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Business Is 'Robust' for Small L.A. County Firms

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An overwhelming majority of small companies in Los Angeles County are enjoying brisk business, but minority-owned firms are lagging white firms in sales growth and generally harbor deeper concerns about what lies ahead, according to a new Los Angeles Times Poll.

Nearly three-quarters of all small-business owners described conditions at their companies as "robust," affirming the region's broad economic recovery. But about 60% of the minority entrepreneurs shared that assessment.

The Times survey suggests that this gap is due to the generally smaller size of minority businesses and their greater concentration in the inner city and low-margin retail businesses.

Use of technology emerged as a striking difference. Although the survey identified many vibrant ethnic enterprises, whose booming numbers have helped remake a region now dominated by smaller firms, fewer of them were found to be involved in the fastest-growing high-tech industries. Moreover, as in households nationwide, fewer minority business owners than white owners use the Internet.

"There is no question that there is a digital divide," said Rohit Shukla, head of the Los Angeles Regional Technology Alliance, a nonprofit group aimed at building technology companies in Southern California. " . . . That's the big challenge for Los Angeles going forward."

Looking ahead, blacks were more optimistic than Asians and Latinos, who were significantly more cautious about future sales and hiring plans. Overall, minorities seemed more fretful about a host of issues, from rising health-care costs to government regulations to deteriorating neighborhoods.

Their lower expectations reflected past performance. Although a solid 50% of white-owned firms reported increased sales in the last year, only one-third each of Asians, blacks and Latinos reported revenue gains.

"The picture looks bright for small-business owners, but more minority owners are in the shade," said Susan Pinkus, director of The Times Poll.

The latest poll, conducted by mail and telephone over the summer, looked much more extensively at minority firms than did a similar survey of Southland businesses a year ago by The Times and the USC Marshall School of Business.

In this year's survey, about 2,000 business owners were interviewed to discern the health of the more than half a million small firms in Los Angeles County--the last of the state's major counties to bounce back from the long recession earlier this decade.

Its recovery has been dominated by a diverse array of small businesses, from toy distributors to multimedia firms, that have replaced jobs lost at big banks and aerospace corporations. While the survey looked at companies with fewer than 500 workers, using the traditional federal definition of small business, the vast majority of respondents employed 25 or fewer full-time workers.

In Los Angeles County, small companies account for 99.4% of all businesses that pay taxes, and they employ more than 70% of the county's 4 million payroll workers, according to state figures. Nearly four out of 10 small firms are owned by minorities, according to U.S. Census Bureau data.

For workers, the survey suggests that job prospects will be strong in the near term. Overall, 41% of owners said they intend to bulk up employment in the next year, with only 3% planning cutbacks. That's more optimistic than recent national surveys and the Times-USC study a year ago, when one-third of small businesses said they would add to their staffs.

Yet business owners continued to express frustration about how they might fill openings, citing lack of skilled labor as a top concern. The shortage is affecting high tech and other industries such as construction.

"I don't have a listed phone number. Everything is word of mouth, and I have to turn work down," said Eddie Carrillo, the Latino owner of a Culver City plastering and drywall company and one of dozens of business owners interviewed after being polled. Carrillo said his annual revenue has jumped more than 10% and is nearing $2 million.

Health insurance costs also stood out as an important issue. Nearly three out of five businesses countywide do not provide health benefits to workers, the survey found. Of those that do, many firms reported skyrocketing premiums and said they had assumed the higher costs. But minority-owned businesses were more likely to cut back on coverage, and a bigger share of white-owned firms switched health plans.

One of the most striking differences between white and minority businesses was among top performers. For each of the minority groups, about one out of 10 businesses said sales in the last year had surged 10% or more. The share of white business owners with such growth: 28%.

Analysts said the gap underscores the disproportionately large share of minorities in retail and those operating in less affluent areas.

Many Korean immigrants, for example, have followed a time-worn path of starting up small markets in inner-city neighborhoods. The survey found few of them prospering.

"Business is not what it used to be," said Krystine Park, executive director of the Korean-American Grocers Assn. of California, which represents some 3,500 minimarkets and liquor stores in Southern California.

Saleem El Amin, an African American who has long run an auto repair shop in Inglewood, offered another explanation: "People around here just don't have it" to spend, he said.

Size and age of a business matter too. The survey revealed a core of sturdy, well-established businesses in minority communities. Half of the Latino firms polled, for example, had been around for more than 20 years. But about three-quarters of the Asian firms and half the Latino ones were operated by immigrants. And, as the survey confirmed, immigrant firms tend to have smaller sales and fewer resources.

Minorities, especially blacks, also struggled more with financing.

Three out of 10 black entrepreneurs said they had applied but did not receive loans. That was double the rejection rate for whites and Asians and somewhat higher than for Latinos.

