By KATY MCLAUGHLIN

Chef and restaurateur David Burke’s business sounds like a financial-crisis perfect storm. Consider:

His restaurants are mainly in hard-hit areas including Manhattan’s Upper East Side and Las Vegas. Mr. Burke has no experience owning restaurants in a down economy; he launched his empire during restaurant boom times, starting in 2003. And the $7 billion fine-dining industry will see a 12% to 15% drop in sales this year, according to Technomic, a Chicago restaurant industry consultant.

And yet…Mr. Burke reports overall growth, some of his restaurants are booked to capacity on some evenings, and restaurant-industry analysts say he is one of the few high-end players with the right idea for the times.

How could this be? Mr. Burke, it seems, has figured out a way to navigate the downturn. His strategy is to throw out the high-end-dining playbook that says discounting should be subtle. Instead, he is offering dramatic, attention-getting and significant discounts. By engineering the menu carefully and keeping labor costs in check, he is able to slash prices without losing money, he says.

His promotions have included $20.09 three-course meals with items such as oysters and lobster at many of his upscale restaurants, including two in Manhattan (where, without discounts, entrees run $29 to $44), and $5 burgers and milkshakes at his Chicago steakhouse (where a 14-ounce sirloin is $48 on the regular menu). On one menu, he crossed out prices of wine and listed new prices with the term “sale” — a rarely seen word in fancy restaurants.

TRY IT! David Burke’s promotions include a wine auction and $20.09 three-course meals

One of his most unusual promotions is the Wine Auction at the tony David Burke Townhouse in Manhattan. Diners are handed a list of high-end wines with prices ranging from $200 to $600 struck out with red ink. The sommelier approaches the table, suggests that diners make him an offer and begins a negotiation. Wine director Bruce Yung says he sells an average of five bottles a night, meeting his reserve price or better.

“It’s worth a shot,” says Mr. Burke of his unorthodox approach to selling fine wine. “I’m sitting on close to $200,000 worth of wine anyway, already paid for.”

The D Word

Discounting is a strategy high-end restaurateurs have traditionally avoided or carried out in subtle ways, out of fear of eroding the cache of their brands. But this winter and spring, an unprecedented number of fine-dining restaurants slashed their prices.

Mr. Burke tries to set his restaurants apart from other bargains being offered mainly by making his discounts as drastic, easy-to-grasp and catchy as those of one of the few restaurants doing well these days: McDonald’s.

“I have teenage kids who go to McDonald’s for a dollar meal,” Mr. Burke says. The snappy ring to that promotion inspired him to come up with a high-end equivalent. “I see that it’s working for them at a buck, so it might work for me at $20,” Mr. Burke says.

 

Wooing Diners in a Down Economy

2:07

Chef David Burke is known for his creative cuisine. Now he’s using that same creative approach to weather a downturn in dining out. He talks with WSJ’s Beckey Bright about his strategy.

Starting in January, he rolled out $20.09 meals on Sunday nights at David Burke Townhouse and Fishtail in Manhattan, and at David Burke Fromagerie in Rumson, N.J. At Primehouse, in Chicago, he offers the $20.09 deal for lunch six days a week, excluding Sunday. At David Burke at Bloomingdale’s, in Manhattan, he serves a $20.09 dinner every night of the week. For a $5 supplement, diners can have a one-pound lobster or filet mignon entrée.

Last year, DB Global, Mr. Burke’s New York-based company, had $35 million in revenue, and for this year he predicts $45 million. Like many multi-unit operators, he reports that his less-expensive restaurants are doing well this year. For instance, David Burke at Bloomingdale’s, which has both a sit-down restaurant and a Burke in the Box take-out area, is up 2% over last year. Sales at all three Burke in the Box restaurants — the others are at McCarran International Airport in Las Vegas, and Foxwoods Resort Casino in Connecticut — are up from last year.

Still, even his high-end restaurants, while taking a hit, are doing better than many of their high-end competitors: Primehouse had a 2% decline in sales in the last quarter of 2008 and beginning of this year, compared with the prior year; Fromagerie is down 5%, and David Burke Townhouse in New York City saw an 8% sales drop. Across Manhattan, meanwhile, fine-dining operators are reporting sales declines of around 15%, and some celebrated restaurants, including Fiamma, a highly praised Italian eatery in the same price range as Mr. Burke’s fanciest restaurants, recently closed.

