The economic concept of creative destruction, first introduced by the Austrian economist Joseph Schumpeter, describes the cyclical transformation that accompanies industrial change, technological innovation, and the creation of new forms of wealth. However, the process is not without its painful side effects, especially during the worst economic contraction in decades. Laid off workers — particularly those with obsolete skills — are the human casualties of the recession and constant reinvention of a competitive and globalizing economy.

Since the start of the recession, 15.4 million Americans are unemployed and seeking work, another 6 million have stopped looking and 9.2 million are working only part-time. The hardest-hit sectors: automakers and their suppliers; publishing; pharmaceuticals; construction and manufacturing; natural resources and mining; IT, and professional services.

When joblessness rises during a cyclical downturn, self-employment tends to rise as many displaced workers become small-business owners in response to the pressing need to replace lost wages; launching a business may seem like the best path to survival.

“Our workforce system, whose goal is to get people back into jobs, is not designed to deal very well with entrepreneurship,” notes Brian Kelsey, consultant, Civic Analytics. “Many workforce development boards have incorporated entrepreneurship into their ‘rapid response' programs for dealing with layoffs, but in most cases it's not a core focus because federal and state funding isn't there to support it. This is one of many reasons why we need a more coordinated approach to economic development, workforce development and entrepreneurship.”

Yet despite the challenges of lower demand, decreased availability of loan funds, and fragmented public resources, the perceived risk of becoming an entrepreneur or business owner is rapidly shrinking as many large corporations — with whom job security was an implicit benefit  — are laying off workers in the thousands, prompting many workers to reconsider their livelihoods.

The good news is that several coordinated approaches are successfully taking place throughout the country. “With job loss and uncertainty, many employees in our area of Michigan are seeing an opportunity to start their own companies and are accessing the resources [pre-seed funding, microloans, education, networking, business acceleration, etc.] which are vital to business formation and economic growth,” says Michael Finney, president and CEO, Ann Arbor SPARK.

Collaboration Is Key

“We do everything here through partnerships,” says Colleen Gilger, economic development administrator, city of Dublin, Ohio. “Government can't do it alone. Business can't do it alone. Technology incubators can't do it alone. We have to work together.”

“If you are looking for a model program targeted at reluctant entrepreneurs, consider our ‘Stick Around Campaign' targeted at research and development scientists displaced from the Upjohn-Pharmacia-Pfizer mergers,” says Ron Kitchens, CEO, Southwest Michigan First. “The key to our success in the wake of Pfizer's downsizing is that we anticipated change in the pharmaceutical industry before it even happened. We began the construction, development and launch of our campaign, even before Pfizer made the formal announcement.”

On a national level, the Ewing Marion Kauffman Foundation is offering FastTrac LaunchPad entrepreneurial training programs in communities that have been hit hard by layoffs and the recession. This initiative is specifically designed for people who have lost their jobs or entrepreneurs whose businesses are struggling in the rough economy.

Despite the displacement and personal turmoil high unemployment brings, it does eventually free up human capital for more creative and productive enterprises. According to a June 2009 report from the Kauffman Foundation, more than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America's fastest-growing companies.

The group's research also suggests that many former employees are generally receptive to starting a new business, even during a recession. According to its 2009 Index of Entrepreneurial Activity, in 2008, an average of 0.32 percent of adults created a new business each month, equaling about 530,000 new businesses per month.

In researching his book, Race and Entrepreneurial Success, University of California-Santa Cruz economics professor Robert Farlie discovered that startup business owners who were dealing in “similar goods and services” as their old company were as much as 40 percent more successful with their enterprise than those who entered an unfamiliar field.

Companies who lay off workers often hire some of those very same people back on a contract or project basis. “My company laid me off but quickly realized they needed someone to take care of the many tasks I used to manage on a daily basis,” says Bonnie Buol Ruszczyk, president, BBR Marketing. “To decrease costs, they hired a marketing assistant, then asked me to train her for her new job - which I did. Since then, I have helped them find and hire a Web site development firm, conduct a series of employee satisfaction interviews and take on a small invitation project as well.”

The Creative Economy Leads The Charge

“In Austin, Texas, we've seen remarkable growth in technology services, such as computer system design, software-as-a-service, and data mining and analytics solutions,” Kelsey says. “Approximately one out of every five workers in the region does not have a traditional nine-to-five job with one employer. It's ground zero for what Daniel Pink described as the ‘free agent nation,' and I don't see that changing anytime soon.”

“We've been really trying to understand who they [entrepreneurs] are and what they need, then set the groundwork so they can be more successful starting their business,” Gilger says. “It's one thing to attract a company to build a new plant or to move into your area from someplace else. But attracting entrepreneurs who want to create and grow a company in your community is something not many places are focusing much on. In Dublin, we've got a history of mining good ideas for the next big company.”

Moving down to Arizona, Tucson Regional Economic Opportunities Inc. (TREO) recently launched its Entrepreneurial Economy Blueprint, as a long-range plan to diversify their region's economy and create new jobs and community wealth through the startup, growth and expansion of knowledge-based enterprises. Among the project's goals: leverage private capital with the Arizona's “Fund of Funds” program; attract the “creative class entrepreneur;” form university/industry partnerships; bolster technology transfer from the University of Arizona; promote technology-based economic development; and implement a robust communications plan.

There are later-stage companies that prove the collaborative approach coupled with proximity to leading institutions of higher learning works. “Renting equipment from a lab or working with a professor at either University of Michigan or Michigan State has supported our efforts and enhanced our research capabilities numerous times,” says Maria Thompson, president and CEO, T/J Technologies, an R&D pioneer in battery technology.

Buyouts and restructurings don't necessarily mean that firms will leave a region either. Although Thompson's company became a wholly-owned subsidiary of Massachusetts-based A123 Systems, it has remained in its home state as a competitive advantage. “A big advantage of being in Michigan is the supply of highly-trained scientists and engineers that are here naturally because of the automotive industry,” Thompson adds. She also credits the company's success in part to a creative atmosphere where innovation can flourish. “Ann Arbor is widely known for its innovative and unique approach to business and community,” Thompson says. “Limited resources, common to new or emerging businesses, makes creativity key to business success.”

Overall, areas that are successfully weathering the storm and building a robust future appear to have the following in common: a diverse economy; proximity to leading institutions of higher learning; an educated resident population and pipeline of future talent; and perhaps most important of all - a creative atmosphere where innovation can flourish and a tradition of entrepreneurship and culture of risk-taking.

Regardless of the macro effects on regional economies, many people, whether by desire or necessity, see starting a company - especially during the turmoil of a recession - an opportunity to take their future into their own hands.

“I had a number of people tell me I was either crazy or brave to take this step, and I think both are right,” Buol Ruszczyk says. “But I enjoy having control of my destiny, watching my company grow, working with a variety of clients, and shaking off the politics inherent in any company. Sometimes it's a lot better to be an expert on the outside, than an expert on the inside.”

Mark Kleszczewski is a freelance writer based in Oneonta, N.Y. He can be reached by e-mailing mkceo@verizon.net.

For complete details on the organizations featured in this article, visit:

A123 Systems

www.a123systems.com

Ann Arbor SPARK
www.AnnArborUSA.org

BBR Marketing

www.bbrmarketing.com

City of Dublin (Ohio) Economic Development

www.dublinecondev.com

Civic Analytics

www.civicanalytics.com

Ewing Marion Kauffman Foundation

www.kauffman.org

Southwest Michigan First

www.southwestmichiganfirst.com

Tucson Regional Economic Opportunities (TREO)

www.treoaz.org