The Option of Becoming Self-Employed: an Emerging Reality

Within Vermont Vocational Rehabilitation

 

Prepared for Rehabilitation Services Administration

 by

Michael Collins

Vermont's Choice Demonstration Project

 

“Today’s job market is vastly different from ten years ago. Corporate America can no longer be relied upon to provide secure jobs to individuals entering or returning to the work force. To increase the effectiveness of vocational rehabilitation services, perhaps it is time to expand opportunities for consumers to explore self-employment. This option could serve as a path to independence for a number of persons with disabilities within vocational rehabilitation.” (Forrester, 1996)

 

Introduction

 

Vermont has long held a reputation for being an entrepreneurial state.  In fact, the Vermont Department of Economic Development reports that Vermont is the most entrepreneurial state in the nation with 20.6% of Vermonters reporting self-employment as the primary source of their income and nearly 30% of employment age Vermonters reporting at least some of their income from self-employment.  Further, the Department estimates that in the next decade, 95% of the job growth will come in businesses with less than 10 employees and new small and micro-business start-ups.

 

Vermont’s census numbers also tell us that women are making the most inroads in new business ventures. In 1970, women owned 5% of businesses in Vermont. Now, 30% of businesses are run by women and they are starting new businesses four times faster than men. The gap is expected to close to 50/50 by the year 2000. (Osborne, 1997)

 

The story for people with disabilities and self-employment is not quite so encouraging. In 1992, VR assisted 417 Vermonters with disabilities to achieve their employment goals. In 1996, they assisted 582 people, an increase of 40% over a five-year period. For the same five-year period, the change in the number of people who were assisted in achieving a self-employment goal went from 25 people to 22 people, a decrease of twelve percent. Despite an unwavering commitment from the administration of DVR, self-employment has been slow to become a real “choice” for people with disabilities. 

 

Arnold and Seekins (1994) have surveyed the public rehabilitation system and determined that the choice of self-employment in public rehabilitation will be greatly enhanced by addressing the issues of conventional wisdom, state policies and counselor fears. Education and training on the more current literature/research of conventional wisdom as well as a more enlightened self-employment policy will help to develop a better understanding of both what is possible (conventional wisdom) and what is acceptable (policy).  But rehabilitation professionals who have never been self-employed will require significant amounts of training, technical assistance and support in order to be helpful resources to consumers who dream of owning their own businesses.

 

Vermont's Response:

The Choice Project's Self-Employment Experience

 

Self-employment was never an "intended outcome" of the Choice Project's strategies to increase customer control. The project's significant involvement in self-employment has merely been a result of honoring the choice philosophy. Self-employment as an option has proven successful and since been embraced by Vermont VR counselors for the following reasons:

 

1) Rural Options.  It offers alternative employment options in a rural state where traditional employment opportunities are often limited or in some areas virtually nonexistent. As previously noted, self-employment in rural areas is the norm for a lot of Vermonters, not just Vermonters with disabilities.

2) Structural Unemployment. When the skills of the available potential workforce and the skills needed by available businesses don't match, job placements can't occur. All people have some marketable skills. But there is not always a call for those skills either within the immediate geographic area in which they reside or within reasonable commuting distance. 

3) Worksite Supports.  Self-employment often offers greater opportunity for control over factors in the work environment that can affect productivity and performance. For example, a home-based business can allow someone with short-term memory loss to work in a familiar environment with minimal professional support whereas having to go into a new environment and learn a new set of skills can be a daunting challenge to say the least. This is a variation on the natural supports theme so popular in supported employment literature today. (Hagner and Dileo, 1993) A business in familiar and supportive surroundings is capable of providing the natural supports necessary to success whereas a competitive job without environmental and family natural supports available is likely to ensure failure and contribute further to one's lack of self confidence/self-esteem. This situation was referred to by one Vermont VR customer as "achieving my downward spiraling failure syndrome" 

 

Following is a description of the major changes implemented in Vermont VR to add self-employment to the array of employment options available to Vermonters with disabilities.