Some of the impact of Mr. Burke’s discounting is measurable: The Sunday discount dinner at Townhouse in Manhattan turned a night that typically grossed $5,250 into a $12,750 night, Mr. Burke says. There are softer benefits, too, such as increased goodwill, publicity, and customers who discover the restaurants and return on full-price nights, Mr. Burke says.

Internal Breeding

Mr. Burke is somewhat insulated from the risk of besmirching his high-end image with discounts because of his unique public persona, says Ed Levine, founder of the food blog SeriousEats.com. “David Burke is the master of the culinary grand gesture, so this is perfectly in keeping with his brand,” Mr. Levine says. Mr. Burke now has “pricing gimmicks” that link up with other gimmicks he’s used over the years, Mr. Levine says. Mr. Burke, for example, bought his own breeding bull to sire the beef cattle used at Primehouse. He also lines his beef-aging cave with Himalayan rock salt, which he sells for $29.99 for a two-pound box.

Discounting, if done too often for too long by too many players, can erode pricing power in the long term, says Dennis Lombardi, executive vice president of WD Partners, a restaurant and retail consultant in Dublin, Ohio. Citing one example, “customers have been trained to expect to buy pizza at a discount,” because of all the coupons and deals, Mr. Lombardi says.

Mr. Burke says that by limiting most of his discounts to Sunday and varying the deals, he avoids such expectations.

Less Bass

With careful planning, Mr. Burke says he is able to keep food costs on his discounted menus at about 45% of the menu price, which is higher than the traditional 35% most fine-dining restaurants aim for but still enables him to earn a profit, because people tend to order more drinks when they are paying less for food. He sprinkles in luxurious ingredients, though some, such as dry-aged beef or black bass, are served in smaller portions than on the a la carte menu. He caught a break this winter when the wholesale prices he was paying for lobster fell to about $5 a pound, from a norm of $7.50, enabling him to include on the discounted menu items such as lobster carbonara and half an “angry lobster,” a spicy signature dish.

Stephen Hanson, a New York-based restaurateur who manages operations for the Chicago hotel where Primehouse is located and who helped devise the concept for the restaurant, disagrees with the discounting approach. Mr. Hanson says he fears that the customer will think, “Were you gouging me beforehand?” But Mr. Hanson, whose company, New York-based B.R. Guest Restaurants, owns 14 other restaurants in New York and Las Vegas, says he is content to let Mr. Burke, whom he calls “a marketing genius,” decide the menu pricing.

During a weeklong promotion in October at Primehouse in which Mr. Burke sold normally $12 burgers for $5, the restaurant made money, Mr. Burke says. Serving lunch to 30 to 40 people on an ordinary day yields about $8,000 per week. During the promotion, the restaurant served 300 lunches a day, Mr. Burke says, for a weekly lunch take of $30,000. While food costs were higher, because more was served, labor costs stayed almost the same, because waiters at the restaurant make most of their wages through tips and the kitchen required only two extra line cooks, who make $15 an hour, he says.

In addition to discounting, DB Global is reducing labor costs. Every week the company analyzes how many bookings have been made at each restaurant and looks at past history to determine how busy it will be. Then it pares or increases hourly staff — about 70% of all employees — accordingly. In winter, about a dozen cooks usually return to their home countries, including Mexico, India and France, for six weeks of unpaid vacation; this year, Mr. Burke encouraged them to take two or three months off. Because his three Manhattan restaurants are in close proximity, he also moves staff from less-busy to fuller restaurants and asks them to multitask. For example, the company butcher now also makes ravioli and crab cakes.

DB Global also focuses on retaining every potential customer. On a recent Tuesday, Fishtail was too full to accommodate more patrons. Mr. Burke instructed the Fishtail hostess to send patrons to nearby David Burke Townhouse, promising a free drink would be waiting. Out of 20 potential guests, 18 took the offer, Mr. Burke says.

—Ms. McLaughlin is a staff reporter for The Wall Street Journal in Los Angeles.

