Small Talk Feeling overwhelmed by the idea of starting your own business? Then starting with a microenterprise could be the answer for you.

Jim and Georgia Thompson didn't go into business to getrich. They went into business because it looked better than workingfor someone else. "It's not exactly that we didn'tlike the people we were working for," explains Jim, 45."But we were doing all the work and weren't getting any ofthe rewards."

So in June 2001, the father-daughter team started JJ&GElectric, a two-person electrical contracting company in Austin,Texas. Both were veteran electricians, and Georgia, 21, hadexperience running the office at the electrical contractor wherethey'd both formerly worked. But they quickly found thatrunning a small business was different from wiring a building."We had the electrical skills. We had the office skills. Wealso had the people skills," says Jim. "But we had littleknowledge of the financial skills and skills of running abusiness."

In that sense, the Thompsons are typical microenterprise owners.These popular but little-recognized businesses, numbering anestimated 2 million, are generally categorized as those requiringless than $35,000 in start-up or early-stage financing. Theyusually have fewer than five employees, especially in the earlyyears, and are often sole proprietorships. Microentrepreneurs facea special challenge, because few lenders will consider making suchsmall loans, especially to start-ups that lack adequate collateral.Microenterprises are likewise challenged by the fact thatthey're often run by people who, while boasting excellenttechnical ability, don't know much about marketing,bookkeeping, cash management and other key business skills.

Fortunately, a range of organizations can help with both skillsand capital. And coupled with microentrepreneurs' drive anddetermination, the microenterprise story is one that generally hasa successful run and a happy ending. Why? One reason is thatmicrobusiness owners typically come from low-paying jobs,unemployment, underemployment or public assistance programs. Theyoften start as part-timers, moonlighters from day jobs orwork-at-home moms. With powerful motivation and a modest growthplan, they more often than not get what they're after.

Take Angela Nicholas, for example. She started Bauer TripleD's Learning Complex Inc. in Pensacola, Florida, because shecouldn't find a job in the public schools, after her husband, aNaval officer, was transferred to Pensacola. "I never plannedto go this route," says Nicholas, 42. But when she looked at aplot of land near her home and envisioned children playing in achild-care center, she was inspired. After receiving businesstraining from a local development agency, she successfully appliedfor a combination of bank loans and community development fundingthat allowed her to open a center. Today, she employs nineteachers.

Nicholas enjoys making her own decisions, something she wasnever able to do as a physical therapist and administrator in thepublic school system. And she feels she's building somethingfor the future. "I'm not seeing the rewards immediately,but in another 10 or 15 years, when I'm finished paying off mymortgage, I'll see them," she says.

Most microentrepreneurs cite similar benefits of independenceand potential for building wealth, says Dawn Rivers Baker, editorof The MicroEnterprise Monthly, a microbusinessjournal in Sidney, New York. "Most of them are earning $20,000to $50,000 a year, though there's a nice chunk of them who areearning over $100,000," she says. "But if people were todo this for financial reasons, nobody would do it. They do itbecause they like it."

The Financing Hurdle

But liking microbusiness isn't enough to overcome some ofthe more substantial obstacles. Of these, lack of access to capitalis probably the biggest. Microbusinesses are, as a rule, notsuitable for bank loans and can't tap other financing sources,such as venture capital and the public markets. Savings,investments from family and friends, and personal financialoptions, such as credit cards, are the only options for mostmicrobusiness start-ups. "It's a lot easier to get $50,000to buy a car than to get $2,000 to start a business," saysRivers Baker.<

There are sound reasons why micro-businesses can't borrowfrom banks. "The key thing is that the loan amounts are toosmall," explains Jeannette Peten, president of BiGAUSTIN, acommunity development organization in Austin, Texas. Bankscan't make enough money on loans under $50,000 to justify theloan processing and issuance costs, so they simply don'tconsider such small loans.

In addition to seeking only small loan amounts, manymicrobusiness hopefuls are hamstrung by bad credit, no collateraland unproven prospects. Organizations like Peten's fill thegap, specializing in loaning small amounts to people who aren'tacceptable credit prospects for conventional lenders. "Someonewho's been turned down by the bank because his or her creditscores weren't high enough is usually an excellent client forus," she says.

Microfinanciers tap a combination of private and public funds tooffer low-amount loans to people who are rejected by banks. Termstypically run five years or less, with interest rates at about 10percent. The amounts may be anywhere from a few thousand dollars upto the defined microloan maximum of $35,000. Many of the borrowersfunded by people like Peten are referred by bankers, she says. Inreturn, they hope to grow their clients to the point they'reconsidered bankable and then send them back over to the commercialbanks who referred them in the first place.

