STEVE WADDELL : There’s at Least One U.S. Bureaucrat Who Thinks Small

If you’ve ever punched a time clock, you’ve probably imagined yourself chucking the drudgery of employee life, dreamed of sitting in the boss’ chair and running your own show.

Steve Waddell has had that dream, too. But instead of building his own entrepreneurial empire, the 44-year-old Huntington Beach resident helps others do just that. Waddell heads the Orange County branch of the U.S. Small Business Administration, which opened in Santa Ana in 1984.

The SBA was created by Congress in 1953 to assist, counsel and champion America’s small businesses--which constitute about 98% of all businesses in the country, according to federal government estimates. The agency operates a variety of loan programs, but it does almost no direct lending. Other SBA aid includes education and management training programs.

Waddell joined the SBA in 1975 and has administered programs in Orange County for the last five years. He is a 1965 graduate of Occidental College, with a bachelor’s degree in political science.

In a recent conversation with Times Staff Writer Maria L. La Ganga, Waddell discussed the flourishing small-business community underlying Orange County’s economy and the challenges facing entrepreneurs here and elsewhere. Q: What is the climate here for small business?

A. Orange County is a dynamite place for small business. We’ve got an extremely capable labor force here. We’ve got an incredibly wealthy county, which is particularly good for retail-oriented, service-oriented businesses, and a fairly strong light-to-medium manufacturing base. Orange County’s got an extremely strong tourism orientation, bringing in a lot of people from out of the state.

Q: Are we a better place, say, than Los Angeles, or other parts of Southern California?

A: It depends on the kind of industry. If it’s one that requires railroads for transporting, then it’d probably be better in Los Angeles. If it’s a high-tech orientation, requiring a lot of engineering types, high-professional types, maybe there are some real advantages in Orange County. Consistently, though, Orange County’s doing very well, and all the prognoses I can come up with in terms of its future are very, very strong, in relation to the rest of the nation.

Q: In the recent past, we have seen companies, particularly in manufacturing, moving to places like San Bernardino and Riverside counties. We have seen high vacancy rates and low unemployment here. Local economists say that it’s too expensive for workers to live here and that some of the lower wage job openings can’t be filled. How do you see this affecting small business in Orange County?

A: I certainly wouldn’t feel from my experience and from looking at things here that manufacturing firms are fleeing from Orange County. We are making a lot of loans to manufacturing firms in Orange County who are buying real estate here to expand their facilities, particularly in north Orange County and in the central part of Orange County. So that indicates to me that--although certainly there are some businesses that are suffering from the lower unemployment rate and high cost of housing and transportation constrictions--that we also have a lot of small businesses in the manufacturing area that are gaining a lot from being in Orange County and staying right here.

Q: Given the problems facing manufacturing, why would it behoove manufacturers to stay here?

A: Certainly the county has the housing and transportation problems that we talked about. But it’s got some incredibly great advantages to support our economy here. That includes our climate, our proximity to the sea, which is very, very valuable to many people. There is our proximity to the mountains, the fact that many of our communities are well known nationally in terms of how they’ve been planned and developed. And we’ve got an extremely sophisticated work force in a very wealthy county.

Q: We are seeing a great number of service-based businesses come here. Is that a healthy sign? If the county becomes predominately service-based, would that hurt it in any fashion?

A: I can’t see that that’s necessarily negative at all. This is a national trend, and we are experiencing that here. However, we’re continuing to be strong . . . in manufacturing in Orange County. There’s been some erosion in manufacturing as a percentage of employment here, but it’s not all that dramatic in the last six or seven years.

Q: What is the breakdown of businesses here?

A: Based on a study from First Interstate Bank, in 1982, the employment structure (was) 24% manufacturing, 25% retail and wholesale, and about 22% service. In 1987, we show manufacturing at 23%, which is a very, very small difference. In trade, we’ve got wholesale at 25% and service at 25%. So, sure, we see a slight decline, relatively speaking, in manufacturing. But by no stretch of the imagination can you say that manufacturing is fleeing. It’s a strong, well-balanced economy right now.

Q: What percentage of start-up businesses are successful?

A: The State of Small Business (an annual federal government report) is our primary source of data on both business failures and business starts. And 50%, according to the data, fail in the first four years nationwide. So, it’s a highly volatile part of our economy. There are a lot of starts, there are a lot of failures, there are a lot of beginnings and endings for a variety of reasons.

Q: Does that say something about our economy today, or has it always been that way?

A: We had a lot of small-business failures, relative to previous years, in the early 1980s. And it shows a continuing trend right on through . . . 1984, 1985. There’s been a tremendous increase in the number of start-ups in that period of time. There’s been a lot more activity--both starts and failures--in the last three or four years.

Q: Then these figures do reflect our current economy, rather than just the riskiness of starting a small business?

A: It shows that there are a lot more starts. When there are a lot more starts, there’s going to be a lot more failures. But of course, there were a lot of failures during the very tough economic times in the first two or three years in the 1980s.

Q: Tell me about the capitalization of local small business.

