ENTREPRENEURSHIP: A DEFINITION REVISITED

For many, the pros outweigh the cons when it comes to starting a business while still employed.
By Mark Henricks | Entrepreneur's StartUps - March 2009

When injuries from a motorcycle crash made it difficult for Nanda Holz to ride a bicycle, the Petaluma, California, engineer found that pedaling a recumbent-style bike let him get back on the road. When he moved on to crank-forward bicycles and his local bicycle dealer showed no interest in selling the distinctive bikes, Holz, 34, became a part-time entrepreneur. "I saw an opportunity," he says, "and started dabbling."

Today, Holz still works full time as an engineer, but he's also the founder and owner of Spin Cyclz, selling bicycles to Northern California locals and to customers worldwide via his website, spincyclz.com. Selling bikes gives him something to do in his off hours besides ride, he says. It's also starting to turn a profit: Holz brought in 2008 sales of about $100,000, with a $16,000 profit. "I'm starting to turn the corner," Holz says of his part-time venture.

"Entrepreneurs have good reason for working full time at a job and part time on their businesses, say experts."

There may be almost as many part-time entrepreneurs holding down full-time employment as those whose business is their full-time job. In 2002, as part of its decennial survey of business owners, the U.S. Census Bureau found that nearly 9.6 million of the more than 20.5 million business owners surveyed didn't consider their business their primary source of income. Even among the roughly 5.6 million businesses that were substantial enough to have employees, nearly 1.6 million business owners said their enterprise wasn't their primary source of income.

Entrepreneurs have good reason for working full time at a job and part time on their businesses, experts say. "For some people, especially in economic times like these when they're worried about their regular job, starting a part-time business gives them a safety net," says Paula Englis, an associate professor at Berry College and the University of Twente. Part-time startups by full-time employees may also offer a source of extra income when future pay raises are likely to be infrequent or nonexistent, she adds.

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Running a business while still employed can also make good business sense. An entrepreneur with a full-time job to fall back on is under less pressure to make a venture succeed quickly, Englis notes. "It also gives you the opportunity to make a few mistakes and not have that mean the end of the business."

Part-time businesses can also be easier to start because they require less funding and the entrepreneur can raise the necessary funds by diverting earnings from a full-time job. "Given the financial environment now," says Englis, "it's going to be hard to go out and raise capital to start a full-time business."

Before you rush out to start a part-time venture, however, consider the potential downsides. Perhaps the worst would be if your part-time enterprise interferes with your full-time job. "You can't burn the candle at both ends without some risk," warns Bruce Kemelgor, a professor of entrepreneurship at the University of Louisville. If the time and energy you're devoting to the business results in poor attendance or impaired performance, you could lose your job.

Some part-time entrepreneurs find the best way to manage the potential for interference is to get a different job. In 2005, Jewel Ragsdale was working full time in corporate America when she started Classic Calendar Co., a Richmond, Virginia, manufacturer of customized calendar frames and plaques, as a part-time venture. "I was always trying to go to meetings and network [for my business] when I should have been at work," says Ragsdale, 48. "It was too stressful. So I transitioned into a career that gave me a little more flexibility." Her new job with a mortgage broker gives her the time she needs to devote to her business.

Holz takes care to put his employment responsibilities before those of his life as a bicycle entrepreneur. "I try to keep the e-mails down to lunchtime," he says. "I may take a phone call or two, but I keep them brief. As long as I'm on time with my projects, [my boss] is OK."

If you're concerned that your business might pose a problem, Englis recommends consulting with your company's HR department. You may have signed a noncompete agreement as a condition of employment that could influence what kind of business you start. Unless you plan to go into business in competition with your employer, however, few companies have ironclad prohibitions against sideline ventures, Englis says.

Perhaps the biggest problem with part-time businesses is that it's hard for them to reach their potential when they receive only a portion of their founders' attention and effort. While Holz has doubled his annual sales volume since the first year, he says he still feels the pinch of having to work full time during the week.

And what if your business doesn't do as well as you hoped? Be wary of committing too much or you could find yourself in Ragsdale's shoes: The calendar entrepreneur took out a loan to finance manufacturing her initial inventory, but the business has grown more slowly than she anticipated and has only turned a small profit. With sales lower than expected, Ragsdale has been unable to fund marketing to help the business grow faster and she still has to repay the loan. Ragsdale's advice: "Avoid taking out a loan without carefully calculating your expenses." In retrospect, Ragsdale wishes she'd more carefully researched the markets and distribution methods for high-end calendar products to help determine the likely demand. She also wishes she'd considered marketing needs as well as manufacturing costs when deciding how to capitalize her business. "If you borrow only enough to cover one part of [the equation]," she says, "you may have a factory full of product but nobody knows about it but you."

For Holz, his part-time business provides just about the right mix of income and interest to keep him happy. But he still wants more. So he's moved the business out of his home and into a rented storage unit, where he has room for more inventory, custom assembling, home deliveries and a convenient place to meet customers for demos. His next step: possibly renting a small retail space in the same development. With a full-time job to cover the bills, the future of Spin Cyclz all depends on Holz. "I have total control over it," he says. "As much work as I put into it, I get that much reward back."

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.