Boot-strapping up from bad times

IN BUSINESS-school jargon, they're known as "necessity entrepreneurs" - people who start up a company after they're laid off, or who take some other brutal financial hit.

They're people like Frank Koehl, founder of the Lansdowne-based data-backup company Fwd:Vault, who took his pink slip from a failed dot.com company and used it as his ticket to the E-class in November 2008 . . . and people like Jeff and Suzanne Smith, proud owners since March 2009 of Fat Tony's Pizza, in Morrisville.

Fat Tony's
Suzanne and Jeff Smith are the proud new owners of Fat Tony’s Pizza, in Morrisville.

A commissioned mortgage broker, Jeff Smith watched his income and 401-K take a gut-wrenching side-by-side double dive when the Great Recession took hold. He cashed out part of the dwindling retirement fund - "before it was all gone," he says - to invest in their mom-and-pop shop.

Then there's Sergio Armani, a Philly-based financial-services professional who, in 2008, was laid off (on Christmas Eve) for the second time in a 20-year career. "I said to myself that I'd never let that happen again," he says.

Two months later, he started his own firm, Puma Sales Management, creating sales leads for the financial-services industry. By the third quarter of this year, he hopes to hire two or three employees.

Daring as they seem, these superhuman feats of optimism aren't all that surprising to people who study business start-ups.

A report last summer by the Kauffman Foundation, in Kansas City, a national think tank for entrepreneurship, found that more than half of today's Fortune 500 companies were founded in hard times - either bear markets or full-blown recessions. Year in and year out, in good times and bad, Americans start 500,000 to 600,000 businesses annually, says Dane Stangler, senior analyst for Kauffman.

Unemployment isn't a leading motivator for entrepreneurs to start their businesses. In another Kauffman study last summer, only 4.5 percent of them called it an important factor. (A whopping 64 percent, on the other hand, said they'd always dreamed of owning their own company.)

In some cases, though, being out of work "might act as a spur," Stangler says.

Nationally, nearly 12 percent of the unemployed workers surveyed by the outplacement firm Challenger, Gray & Christmas in the third quarter of 2009 said they were starting their own business - a four-year high that the company interpreted as a sign of economic recovery.

At the depth of the recent recession locally, as many as two-thirds of the people attending beginners' workshops in entrepreneurship at the Wharton Small Business Development Center were unemployed, according to director Therese Flaherty.

The Kauffman Group's Stangler says that "necessity entrepreneurs" are sometimes considered stepchildren to the sunnier "opportunity entrepreneurs" who start the vast majority of companies in the U.S. But the line between the two is blurred.

Take Koehl, for example. He'd already been tinkering on nights and weekends with the idea for Fwd:Vault, an e-mail-based data- backup service that lets people save their computer files without using special hardware or software.

So when the dot.com where he had worked as director of technology closed shop, he dusted himself off and retreated to his basement to launch the company of his dreams.

"That's how the economy started to go late in 2008," Koehl says. "Things just started dropping off.

"Our boss came in and sat down with me and the office manager, and said, 'I'm laying everybody off.' Then he went out and told the staff.

"The surprising thing to me is that it didn't scare . . . the [bleep] out of me," he says.

In February, after 15 months of coding software in the basement and building a business plan, Koehl took Fwd:Vault live as an online service. A panel of venture capitalists at the Web site StartupNation.com liked the concept so much that they named him a winner in their national "Elevator Pitch" contest. (Visit philly.com/elevator to hear it.)

"Yeah, getting laid off stinks," Koehl says. "But it really felt like a little a bit of providence. I was getting to the point where I really wanted to do something bigger. I hadn't made any plans to strike out on my own. This was the push I needed."