 

 

Changing Policy

The following excerpt from Vermont’s policy on self-employment (VR Services Manual, 1989) provides an example of language similar to that found in many other States’ current policies on self-employment.

 

"Self-employment is a job placement possibility which may be considered for any eligible client; however, provision with Division funds of equipment, initial stocks, and supplies is limited to individuals with severe handicaps. Self-employment will normally be reserved for those individuals with severe handicaps when there are no other suitable placement opportunities available in sufficient number in the community which are adaptable by pacing, modifying the worksite or special accommodation. The Division shall not give cash grants, nor shall Division funding be used as collateral for a business loan or for purchased services to start or supplement a business."

 

For comparison purposes, the corresponding section of the current policy on self-employment (VR Services Manual, revised 1997) now reads:

 

"Self-employment is a vocational option which may be considered in the wide array of employment options available to an individual. Such an option recognizes that self-employment is more prevalent in rural areas and that people with a work disability tend to be self-employed at higher rates than do people without a work disability. The decision to use Division funds to support a business start-up will be based on a variety of factors including but not being limited to total start-up costs, viability of the business plan, potential for other financial sources and counselor judgment. If the business plan calls for funds beyond limits set by Division spending guidelines, the person may use the potential of Division funds to leverage other funding and as collateral for establishing bank credit."

 

Implementation of a new self-employment policy has the potential for contributing to a more responsive system for both customers and counselors. However, the mere existence of the revised policy does not, in and of itself, constitute a solution to the problem.          

 

We can clearly see the national implications for needed state VR policy changes as well as the need for additional research to further dispel the “conventional wisdom” related to the rates of new business failures. The real challenge arises when we address the issue of counselor fear and lack of knowledge on a national level. Hopefully, changing policies will result in changing expectations and that is definitely a first step towards truly including self-employment as an option. The more difficult challenge arises with implementation of the new policy.

 

Changing Roles

The cornerstone of Vermont’s "choice" philosophy has been to provide our customers with education in foundation skills such as 1) decision making, 2) problem solving, 3) accessing resources for assistance with identified needs, and 4) taking personal responsibility. These foundation skills are basic to any person's ability to make informed choices and to direct the employment acquisition process. If any person can truly be in charge/empowered and begin to make better informed decisions, then that individual will begin to take ownership of the results of those decisions. As VR customers become increasingly empowered to choose from a wider variety of employment options, both counselor and customer roles and support needs change. Nowhere has this had more impact on the VR system than in the choice of self-employment.

 

Non-traditional Partnering: Information about the wide variety of self-employment assistance already available to potential entrepreneurs is collected and disseminated to project participants. Vocational Rehabilitation has developed crucial linkages with organizations that provide on-going business support and training to self-employed people. Establishing these linkages and educating the small business resources about reasonable accommodations and diverse learning styles has greatly increased the utilization of these self-employment resources and supports by people with disabilities in Vermont. For example, now that these various entrepreneurial training programs can envision a new customer base, they have become highly motivated to provide training in accessible sites only and to receive training and support from VR on altering curricula to a variety of accessible formats. One new "partner" has pioneered the use of tutors in the training sessions and "business mentors" to assist ongoing business ventures. Another has introduced interactive television as a medium to deliver training and technical assistance to potential entrepreneurs for whom mobility or rural isolation may necessitate additional accommodation measures. Undoubtedly, a most important aspect of this self-employment initiative which must be sustained is the continued establishment and maintenance of community linkages with existing self-employment resources. There is a genuine desire on the part of our new partners to add people with disabilities to their missions and there is a genuine need on the part of project participants to receive the assistance of these resources and the necessary accommodations to make meaningful participation possible.  

