Is a Recession Really the Right Time to Start Working for Yourself? Maybe Not

There’s a theory that a recession is a good time to branch out on your own and start your own business. After all, who needs the stress of fearing a layoff, battling for pay increases and other uncertainties that come with working for corporate America?

But new studies show that perhaps the Great Recession hasn’t looked too favorably upon the self-employed, after all.

A researcher at The Federal Reserve Bank of Cleveland recently found that while the rate of self-employment grew during the recession, the rate of exit from self-employment increased even faster and the overall number of self-employed Americans decreased. In fact, self-employed individuals were hit harder by the recession in terms of unemployment than those who worked for others, and the U.S. has fewer businesses now than it did before the before the downturn.

Another study released in June by Citrix Online and conducted by the Telework Research Network found that over the past five years, the self-employed share of the total work-at-home (WAH) population (which includes those people working for others from home, teleworking, etc…) fell from 60% to 50%.  Both the total self-employed population and people who run their own businesses by working at home fell in 2008 and 2009.

“Typically, all we hear in the press when they talk about the work-at-home population is this bulk number that includes the self-employed,” said Kate Lister, president of Telework Research Network. Many people who work at home are employed by a company and are not technically self-employed. “The self-employed rate got dragged down during the recession.”

Lister attributes the majority of the decline in the self-employed workforce due to the large overhead costs that often come with working for yourself, things like rents, utilities, office space, etc…

“The bottom line is, small businesses, particularly the very small businesses, operate closer to the edge,” Lister explained. “Something negative happens, it’s going to affect them more quickly. It rolls downhill. These solopreneuers who are working perhaps under contract with large companies and so forth, it’s going to affect them more heavily.”

But for self-employed workers in the virtual world, things may be looking up: New studies show the demand for online contractors is spiking tremendously. For small businesses in particular, online workers offer an opportunity for them to contract work out at lower costs and they’re not limited to a pool of workers in a specific geographic region.

“Online workers are core to small business success,” said Gary Swart, CEO of oDesk, a global employment platform that matches employers to an online workforce. A recent study by Swart’s company found that its users spent more than $18 million to hire remote freelancers or teams in June and more than 93,000 new jobs were posted on the site.

“Many companies that initially used this approach to accomplish work during the economic downturn are incorporating online workers into their ongoing staffing and growth strategies,” Swart said. “The continuing growth in demand for skilled online workers indicates a smart move by businesses; away from the full-time employment model to a flexible, on-demand workforce.”

Elance, which also helps businesses hire and manage online professionals in the cloud, noted that while U.S. employers added only 46,000 jobs to the traditional job market in June, Elance added 142,723 jobs in the second quarter – an average of 47,500 jobs per month.

Elance contractors earned a record $34.28 million during that quarter, up from $30.73 million in the previous quarter, and they’ve been seeing paychecks increase over the past 12 months. Businesses hiring online and freelance professionals at the firm sparked a 23% increase in a single quarter, in both the population of contractors and employers working online.

Ved Sinha, vice president of interactive marketing for Elance said the company is seeing a lot more small businesses using its services and listed marketing, IT, web programming and operations research as areas with job opportunities.

“What we’re seeing is both in times that are hard economically as well as in boom times, small businesses continue to look for online work.”

WAH and self-employment experts offer several tips for how to become your own boss--and stay employed--during a recession:

--Jump into the world of online work if possible by creating an online profile on platforms such as Elance, oDesk, LinkedIn, Craigslist, and other places to get your name and work out there. To make your profile more attractive, be sure to include online recommendations on your profiles. “You can do these things to start building your presence and building your brand in the online world,” Sed said.

--Make sure you have a good reputation to build your business on and gain a strong customer following. Alison Green, founder of AskaManager.org, who managed a mid-sized organization before starting her own management consulting business in June 2010, spent years working hard and building her reputation. By establishing herself as reliable and hardworking, she knew she could count on a loyal client following when she struck out on her own. “Becoming known as someone who kicks ass at work means that you’ll have people excited to hire you when you need them to be, which will make your life a lot, lot easier in the future,” she says.

--“If you have a day job, don’t quit it” advised Lister. “Try to develop your home business while you still have your paycheck,” and make sure it’s going to succeed before you give your two week’s notice. Coming out of a recession is a very good time to start a business, the weak players have gone away, there’s just lots of opportunities. It’s also a very good time to buy a business.”

And if the self-employed can stick it out, they might just find more light at the end of the recession tunnel than they thought, and they may be well positioned to achieve that ever-elusive work-life balance.

“The consensus seems to be: something has really changed” in how people work, Lister said. “This whole contract of having a job for five or 10 years of life, is no longer. The people who are able to break out and start their own businesses. … all of the polling suggests absolutely … that the large majority of people who have turned to self-employment during a recession have no intention of going back. They enjoy the flexibility it gives them, they don’t feel that a company is going to protect them anymore.”