Write to Katy McLaughlin at katy.mclaughlin@wsj.com

Printed in The Wall Street Journal, page R3

By SHARON TERLEP

Auto-loan delinquencies are on the rise as cash-strapped Americans increasingly struggle to repay car and truck loans, according to a study out Monday, the latest sign that the nation’s economic woes are bleeding into the automotive-finance business.

Nearly $25 billion in auto loans are past due, according to a report by Experian Automotive being released at the Automotive Finance Summit in Las Vegas.

Auto lenders saw a 9% increase in loans 30 days past due in the second quarter of 2008 from a year earlier, and an 11% increase in loans 60 days past due.

In a sign that more trouble lies ahead, the creditworthiness of people holding outstanding loans is worsening. About 57% of borrowers with open loans have what is considered a prime credit rating, down from 61% two years ago.

The breadth of auto-loan delinquencies isn’t nearly as severe as the rippling problems caused by the nation’s mortgage meltdown, created by years of extending home loans to high-risk borrowers. The overall delinquency rate on auto loans remains manageable, with less than 4% of 30-day or 60-day loans past due.

But the effect is felt nonetheless by lenders who must wait longer to get loans repaid and go to greater lengths to recoup their money.

“There is a pretty big dollar burden that is out there in terms of delinquencies,” said Melinda Zabritski, Experian director of automotive credit. “We expect to see this pattern hold strong.”

In all, about 64 million auto loans worth $795 billion were outstanding in this year’s second quarter, according to Experian. The overall number of loans originated in the second quarter this year was 4.4 million, compared with 5.1 million a year earlier.

The share of loans extended by captive auto-finance companies, those affiliated with an auto maker, has dropped nearly five percentage points in two years to 31% of all loans opened. These companies still account for the largest share of auto loans, followed by banks, credit unions and financing companies.

Write to Sharon Terlep at sharon.terlep@dowjones.com

Discerning investors who want unvarnished information about a franchise before buying often peruse blogs for franchisees’ gripes or concerns. Now, there’s another item to consult: the franchisee-satisfaction survey.

At least two firms, Franchise Research Institute and Franchise Business Review, query existing franchisees in dozens of systems on their satisfaction levels and publish the results of those polls on their Web sites. Such research – typically funded by the franchise itself – may be a telling indication of how well a franchise system is working, or whether it should be avoided. The reports can be purchased for $24.95 on Franchise Research Institute’s site, www.fransurvey.com, but are available for free on Franchise Business Review’s, www.franchisebusinessreview.com, if franchisers agree to post them.

Matt Sherman/Three Pillars Media

Jeff Johnson, president of Franchise Research Institute in Lincoln, Neb.

Both firms survey franchisees on a confidential basis, to assure them they won’t be identified and possibly punished for expressing their true feelings. Both also seek to survey most of a system’s franchisees to verify that the opinions are representative rather than those of a few grouches.

Although the questions they ask are similar – including the crucial “would you recommend this franchise to others?” — the firms’ approaches differ. Franchise Research Institute charges the franchiser involved before undertaking the survey; Franchise Business Review collects a fee after doing the research, if the franchiser wants to see what it found.

Both firms affix stamps of approval on franchisers whose franchisees generally endorse their systems. The Franchise Research Institute awards a “world-class franchisee” seal whereas the Franchise Business Review hands out “Best of the Best” citations.

Franchise companies fund the surveys partly to use the results – if positive – to recruit new franchisees. But often, the surveys can reveals cracks in the system that’s useful information to proactive franchise managers and potential investors alike.

“Some surveys will give extremely bad news to a CEO and a company’s owners,” says Jeff Johnson, president of Franchise Research Institute in Lincoln, Neb. One common issue is a franchise system that’s rapidly growing. “That causes all kinds of concerns among franchisees,” including haphazard support from field personnel, he says. If a franchise isn’t listed on the Institute’s site, a potential franchisee should ask the franchiser whether it has been graded, and what the results were, Mr. Johnson adds.

Eric Stites of Franchise Business Review in Kittery, Maine.

Eric Stites, who founded Franchise Business Review and runs it out of an office in Kittery, Maine, says that occasionally a franchiser he approaches with a survey pitch will turn him down. “If they have an issue they will try to squash a survey,” he says.

