Starting a business from behind bars

July 30, 2008

Ask FSB's experts advise an inmate looking to launch a business upon his release.

Darren Montville, Collins Correctional Facility, Collins, N.Y.
I, along with my father, would like to open a restaurant and catering company.I was wondering if you could give me as much advice as possible about small businesses, restaurants, catering, etc. I have plenty of great ideas that I believe will bring me investors and customers, but I need information. I don't want to fail at my business, and I'm eager to do well.

By Annalyn Censky, Fortune Small Business contributor
Dear Darren: Jobs opportunities can be limited if you've served time, so entrepreneurship presents an attractive option for an ex-con. Catherine Rohr, the head of the Prison Entrepreneurship Program (PEP) in Houston, encourages you to pursue your dream - but only after you get back on your feet. Rohr, who founded the nonprofit in 2004 to help inmates develop the necessary skills to start their own businesses, says you should spend at least six months in the working world before going out on your own.

"After years of not making decisions, even ordering off a McDonald's menu can be a challenge," she says. "When PEP participants leave prison, they begin with a starter job and save money to pay their parole fees and child support. They wait until they're stable and have a track record of success before starting a business."

That said, it's never too early to start planning, and a penitentiary can be a surprisingly good place for a budding entrepreneur to develop a business strategy, says Rohr.When you're incarcerated, you have a unique amount of free time to brainstorm ideas.

Choose your industry

Unless you're resolute about opening a catering business, you might want to consider a different industry for your first endeavor. Food service companies can be expensive to launch, says Hans Becker, a PEP participant who managed a commercial kitchen for three years between stints in prison.You have to invest in a kitchen, a method of transportation, and a large cooler or refrigerator. "It's a difficult venture; there are a lot of liabilities and rules," he says.These include strict health and safety regulations, as well food service permits.

Rohr says she typically encourages inmates to start service companies rather than ones that sell products. Her suggestion: Launch a mobile business so that you won't have to deal with the costs of opening a storefront. Want to start a barbershop? Offer to cut hair onsite at offices. Interested in creating an automotive detailing service? Bring your equipment to company parking lots and service employees' cars while they're at work.

When Becker was released from prison in May, his family gave him $500 to pay for food and clothes. Instead, he bought a chainsaw and tools and started a tree-trimming service.After knocking on doors for a month, he garnered $3,400 in revenue, and nearly doubled that in his second month of business.

Formulate a business strategy

Shortly after he started his company, Becker took the next step and wrote a business plan.You can get ahead of the curve by working on your plan now, says Rohr. But know that it could be difficult.It's not easy to conduct market research - a necessary component of any business plan - when you're in prison. Rohr suggests that you ask friends and family members for assistance.Send letters to local churches, asking them to forward your query to business people in their congregations. Becker advises you to write to MBA students or restaurant associations in your area. Once you've made contacts outside of the penitentiary, ask them to obtain information about pricing, competition and marketing strategies.

You can also turn to some of your peers for assistance. "Ask someone who is nearing release to send you market research after he gets out," Rohr says.

For further advice on crafting a business plan, get your hands on a good entrepreneurship textbook. Rohr recommends Steve Mariotti's How to Start and Operate a Small Business.

Fund your startup costs

Whether you're asking for $500 or $50,000, securing startup capital is difficult when you have a criminal record.But don't give up, says Jenny Boister, senior vice president and SBA manager at the Valley Community Bank in San Jose.

"It's possible for an ex-con to get a loan," she says, "but you'll have to jump through hoops."In order to obtain an SBA 7(a) loan, you'll need to fill out a criminal history form and provide details about your conviction, parole and probation.You'll also have to submit fingerprints.The lender will then forward the application to the SBA's Washington, D.C., headquarters for approval.

Rohr says you shouldn't bet on receiving financing from banks or other traditional sources such as venture capital firms and grants. Instead, she encourages you to start a business requiring startup capital of $10,000 or less - a reasonable amount of money for you to save or request from an angel investor.

To access investors, try to meet wealthy individuals by networking through local business organizations.

"Find someone who believes in transformation," Rohr says. "Pursue him or her with all you've got."

When you hand over your business plan, you'll need to be transparent about your criminal history. Rohr suggests including a section about your childhood. Recount the path you took towards a criminal lifestyle, detail how you've changed, and explain why you should be trusted as an entrepreneur.

Finally, practice your pitch before soliciting investors.Rohr says a correctional facility is a great place to hone your selling technique. "The captive audience in prison can service as a focus group," she says. "Be open to their feedback, as both 'customers' and 'investors.'"She suggests that you brainstorm business names, pricing, and marketing strategies with your fellow inmates.

Practice model behavior

Before you become a great success in business, you first need to be a good citizen. "I don't care how great your business plan is if you can't stay away from drugs or gangs," says Rohr. "Good businessmen don't sag their pants or curse in formal situations. They don't break the law or abuse drugs or alcohol." In order to act the part of a successful businessman, she says, you should start emulating the behavior of a professional now.

To do so, you'll need to conquer the bad habits that landed you in prison.Prepare yourself to turn away from bad influences upon release.That could mean distancing yourself from old friends, significant others, and even family members, say Rohr.

Becoming an entrepreneur is no easy task, but it offers a unique vehicle for redemption."Parole may take some of your rights," Rohr says."But one privilege that no one can take away from you is the right to start a business."