Starting a Small Business
SMPS Technology Case Study

Launching a successful husband and wife sole-proprietary small business at 50 years age, reluctantly closing it down, and then re-launching it at 63 years. It is still going in our late 70's.

Photo of Jerry and Dee

Jerry & Dee at 65

Laid Off

Jerry's Story

Laid off. Not unexpected since the Los Angeles area company had been laying off for a couple of months. As the president and founder of the company, newly acquired by EG&G, explained to me, "..I can not afford a Vice President of Engineering in view of recent loss-of-contracts." As a former engineer, he would take over my function. Ouch!

It was 10 AM Friday morning March 13, 1981. Although my employment contract called for 12 weeks notice or severance pay, I was told the effective date would be April 24, 1981, exactly six weeks away. I decided not to tell my wife until I got home that night. I used the rest of the day to explore options. Although never laid off, I knew the drill. First look for another job in the company to preserve retirement and other benefits. Since I was already the Vice-President of Engineering, the only other job that had appeal was President -- and that was not going to happen. So I grabbed a chart showing the stable of other companies under the EG&G umbrella. EG&G was a good company, and my first choice would be to stay with them.

The EG&G company that looked most promising was EG&G Washington Analytical Services, Incorporated, (WASCI). They once had a west coast office and I might be able to resuscitate it. I called an engineering friend who worked at WASCI and I spent over an hour asking questions. He thought the chances of resuscitating the west coast office were slim. I probably could get a job, but I would have to move to Washington, DC. They did use a few outside consultants, and that might not require a move, but those chances were also slim. I also talked to engineers and managers at other companies to find employment opportunities. Bad news travels fast, before the end of the day I got a call from a competitor in Oregon asking if I was willing to fly up at their expense and talk about employment. I said I would talk it over with my wife and call him back next week.

Dee's Story

The recent move from San Diego to the Los Angeles / Orange County area for Jerry's new job was rough. I had a life-time teaching credential in California to teach Kindergarten through Junior High School and had taught in public and private schools in Colorado and California. In leaving San Diego I was giving up teaching kindergarten in a private pre-school. Local mothers placed their children on the waiting list one or two years in advance and I had one mother sign up for my class as soon as her doctor confirmed she was pregnant. I loved the parents and kids and it was the most enjoyable teaching experience in my career.

I stayed in San Diego six months to sell our house and keep our children, David (high school) and Darlene (junior high), in school. Our oldest daughter Diane transferred from California State University, San Diego, to California State University, Fullerton, and Jerry and Diane found an apartment near his new job and her new university. On week ends, I came up to the apartment with David, Darlene, a dog and two cats, and we looked at houses. The highest priority in house hunting, as always, was the quality of the school district. The second priority, as always, was to live in an area that had multiple job opportunities -- very desirable in the aerospace industry with its frequent layoffs. We were in our new house less than one month and I had visions of being able to concentrate on home and family and find a way to continue the teaching career I loved. That night Jerry came home with the news that he had been laid off -- effective eight months after leaving an excellent and secure job in San Diego and less than one month after assuming the mortgage on our new home. I was angry. We were angry.

We discussed some of the options Jerry had considered during the day. The only absolute was that I was NOT going to move again until our youngest finished high school. Even if I considered moving it would not be to the Pacific Northwest rain belt. Three days of rain was my limit and if Jerry took that job he would have to commute from Orange County to Oregon. I had gone to night school to get the credential needed to become an Early Child Care Director and I had just been offered a job as the director of a pre-school-with-kindergarten near our new home, a job I wanted. We spent the weekend working through our anger and decided that when he went back to work Monday, Jerry would explore opportunities with EG&G WASCI that would not require a move.

The Decision

A Joint Story

Going into business for ourselves after an early retirement had always been in our plans. The advantage of civil service is that Jerry's four years in the Air Force would count and he would have his required twenty years in 1988 at the age of 56. Government retirement, unlike most company retirement plans, was linked to the cost of living -- and an excellent medical plan was included. Our retirement income would provide the necessities in retirement, and our business, if successful, would provide the luxuries.

Education for Business

Jerry's Story

The Naval Ocean Systems Center in San Diego was a Navy Industrial Funded Laboratory, which meant that you had to compete with industry for project funds. As Branch Head of the Power Electronics Branch, I had to go to Washington DC periodically to get the money to meet the payroll for the people in my branch. IBM, Boeing, General Dynamics, et .al. and other labs were competing for the same money in a zero-sum competition. If you could not compete in this environment, either your Branch was eliminated or someone else who could meet the payroll was put in charge. This was excellent training for eventually running your own small business.

The Small Business Administration (SBA) had a San Diego office and they were another educational resource. Quarterly, they gave a Saturday orientation for those wanting to start a small business -- a bargain at $8 which paid for coffee and donuts. At the workshop, a representative from the Internal Revenue Service (IRS), a lawyer, an accountant, and others discussed the pitfalls of starting a small business and provided a wealth of knowledge in how to maximize your chance of success. I attended the workshop in 1979, partly in preparation for starting a business after retirement and partly to get ideas that might help me run my branch. It was there that I first learned about the Service Corps of Retired Executives (SCORE). SCORE is a service of the SBA that makes available to small businesses, at no cost, volunteer experts in a wide variety of areas.

The head of SCORE in San Diego at that time was a retired high-ranking executive from one of the major television networks. He taught a semester class at the local high school adult education program for $3, at the local Community College for $35, and at the University of California, San Diego, for about $135. The same class. I talked this over with Dee, and in 1979 we took the $3 version. He was an outstanding instructor and much of our later success can be attributed to what we learned in his class.

Each large company doing business with the government and each government entity letting contracts had to have a Small Business Representative by law. Their offices had a wealth of valuable information and I started visiting them and collecting information.

