BC Business
You just got laid off, you haven’t been able to find a job and your Employment Insurance benefits aren’t cutting it. Where do you turn? If you’ve always dreamed of running your own business, you could enrol in a entrepreneur program.
An estimated 1,500 British Columbians do it every year. Brooke Thorsteinson was one of them. Here’s an insider’s take on why these programs may not be the best use of taxpayer cash. Forget Brian Scudamore and Ian Telfer. A new breed of entrepreneurs is rising. Thanks to the proliferation of self-employment programs, former full-time labourers fed up with leaving their futures to the whim of their employers are deciding to take business into their own hands. Some of these budding business people are serious about their ideas; some are just trying to ride the meagre financial support doled out by Human Resources and Social Development Canada (HRSDC) in the form of Employment Insurance benefits. The Self-Employment Program itself is funded federally by Service Canada, with millions of tax dollars each year flowing into B.C. alone. In fiscal 2005/06, Service Canada invested $34 million in B.C. to support people enrolled in SEPs. And that was just to deliver the program – it does not include the cash paid out to clients in the form of EI benefits. I always planned to start my own copywriting business. My father, who ran a successful manufacturing business, always said I’d never make money lining someone else’s pockets. At 28, with only a few years in publishing under my belt and still fresh from a mostly useless degree in creative writing, I imagined this plan wouldn’t take shape until I was much older. But in February 2005, I was delivered a giant wake-up call: I was laid off from my job as assistant editor of a local lifestyle magazine. The prospect of finding a new job in such a competitive field filled me with dread. And it only got worse. After months of searching for scarce job opportunities, the depressing reality of trying to live on EI set in, and I had to deal with my embarrassment over accepting financial assistance. But this embarrassment instilled a new urgency in my need to be productive at something. If I couldn’t find a job, then I was going to make one for myself. Enter the Douglas College Self-Employment Program (SEP). After jumping through all the hoops set up by HRSDC, an interview and a short, unchallenging market-research assignment, I was accepted. Working the plan Now that I was a “thrill seeker,” as the cheery SEP business advisers called us, I could begin the most important phase of the program: business-plan development. Douglas College was the Cult of the Business Plan. To underestimate the power of the business plan meant certain and swift financial ruin. My fellow participants/ disciples ate it up – and so did I. The advisers told us inspirational stories about fantastically successful graduates who read their business plans every single week. I remember thinking, “If that’s what it takes, surely I won’t survive.” The business plan, for many participants, meant having a real document to show the banks that they were serious and well prepared. For those with large start-up and operating costs for their dream of running, say, Thai restaurants, they needed solid financial plans to see them through those turbulent first years. (I wondered if it was a good sign that certain participants needed so much help in the first place. If you are going to start up something as financially volatile as a restaurant, shouldn’t you already have a business plan in place?) That’s one of the problems with these programs. They employ people specifically to help EI recipient-turned-entrepreneurs prepare “a comprehensive and practical business plan” using their “unique, modular planning process,” says the program handout. In short, this means that the 30 or so people in each group have their hands held throughout the writing process. Having an adviser help you fill in the blanks doesn’t prepare you for the kinds of problems you will have to face alone in business. I would estimate that over half of the people in my group had absolutely no business being, well, in business. It was evident in their inability to pay attention or focus, solve problems on their own, avoid interpersonal conflicts, show up on time or generally inspire any kind of confidence that they had any skills at all. It amazed and shocked me that some people were even admitted, given that they seemed to be setting themselves up for a major fall. One young man wanted to start a machine shop, but he wasn’t actually a machinist. By the time he got to the seminar portion of the program, he had already secured a crippling loan for a machine he didn’t even know how to use. Making the grade SEPs are not delivered by an altruistic bunch of business-loving success-makers. The schools don’t offer these HRSDC gifts without a price, nor should they. They have salaries to pay, marketing budgets to contend with and a host of networking events, promotional parties and awards ceremonies to stage. But even when considering their schools’ own bottom lines, I still wonder how the advisers can admit a participant like the erstwhile machinist. Basic SEP eligibility is set out by HRSDC and states that candidates must have an active EI claim, have had a claim in the past three years or have been on a maternity claim in the past five years. They must be legally entitled to work in Canada and must not already be in business. They have to make a personal investment in their proposed business and provide proof of majority ownership. If they meet the criteria, they’re in. Valerie Lockyer, assistant program manager for the Douglas College program, explains how the school selects candidates: “Once the basic HRSDC eligibility criteria are met, we consider: Does their idea make sense? Is there a market for the product or service? Is it feasible or viable? Will anyone pay for this? Can this person sell enough to provide an income? Can this person raise enough money to start this business? Does this person have the skills and experience to produce and deliver the product or service?” Sounds reasonable enough, but when faced with potentially thin participation in a particular session, do they shove the less qualified applicants through to beef up the numbers and keep the government