we literally did not have funds to make payroll," Feintuch said. So he and his new partner dipped into their own funds, and their employees never knew there was a problem.

He also had encouraging signs: "Each month would show more billings than the month before." But, Feintuch added, "we never knew if we were going to grow into the black."

Feintuch said he and his current partner helped the New York-based company grow by partnering with companies on projects and accounts rather than expanding the current staff of four people.

In June, "we literally broke into the black," Feintuch said. This month, the company expects to hire two more people.

"It looks like we weathered the worst of it."

TIMING THE REAL ESTATE MARKET

It might seem counter-intuitive to start a real estate business in a recession that started with the collapse of the housing market. But Joe McMillan and his three business partners went ahead and started their real estate development company during the first quarter of last year.

"When you're entering real estate when the market is correcting, you have more significant upside potential," said McMillan, CEO of New York-based DDG Partners. "From our perspective, it has been a very good time to enter the market."

DDG was able to get properties that were well-priced because the market was weak. The company has several projects under way, including a building under construction from the ground up in lower Manhattan.

Perhaps because of DDG's good timing, McMillan said his company hasn't had the uncertain moments that many other startups did in 2009. The company is also self-financed, so "we haven't had to battle the banks," he said.

"There was never any point that I had a lack of conviction in what we were doing and the business model," McMillan added.

He said 80% of the company's projects are expected to be in New York, with the rest in Boston and San Francisco.

GOING IN SEARCH OF SALES

Lisa Michelson says, "I believe poor economic climates sometimes breed opportunity." So she came up with a product that targeted fashion and budget conscious women — those who could no longer spend $500 or $700 on a handbag, but would be willing to spend $100 or $200.

Michelson started her New York-based company, Lisa David Designs, a year ago, and found that along with opportunity, the economy presented many challenges. She went to trade shows to try to sell to retailers, but found that attendance at the expos was below expectations, which meant fewer chances to make sales. She also found it wasn't so easy to hire the workers she needed, although layoffs had greatly expanded the pool of job candidates.

Michelson also ran into some of the frustrations that many small manufacturers experience in the best of times. Like suppliers who wouldn't sell her less than 1,000 yards of a particular fabric, much more than she needed.

She learned she needed to be creative in order to bring in more sales. So instead of trying to sell to some retailers, she'll run a trunk show where she takes her handbags to a store and sells them herself, giving the merchant a cut of her sales. She also has her product line on an online handbag Web site.

But business is getting better now, and she's optimistic enough about 2010 that she's planning to take on a fifth sales rep.

Copyright 2010 The Associated Press.

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