A: We (the SBA) do about 220 loans a year, for about $50 million a year here in Orange County. We see many small businesses, and we have a little sense, from seeing their proposals, about what many people are doing to start small businesses. I’d say 20% of our new loans are for start-ups. A great part of the start-up capital it takes to start a business comes from the owner’s own assets, from savings, or often from equity out of their own home, or savings from relatives. In fact, we don’t become involved in assisting a start-up with financing unless they can come up with at least 30% of the requirements to get their business off the ground. I can’t really comment on whether Orange County’s experience is any different from anywhere else. But our requirement is 30%.

Q: What about banks?

A: There’s an awful lot of support in Orange County through a large number of lending institutions that are involved with small businesses. My contacts with the financial community informally tell me that we’re a very well-banked county, in that there is a lot of financing for small businesses that are solid outside of the SBA programs. There’s a lot of financing available to strong businesses here in Orange County.

Q: In other words, you have to make it on your own at the beginning? If you make a decent showing at the start, then you can get some help afterward?

A: That’s a good way to think about it. We really don’t finance a lot of start-ups. Those that we do come in awfully strong. I would recommend that that’s the most reasonable proposal for any small-business person--to be able to finance their start-up predominately themselves.

Q: Who do your programs assist?

A: Our programs are designed to assist any small business that’s in need of financing, preferably in a growth mode. We’re here to help them, to provide term lending in other words, 7-to-25-year term lending, to help those businesses grow.

Q: You don’t bail out troubled businesses, but you help small businesses to grow?

A: Exactly. The programs of the agency have changed from period to period. But our orientation now is definitely to help the small, growing business--not to provide a bailout to a business which is close to the failure level.

Q: What about your programs for veterans and the handicapped?

A:If you are a Vietnam War veteran or a handicapped individual who has been unable to obtain financing through our guarantee program, then you’re eligible to come to us for a direct application. And we do make some of those loans. And we are happy to receive applications to provide assistance to the handicapped and Vietnam War veterans. That’s through direct loan funds there.

Q: But those are the only two groups to whom you give direct loans?

A: Those are the only significant groups.

Q: Are there banks that are willing to give loans to small businesses?

A: The public can come to us and find out which 20 banks in Orange County and the surrounding area have actually dealt with us under the loan guarantee program in the last year. We hope that will help small-business people reduce their door-knocking. Because a lot of lending institutions aren’t involved in SBA lending. We’ve got the list right here, and we’re happy to mail it to anybody that’s interested. Among those 20 or so lenders are five or six here in Orange County that are considered especially well-qualified by us, and those are our certified lenders. And they’re able to work with us on a very short turn-around basis, whereby we only review their application.

Q: What is the most promising avenue for a small business start-up?

A: Having the capital is critical. Also, I think probably the most important avenue is knowing what you’re doing. And we recommend that someone going into business have both general experience in managing people and in operations. Most important, they should have specific experience in the kind of business they’re going to operate. You’d be amazed how many people come here for counseling who don’t have the specific experience and haven’t spent the time working as an assistant manager or a manager or an employee in the kind of business they’re ready to invest their life savings in.

Q:So not knowing what you’re doing is the main problem that most small businesses have?

A:Dun & Bradstreet tells us the biggest problem small business people have--at least in the first three or four years of operations--is not knowing their business well.

Q: More than not having enough money?

A: Certainly, that’s right up there with it. But the biggest one I see many times is not having the management capability, not really knowing the business, particularly the small businesses. Many times businesses are under-financed, too, but if they’d really known what they were doing when they got into it, they wouldn’t have been under-financed when they started.

Q: What about start-up costs?

A: Start-up costs vary entirely with the kind of business that you’re going into and whether it’s capital-intensive or not. The reason the service businesses are growing so fast is because start-up costs in a lot of service businesses are very, very minor, very small. They can get in and get going with a very small amount of money.

Q: Like starting a business out of your home, that sort of thing?

A: Those businesses are a substantial part of the business community in Orange County. There are a lot of them. Certainly that’s the way to start a business without having to take a lot of risks. I think that’s valuable. That’s a viable way to start. A lot of people think that to start a business, they need to go just borrow some money from a bank or the SBA, and open the door. And really very few small businesses start that way.

Q: Have you ever wanted to open your own business?

A: Oh, certainly, when I was younger. And I don’t know, maybe someday it’ll happen.

Q: If you had $100,000, what would you do with it?

A: I’ve thought about that. If someone is not experienced in a specific kind of business, I think the franchise orientation is an awful good one to take a shot at initially. With a franchise, you get an organized program, so to speak. With many of them, you get the entire layout set up for you. You get training. You get a bookkeeping system. You get a source of supplies. You can get a lot of franchises--which statistics show us are very low-risk in terms of failure, relative to other small businesses--for less than $100,000. Of course, there are some real problems with the franchises. You’re not your own boss entirely, although you may have a lot of freedom. Every one’s set up a little differently, but you’re restricted. And that franchiser is taking a good portion of whatever you make.

Q: What has the stock market crash done to small business?

A: I don’t think anybody knows yet. I think that rather than it doing anything, it’s probably evidence of the concern that people have about the strength of the economy in the future, and certainly of concern that they had about the possible overvaluation of the stock market itself. I’ve been asked that question several times, and I just feel it’s impossible to give any kind of an answer at this point. In fact, we were prognosticating at one point about what it is going to do to retailers, what it’s going to do to Christmas retail sales. I just don’t think you can project that yet. Probably high-end items are going to suffer some. But I’m not about to project anything negative at this point.