Class notes and materials collected were collated into the start of a professional library on starting a small business.

Dee's Story

When Jerry approached me about attending a semester class in running a small business, I wasn't too sure. He was on travel to Washington DC and other places at least 60 days a year, worked ten hour days -- and often worked Saturdays. This left most of the burden of running a household and raising three kids on me. The kids all had serious chores to do around the house and that helped, but I had my own teaching career that also required I continue my education. I had given up my singing lessons with the birth of our third child and I barely had time for playing the piano, a source of pleasure and relaxation.

In spite of all this, I decided to give it a try. If I dropped out only $3 was at risk. I fed the kids early on Tuesday night, Jerry left work on time, and we met for dinner at our favorite pool-hall hamburger place and then on to the three-hour class. The students were all interesting and had either started their own small business or were thinking of doing so, which made the break conversations interesting. The instructor and material were excellent and the semester was over too soon. We learned much.

The Opportunity

Jerry's Story

The Monday morning after my Friday layoff notification I took several hours to think through what I would say. I then placed a call to the President of EG&G WASCI. I told the secretary that I was Vice President of Engineering of a sister company and asked if I could to talk to the president. The subject was about possibly resuscitating their west coast office or going to work for them to exploit new project opportunities. She said she would give the president my message. The call was not returned. Rather than calling me, WASCI had called EG&G Corporate and wanted to know why a Vice President of Engineering at a sister company was looking for work at their company.

Whoops! It seems I reacted so fast that EG&G Corporate had not yet been informed that I was laid off. I had been hired to correct a perceived weakness in engineering and they wanted to know what was going on. There was a high-ranking corporate executive on travel in the area and the next day I spent five hours with him behind closed doors in my office. We discussed a wide variety of topics and parted on good terms. As it turned out, good relations with EG&G helped enable our decision to start our own business -- sooner rather than later.

Dee's Story

Jerry liked to walk or pace as he thought, so every morning he would leave the house to walk to a McDonald's two miles away. I would see our youngest daughter off to school, drive my son to his high school and then meet Jerry for breakfast. We would discuss business ideas for an hour over our Egg McMuffins and coffee before Jerry went into work. We had thought about going into business before -- but this was reality. As such, it was all new territory for us and scary. Very scary, and there was a lot to talk about.

I had some major decisions to make. Was it best to get a job so there was a second income to support our new business? The pre-school director offer had a lot of appeal and it was something I had always wanted to do. I was trained for it and I was ready for it. But like all new jobs, there would be a lot of stress. Jerry would certainly have to travel, at least the 60 days per year which was the San Diego norm. He would lose his company car and we would be back to a single car. If Jerry was on travel and I was tied up with some emergency at the pre-school, where was the support system for the kids? Then there were the finances. Interest rates were 14% and we had used our savings for a large down payment to take over an 8% house loan. When Jerry found out that his new company had no computers he took a loan against his Government Life Insurance policy to buy a computer and software. His work style was now dependent on computer tools and he was not going back to the old ways. Then there was the expense of a daughter in college and a son in the expensive senior year of high school with college to follow. Our total capital to invest was the money in Jerry's severance package, about $10,000 and we had already borrowed $3,000 against life insurance for the computer. Over the next few weeks I had a lot to think about.

My eventual decision was to turn down the Director job-offer and throw my total effort into our business. If we didn't make the business a success before the $10,000 ran out, we would both jump back into the job market. It was either succeed or fail, and it would not fail due to lack of a total commitment from the both of us.

Our Checklist

A Joint Story

The first task was to make a check list of tasks and then accomplish them.

We divide the tasks into three groups, one we would do together, one Jerry would do, and one Dee would do. In the six weeks since the layoff notification we had completed most of the tasks and on April 27, 1981, three days after the effective date of Jerry's layoff, we started to bill our first client.

Jerry's Story

When Dee decided to support the business directly, rather than with a job with a second income stream, it was like a switch had been thrown. I could never interest her in the computer toy I had for about nine months. Now she wanted to know everything about it. How do you turn it on and off? How do you load the text editor? How do you print? How do you save a file? How do you copy a file from one 8 inch floppy to another when you only have one drive? And this sudden curiosity applied to everything about the business. I saw a side of her I had never seen before. We had a lot to do and learn in six weeks and she was going to stay on top of everything.

Dee's Story

To be added.

Defining the Business

Our first task was to decide what our business was, who are customers were, and how we would get their business.

At the Naval Ocean Systems Center in San Diego, Jerry's job was to act as a trusted advisor to Navy Program Managers in matters related to power electronics. Our business would be the same, but as a technical and management support contractor. Our customers or clients would be the same Navy Program Managers or their delegates and we would sell directly to them. If they wanted our services, then they would direct the company who had their prime technical and management support contract to hire us at our standard rate as a subcontractor. Our major selling point would be expert knowledge not available through their support contractor's staff (since there was not enough work for each contractor to justify a full time expert in this narrow niche). Also, through our use of a personal computer (rare at that time) and the ARPANET for email and transfer of files, we would provide rapid turn-around on tasks, at least ten times faster than our clients were used to.

To do the work at all required Jerry maintain his secret clearance. This consideration drove how we initially structured the business and selected our first client.

Dee's Story

To be added.

The First Client



Notes and Ideas

Closing Thought

In an Introduction to Physics class Jerry took in a tent class-room, 17 miles behind the front lines in Korea, a University of California, Berkeley, instructor said: "If you do nothing else with your GI bill, attend a top University for at least one semester, even if you flunk out. It will open your eyes to life's possibilities and change your life forever."

The same can be said for starting a small business. Even if you flunk out, it will open your eyes to life's possibilities and change your life forever.

Author: Jerrold Foutz
Original: April 13, 2002, revised May 6, 2010