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IN BUSINESS FOR THEMSELVES Entrepreneurship program is a way off welfare for some

THE BALTIMORE SUN

Through the dusty, broken windows of a failed radio shop in Hampden, Carolyn Earls envisions a bustling crafts-supply store. People buy yarn, pine cones, glue guns. They drop money in a cash register. Her cash register. In a few years she could have a chain of bustling craft shops in neighborhoods like this. . . .

It is a glorious dream of economic independence for the unemployed mother of two.

Glorious. And risky.

More than half of all new businesses fail within four years. But Ms. Earls, who graduated Friday from a government-funded training and loan program designed to turn unemployed workers and welfare recipients into entrepreneurs, is determined to open her shop.

"I've made my mind up," the 35-year-old Baltimore native said. "I'm getting off welfare."

And state welfare officials are determined to help Ms. Earls and others like her pursue their business dreams.

The recession that wiped out millions of jobs -- and the riots in Los Angeles that drew attention to the apparent hopelessness of the poor -- have convinced many that welfare and job-training programs aren't working. An increasingly popular alternative is to help the poor start businesses, ideally helping people revitalize their lives, provide jobs for neighbors and rejuvenate troubled communities.

Not everyone agrees with that approach. Critics say entrepreneurshipprograms are expensive and ineffective because only a tiny percentage of those trained are likely to succeed. "Most people on welfare are not exactly entrepreneurs. What they need is training and a job," says Sar Levitan, head of George Washington University's Center for Social Policy.

Nevertheless, governments are embracing the entrepreneurship idea. There are more than 250 business start-up programs nationwide, compared with a half-dozen in the mid-1980s. And Maryland's program is part of a nationwide test of the entrepreneurship approach.

Thus, the future of the fledgling programs depends on the fate of people such as Ms. Earls.

Matching skills to opportunities

Although each community entrepreneurship programs is different, most offer the same three services: training, loans and continuing advice. And Maryland's Business Ownership Startup Services (BOSS) program is, in many ways, typical.

Six hours a day, five days a week for the last 12 weeks, Ms. Earls and her classmates studied accounting, marketing and management. They were mostly poor single mothers from Baltimore, since the program is designed for recipients of welfare or unemployment insurance, and for residents of public housing. But there were a few men, and some came from as far away as Montgomery County.

Together, they listed their hobbies and skills and tried to figure out how they could turn them into businesses.

Gloria Holt, who had once run a downtown Baltimore flower cart and has worked in flower shops, decided to capitalize on her love of flowers.

She researched her idea and discovered that, despite the recession, flower sales are rising. "People need flowers, especially in a recession," she says. "They have a soothing effect. . . . If nothing in your life is beautiful, you should make something beautiful."

The single mother of two, now on welfare, plans to open a flower shop in downtown Baltimore.

She and the 29 who graduated (three others dropped out) finished the program with new confidence -- and business plans complete with market analyses and three-year cash-flow projections.

Six of the graduates plan to start child-care businesses. Others want to set up catering, heating-repair, bookkeeping or computer-related businesses.

Each graduate will have a chance to borrow a few thousand dollars from a loan fund overseen by the Council for Economic and Business Opportunity (CEBO) to help start a business. The $125,000 revolving loan fund was set up by the Abell Foundation and the state Department of Economic and Employment Development.

To ease them into the business world, the federal government will allow the BOSS graduates to receive welfare payments and health insurance for their first year in business, as long as they pour all profits back into the business.

And, in coming years, BOSS trainers will help them keep track of their finances and will offer marketing and management advice.

BOSS, a division of CEBO, does all of that for about 100 students a year for $350,000, which comes from federal, state, Baltimore and Baltimore County funds.

Revitalizing neighborhoods

In theory, the program is great for the students and their communities, says Robert Friedman, president of Washington-based Corporation for Enterprise Development and the prime mover behind the entrepreneurship pilot programs.

Students learn business skills, build self-confidence and earn their way out of poverty, he says.

Since most of the businesses are started in troubled communities, the program helps neighborhoods. And when the businesses start hiring, they bring new jobs, potentially taking even more people off the unemployment rolls, he says.

Mr. Friedman, who got the idea from similar programs offered overseas, says that one of the most important benefits is breaking the stereotypes people have about welfare recipients.

He said he had to fight federal and state bureaucracies for years to get funding for pilot programs such as Maryland's because "the notion that poor people could be entrepreneurs was viewed as patently crazy as recently as five years ago."

Anecdotes of success have suggested he isn't crazy. Still, some people say the approach isn't wise.

Mr. Levitan of George Washington University says people are jumping on the entrepreneurship bandwagon just because "it is one of those fashionable ideas."

Job-training programs have a much better success rate -- placing more than 60 percent of their graduates in jobs -- and they don't set people up for failure, he says.

Job-training programs have been accused of inflating their success rates by taking only the best-educated and trained PTC people, but the entrepreneurship programs do the same thing, he says: "You wouldn't try a person who can't read."

And many of those trapped in welfare dependency need a great deal of education and training before they can succeed in business, he says: "There are better places to put the money."

Besides, he adds, recipients of welfare "have had enough disappointment in their lives; they should not be subject to another disappointment or frustration. And the chances are, most of them will be disappointed."

Hard lessons

So will it work?

Results are mixed.

Some European programs have found that only 2 percent to 3 percent of the participants succeed. But some small-business loan programs in the Third World report more success and high loan repayment rates.

One of the oldest programs in the United States, a training and loan program for rural Arizonans called Micro, has made small loans to 450 fledgling businesses -- a total of $1.7 million in the last seven years. Micro director Frank Ballesteros says the default rate is 2.8 percent and that his program has created 450 jobs.

And an initial analysis of four other states' pilot programs found that training does help some people start businesses, but researchers couldn't determine whether the approach was cost-effective. In the pilot programs in Iowa, Michigan, Minnesota and Mississippi, 212 businesses had been started, and 35 people had gotten off welfare.

What's more, those programs seemed to help those who have the most difficulty breaking the welfare cycle. The average entrepreneur was a single mother in her mid-30s who had been on welfare for more than two years.

Maryland entered the pilot program late and it, too, has had mixed results.

Of the 117 students graduated in the four previous classes, 25 have started businesses. About 25 more have gotten jobs. About a quarter of the students dropped out and went back to receiving welfare, said Sonia Stockton, the BOSS director. And the rest are still working on their ideas, she said.

CEBO has handed out seven business start-up loans, averaging about $9,000 each. At least two borrowers are having trouble making payments, she said.

The results have persuaded Ms. Stockton to change the program's focus. She plans to cap the loans at $5,000 and to aim the students at low-cost businesses that they can start from home.

The BOSS trainers aren't the only ones who have learned hard lessons.

Vermell Peterson, a graduate of the first class, has discovered that making a profit from her cosmetics shop is far tougher than she imagined.

The 35-year-old mother of two leased a small store at the Great American Mall at Mount Clare Junction late last year because the rent was affordable. And she figured that with her experience as a model, beauty consultant and cosmetics saleswoman, the business "would totally take off."

Last week, as she sat in her tiny store filled with her own line of makeup and with red and black lingerie, she said business has "gotten slower and slower."

She wishes she had enough money to move to a busier spot such as Lexington Market. BOSS trainers are helping her work on a new business plan, one that calls for her to start a beauty salon.

And she says she is more determined than ever to make her business a success.

"Along the way, there have been a lot of problems, and it seems like I am hitting rock bottom now," she says. "If I weren't so determined, I might let the pressure get to me. But I haven't given up.

"You have to push, really strive for, what you want out of life. Success is never giving up, and I don't intend to ever give up."

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