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After losing jobs and opening their own businesses, entrepreneurs ill-equipped for challenges, study says
By Paula Schleis
Beacon Journal business writer
Published on Monday, Feb 25, 2008
And without steady growth in the ranks of the self-employed since 2000, overall job growth in the state would have been near zero in the first years of the decade.
But in rural areas, the circumstances of the typical do-it-yourselfer have changed significantly — and not for the better.
A new study out of Ohio State University says an increasing number of people who start their own businesses are motivated by desperation, often after having lost a good-paying job in the state's declining manufacturing sector.
That increases the number of entrepreneurs who are said to be ill-equipped to handle the risks and challenges of starting a small business, and lowers the average income of the sector as a whole.
In rural areas — by their nature a challenging location for businesses — the ramifications are startling.
In 1969, rural self-employed people made 4 percent more than the typical wage-and-salary worker.
Today, they make half of what peers in traditional jobs do.
''While self employment appears to be a key factor in supporting more rural job growth, it is less clear whether it is providing the type of good jobs that will maintain a high quality of life,'' said the report, authored by Mark Partridge, professor of OSU's Swank Program in Rural-Urban Policy.
The report, titled ''Does Enhancing Ohio's Small Businesses and Entrepreneurs Provide the Key to Growth?'' came out of Partridge's curiosity as to why Ohio is lagging its similar Midwest neighbors in employment growth and population retention.
The conclusion that the number of rural self-employed is growing as their buying power falls didn't surprise him.
He noted some recent cultural changes affecting those numbers.
For instance, there are far more people pursuing ''casual work,'' especially in the consulting field. It's more than Avon is calling, as there is a proliferation of home party products from toys to candles to gourmet food.
Technology also has made it easier for people to try doing something on their own, like launching a Web site to sell a homemade product — an opportunity that wasn't available in the 1970s, '80s and most of the '90s.
But in communities facing economic decline, ''Individuals often feel compelled to start their own business as more of an act of desperation rather than as part of a well-defined plan developed in response to an opportunity.''
Partridge explained, ''If people are kind of forced into starting their own business, they may not come at it at a systemic or dynamic way, and they probably won't be as successful as if they formed a business for creative reasons.''
Excluding Ohio's farmers, the number of self-employed workers in rural Ohio more than doubled between 1969 and 2005. During the same time, rural manufacturing jobs were in decline.
Partridge says that soon, the self-employed will outnumber the rural manufacturing workers, and developing small businesses is one way to produce future economic growth in rural Ohio.
But Scott Shane of Cleveland, author of The Illusions of Entrepreneurship, said there are inherent challenges with being an entrepreneur in a rural area.
There are fewer investors, fewer customers, fewer resources and a smaller work force from which to draw employees.
And if more people are starting their own businesses because traditional jobs have dried up, then they're already in a struggling economy that might not be able to support their new enterprise.
''In a rural area, if jobs go away, the only other options are don't work at all or move away,'' Shane said.
Shane said he'd offer would-be business starters the same advice, regardless of their location.
''You need a good idea. You will need to invest your own savings, so you'll have to ask yourself if you can afford it. You need to have knowledge of how to market a product,'' he said.
On the positive side, the OSU report said, the growth of self-employment in rural areas speaks to the attachment of residents to their communities.
They appear willing to trade off some income to stay put.
But the report warns that unless measures are taken to improve the productivity of the self employed and other rural workers, ''more rural Ohioans may eventually leave the state, or their children may find less reason to remain in rural Ohio.''
Paula Schleis can be reached at 330-996-3741 or pschleis@thebeaconjournal.com.
Get the full article here.
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