Dan Flynn was director of engineering at Marconi Communications in Wexler, Pa., when he and most of his 75-member staff were handed what more than 8 million Americans have received in the current grinding recession – a pink slip.
The layoff was permanent and devastating, especially with a wife and three children to care for. In fact, the only thing separating Flynn from everyone else facing a similar fate today is about eight years. Flynn was laid off in 2002, following the collapse of the telecommunications industry.
He knew finding a new job would mean uprooting his family and the same would probably happen to most of his former colleagues. “I thought there had to be a better way. Rather than solve the employment problem as individuals, why not form ourselves into a team, attract business, and create our own jobs?” he says.
So Flynn and his team launched Accipiter Systems. It specializes in the development of next generation data communications systems for custom military and commercial applications. Last September, the company added two new employees bringing its total to 15, and its sights set on growing to 80 employees, through contracting work for the government and the defense department.
With venture capital scarce in the wake of the tech meltdown, and their own funds limited, Flynn and his team turned to The Technology Collaborative (TTC), a state economic development organization dedicated to launching high-tech companies in Pennsylvania. The group awarded Accipiter a $164,000 grant to get its first project off the ground.
Today, Accipiter could be called a survival story. And, although its roots are in an earlier recession, it can also serve as a case study of how to put people back to work and speed the nation’s current recovery through the creation of new businesses.
The sad fact is millions of people have been laid off in the current recession from jobs that are likely gone forever or at least for the foreseeable future. To bring down the stubbornly high unemployment rate, the Obama administration is counting on small firms to lead the way. After all, they account for about 65 percent of all new jobs, according to a recent study by the Small Business Administration’s Office of Advocacy.
But the administration may be devoting too much effort on trying to convince existing businesses to hire more employees, when it should be focusing more resources on encouraging entrepreneurs to create new businesses.
Flynn was one of several small business owners who testified recently before the House Small Business Committee, during a hearing that focused on small business success stories in today’s economies. The small business owners who testified all told survivor stories that were similar to Flynn’s. And, lessons can be gleaned from all of them.
John Dippold was hit by a similar upheaval after working for eight years as director of marketing and sales for Metaldyne Sintered Components, a Pennsylvania company that makes cast metal components for machinery. Then the industry went through a wrenching consolidation in the mid-2000s.
“Layoffs and downsizing hit us long before the recent economic crisis sent the rest of the world into a tailspin,” he told committee members. But in crisis, there is opportunity.
“I am just one of many entrepreneurs in the powdered metal industry that saw a niche for smaller, nimbler firms that could react more quickly in the global marketplace.”
In 2004, he and a partner purchased Innovative Sintered in St. Mary’s, Pa. “Rather than scale, our competitive advantage is service,” he said. “My partner is an engineer who spends countless hours working with clients on a personal basis. There is no administrative staff or phone tree standing between our customers and our key decision makers.
“Our company sales projections for 2010 are $4.5 million, an increase of nearly 100 percent over last year. Since 2004, we have doubled our total workforce and corporate earnings are up 1,100 percent.”
Michelle Nelson, CEO, Blue Strategy Creative Intl, LLC, a traditional and digital marketing firm in Sarasota Fla., like many small firms, was trapped by the credit crisis.
“We had seen it before and knew the highs of a booming economy would surely shift. What we did not anticipate was that the banks would take back our credit lines and double our interest rates. As we watched our nation bail out our financial institutions, these same institutions turned their backs on us,” she said.
The situation required out-of-the-box thinking. “We pleaded with our banks and vendors to keep credit lines open and negotiate interest rates. We never received any financial assistance or tolerance from our bank, despite our strong financial history. Instead our vendors and other private businesses were the most generous, maintaining and in some cases extending our credit lines.”
Blue Strategy, in turn, extended credit to its clients, so their businesses could continue to operate. “We shouldered the burden of our clients’ financial limitations by allowing them to make payments over longer periods. We, in essence, became a bank funding the ecommerce we needed,” she said.
Rob Hach, president of Anemometry Specialists, Inc., located in Northwest Iowa, probably comes closest to President Obama’s vision for a new economy in the 21st century. He and his wife launched their company in their twenties in 2003. It provides wind measuring services for operators of electric-generating windmills.
With little cash or assets of their own, they turned to the Small Business Administration and received a $150,000 operating line of credit, after they were rebuffed by conventional banks and other funding sources.
“We doubled revenues and employees each year from 2004 to 2008,” he said. “Even in the tough economy of 2009, we were able to show a profit and expand the company.
“We added a new office in Texas, and hired four additional employees, bringing our total workforce to 30. We were able to avoid employee layoffs and maintain employee benefits,” he added.
The company recently secured a $184,000 loan to purchase a 17,000-square foot building backed by a $70,000 SBA loan, and it has taken advantage of SBA training programs including a CEO coach, who advises them on how to run the business. Surprisingly only about 1 percent of small businesses currently utilize SBA programs.
Hach recommends that the government invest more in training programs for entrepreneurs and establish business incubators around the country to help foster new companies.
Recessions have traditionally been spawning grounds for new businesses, but because of the depth and duration of the current downturn fueled by a credit crunch, the ability to start a business has been significantly hampered. Entrepreneurialism has always been one of the nation’s strong suits and as these survival stories show, the spirit is still alive, well and ready to revive the economy with the right mix of public and private initiatives.