 

Customer Changes: Because the successfully self-employed person possesses a wide variety of business skills, (e.g. product development, marketing, bookkeeping, management, scheduling, etc.)  potential entrepreneurs have need to assess their current level of expertise in these areas in order to both explore a business possibility and pursue education and training that will enhance their business knowledge. To that end, a variety of ongoing training and technical assistance options have been identified and made available for entrepreneurs. For example, a course on self-employment considerations offered by one of our new partners entitled, "Getting Serious" provides introductory information for customers (as well as counselors) who have no previous background in self-employment. This offering affords the customer an opportunity to assess the current desirability of self-employment as an option and the discrepancies between an individual's current and necessary skills and support needs. For "serious" participants, this can be followed by a fifteen week program entitled "Start-Up" in which participants write a business plan. In addition, they provide on-going workshops such as "Strategic Planning" to people already in business to help with such issues as tax planning, financial controls and marketing strategies. For some entrepreneurs, another option has had a great deal of appeal. Another of our new partners offers a seventy-two hour self-employment workshop through the Vermont Interactive Television (VIT) network. The VIT network allows for simultaneous training in twelve sites in Vermont ensuring access to all urban and rural areas of the state. In addition several other entrepreneurial resources within Vermont are now realizing there is a vast untapped market for their services and are coming forward with their offerings and their requests to learn more about accommodations for people with diverse needs.

 

             Counselor Changes:  DVR staff also require support and training specific to self-employment to enhance their roles in the employment decision-making process. To that end, each of the four VR regions in Vermont have designated a staff member to become the "self-employment liaison" in their region. Through the VIT network, these counselors are able to attend the previously mentioned workshop sessions with the new entrepreneurs. Other VR staff access a 12 hour "Train the Trainers" course on self-employment to gain exposure to the full workshop without the in-depth coverage. These self-employment training activities have promoted a partnership between VR staff and their customers which ensures both an atmosphere that encourages self-employment as a legitimate VR outcome and a common set of knowledge of self-employment information. As previously mentioned, the counselor is not expected to become the self-employment expert but they are the expert on disability-related issues relative to accessing these offerings for people with diverse learning styles and accommodation needs. The counselors role is to assist the self-employment "partners" to be able to attract and serve a segment of their potential customer base that was previously inaccessible to them while making new self-employment resources available to people with disabilities. It is these "partners" who then teach people how to manage and assess the relative health and well-being of their businesses and needs for additional support, training or resources.  

 

The Business Resource Group: Another form of support and business assistance that has been developed by the Choice Project is "peer support" through Business Resource Groups (BRG's). A group of 8-10 entrepreneurs, who are starting new businesses or in need of capital for existing small businesses, enter into a partnership with a local bank. The bank offers low-interest loans and financial planning assistance to group members. Many VR customers express a desire to become self-employed but, due primarily to issues of poverty and complications from their disability, have not had the opportunity to establish a good credit history. The peer group affords a way for people to become established with their local banks or other lending institutions and ensure the availability of needed capital for their business ventures.

 

There are a number of advantages to this peer lending and support group concept including giving members: 1) quick access to credit, building credit histories and experience in accessing capital; 2) a sustained group structure that fosters mutual assistance, support and encouragement in developing viable businesses; and 3) practical technical assistance that is pertinent to small scale business ventures. However, without access to capital, the group members would not be able to fully achieve their self-employment goals. The bank partner affords them the opportunity to access needed capital.

An arrangement like this allows VR to stretch limited resources because people are shifting their focus to the bank partner for ongoing funding needs for their ventures. In the one pilot currently underway, VR acts as the guarantor of 100% of each member’s initial loan up to $1500. Subsequent loans which may be for larger amounts are guaranteed by the VR agency at a reduced percentage until the bank and the business owner assume full responsibility for the loan. In an arrangement such as this, the bank is gaining access to a number of new customers that they would not otherwise be able to accommodate, and people with disabilities are able to establish credit histories and gain access to meaningful careers.

