How Taking a Small Business Risk Creates Rewards

Catherine Lajara had no connections, no college degree and $4,000 in savings when she decided to start her own business in 2010.

It was daunting, but she felt passionate about her plan to open a clinical research center in the Bronx. The company runs trials for pharmaceutical companies looking to develop new treatments.

Novel Research of New York now has five clinical studies and its revenue has grown several times over.

It has expanded enough that Lajara will soon draw a salary, enabling her to quit her day job as a mental health case manager to run the center full time. She plans to use her added income to help pay for classes to finish her undergraduate degree and possibly graduate school. Lajara also hopes to surprise her parents with a vacation.

"You work so hard, you are proud when that paycheck comes in," Lajara said.

But the odds are against fledgling business owners: Only about half of new businesses survive beyond five years, according to U.S. Census data. But research shows that those who are able to keep their doors open for several years can improve their income.

Self-employment increases household consumption by 8 percent over a 10 year period, according to University of Wisconsin assistant business professor Sarada, who uses only one name.

There are broader implications. Small businesses create two out of every three new private sector jobs in the U.S., according to the Small Business Administration. Federal Reserve Chair Janet Yellen said in an October speech that business ownership is one of the key building blocks of economic opportunity.

"It does change people's lives," said Fred Owens, director of development for New York-based community financing group Project Enterprise, which provided Lajara with training and loans for her business.

While he is quick to note that not all the organization's clients are success stories, he does see people improving their circumstances through business ownership.

Project Enterprise focuses on providing assistance to would-be entrepreneurs who might not otherwise get financing and training, including low-income individuals, people who have spent time in prison and occasionally, those who have the resources but lack the know-how to use it effectively.

Owens said that in many cases, the loans the organization provides are the only option for its clients, as they do not require prior business experience, credit history or collateral. And funding can remove a major hurdle for many business owners.

Luis Torrado is well aware of such challenges.

He started Torrado Construction in Philadelphia in 1996 with just two workers and generated annual revenue of $300,000 to $400,000 in the first few years. The company now has 50 to 70 employees at any time, as it can change seasonally. Revenue for the year is projected at $10 million.

This success has allowed Torrado, 46, the flexibility to plan for an early retirement. Before starting his business he expected to work until he was around 65. Now he thinks he'll be able to retire between 55 and 60.

"I am definitely in a better financial position than If I worked for someone else," Torrado says.

It was a bumpy road though. Torrado's business suffered during the recession and for a few years, he was barely covering overhead costs such as staff salaries, rent, equipment leases and insurance.

He needed capital to rebuild but banks saw construction companies as high-risk businesses at the time. After being turned down three times for loans, he was able to secure a loan for emerging contractors through the Philadelphia Industrial Development Corp., a local public-private economic development organization created to support business growth and foster development in the area.

And while the business he's worked to grow creates personal financial security, Torrado says he's motivated by his ability to create jobs that help others live a better life.

"To bring someone in from the inner city and sign them up with the union and see them change over the years is amazing," Torrado says. "Changing people's lives has an amazing effect. That is what is important to me. The money follows. You have to make money in order to survive. But I realized over the years that is not the most important thing."