Recession and Personal Businesses

Personal businesses are single person businesses that do not have employees.  They include sole proprietorships, independent contractors, independent consultants, most hobby and part-time businesses and most home businesses. 

The US Census calls them "nonemployer businesses" and they are an important part of the US economy.  As of 2006 (the most recent data available) there were almost 21 million personal businesses in the US.

Driven by a mix of economic, social and technological changes the number of US personal businesses has grown faster than the economy over the last decade.  These long term shifts include corporate downsizing and outsourcing, corporate shifts away from the traditional employment contract, increasing interest in work/life balance and the rise of the Internet.

With a recession starting (or already started), we expect the number of personal businesses to grow over the next two years.  The slowing economy will lead to higher unemployment and fewer traditional job opportunities.  As we saw during the economic slowdown at the beginning of this decade, the lack of traditional jobs will lead to higher rates of personal business formation.

The recession will also hurt existing personal businesses.  There will be fewer opportunities for work, business and consumer spending will fall and we expect declines in personal business revenue and income.  But since personal businesses have few fixed costs, are relatively inexpensive to operate and personal business owners will have limited alternatives, we do not expect sizable personal business closures. 

The net result will be an up tick in the personal business growth rate over the next two years.  This will be followed by slower personal business growth as the economy recovers and traditional job opportunities improve.

For many personal businesses will act as a lifeboat helping people get through the coming tough economic times.  We saw this in Silicon Valley after the first Internet boom.  The standard joke in 2002 and 2003 was almost everyone in the Valley was an independent consultant.  For many their personal business got them through the downturn and positioned them for opportunities when the economy improved.      

The good news is starting a personal business is cheaper and easier today than ever before.  So is starting a regular small business.  This is not to say it is easy - especially in a recession - just easier than it was in the past.

For those looking to start consulting businesses, Tim Berry has some excellent pointers at his Up and Running blog.   

Comments

[debt negotiation]

Thank you very much for taking the time to post this. You are right on. Let's just hope it is only a resession and not something more unsustainable. Nice job!

[Ananda Leeke]

Thanks for providing this information. As a life entrepreneur, I agree with what you have shared. I needed to see it written down today. Many thanks.

[Mark Bantigue]

I agree. I'm a serial entrepreneur. Some personal, some formal structures. Barriers are coming down everyday. Exciting times. Opportunities about amidst uncertainty.

Thank you for this post. Re-assuring through the personal doubts.