 

Documenting Employment Outcomes and

Achieving Economic Stability

 

 The Federal Register (February 11, 1997-Rules and Regulations, 361.56) lists the current five VR indicators which are required in order to determine that an "employment outcome" has been achieved. They are as follows:

           

(a) the provision of services under the individual's IWRP (written plan) has contributed to the achievement of the employment outcome;

(b) the employment outcome is consistent with the individual's strengths, resources, priorities, concerns, abilities, capabilities, interests, and informed choice;

(c) the employment outcome is in the most integrated setting possible consistent with the individual's informed choice;

(d) the individual has maintained the employment outcome for at least 90 days; and

(e) at the end of the appropriate period under (d) of this section the individual and the rehabilitation counselor or coordinator consider the employment outcome to be satisfactory and agree that the individual is performing well on the job.

 

It is relatively easy to determine when the first four (a-d) of the five regulatory indicators of an "employment outcome" have been achieved for both competitively employed and self-employed people. However, indicator (e) is where the issue of "economic stability" appears to be  addressed and is in fact the true outcome of all the other process indicators. This is where we are asked to determine that "the outcome is satisfactory" and "the individual is performing well on the job." Indicators like wages, hours employed and job satisfaction provide some indicators of economic "stability" for people who are competitively employed. The determination that economic stability, has been achieved for people who are self-employed, however, presents a whole new set of challenges. It is not always possible to collect comparable indicators for people who are self-employed. Gross income received for a business is not the same as a paycheck. The typical self-employed person may receive a "draw" from their company to pay personal living expenses but this would rarely equate to income. Newly self-employed people are more likely to be creating equity in their business than significant income for themselves. Reporting wages of self-employed people for documentation purposes in VR will probably never have any purpose or any value.

 

Vermont VR is currently field-testing an alternate set of standards  for determining economic stability or the achievement of a significant "employment outcome". This set of standards include a single "core indicator" of stability, a set of six lesser or "secondary indicators" that a business is truly a business and a "stand-alone indicator" of a successful business. In order to be considered successful, a business should meet the "core indicator" plus one of the "secondary indicators" or the "stand-alone indicator." A report on the effectiveness of this field-test will be available by October 1998.

 

Core Indicator: (of economic stability)

The business has been sustained for 180 days without additional  support from VR and the owner is putting money back into the business to support ongoing business expenses.

Note: For existing businesses that have previously achieved a degree of economic stability and are in need of  Vocational Rehabilitation services due to business instability caused by disability-related issues, the 180-day indicator need not apply. For example, an economically stable farmer who contracts farmer's lung disease will no longer be able to continue farming without installing necessary ventilation/respiration equipment. But, once this intervention has been performed, the farmer is often able to immediately able to return to his previous level of economic stability. Therefore, the 180-day indicator is not necessary. 

 

Rationale: Indicators of self-employment stability are sufficiently more complex than employer-paid jobs as to warrant a longer period of time prior to examining the stability concept. In many instances, the 180- day figure will prove insufficient even when paired with one of the secondary indicators below and, by mutual agreement between customer and counselor, this period may be extended. The second part of this indicator speaks to "putting money back into the business." A business may appear to be stable, but if company revenues are not returned to the business, a false impression is created. In order to be successful, a portion of revenues must be returned for future purchases. (e.g. equipment, inventory, marketing, expansion,  etc.)

 

Secondary Indicators: (that a business is truly a business)

1) a decrease in public benefits. (e.g. SSI, ANFC, food stamps, housing subsidy, Medicaid, mental health services, etc.)

Rationale: A person may have a stable business venture without  producing enough income to eliminate public benefits entirely. Business revenues may be used to support or expand the business as opposed to becoming countable income.

2) works not less than 20 hours in the business and these hours are dedicated to income generating activity.

Rationale: The Social Security Administration uses the 20 hour figure as an indicator of significant business activity.

3) has registered the business with the Secretary of State's office and filed a business tax return with the IRS.

Rationale: This is simply another way to further determine that a business is a legal entity.  Note: The reasons for registering the business include: a) ownership of the business name; b) legal right to claim bad debts; c) business is able to establish a track record for future lending needs; and d) only a registered business can purchase business insurance. 

4) has a net profit or a significant gross income.

Rationale: Gross income is included since business expenses or reinvestment in the business may negate net profit.

5) has hired employees for the business.

