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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | SEPTEMBER 18, 2001 SMART ANSWERS By Karen E. Klein Home Sweet Home Business As the number of home-based businesses grows, entrepreneurs are finding that the Internet is key to their survival -- and their growth
Q: My husband and I are considering opening up a small, home-based business. Is the number of home-based businesses growing? Where can I find statistics about home-based business owners and industries? Any answers would be appreciated. ---- M.M., City TK A: It is very difficult to pin down accurate, up-to-date numbers on home-based businesses. Since the majority are sole proprietorships that do not employ outside workers, and since many never incorporate or obtain business licenses, it's tough to count them. The number of home-based businesses in the U.S. is estimated to be as high as 10 million to 12 million, but could be closer to 5.5 million, depending on which study you rely on and how you define a home-based business. What we do know with a good degree of certainty is that the affordability and wide use of increasingly sophisticated technology has enabled more people to work from home -- whether they own their own businesses or not. Another well-accepted trend shows that, during both economic up-swings and downturns, there tends to be an increase in the number of people starting businesses, and that a good percentage of those operate at least initially from home. The Gallup Poll's national employment survey, done over Labor Day weekend, www.gallup.com/poll/indicators/indwork.asp, reported that 12% of Americans are self-employed in their own business or professional practice. That number has gone up from about 10%, reinforcing the idea that self-employment is probably on the rise. "The Gallup number is surprisingly high, and suggests that the number of people becoming self-employed as the job market sours is going up," says Paul Edwards, an author (Best Home Businesses for the 21st Century, Tarcher/Putnam) and expert on home-based businesses along with his wife, Sarah. FOUL-WEATHER ENTREPRENEURS. During the technology boom of the late '90s, even as highly publicized Internet startups commanded a lot of interest and attention, there was an overall dip in self-employment as small companies were purchased by larger entities and more people were lured into corporate jobs with regular paychecks and stock options. There are people who become self-employed by necessity after a layoff and who find that they dislike the marketing tasks and long hours that go with entrepreneurship. Says Edwards: "When the job market is very good and offers come in, they'll float back to employment." The U.S. Small Business Administration's Office of Advocacy sponsors economic research, and, in 1999, they hired telecommuting/home business consultant Joanne H. Pratt, of Dallas, to write a report on home-based businesses based on data collected by the U.S. Census Bureau in 1992. While the information is out-of-date (Pratt extrapolates some of the older numbers into census statistics collected in 1997 in an effort to freshen it), it is interesting and comprehensive. Pratt's report, Home-Based Business: The Hidden Economy, can be downloaded from the SBA Web site, www.sba.gov/advo/research, or viewed in summary form on her Web site (which also includes additional information at resources) at www.joannepratt.com. Pratt, who analyzed data from 125,000 self-employed business owners, estimated that in 1992 -- during the last recession -- about 9 million Americans were self-employed. She is working on another report on the topic and says her raw data leads her to believe that the number of home-based businesses is growing. "During a slowdown in the economy, large employers give out early retirement packages, and many ex-workers use that capital to build up independent businesses," Pratt says. Using their business contacts and industry knowledge, many of them establish companies that act as outsourcers for their old employers, then branch out and take on new clients as they establish word of mouth. "The network of business associates becomes a springboard and the severance packages becomes a source of capital" for these first-time entrepreneurs, she says. INTERNET'S ATTRACTIONS. Entrepreneurs who want their home-based businesses to become a primary income source -- rather than rely on it for secondary income and an opportunity to balance work with family concerns -- must learn to use the Internet as a means of growing their firms, Pratt says. Currently, many small businesses have e-mail and do some research and sourcing online, but those that have Web sites still use them mainly for marketing purposes rather than e-commerce, studies show. "The opportunity for home-based businesses to grow their sales online is very powerful. I recommend getting the broadband connections or the DSL and considering the Internet as a vital part of the overall business strategy," Pratt says. "Nobody has to know how big you are or that you're even home-based. The only thing that will limit your growth is the ability to fulfill orders without opening a warehouse." Finding creative ways to incorporate online strategy is important, Pratt says, recalling a custom houseboat builder in Kentucky who posted pictures of the vessels at various stages of construction on his Web site. He quickly found that wannabe boat owners monitored the progress of all the boats he was building, and began clamoring for the extras they saw going on other boats for their own houseboats. Along with enhancing his profitability, he's used the Web site to organize regattas and sell auxiliary products that he'd never been able to find a market for before, Pratt says.  Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 6th Floor, 2 Penn Plaza, New York, NY 10121. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | SEPTEMBER |
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