You can’t throw a cell phone in this city without hitting a Taco Bell, Gap or Blockbuster. There are more corporate fast-food huts here than parking spaces. But despite the big chains’ attempts to turn every L.A. block into a virtual Beverly Center, small businesses are truly the lifeblood of our city’s revitalized economy. L.A. is a haven for the technological, the trendy and the terminally eccentric – three areas ideally suited to the flexible, niche-oriented world of micro-companies.
This trend has been evident nationwide, with the majority of new jobs coming from small firms. While 1.3 million corporate employees across the country cleaned out their desks between 1988 and 1990, 4.1 million new jobs were created in firms with under 20 workers. From ’93 to ’94, the growth rate of small businesses was more than double that of their larger counterparts. L.A., hard hit by the recession and the riots, lagged behind the rest of the country in the early ‘90s, but last year we grew more companies than any other similar-size city. Our unemployment rates are still higher than the national average (6.6 percent vs. 4.9 percent in September), but the gap is fast closing.
Though financial recovery and loan availability do play a part, this success is largely due to the novel ideas of our own entrepreneurs. In this downsized decade, L.A.’s most successful businesses are those that offer the kinds of unusual products and services the big boys ignore. “You need to have a little twist,” says Alberto G. Alvarado, L.A. director of the Small Business Association (SBA) district office. "There are not too many variations on the theme. The new concepts generally get the goods.” In addition to loans, the SBA offers free counseling to current and would-be entrepreneurs. Alvarado’s branch, which loaned $667 million to 2,139 businesses this last fiscal year, leads the SBA in backing bank loans to small businesses.
Many entrepreneurs begin as employees in larger companies, where they acquire experience in the market. When they notice a service or product the company fails to provide, they break out on their own and fill in the hole. UCLA business professor William M. Cockrum, who topped Business Week’s 1996 poll of the country’s best entrepreneur profs, knows this scenario well. One of his students had worked at a printer-manufacturing firm for five years when she realized the customers didn’t understand the machine’s possibilities. She started a company that allows them to make mobiles, greeting cards and a thousand other things with their printers. Her current net worth: $20 million.
With the proliferation of gadgets that constitute, plug into or foul up computers, it’s no surprise that the technology and Internet gurus are in demand. They are part of the professional service industry, which makes up a whopping 40.9 percent of L.A.’s small businesses. Many motivated college grads in their early 30s (the average entrepreneurial profile, though age and education vary widely) are turning to the information highway as a quick road to success. Some are disgruntled IBM expats, but others follow a more haphazard route into the field.
Missing the MBA application deadline isn’t a likely prologue to a financial fairy tale, but for resourceful and determined Rom Agustin, it was an opportunity. Agustin, who quit his job as an oil consultant overseas to go to grad school, used his newfound free time to start a coffeehouse with light-speed Internet access, word processing and scanning. Today, Cyber Java Café on Abbot Kinney Boulevard in Venice offers everything from a hot cup of joe to small-business Web-site hosting and Hollywood cyber-premiere parties. Though Agustin’s business is extending in more directions than an octopus, he hasn’t lost sight of its original appeal. “You don’t have to go up 20 floors and meet a guy to talk about your Web site,” he says of the casual, ironically retro-style café. Is that enough to lure customers away from the big firms? Apparently. Cyber Java, once one of a handful of Internet cafes, is now one of thousands all over the world.
Being the first or the only business of your kind is a definite advantage in one of the most fickle cities in the world. But with more than 12 million Angelenos spending billions annually on everything from animal acupuncture to caffeinated water, finding a special niche isn’t too difficult. Jodi Diamond took over a mobile exotic-pet grooming service after managing a pet store for three years. She won’t bathe your dog or cat, but if your lizard’s toenails need clipping or your ferret needs a good scrub, give her a call.
While businesses like Diamond’s aren’t exactly threatened by places like PetCo, other one-of-a-kind shops rely on customer loyalty and a community atmosphere to win the war against the corporate giants. Westwood’s Sisterhood Bookstore specializes in books and events concerning women, both lesbian and straight. Adele and Simone Wallace opened the shop with a friend in 1972 as a gathering place for women. At the time, there was no Borders (now across the street), no Crown Books and no outlet for this sort of literature. “Women’s bookstores were just opening across the country. We were one of the first,” says Simone. The two also were in the vanguard of the explosion of self-employed females in L.A., a population that grew 41.6 percent from 1983 to 1994 and who now front more companies than in any other city in the nation.
Asians and Latinos are also enjoying a substantial gain in economic opportunity, owning more than 200,000 L.A. firms, compared to 70,000 in the early ‘80s. Latinos, who have replaced African-Americans as the downtown majority, doubled their revenues between ’87 and '92. And though African-Americans now tend to work for the government or larger corporations, they still own 32,645 small firms.
Most of SoCal’s current job opportunities are for high-end earners in executive positions, with two-thirds of employers paying more than median wage. Sixty percent require a college degree, a number that has doubled since the ‘70s. Though the majority of these positions are available on the Westside, the technology and entertainment industries are expanding so fast that many are heading east toward cheaper rents. This move may not only fill South-Central’s more than 200 vacant properties, but also employ residents of the area – hard hit by the movement of manufacturing outside our borders and the decline of defense, as well as changing demographics, bank mergers and the ’93 riots.
Still, a move across town isn’t the only option for fledgling businesses. There are now more avenues for loans and counseling than there were even a decade ago. Because of the novelty of his idea, Cyber Java’s Agustin was sponsored by everyone from Microsoft and Yahoo! to Asante and Softaware. Those going more traditional routes can expect a warm welcome from banks, largely thanks to SBA programs that guarantee up to 80 percent on loans under $750,000. This past fiscal year, the SBA loaned $677 million to L.A.-area businesses, up 32 percent from the previous year. Even large banks, formerly wary of the high risk and low return of small-business loans, are opening branches for just that purpose; look for 16 new Wells Fargo branches in L.A. alone.
Community banks focus on customer service and smaller, riskier loans that require knowledge of the local business climate. Many loan officers counsel entrepreneurs and help them flesh out their business plans, one of the key ingredients of a successful loan request. Other essentials depend upon the size of the loan. While good character and a great idea may be enough to secure a loan under $100,000, collateral and experience are required for larger ones. Yet even with the loans increasing, less than one-half of small firms borrow money once or more per year. One-third of them use credit cards instead, whose moderate interest rates, easy credit and lack of paperwork are an attractive alternative. However, they miss out on the financial and management advice available at the SBA and the banks.
This counseling can come in handy, especially when one is trying to sort out the myriad licenses and taxes required to start even the simplest business, such as fictitious business name, zoning, city / county and state business licenses; seller’s permits; federal and state income taxes; withholding; and workers’ compensation insurance – not to mention any licenses specific to your business (alcohol and driveway permits, health permits, etc.). Those who work out of their homes or cars must be especially careful to avoid missing required licenses and taxes. The back taxes and fines can easily outweigh the benefits of low overhead and working in your slippers.
Owning a small business isn’t easy – more than half close within four years, and it takes an average of three years to turn a profit. The stress and risks are high (ulcers, sleeplessness, poverty), but so are the gains (choosing one’s own hours, customers and priorities), which is why there are so many businesses today (85.7 percent of all firms) that employ fewer than 20 workers. They are both a product and a source of our city’s style and strangeness. For every cookie-cutter warehouse selling home-assembly furniture in a box, there are dozens of neighborhood joints with antique hand-painted coffee tables and sugar-free pumpkin-cranberry muffins – unique treasures that can elevate a matchbox apartment into a home and a young entrepreneur into a millionaire.