Rationale: expansion to the point of hiring employees indicates an increased level of stability.

6) has increased equity in the business.

Rationale: Similar to #4 above, increased business equity results typically from increased revenues and is an indicator of growth and stability.

 

Stand-alone indicator: (of economic stability)

For a person receiving SSDI benefits, the termination of these benefits due to income means that, by SSA definition, the person is earning enough to produce what is considered a living wage and has been able to sustain that wage for a considerable time.

 

These multiple indicators and various combinations are probably more indicative of our inability to capture a decent definition and therefore a compromise to enable the counselor to reach an agreed upon point of stability with the customer. In certain situations, the counselor and the customer can also mutually agree upon additional or alternative indicators to fit a unique situation. Further discussion and testing of these measures will continue.

 

Self-Employment Findings

 

Business Start-ups: Over the first 48 months of the Choice Project, a total of 113 self-employment business plans have been written. This represents 24.1% of all IWRP'S written in the Choice Project. Of the 113 individuals who have written business plans, 71 are currently self-employed and generating some income from their businesses. Seventeen people have since decided that this was not something they truly wanted to pursue and have abandoned their self-employment plans. Seven of these seventeen people have become competitively employed and the other ten remain unemployed.

Twenty-seven percent of all people successfully employed by the project are self-employed as compared to 2.5 percent in the Vermont VR program overall. These figures are presented here to demonstrate the tremendous interest in self-employment when that option is truly available to VR customers.

 

Vermont VR's most recent statistical report (3/1/98) shows a sudden increase in self-employment outcomes in the State VR Program overall. For the 12 month period reporting period, a total of 37 employment outcomes were achieved in self-employment as compared to an average of 21 over the previous four comparable reporting periods, an increase of 57% in a single year. It truly seems that the experience of the Choice Project in self-employment is being adapted statewide.

 

Economic development: The 71 operating businesses have hired a total of 34 employees and 18  (53%) are people with disabilities who have also received services from VR. This is presented as an example of how a significant "paradigm" shift to customer-directed services has the potential for producing some dramatic unanticipated outcomes. 

 

Business Demographics: Thirty four of the 113 people (30%)  pursuing a self-employment goal have been previously self-employed. Fourteen (12%) are expanding current businesses and 88% are new business start-ups. Ninety-seven (86%) are sole proprietors, thirteen (12%) are partnerships and 3 are corporations.

 

Profile of the Business Owners: Twelve percent of all current Vermont VR customers have been previously served by VR. However, 27% of the people pursuing self-employment are former VR "clients". The average client is 35 years old compared to 48 for people pursuing self-employment. The person pursuing self-employment is more likely to be married. (58% vs. 28%) and 17% of the self-employed group have never been married as compared to 49% in the general VR population.

Supports to accomplish business plans: Eighty-one of the 113 people pursuing self-employment or 72% have received significant levels of technical assistance from business consultants. The vast majority of that assistance has been in the areas of: 1) business plan development; 2) developing a marketing plan; 3) financial management; and 4) tax preparation and record-keeping. These include a variety of private consultants and free services available in most communities. The most important single source of support and assistance for entrepreneurs has been the Vermont State Office on Economic Development who maintains a directory of all available resources statewide. Seventeen percent of the individuals contributed significant personal resources, 13% received bank loans and 10% used Social Security approved PASS plans. On average, Vermont DVR provided $2691 to business start-up activities.

 Regional Differences: Vermont's Choice Project has a counselor in each of the four VR regions of Vermont. Each individual counselor brought a different comfort level to the self-employment initiative. One had been successfully self-employed operating a landscaping business. Another is currently self-employed on a part-time business as a bill collector and a landlord. The other two counselors had no self-employment background and were lifelong human services employees. Over 75% of the business start-ups in the first 36 months came from the two regions where the counselor has some self-employment experience. Over the past year, there has been a significant shift towards more equitable distribution of self-employment plans across regions. These data, of course, confirm to a degree that counselor knowledge and lack of experience needs to be addressed while moving towards self-employment as a VR option.