The chances of a small business surviving and prospering to thepoint it might be considered bankable aren't bad at all,according to SBA figures on the 5.7 million firms that hademployees. In 2001, the latest year for which figures areavailable, an estimated 584,400 new small businesses started, while568,300 closed, including 39,719 bankruptcies. Both closures andstarts were about 10 percent of the total, the SBA notes.

Two-thirds of new firms last at least two years, and half makeit to their fourth anniversary, according to a 2001 study by theCensus Bureau. One interesting point found by the Census study:One-third of the people who shut down their firms in the first fouryears said that their firms were successful at the time they wereclosed. The study also found that a desire to be one's own bossand to have freedom for family life correlated with higher successrates for business owners.

Learning the Ropes

Access to capital solves about 75 percent of the problems facedby microentrepreneurs, says Dan Horvath, president of Community EquityInvestments Inc., a microlending and assistance organization inPensacola, Florida. The other 25 percent is, essentially,ignorance. That's why organizations like Horvath's offertraining in business skills, such as marketing and businessplanning, and technical assistance in bookkeeping andaccounting.

Microborrowers are often required to attend training classes asa condition of receiving a loan. Classes may be offered through amicrolending organization or through a local Small BusinessDevelopment Center or community college. They typically consist ofa few months' worth of twice-weekly sessions and wind up withthe microBIZ Experiences receiving a foundational understanding ofbookkeeping, taxes, marketing and other skills. One central goal isthe creation of a business plan to guide the firm's operationand to present to potential lenders. "We put the reality backinto the process," says Peten. "We let them know it'snot about being the next Bill Gates. All they have to do is start abusiness."

Microentrepreneurs often clear up some critical misconceptionsduring the training process. For instance, JJ&G Electric'sfounders, after getting started with no more financing than somepersonal savings and trade credit at a local electrical supplyhouse, had expected to obtain bank financing simply by showing abanker a contract for a project they had signed. "I found outfrom BiGAUSTIN that wasn't true," says Jim Thompson."There were several things we thought were true thatweren't."

Fast Forward
Many microbusinesses are small by the owner's choice and areintended to remain that way. "We do not plan onexpanding," says Adam Makela, owner ofParkside Elder Care, a five-bed home for the elderly in Plainview,Minnesota, that employs only himself and his wife. "Bigger isnot better in this business, and it's important for us to feelgood about the services we provide." Makela plans to keeprunning the business as it is for another 15 to 30 years and investprofits in real estate to provide for a secure retirement.

But not all microbusinesses stay small. The Thompsons todayemploy 20 people. Some microbusinesses grow even larger. One ofHorvath's clients, a metal stamping firm, started with a$25,000 loan and three employees and today has 40 employees andsales of $2.5 million.

And in some cases, breakthrough microbusinesses exceed theirowners' expectations by a wide margin. One of Peten'sclients began a postal services retail operation after being laidoff. Though his only intention was to replace lost income, beforelong, he was entertaining buyout offers from a national postalfranchise. Another started with a $10,000 loan and a dream ofbuilding a profitable business he could sell to become financiallyindependent. Four years later, he sold his company to amultinational conglomerate for a sizable sum.

One blessing of microenterprise is that it gives people a tastefor BIZ Experiencesship; many like the life so much, they go on to runa string of small but successful enterprises. Makela began hisfirst elder-care center in Grand Rapids, Minnesota, and operated itfor five years. Then he and his wife decided business ownership hadlost its luster and sold the center. But after only a year or so,they found they missed the flexibility and independence of runningtheir own show and found an existing center they could takeover.

"This type of business is certainly not for everyone,"says Makela. "We both work almost every day for at least partof the day. But, at the same time, we have a lot more time andmoney for our hobbies, recreation and our [children] than mostpeople do." Those attractions are what keep microbusinessblooming despite the obstacles.

And microentrepreneurs say the view from the other side of thoseobstacles makes getting there well worth the trouble. "If youbelieve you have the talent to make a difference in whateverbusiness you choose to pursue, you should go for it and not befearful of the outcome," says Nicholas. "A lot of peoplehave great talent and vision, but they're so fearful of failurethat they don't step out and try. But the worst that can happenis, you try again."

Mark Henricks writes about business and technology forleading publications and is the author of Not Just a Living.