Two years after moving to Prince Edward Island, software programmer Abraham Roy lost his job in a corporate restructuring and suddenly had to scramble to find work.
He and his wife have two children and had then just bought a house. There were mortgage payments and bills. She has a good job as a software developer with an information technology firm on the Island but he still needed to get a job.
Soon, the calls from prospective employers started coming in.
But not from Prince Edward Island.
“I was getting calls from other provinces and I didn’t want to leave for Toronto,” said Roy. “I’d already bought my house here and I knew if I started something on my own, it would probably succeed.”
Between job interviews and applications, Roy started working on a nimble and easier-to-use contact management system.
Last year – with an early version of that software ready to go – he put his job hunting aside and instead made the plunge into entrepreneurship, incorporating Contacts-DB with a partner with expertise in marketing, management and finance. That company makes, customizes and sells the EZEE Contacts Management System.
“It’s home based. I’ve converted a part of my basement into a lab with my laptops and computers,” he said.
The 40-something Island entrepreneur is part of a growing trend of people turning to self-employment to either supplement or replace the income from their jobs or who are working on short-term contracts.
Last year, financial software company Intuit Canada and the Emergent Research consulting firm studied the self-employed and concluded “full- and part-time freelancers, independent contractors and on-demand workers are expected to account for up to 45 per cent of the workforce (in Canada) by 2020.”
Many of them are people simply struggling to pay the bills. According to the study, nearly two-thirds of the self-employed in Canada have a job on the side to supplement their self-employment earnings. Roughly one in five of them are Canadian retirees trying to top up the money they get from their pensions.
Certainly, the buzz surrounding entrepreneurship is palpable in Atlantic Canada these days.
“The excitement around it is probably at the highest level I’ve ever seen and I’ve been around for 17 years,” said Michael Sanderson, acting director of the newly rebranded Saint Mary’s University Entrepreneurship Centre, formerly known as the Sobey School Business Development Centre.
In all four provinces in the region, there are government programs to help people launch businesses and get financing.
But the reality is fewer and fewer Atlantic Canadians are choosing to go the self-employment route.
In a study undertaken to determine what role unemployment might play in encouraging people to launch their own small business, three economics professors at the University of New Brunswick discovered the Atlantic Canadian provinces are bucking the growing trend towards self-employment in Ontario, Quebec and British Columbia.
Men in Atlantic Canada in particular seem more reluctant than ever in recent years to create their own jobs, the study shows.
“Since the early 2000s, slowly rising self-employment rates in the larger provinces of Ontario, Quebec and (British Columbia) have offset larger declines in most of the smaller provinces,” the study’s authors note. “Similarly, strong growth in female self-employment rates have offset stagnant or declining male self-employment rates.”
The decline in self-employment in Atlantic Canada goes back more than 20 years, to the mid-1990s.
In their paper entitled Push or Pull into Self Employment? Evidence from Longitudinal Canadian Tax Data, the professors were surprised to report in August last year that changes in the unemployment rate don’t seem to have any bearing on the number of people who choose to launch their own businesses.
The aging of the labour force in Atlantic Canada may be a factor in the regional trend since young adults are more likely to start businesses, said Philip Leonard, research associate at the University of New Brunswick and a co-author of the study.
“Instilling passion into the process is crucial. When you’re doing something you love, the passage of time and the effort you put in is viewed very differently.”
“It’s long-run demographic and identity things but the unsatisfying answer is we don’t really know (why fewer Atlantic Canadians choose self-employment),” he said.
A serial entrepreneur himself, Sanderson says it’s the desire to take control of their lives that drives most entrepreneurs.
“It’s that passion,” he said. “When you start a business, you are the architect of your own dreams. You are responsible for growing it and there’s a great deal of satisfaction in doing that. It doesn’t feel like work because it’s so driven from within.”
The extra money that can come from self-employment, though, also helps.
“If you work for someone else, there’s a cap on your earnings but in entrepreneurship, there is no cap,” said Sanderson.
He advises anyone thinking of starting a business to first double-check to see whether there’s really a market for its products or services.
“You have the idea but you have to validate that idea,” said Sanderson. “You have to go out and talk to people and see if they would actually buy this product. It’s not about talking to one or two people. You have to talk to as many people as possible.
“The ultimate validation is for them to sign a sales agreement,” he said.
Crowdfunding sites like Kickstarter allow start-ups to pre-sell their product even before it exists, giving these start-ups a safety margin before going into production.
At Contacts-DB, the financial base for launching the company was an early deal with the PEI BioAlliance. That organization’s executive director, Rory Francis, has since then offered up a glowing testimonial of EZEE Contacts Managements – and that’s helped the fledgling company land other clients.
Although many small businesses are sole proprietorships, said Michael Sanderson, it’s important to build up a solid executive team. Sanderson is acting director of the newly rebranded Saint Mary’s University Entrepreneurship Centre, formerly the Sobey School Business Development Centre.
