Fewer startups braving the storm in R.I.

When Seth Wiseman and Walter Zesk graduated with master’s degrees in architecture from the Rhode Island School of Design last May, the job market wasn’t exactly booming.
So they decided to create their own jobs.
The duo formed a design company called Conform Lab in September and headed to a local bank for a loan to buy the expensive equipment they’d need to churn out prototypes and models. That’s when their plans hit a snag. Neither the business nor its owners had a track record or collateral. The two, who are still in business, were quickly shown the door.
There’s a school of thought that a recession may provide the best opportunity to launch a business venture – overhead such as office rent is lower; the job market is chock-full of ready and willing talent; a company launched in lean times could be poised to soar in a recovery.
But while some enterprising people continue to try heir hand at starting businesses, factors such as a severe lack of available credit and the overall economic uncertainty are dissuading many from taking the leap, at least right now.
New business formations in Rhode Island declined 8.9 percent in 2008 and slipped another 3.3 percent last year to 6,900, compared with 2007, when 7,837 new companies and nonprofits were established, according to figures compiled by the R.I. Secretary of State’s Office.
It’s the sharpest two-year decline in new business starts since the office started tracking the numbers in 1996, and that includes the dot-com bust of the early 2000s.
That’s no surprise to David Herbst, chairman of the Rhode Island chapter of SCORE, a volunteer group that offers free counseling to new and seasoned business owners.
Herbst agreed that there are many benefits to launching a business when the economy is sputtering, including lower startup costs. Right now, however, things are too slow to introduce most new, untested companies.
“The demand for goods and services are soft,” he added. “So finding an area where there is enough demand is difficult, really, really difficult.”
Banks are apparently in agreement. Those involved in business formations say it’s near impossible to get a loan for a new business, particularly if it’s reliant on discretionary spending, such as restaurants. With defaults and loan write-offs on the rise, banks also have grown even more wary of entrepreneurs with little business experience. “To a large degree, the banks are still shell-shocked,” Herbst said.
Yet economists say new businesses can play a crucial role in mending a weak economy, at least partially offsetting job losses suffered by established companies. That’s especially true in Rhode Island, where the unemployment rate stands at 12.9 percent.
The recent report from Boston-based think tank Pioneer Institute encouraged Massachusetts public officials to place a greater emphasis on getting new companies off the ground and helping them grow. The institute said new companies contribute about 54 percent of job growth and expanding companies make up about 44 percent.
And in his State of the State speech late last month, Gov. Donald L. Carcieri pledged to nurture existing businesses and tap into the state’s educational institutions to help foster new industries.
Secretary of State A. Ralph Mollis sees a silver lining in the statistics his office has collected, noting that the decline of new business starts slowed in 2009, while fewer businesses closed their doors.
According to figures from Mollis’ office, 6,900 new incorporation filings were made in 2009, and 6,483 businesses ceased operations, leaving a net gain of 417 companies for the year. That’s compared to 2008, when in the depths of the downturn, 7,138 businesses were formed while 7,071 closed, for a net gain of 67 businesses.
By comparison, the state recorded 7,837 business formations in 2007 – before the economy started to deteriorate – and 5,736 closed, for a net gain of 2,101 businesses.
“It’s just one piece to the entire puzzle,” Mollis said of the 2009 numbers, “but this may show that the economy is starting to turn around.”
Certainly, there are some entrepreneurs braving the tough economic climate, either by choice or by necessity.
And many are turning to family, friends and high-interest credit cards for help, according to John Cronin, director of the Small Business Development Center located at Johnson & Wales University.
Alison Thomas had managed a dog-grooming business for eight years before going out on her own last year. She said she was tired of working for someone else and believed from experience that there was enough demand for grooming services to support her venture. But her bank had its doubts. “They told me to open up and come back in six months,” Thomas said.
In October, she opened a one-person operation called Sirius Styles in a South Kingstown strip mall, using $10,000 of her own savings and putting some debt on credit cards.
For the first month, she made enough to pay her utilities and rent. Since then, she’s paid herself, too. Now Thomas is more certain her business will survive.
Carmen Diaz-Jusino, program manager at the Providence office of the Center for Women & Enterprise, said a January workshop on business planning was crowded with people who had lost their jobs and were preparing to open businesses – including a mobile phone storefront, a martial arts school and a reiki practice – because they had few alternatives for income.
“Sometimes the best ideas come from desperation,” Diaz-Jusino said.
But Herbst said that desperation can also lead to failure if a business idea isn’t properly researched before moving forward.
He said a plumber who isn’t getting work from general contractors may decide to start his own contracting business. “But finding work as a new contractor is going to be that much harder,” Herbst said. “If someone starts a business because they don’t know what else to do, that can be the worst motivation.”
That’s how Conform Lab got its start.
Both Zesk and Wiseman acknowledge they’d take a steady paycheck from a job with another company if they had that option. In fact, Zesk had a job offer from a Boston firm before he graduated, but the offer was rescinded when the company cut back hiring.
Despite being turned down for a loan, the two have made it work.
They’re using the equipment of another RISD graduate and taking on design projects that they might not have expected when the business launched last year, including attempting to get grants to develop a multilingual manual on rebuilding homes in Haiti.
Now Wiseman and Zesk are preparing to move out of their home offices and into a studio at Conley Wharf in Providence.
“The decision to start a business was really easy,” Zesk said. “There were no other options for us.” •