Trend for ‘90s : Smaller Is Bigger in Southland
Randy Lipnick started City Plants, a Los Angeles-based plant maintenance firm, one year ago with $10,000 and 17 clients who followed him from another firm. Operated out of Lipnick’s mid-Wilshire apartment, City Plants grossed $40,000 its first year and increased its client list to 37. A part-time employee was hired. His life now caught up in traffic, phone calls, paper work, client demands and his new position as an employer, Lipnick says he’s exhausted and seldom goes out to a movie.
Nancy Novick Fox and Lisa Novick Blons opened Mrs. Beasley’s Desserts, a muffin and cookie company, in Tarzana eight years ago with $100,000 borrowed from their father. Last year, the sisters’ firm had more than $1 million in sales, of which most is by phone and 40% is during the Christmas season. Says Allen Fox, Nancy’s husband, who was brought in to expand the company: “The girls are very sensitive to what people want and like. They also have fantastic energy. They’re not afraid to work.”
Songwriter Rachel Perry was just trying to make a living when she developed a natural facial scrub in her kitchen sink. Fourteen years after being started on $1,200 borrowed from a friend, Rachel Perry Inc. is a Chatsworth operation filling 95,000 square feet of lab, warehouse and office space. Sales last year were more than $10 million, with Perry products sold in health food stores throughout the United States and Canada. “The one big mistake I made, and it was a good one, was in my choice of management, not always choosing the right person for the right job,” she says.
These are the success stories, the inspiration--bedraggled and exhausted though these entrepreneurs might be--to all those who will open their own businesses this year and beyond.
Small business is still the engine that drives Southern California’s growth factory. The area’s fabled fascination with the offbeat, and with entrepreneurs willing to take a chance, seems not to have eroded. Every year, almost without fail, more and more Southland residents chuck their jobs and take the plunge, hoping to make a million on a brilliant idea.
Last year, the number of small (50 employees or less) businesses operating in Los Angeles County rose to 173,973, up 3.2% from 1985, according to the Greater Los Angeles Chamber of Commerce. Between the third quarter of 1986 and the third quarter of 1987, according to the Small Business Administration, the number increased by 4.5%. In the same period, the number of businesses with 50 or more employees didn’t grow at all.
The experts believe that the trend will continue into the 1990s, fueled by unspectacular growth in the area’s traditional industries and the increasing impulse for more interesting work and more flexible hours.
Observes James Gordon, deputy district director of the Small Business Administration: “Entrepreneurship is growing in this decade. People are deciding they want more freedom. They want to use their imagination. They like the challenge of being their own boss and doing the things they like to do.”
High Failure Rate
Adds Bank of America commercial banking officer David Ligon: “Large corporations have too much bureaucracy to serve the small market niches. So there will always be opportunities for small businesses.”
Nonetheless, the odds for success are grim: 90% of all small businesses begin and end in their first year and 50% of those remaining fail within the next five.
The problem, the experts say, is less a matter of competition or other outside factors than the fact that most people starting new business lack management skills.
“They want to be their own boss. But they’re not aware of the restraints,” Gordon says. “They forget that they’re going to be dealing with employees, taxes . . . all those things.”
According to Ligon, about 70% of small businesses that file for bankruptcy are actually making money. “They’re reporting profits. But they have no cash flow.”
If they have good management, some small enterprises may actually have an advantage in the Southland economy. Gordon sees “a lot of activity” in data-processing and storage, apartment and industrial construction, and credit reporting and collection. In the next 10 years, he says, the region should have an increase in small high-tech firms and service-oriented businesses from auto repair to pool cleaning.
Restaurants Hardest
On the other hand, the increase in large discount stores in Southern California is pressuring small retail businesses, Gordon says. And restaurants are notoriously short-lived. “There’s such a high element of luck involved,” Gordon says. “If you pick a good location or if you hit the mood of the moment.”
Those small businesses that do make it have a positive effect on the region’s economy.
“America, and particularly Southern California, is very inventive,” Ligon says. “So much can happen just by watching the trends. A big company goes through changes. You see what they cut out and then why. Whether it’s because there’s no longer a feasible need or if it’s because it’s a product they can’t do well.”
Or it may be a matter of watching the way people live. Nobody was in the muffin business when the Novick sisters opened Mrs. Beasley’s Desserts, President Allen Fox says.
“But the opening dovetailed with a few changes in our society. For one thing, people don’t have time to shop any more. They like the idea of calling for a gift. Also, people aren’t baking any more. The girls are using the very same recipes they made at home, just increased many times. . . . Business has always been word of mouth. But from the beginning, it took off.”
This is the kind of thinking that banker Ligon likes. “But,” he adds, “no matter what the idea is, you still have to plan where the raw materials will come from, where the labor comes from and where the capital comes from.”
