Downturn Fuels A Surprise Boom

December 27, 2002
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In the wake of Mount St. Helens’ eruption, scientists visiting the buried landscape guessed it would be years before so much as a weed could sprout in those thick layers of toxic ash.


It turned out to be mere weeks. Fragile though the animals and forests on the mountain’s slope might have been, life is tough. Seedlings poked into view. Nature had erased an old forest to start building a new one on reshaped terrain.

Something very much like that seems to have occurred during the pile-on cataclysms of the new century. The dotcom die-off, searing cost-cutting pressure on auto industry suppliers, steel price hikes stemming from White House tariff increases, the terror attack on the Twin Towers, accounting professionals abetting patently false pictures of vast strength, echoing national scandals about CEOs caught with their hands in the till — they all combined to flatten fortunes like Mount St. Helens’ evergreen forests.

But the churn of destruction, as the economists call it, has turned out to be incredibly creative. As old businesses contracted or disappeared, new businesses began sprouting.

A research project by Northwestern University’s Kellogg School of Management indicates record numbers of small businesses start up during economic slumps. And this recession was no exception. Like Mount St. Helens blasting half its fertile substance onto the surrounding terrain, a great many large firms turned loose thousands of people with energy, talent and experience. Locally, furniture industry production braked dramatically. Shops and jobs disappeared and a great many workers had to stand in the unemployment lines.

… But not for long.

The Kellogg study’s author, Lloyd Shefsky, said there’s one important difference between the entrepreneurs of the new century and those of the ’90s. “Before, there was substantial profit-sharing and severance packages. People had a nest egg and thought, ‘Maybe I can take that chance.’” But he said the study disclosed that in the 2000-2002 downturn, about a third of entrepreneurs were pursuing ventures because no other opportunities existed.

“Mergers and layoffs gave some employees the extra push they needed to take a chance on themselves at a time when low interest rates made financing more affordable and plentiful office space was prompting landlords to offer cheaper rents and longer leases.”

New businesses, his report indicated, also seem to have benefited from a bigger pool of potential — and affordable — employees and consultants.  “Now you have experienced people hungrily looking for businesses.”

Who has more raw talent at his command than a CNC-trained West Michigan tool and die maker? And what downsized MBA is going to sit around reading help wanted ads when she discovers a need that her business discipline, training and experience can fulfill?

As downsizing and layoffs occurred, Shefsky said, entrepreneurial activity rose. The study found that venture capital funding, possibly thanks to bad dotcom investments, dropped sharply in 2000-2001. But informal financial support — loans from family members, refinancing homes at low interest rates — remained strong, and so did entrepreneurship.

Like life on the reshaped slopes of Mount St. Helens, business people all over the country have proved to be resilient and tough … and none more so than here in West Michigan.

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