“The optimal team size for venture capital is three people,” he said. “You’re looking for the skills and abilities that will carry that business forward. You can outsource some of the skills but it’s good to have the core of them on the team.”
At EZEE Contacts Management, Roy brings the software expertise, his business partner adds know-how in management, finance and marketing, and the e-commerce side of things is being outsourced to Charlottetown-based Results Marketing.
That company is building a full e-commerce site for EZEE Contacts Management and will also be handling its promotion when the website is launched by August, said Roy.
He is hoping that e-commerce site will allow EZEE Contacts Management to extend its reach and land sales in every Canadian province within a couple of years. With a contract to customize his software for one client, Roy is already looking to hire another part-time programmer.
But it’s not all clinched deals and money in the bank. Many of the self-employed hang onto their jobs or get a steady gig to ride out the ups and downs of their business.
Sanderson’s advice is to be prepared and persevere.
“You can’t go in with blinders on,” he said. “You have to know there are going to be good days and bad days. When you hit a bad day and you give up, that’s the beginning of the end.”
When Roy was still developing his contact management software, naysayers were everywhere – and money was often tight.
“There were days in my first year of business when I would think twice before going to a Tim Hortons … I needed to put every dollar into the business,” he said.
A good way to stay motivated during the tough times is to get excited about the business – and ignore the critics.
“Instilling passion into the process is crucial. When you’re doing something you love, the passage of time and the effort you put in is viewed very differently,” he said. “Nobody comes back from vacation and says, ‘Man, I spent way too much time on the beach!’”
On the Island, Roy worked on this software program even as many tried to dissuade him before he landed clients which now include a local Re/Max brokerage, BDO Canada and the PEI BioAlliance.
“For the first year, it was tough until I built the base because a lot of people give you negative comments,” he said. “Slowly, things started changing and I started growing. And thank God for that!”
Expect long hours, financial risk
Running a small business is no small feat
Entrepreneurship can be a boon for those struggling to pay the bills by providing an extra revenue stream but it clearly isn’t for everyone because it often means long hours and financial risk.
“The first year, I used to take calls at 5 a.m. because some members of my team are in a different country,” said Abraham Roy, the software programmer who founded Prince Edward Island-based Contacts-DB, in an interview.
Even though he already had a bachelor’s degree in engineering and a post-graduate diploma in business administration, Roy put himself through Atlantic Canadian start-up accelerator Propel ICT’s 12-week entrepreneurship program.
“It’s really tough,” he said. “It’s like a crash MBA.”
Although self-employment, including part-time gigs, is up in Canada’s big provinces of Ontario, Quebec and British Columbia, it’s down as a percentage of the labour force in Atlantic Canada and has been dwindling for decades.
Provincial government programs provide financial and other support for would-be entrepreneurs. There are business accelerators to foster entrepreneurship.
But running a small business is no mean feat.
When he was still in his 20s, Michael Sanderson, now the acting director of the Saint Mary’s University Entrepreneurship Centre, set up one such business. It was 1998. The business was called Sandman Video. And it drove Sanderson to bankruptcy.
“It took me four years to drive it into the ground,” he said in an interview. “I took out a lot of loans … I didn’t know what I didn’t know.”
The video industry was then already in a steep decline. The young entrepreneur tried to be innovative, luring in customers from nearby office buildings with a weekend rental deal for movies.
“That worked – but it worked too well and wiped out my store of movies on Fridays and so there were no movies for my walk-in traffic,” he said. “If I had someone in distribution with me, it might have worked.”
Sanderson later started up a side venture, Chimeriam Productions, which made a short film for the Atlantic Film Festival.
In addition to the business risks that come with entrepreneurship, being self-employed can also result in a feast-or-famine rollercoaster of an income.
In a study published last year by financial software company Intuit Canada and the Emergent Research consulting firm, 59 per cent of the self-employed reported they didn’t have enough predictable income.
There are, though, up sides to self-employment. Starting a small business can provide a great deal of flexibility for the entrepreneur, rewards him or her based on performance, and allows the self-employed person to follow his or her passions.
“Life is too short to spend 40 years or 30 years of it – or whatever – doing something you don’t love,” said Sanderson.
Besides, being self-employed also comes with tax breaks.
The best bit of advice for those looking to go out on their own is to plan carefully before making the jump.
“You need to build a sustainable revenue model so that you can take home a salary and have retained earnings so that you can re-invest them in the business and grow it in scale,” said Sanderson.
Self-employed Canadians who work from a home office can typically deduct a portion of the interest on their mortgages as well as a portion of their heating, electrical, phone and internet costs.
On the website for its TurboTax software product, Intuit Canada lists other common business expenses which can be claimed at income tax time by the self-employed.
Those business expenses include:
• Office space rental;
• Business travel;
• Meals and entertainment;
• Mobile phones and accessories;
• Training courses;
• Association membership fees;
• Business equipment; business licences and permits;
• Office supplies;
• Marketing expenses;
• Accounting and legal fees;
• Car repairs and maintenance.