While he gave out 115 awards to franchises last year, and posts some of them on his site, Mr. Stites says that 80% of the franchises operating today “are simply average or below-average business opportunities.” Fast-food restaurant and automotive-related franchises often score near the bottom in his franchise-satisfaction surveys, he adds. Even so, his site recently posted a list of 11 “top food franchises.”

“A lot of dissatisfaction in franchising comes from [franchisers] not meeting initial expectations, which are typically set during the sales process…by overly-aggressive salespeople, unfortunately,” Mr. Stites says. On the other hand, companies with the highest franchisee satisfaction scores typically “don’t oversell their systems – in many cases they undersell it — and are very selective in their recruitment process,” he says.

For their part, franchisers who get disappointing approval ratings say the surveys often guide their decision-making and can lead to better operations.

For example, when Great Harvest Bread Co. , a Dillon, Mont., bakery chain, got a significantly lower score in its Franchise Research Institute survey several years ago than it had previously, the company’s executives realized they had responded too slowly to the low-carb craze.

“We had taken the position that we sell carbohydrates for a living,” recalls company president and chief executive Mike Ferretti. “But our customers were saying, ‘We’ll go someplace else. Many of us are no longer eating what you sell.’ ” As a consequence, the chain introduced a low-carb bread that remains a popular item. “Franchisees were right about our head-in-the-sand attitude,” Mr. Ferretti says. That experience “taught us a very valuable lesson.”

Write to Richard gibson at dick.gibson@dowjones.com

WSJ’s Jason Zweig checks in on Mean Street to explain the current battle in Washington over whether the SEC should be relieved of overseeing the nation’s 28,000 investment advisers. Photo: Getty Images.

Politicians and regulators are bickering again over who should oversee the nation’s 28,000 investment advisers, who manage some $50 trillion.

A bill introduced in the House of Representatives at the end of April would take that job away from the federal Securities and Exchange Commission and regulators in 48 states—and could hand it to the nongovernmental Financial Industry Regulatory Authority, which already oversees securities brokers and dealers.

There is a better way. Investment advisers are being examined infrequently, inconsistently and incompletely—largely because regulators are outnumbered and reliant on outmoded technology. In a business world that routinely runs on “big data,” it’s time to put computers on the case.

Christophe Vorlet for The Wall Street Journal

In fiscal 2011, the SEC examined just 8% of the 12,600 advisers under its jurisdiction. Roughly 5,000 advisers have never been audited by the SEC.

State regulators, who are responsible for inspecting smaller investment advisers, look a bit nimbler. Two-thirds of the states say they examine advisers at least once every four years.

Finra inspects brokerage firms roughly every two years. Those more-frequent inspections, however, didn’t detect Allen Stanford or Bernard Madoff‘s Ponzi schemes. “Finra clearly could have done better,” its chief executive Richard Ketchum said last year, “and we deeply regret we did not.”

“An adviser being examined in L.A. faces very different requirements than one being examined in Dallas,” says Brian Hamburger, managing director of MarketCounsel, a firm based in Englewood, N.J., that helps advisers comply with financial regulations.

Norm Champ, deputy director of the SEC office that examines advisers, concedes that there is some regional variation. “We are addressing that with several steps to make sure the process is more transparent, orderly and consistent,” he says, including a manual issued in January that should standardize exams across all of the SEC’s 12 offices.

Still, regulators might be overlooking the most important issue of all—that your adviser could steal your money while reporting that it’s safe and sound.

Several advisers and consultants say regulatory examiners don’t always ask for independent proof that clients’ account balances are accurate. “Many of these guys go through an entire exam without verifying assets,” says Mr. Hamburger of MarketCounsel.

Troy Daum, head of Wealth Analytics, a financial adviser in San Diego, says his firm has been examined both by SEC and state auditors. “They spend a lot of time looking at minute bits of detail,” he says, “but they miss the boat when they don’t make sure your performance reports line up.”

The SEC says it is standard practice for examiners to ask advisers for evidence that clients’ account values are accurate. “We generally verify assets on exam visits,” says Mr. Champ, “but we may exercise discretion when the circumstances warrant.”

At the heart of these gaps are antiquated databases and other crude technology that one person who deals regularly with regulators calls “right out of the Raiders of the Lost Ark warehouse.”

