Michigan State University Extension
Home-Based Business - 09159401
10/01/98
Rural Development Perspectives, USDA, November 1991. This study focuses on workers who became entrepreneurs after being displaced by unemployment or the prospect of job loss. This has importance in both public policy and Extension programming.
Sample and Methodology
The basis for the study was a telephone survey of start-up entrepreneurs in rural areas in four states, including Arkansas, 1980-87; Maine, 1982-88; North Dakota, 1980-87; and Michigan, 1982-88. The Michigan sample was drawn from the upper peninsula counties of Marquette, Dickinson, Chippewa and Gogebic, under a project operated out of the Upper Peninsula Steering Committee of the Michigan Department of Commerce.
The target population was successful new businesses. Interviews were conducted with 1,128 successful new business owners; North Dakota (n=315), Maine (n=310), Arkansas (n=287), and Michigan (n=199).
Findings
Of total population, 134 (12 percent) had been started by displaced workers. In Michigan this represented only persons who had lost their job, however, in the other states some had lost their farm or another business.
The displaced workers were very similar in demographic characteristics to the other entrepreneurs who had not been displaced. They were likely to be married, in their late '30s or early '40s, at least high school educated, and predominately white. Displaced workers were more likely to be male than were other new entrepreneurs. Most earned incomes above the poverty level.
Displaced workers were very likely to start businesses that capitalized on experiences gained or skills learned on jobs they had lost. Lay-offs accelerated plans for self- employment as many indicated they would have eventually started a business.
Displaced workers generally started businesses similar to those of other entrepreneurs. Both groups most likely operated a trade or personal services business and operated outside a 50 mile miles radius from their home.
The only statistically significant differences between the groups was that displaced workers were somewhat more likely to operate out their homes (31.3 percent of displaced workers and 21.8 percent of other entrepreneurs) and to have worked full-time during the start up time.
Displaced workers raised an average of $34,500 of start-up capital, with a median of $16,000. Sources of funding were in order of importance, bank loans (44 percent), foregone salary (18.7 percent) , family (13 percent), equity (3 percent), government loans (3 percent), venture capital (2.2 percent), and unemployment insurance (2.2 percent).
Displaced workers experienced slightly more problems in start up. Money problems were more prevalent, both in raising capital and managing cash flow. Some suffered poor sales or earnings. Health care costs were more of a problem and they were also more likely to believe they entered the market at the wrong time.
Implications
The authors conclude that: 1. displaced worker entrepreneurs are an important consideration for rural economic development.
2. while many used technical assistance, about 35 percent did not know about this help. Technical assistance needs to be better marketed in rural areas.
3. lending practices in the rural areas need some evaluation and lending policies for displaced workers need to be improved.
This study has important information for Extension for both rural development and the importance of home based business.