A friend lost his job recently at age 64. He had been a fundraiser for a major national charitable organization that has seen its donor base hammered by recession and now is cutting headcount. My friend doesn’t want to retire–but at the same time he understands that the odds aren’t great that he’ll find a new job at his age, and with his level of seniority and pay.

Instead, he’s thinking of going the entrepreneurial route–and he’s hardly alone. The ranks of older entrepreneurs have been growing quickly in recent years, and even more boomers will take the plunge in 2009. Some will be pursuing long-held start-up dreams, and others will start businesses out of necessity as the recession deepens and layoffs accelerate.

But is it smart to start a business during a recession, when consumer demand and business-to-business spending is falling–especially as a midlife entrepreneur? My answer is yes–with several important qualifications.

Qualification No. 1: You need to identify a business where you’re confident demand will exist and you have the skills and passion to succeed.

Qualification No. 2: Many boomer startups aren’t entrepreneurial ventures in the traditional sense. These won’t be businesses that involve raising funds, hiring employees and renting office space. Instead, many will start out as bootstrapped self-employment operations, run on a shoestring from a home office. Even these entrepreneurs, however, need to be sure they can fund at least six months of living expenses while they wait for revenue to start coming in.

Qualifications aside, there really is no perfect time to start a business. If you believe there will be long-term demand for your product or service, there’s no reason not to get started in a down market.

And midlife can be a perfect time to get going if you have the time and resources to devote to a business. “If you’re an empty nester, your living expenses have stabilized and you can devote more hours to the business,” says Anita Campbell, editor of Smallbiztrends.com, one of the best online resources for entrepreneurs. “If you’ve put away enough money to live on for at least six months, you’re well positioned to get going, and reinvest what you make back into the business in the early years.”

Managing expenses is critical. And this is where it’s important to differentiate between traditional business startups–with their significant capital investments, staff and other overhead–and the smaller, sole proprietor launches I mentioned.

Sole proprietorships are by far the most common form of startup: 85 percent of all business tax returns are filed by companies with no employees, according to the National Association for the Self-Employed (NASE).

The good news about sole proprietorships is that you don’t need much start-up capital to get going. Many small enterprises can be started for a few thousand dollars, thanks to the Internet and inexpensive technologies that enable work from home. The key is keeping overhead low. So, while you’re working to get revenue coming in the door strike up relationships with other sole proprietors to provide key services, rather than hire employees.

Here are some of the other plusses to consider when starting a business during a recession:

–Expenses fall. The expense of running a business declines during a recession. Suppliers are cutting prices, and fees also fall for services such as graphic design and bookkeeping. Corporate downsizing throws a lot of high quality office furniture and equipment on the market at bargain prices–not to mention office space. “You can wind up equipping your business for very little money,” says Jeff Williams, principal of Bizstarters, a company that provides coaching and training to would-be entrepreneurs.

–Angel funders haven’t shut down. If you do need to raise capital to start your business, consider looking for angel investors–wealthy individuals who fund small start-ups. The credit crunch issues impacting banks don’t affect them, notes Campbell. “Angels also aren’t underwater like venture capital funds, which are trying to deal with their existing investments and need to return a certain amount to investors. Angels are investing discretionary money and they’re more likely to be able to spend a couple years riding out a storm.”

Sources of angel investing can include friends and family. You can often find a local angel investor membership organization or club that networks and shares investment leads.

–Tough times weed out weak competition. If your business has staying power, you’ll find yourself running a more open field, with a great chance to position yourself for real growth in the eventual recovery.

–The first customer may be your old boss. Many bootstrap entrepreneurs start businesses in the fields where they formerly worked fulltime in order to leverage their experience and network of contacts. In that situation, your former employer could be your first customer. “They’re probably laying people off as fast as they can, but still need to get work done,” Williams says. “That boosts demand for expert external vendors.”

–Certain markets tend to be recession-proof. Consider anything related to health care or insurance, including services to doctors or medical equipment companies. If President Obama gets the stimulus package he’s looking for, anything related to national infrastructure will also be booming.

Resources

RetirementRevised archives on midlife entrepreneurship and startups.

Tags | entrepreneurs, start-up