The Self-Regulatory Organization for Independent Investment Advisers, an organization in Oxford, Miss., established last year as a potential alternative to existing oversight agencies, says regulators need to embrace “data analytics.” Computers should be parsing vast quantities of information in search of overall patterns and potentially risky exceptions.

Imagine that advisers would have to upload standardized reports on all their clients’ assets—with personal identification removed—to a national data repository each month. Software would probe for any gaps between the reported account values and independent records from the custodian firms where the money resides.

Then, examinations would be driven by what pops out of the data, not by what pops up on the calendar—regardless of which regulator runs the show.

To be fair, regulation is inching into the electronic age.

An operation at the SEC, the “aberrational performance initiative,” uses software to analyze data about hedge funds to look for unusually high or suspiciously smooth relative performance. The API project has already led to four fraud cases—with more in the pipeline, according to people familiar with the matter.

Another team at the SEC electronically analyzes large amounts of data on more than 10,000 advisers—but much of the raw information isn’t yet in automated form.

But much more could be done—at not much higher cost.

“The next step is getting information more routinely and broadly from firms at the transactional and customer level in a consistent format,” says Stephen Luparello, vice chairman at the Financial Industry Regulatory Authority, which already uses data analytics to monitor how brokers sell annuities, among other things.

To extend existing systems to investment advisers, costs would probably run “a few million dollars a year,” reckons Mr. Luparello.

That’s a lot cheaper than the countless people-hours frittered away by regulators and advisers alike under today’s system—or the costs of leaving the next Madoff on the loose.

—
twitter.com/jasonzweigwsj

Write to Jason Zweig at intelligentinvestor@wsj.com

A version of this article appeared May 5, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: Should Robots Replace Regulators?.

By 
KELLY K. SPORS
and 
RAYMUND FLANDEZ

Tough times breed a different kind of entrepreneur.

With the economy tanking, lots of people are striking out on their own. Some never thought of starting a business until they got laid off. Others kicked around the idea but never found the time or the passion to pursue it. Now, launching a start-up seems like a better bet than taking on an endless job hunt.

Call them entrepreneurs by necessity. And while some of them have waited years preparing for just this moment, others may not be quite so ready or eager to make the move.

“I think we’re going to see a lot of businesses started by people who otherwise would not have started businesses” in better times, says Bo Fishback, vice president of entrepreneurship for the Ewing Marion Kauffman Foundation, a Kansas City entrepreneurial-research organization. “Necessity-driven entrepreneurship can be a powerful motivator.”

This new crowd faces lots of obstacles. Banks and investors are handing out a lot less money these days, especially to first-timers. What’s more, necessity entrepreneurs have often done less of the spade work than other entrepreneurs—in part because they weren’t thinking that a layoff was imminent. And the fragile economy makes just about any new company a chancy proposition.

So, how are these new entrepreneurs faring? To get a sense of it, we talked to five people who recently started—or tried to start—new ventures because their job picture changed. We found that they often had to struggle to find their footing and adjust to the demands of entrepreneurship. But most also found an unexpected passion for flying solo.

Here are their stories.

A ‘FORCED BLESSING’

Aynsley Deluce didn’t want to leave her job as director of insight and strategy for a Toronto ad agency. But in November, the firm announced restructuring plans—and axed her position.

“In a way, it was a forced blessing,” says the 32-year-old Ms. Deluce. “That’s because they forced me into doing something I wouldn’t have done otherwise. I didn’t have the nerve.”

For about six years, she had been kicking around an idea with her now-husband: a Web site that tracked parking spots for rent in urban areas. They got the idea while chatting about parking gripes over dinner one night with friends, and the next morning went online and secured the domain name, Parkingspots.com.

But then they sat on the idea until last year. Ms. Deluce’s husband, Matthew Ball, plunged into the work full time, but Ms. Deluce procrastinated about making the same commitment; instead she spent evenings and weekends on public-relations and marketing initiatives.

“It’s a scary jump to take the risk to leave a full-time job,” Ms. Deluce says.

Then came the layoff, which forced her to focus on the nascent business. And she found that it had a steep learning curve.

