REBUILDING L.A. : A Program for Nurturing Inner-City Entrepreneurs

One theme has emerged in all serious discussions about how to rebuild inner-city Los Angeles: People in that community--workers and consumers--must believe that they have a stake in the local economy’s success.

The problem for many proponents of this “empowerment” campaign is that they can’t get beyond agreement on the basic concept.

For veteran Los Angeles investment banker Jim Zukin, however, empowering workers has been a way of life since 1976. As a leading authority on ESOPs, or employee stock ownership plans, Zukin’s Century City-based firm of Houlihan Lokey Howard & Zukin has advised a long list of companies and their workers on the transfer of business ownership to the rank-and-file.

Now, Zukin wants to apply that expertise toward the creation of a new breed of inner-city businesses in Los Angeles. His plan is ambitious and detailed, and will require the active participation of the region’s corporations, banks, investment bankers, foundations and universities in giving inner-city entrepreneurs a shot at success.

Without such a well-developed economic empowerment plan whose participants span the community, Zukin fears that rebuilding Los Angeles will mean that “we’re just going to create the same problems again, only in new buildings.”

Indeed, the 43-year-old Harvard MBA, whose animated personality contradicts the staid popular image of his field, questions much of what has already become conventional wisdom on the subject of rebuilding South-Central L.A.

For example, Zukin criticizes the idea that new retail establishments--expected to be owned by inner-city entrepreneurs--should dominate economic empowerment discussions. There is talk of replacing many of the destroyed South-Central liquor stores with “more suitable” retailers, Zukin notes, “but we think the ‘something more suitable’ may not be retail at all, but a business that could create value.”

Like what? Realistically, huge new manufacturing plants aren’t suddenly going to spring up from South-Central’s ruins. But think of the range of consumer and business services available in a typical middle-class neighborhood, Zukin says. In inner-city neighborhoods, many of those services have never taken root--even though the need is there.

Although South-Central Los Angeles is poor, for example, similarly poor neighborhoods elsewhere have substantially better-developed commercial bases. In the inner city, residents just go without, or travel to other parts of the city to get what they need.

Of course, there are plenty of reasons why such businesses haven’t blossomed in South-Central, not the least of which are crime and the high cost of insurance. But the biggest obstacle to new-business formation and survival in the inner city, Zukin says, may simply be the inability of would-be entrepreneurs in those areas to find guidance and financing.

He is echoed by Syngon L. Hare, a vice president with the black-owned Los Angeles investment banking firm of Luther, Smith & Small Inc., which has been tapped to work with HLHZ on its economic empowerment proposals.

While business owners in many parts of the city take for granted certain support services, the lack of such help “is what we deal with every day as a minority firm,” says the 44-year-old Hare.

Thus, the central element of Zukin’s plan is the creation of a new infrastructure of seeding and assistance for would-be entrepreneurs and for existing inner-city businesses: Community Venture Education Corporations.

The program would be launched via a series of evening classes in the inner city--the USC campus would be the optimal site, Hare suggests--where chosen applicants would present ideas for new businesses or expansion of existing businesses. Churches could disseminate word of the program and channel potential entrepreneurs in the right direction, Zukin says.

With the help of business professionals drawn city-wide, Zukin envisions a sequence of courses that would periodically culminate in the winnowing of new minority-owned ventures worth launching. (See accompanying box.)

Some might be as small as a home-based barbecued-chicken “franchise,” he says. But the program also could lead to much larger opportunities, Zukin says, including start-ups of potential high-growth businesses to be owned not by a single proprietor, but by all of the employees, through a classic ESOP.

Zukin says he has no illusions about his proposals revitalizing the inner city overnight. Indeed, out of 100 “students” who might enter a six-month venture-education program, perhaps 10 would have viable business ideas.

And of those, he says, the success rate would ultimately be very low--not because they’re inner-city businesses, but because they’re small businesses, period.

But to Zukin, the definition of economic empowerment isn’t that all who try should succeed but rather that all should have an equal opportunity to try.

What’s in this for Zukin and his firm? HLHZ’s success has been built on the spread of formal ESOP programs to an estimated 10,000 companies nationwide since 1974. HLHZ’s role has been to advise employee groups (union or otherwise) on the structuring, financing and fairness of transactions in which the employees buy some or all of the business.

But changes in tax laws in the late 1980s caused big-ticket ESOPs to dry up. Since then, HLHZ, like most investment bankers, has been much more active prospecting for new business among small and medium-size companies.

Zukin admits that his firm would expect to be paid for most of the advice it would render through a venture-education program or for development of inner-city ESOPs.

He is looking to foundations and other financial sources to pick up the tab. “We see a lot of foundation money looking for a good program,” he says hopefully.

His idea, he adds, is not to present the inner city with a handout, but rather a fresh helping hand that has an economic stake in the program’s long-term success. “We are not social scientists,” Zukin says. “We’re not going to teach people how to fill out forms. We’re going to teach you how to write a business plan.”

Companies, investment bankers, churches, entrepreneurs and any others interested in Zukin’s program should contact Shawn Eubanks at HLHZ, at 310-553-8871.

Community Venture: A Proposal

Investment bankers Jim Zukin and Syngon Hare are proposing a “Funding Your Dream” education program to help inner-city entrepreneurs create their own businesses. The plan would require the participation of area universities, corporations, financiers, foundations and the Small Business Administration. Here’s how it would work:

* A Community Venture Education Corp. would be set up with one administrator, one foundation liaison, two full-time faculty members plus “visiting” faculty from the business community.

* Students would be picked from among inner-city entrepreneurs, youth (ages 17 to 25) and teachers.

* Courses would be held in the evening, with a maximum of 25 students per class. The first sessions would seek to identify the most promising inner-city business opportunities. Later sessions would focus on choosing a location, analyzing competition and projecting financial needs and potential results.

* Halfway through the course, each student would be required to choose a specific business venture and write a business plan.

* Students who receive “A” grades on their business plans would be given personal computers with business planning software, to keep. Each would also be assigned a business mentor who would work with the student to develop a funding proposal for the venture. Each final student plan would be submitted to participating foundations and/or the SBA for financing. Mentors would be paid for their work through foundation grants, to encourage long-term participation in the program.

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