Technology Forms the Great Divide

Perhaps the most critical dividing factor is that minority-owned businesses don't appear to be sharing equally in the fruits of the new technology-driven economy.

Even as the survey's overall results pointed to the region's ascendance in this new global economy, minorities trailed whites in starting businesses in some of the fast-growing information technology fields.

About 8% of white-owned firms were in high-end business services such as computer services and graphics design, for example. That was double the share for minorities.

Moreover, the survey found that minorities have generally been slower to embrace the Internet to boost productivity and broaden markets in traditional enterprises.

More than four out of 10 white-owned firms countywide said they use the Internet to market their products, troll for sales leads or consummate sales transactions. That's twice the level of local Asian and Latino small-business owners polled and more than the one-third of black entrepreneurs who said they have Web sites.

Today this gap may seem more symbolic, as few companies have figured out how to make money using the Internet. But few can deny that this is where the future lies.

Already the digital boom has resonated throughout California's economy, as high-tech employees flush with stock options have pumped up real estate values and fueled a surge in personal income not seen since the go-go '80s. Technology shares drove the stock market to new highs this year, while venture capitalists invested a record $1.1 billion in young Southern California companies in the first half of the year, mostly in Internet start-ups and other tech-related enterprises.

Not surprisingly, some of the survey's most optimistic entrepreneurs were those who had found a niche in this new universe of companies that are reshaping the way the world works, shops and communicates. And in Los Angeles, like elsewhere, these tend overwhelmingly to be white-owned.

Jeff Kozuch, founder of Acacia Systems, a Long Beach-based computer consulting, networking and training company, has seen his sales boom 20% to 40% annually in recent years.

While hardly a dot-com wonder, Acacia Systems posted sales of nearly $500,000 last year, forcing Kozuch to recruit a small team of contract employees to keep pace with his burgeoning client base. Not bad for a musician and self-taught Macintosh expert who got his start playing around with a computerized drum machine.

"I realized I could make money teaching people this stuff," Kozuch, 46, said. "It just kind of grew from there. . . . I'm a pretty happy guy."

To be sure, ethnic business owners in Los Angeles are exploiting these new opportunities as well. The Times Poll found a number of Taiwanese immigrant firms that over the years have established a vibrant computer parts industry in the San Gabriel Valley. And other Asians, Latinos and blacks are launching creative high-tech ventures.

Samuel Chan, a Hong Kong native, seized on the Internet a few years ago, seeing it as the most promising path to improving his international trade business.

"When you're doing everything by faxes, it becomes cumbersome and expensive," said Chan, who has an engineering degree from the University of Illinois. His company, San Marino-based Trade Easy USA, facilitates imports and exports of consumer goods via the Internet.

Chan, one of several principal owners, said Trade Easy earned $230,000 on sales of about $1 million in its fiscal year ended in March. He intends to take the company public next year with a stock offering.

But businesspeople like Chan are still a small minority within a minority. Analysts see promising signs of change, but not on a wide scale any time soon.

In the Bay Area, for example, UC Berkeley professor AnnaLee Saxenian points to the Chinese and East Indian entrepreneurs who head about one-quarter of all Silicon Valley high-tech firms. She says their secret is technical skills. All they lacked were the contacts and social networks, which they built over time.

The challenge for minorities, especially Latinos and blacks, "is to get the skills, then build the networks to learn the language of this industry," Saxenian said.

Dante Pirouz, an African American, is a case in point.

With just $3,000 in seed money, she and her husband started a consulting firm specializing in computer-based business development in 1997. The Pasadena company, called R35, still has no full-time employees, but its sales are outgrowing the renovated garage in which they operate. Revenue exceeded $400,000 in 1998 and is expected to double this year.

The 28-year-old Pirouz credits early tinkering with a home computer for piquing her interest in a tech career.

"If you don't live, eat and breathe the Web, you're not going to know enough to launch a successful business," she said.

How The Survey Was Conducted

The Times Poll surveyed Los Angeles County small-business owners -- with an emphasis on minorities -- from May 26 through Aug. 19. Questionnairesinitially were mailed to 875 Asian, 875 Latino and 875 black owners.Interviewers called those who did not return the mailing. The responserates were 59% (432) for blacks, 52% (394) for Latinos and 53% (401) forAsians.

In the survey's second phase--an overall sample of the county's smallcompanies, 683 owners (including 353 whites) were interviewed out of1,500 randomly selected businesses contacted by phone Aug. 4-19. Theoverall county response rate was 58%.

Those surveyed were selected at random from Dun & Bradstreet'sbusiness database. Companies that were no longer in business or thatcould not be located were deleted, which affected response rates.

Copyright © 2014, Los Angeles Times
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