Ms. Deluce and Mr. Ball didn’t have any knowledge about the parking business, so she has joined forums and associations, meeting everyone she can. Financing has also been tough. The couple approached banks and other traditional sources but found few willing to lend—and those that would insisted on tough terms. So, the two have relied on friends and family, as well as government grants.

Another problem was more personal: finding enough self-discipline. “There’s no one telling you what to do anymore,” Ms. Deluce says. “There’s no one telling you to get out of bed at a good hour.…You’ve got to spend your heart and soul into it. You’re now your own boss.”

Revenue from the site hasn’t met Ms. Deluce’s early expectations. But she now thinks that those hopes were unrealistic, and the site has shown strong growth in other ways, expanding its network to 30 cities.

“In retrospect, 13 months in, I’d say that I’m really proud of how far we’ve come and that we are exactly where I’d want to be,” she says.

Ms. Deluce adds that she has no intention of giving up entrepreneurship. “I’m not going back to being a full-time employee,” she says. “I’m working full time now, for me. It may sound selfish, but I’d rather do something for me and build my company than helping someone else build theirs.”

BIG PLANS ON HOLD

Jim Garrett loves riding and fixing up English motorcycles. So, when the 53-year-old, of Ingleside on the Bay, Texas, took a buyout from his job in April of last year, he decided to use his severance money to pursue his dream of starting a motorcycle-restoration business.

The alumina refinery where he’d worked for eight years paid him $18,000 in severance and dangled an additional $10,000 in seed money for his business if he completed an entrepreneurship-training class. The class shepherded him through steps such as market research, registering the business with the state and preparing marketing material.

To build up a list of potential clients, Mr. Garrett reached out to motorcyclist acquaintances and attended motorcycle rallies to meet other riders. He found about 35 people who expressed an interest in having their motorcycles restored. His research also showed him that he had lots of room to grow: There were 33,000 classic English motorcycles registered in the state of Texas.

So, he moved forward with his plans. He estimates he invested about $20,000, including purchasing a prefabricated metal building that he could move onto his property to use as a workshop. He also spoke with a loan officer at a credit union in San Antonio and prepared to submit a loan application for his new business.

But come September, the business climate suddenly darkened: The stock market tanked, and many people told Mr. Garrett they could no longer afford to purchase his services. A friend who was going to help Mr. Garrett power-coat his cycles suddenly closed his own business due to lackluster demand. “It was something I was looking forward to doing, but all of a sudden everything started dropping,” he says. “Everything was just crumbling at once.”

Since then, Mr. Garrett has worked at a couple of jobs. He’s holding onto the equipment and building he purchased but won’t start his company unless the economy improves. “I’m going to wait and see what the stock market does,” he says.

A FLASH OF INSPIRATION

Adam Etrheim had long worked in the home-building and remodeling industry—a lucrative field when the housing market boomed a few years ago. But after it began collapsing in mid-2007, he could no longer make a livable income, and took a job selling cars at a dealership.

While working full time, Mr. Etrheim, of Onalaska, Wis., got the idea of building a Web site where consumers could solicit bids from contractors and where general contractors could solicit bids from subcontractors.

A Web site, Mr. Etrheim figured, would simplify a traditionally nettlesome process and allow subcontractors to find jobs that they wouldn’t otherwise know about.

In late 2007, Mr. Etrheim started working with the small-business development center at a local university to build his business plan and buy up domain names. A counselor at the center also connected him with a local angel investor group.

One night in February 2008, Mr. Etrheim pitched the group on his plan for eContractorBids.com and asked for $200,000 to cover start-up costs. Four hours later, one angel called him and said that six of the group’s members would collectively give him the money. Mr. Etrheim quit his job the next day.

“Once they said, ‘This is such a good idea that we want to put our money in it,’ that was the day I thought, wow, I’m really onto something,” the 28-year-old Mr. Etrheim says.

He spent the next several months working on the site, investing $50,000 of his personal savings, along with $150,000 in bank financing. But growing the business was much harder than he expected, mostly given contractors’ reluctance to use the Internet. Over the first six months, only about 50 signed up for subscriptions to the site; Mr. Etrheim had figured he’d get triple that number.