cash flowing? SEP costs came up in lectures more than a few times during the training process. It was a way to remind us of our commitment to finishing the program. It costs roughly $23,000 to fund one participant during the 48-week program, including support payments, which amount to around $1,000 a month. That means about $11,000 goes to delivering the program and its training component. Given the short duration of the actual training (six weeks) and the fact that we weren’t taught much of anything besides how to write a business plan, it seems highly likely that some tax dollars were wasted. Maybe I’m wrong in thinking that all of the training they provided could have been learned by reading a book, asking around and surfing the net. Even though the SEP experience was, on the whole, positive, I do feel that participants can, and should, do without the lengthy and costly business-plan development and classroom component of the program. Just accepting support payments would cut the cost to taxpayers. Indeed, the amount of training provided has not been found to be significant in predicting the success of businesses started through the program in any of Service Canada’s evaluations. It seems to me that people who really want to start a business, who have solid ideas and drive, are surely capable of writing a business plan and learning about the basics of bookkeeping, time management and sales without all the mollycoddling. Worth every penny? Every study done on the success of SEPs evaluates whether they meet their intended objective of encouraging labour market self-sufficiency through self-employment. Reports indicate that SEPs as a whole are very successful in helping people gain self-sufficiency – either through a new business venture, a part-time job combined with part-time business, or through full-time regular employment that became available as a result of the understanding and skills gained from running a business. There are currently more than 1,200 businesses operating that were started through the Douglas College program. Approximately 60 per cent of the businesses started over the 11 years of the program are still operating today, according to the college. There are 10 SEPs in the Lower Mainland and they all have similar stats touting their success rates – claims that don’t have independent studies to back up their numbers. That means it’s up to a prospective participant to evaluate whether a program’s individual delivery methods, timing, duration and locations are a good fit personally. See Picking your program Alex Sim, business adviser for Douglas College, explains his program’s success: “The positive results are based on a combination of factors, although the participants’ positive attitudes, ability to sell and ability to take advice are probably the major factors. Our contribution lies in the way we channel the participants’ energies in the early stages of self-employment. We help them minimize the mistakes they might make, get focused, and keep them on their toes during the start-up stages.” When asked how many of his clients end up running thriving businesses, he says that a number of them only “want to earn enough to be self-sufficient, while others aspire to having a business that employs lots of people while earning them significant income… We estimate that about 60 to 70 per cent of our clients are still in business after four years.” [pagebreak] So how do they determine such success rates? Valerie Lockyer says they “keep in touch with all past participants and currently maintain contact with more than 60 per cent of those who have gone through the program over the past 11 years,” adding that they “completed surveys in the past to verify [the] numbers.” Still, many must go belly up. When I mention this to Sim, he says, “Clients who don’t achieve their objectives or who decide to take employment often do so because they have received job offers. The good news is that most participants who return to employment are much better employees for having completed the program. They understand business in a general sense, appreciate what an employer has to do to make everything work and have much more empathy for their new bosses.” He adds: “We don’t see any clients running into deep financial problems while they are participating in the program. I’ve never heard of anyone going ‘belly up’ in my nine years as a business adviser.” The cynic in me doesn’t quite buy this, and it doesn’t help that no one from the program can provide proof. “We don’t have any firm numbers,” says Lockyer, but she adds that they “have had a few clients run into financial problems and had to close their businesses. We don’t have firm statistics on that. Those clients are often difficult to find once the business closes.” Fake it ’til you make it Those who have an inclination and the skills to become entrepreneurs will do so successfully with or without the help of an SEP. Success relies heavily on the drive and motivation of the owner. The independent variables at work that determine the success of a small business are market viability, fluctuations, trends and luck. These are things an SEP can never overcome. What an SEP can do is offer participants just enough income support to make a go of it for a year. There is no gimmick or trick to running a successful business, and the SEPs do not propose to know any secrets beyond the one no one wants to hear: it takes hard work. No school or government program is going to take away your morning commute, free you from the boss you hate or dump a dream job in your lap. Regardless of your MBA, support payments or your financial backing, it all comes down to your ability to match your ambitions with your ability to deliver under pressure. Most successful SEP participants end up making within a few thousand dollars a year of what they made at their last job – except they now have the freedom of being their own boss. They also have the stress of being the final decision-maker. (And it’s not as much fun being the boss when you know you could sink your whole business with one misstep.) You have a flexible schedule – one that means you can work 24 hours a day if you need to, with no overtime. You’re in charge of your own destiny. You decide whether you sink or swim. The risk is all yours. ____________________ Picking your program