Mr. Etrheim says things are looking brighter in recent weeks as more contractors who are hard pressed to find work realize the Internet can help them. The site currently has about 190 paying subscribers, and Mr. Etrheim just secured another $200,000 of angel financing.

What’s more, the company, which has six employees, recently sold a franchise in Minnesota and another in Wisconsin for $20,000 each, and is currently talking with other potential franchisees.

Mr. Etrheim is optimistic that the company will be churning a profit by summer, but recognizes there are still many challenges ahead. “This is a high-risk operation in a struggling industry,” Mr. Etrheim says.

A HOBBY PAYS OFF

Jessi Walter was a Wall Street wunderkind. At 21, with a degree in economics from Harvard, she was hired by Bear Stearns Cos., and eventually rose to the position of vice president in credit strategy.

But the J.P. Morgan merger last summer ended her career. “They just didn’t need me,” says Ms. Walter, now 27 years old.

So, she took a couple of months to “make sense of the whole situation,” and realized that she could turn one of her hobbies—cooking with her boyfriend’s nieces, and arranging birthday parties for them—into a business. In September, she used her savings to launch Cupcake Kids LLC, which teaches kids to cook and bake, everything from pizza and lasagna to pastries and cakes.

So far, the business has been busy and profitable; Ms. Walter has even hired a dozen teachers part time to help her. For the most part, she has relied on word of mouth for her marketing. Ms. Walter also got a boost recently when her business was featured in New York magazine’s “Best of New York” list.

Ms. Walter says she wouldn’t have considered going out on her own if it hadn’t been for the layoff. It was “forced decision making,” she says.

And it hasn’t always been the smoothest transition for her to make. “When you work for a big company, you do your job,” Ms. Walter says. “When you’re an entrepreneur, you have to do everything,” from writing the business plan to taking out the trash. “There’s not enough hours of the day” to do the work.

But “I’m 100% enjoying what I’m doing now,” Ms. Walter explains. “I love developing a business, and I’m really passionate and fulfilled by what I’m doing. I’d never like to say never to options in life, but for now, going back to Wall Street is not something that I’m considering.”

OUT OF THE BLUE

Tarah Cranford, of San Francisco, knew her ad-agency job wasn’t safe. Clients weren’t renewing their contracts, no new business was coming in, and her workload as a public-relations officer was light. Plus, she was low on the totem pole, since she’d only been there for a year.

When the ax finally fell in mid-December, Ms. Cranford regretted not starting her job search earlier. Days turned into weeks as she tried to get an interview.

And then an unexpected opportunity fell into her lap. She got a bunch of inquiries about a sideline she dabbled in occasionally: photography.

“When I got laid off, I didn’t really expect to start my photography business full time,” says the 28-year-old Ms. Cranford, who studied photography at the Academy of Art University in San Francisco. But when she got the inquiries, “a light went off when this happened. This was it. This was what I’m going to do. Ever since then, I’ve been working nonstop.”

Her first step was to revamp a Web site she had set up, TarahPhotography.com, to make it more professional. She also had to make some big adjustments to her own style.

For one thing, she learned to stop being passive with clients. At first, when people asked about a job, she would say, “Just let me know when you’d like to do this.” But they often wouldn’t call back. Now she says, “When do you want to do this? How about Sunday?”

Ms. Cranford also had to get used to the lack of structure or accountability that came along with striking out on her own.

“If I want, I can roll out of bed and work in my PJs till noon, but I think it’s important to create a schedule that keeps you on target,” she says. “Otherwise, you’ll waste an entire day running errands, or working in front of your computer till evening with rollers in your hair.”

Then there’s marketing. Ms. Cranford had to build a reputation in an area with tons of photographers. So, she hired a specialist to help her make her Web site more appealing to search engines. She says the move doubled her Web traffic to more than 3,000 unique visitors monthly.

Although Ms. Cranford is turning a tiny profit, she says she’s always worried about the future. “Are the calls going to keep coming in, or is this it?” she asks. “It’s kind of unnerving to not know.”

–Ms. Spors, a staff reporter of The Wall Street Journal in Minneapolis, can be reached at kelly.spors@wsj.com. Mr. Flandez, a Journal staff reporter in New York, can be reached at raymund.flandez@wsj.com.