Fewer Start-Ups a Sign of Strength, Not Weakness

Business starts are declining as the economy flourishes, but that isn’t a sign that the entrepreneurial boom is over.

What’s happening is that small businesses are maturing and thriving.

No longer is the small-business landscape dominated by wannabes and self-employed consultants. Small companies are increasingly focused on growth after a decade of figuring out business basics.

“There’s a trend moving from small consulting firms into more established businesses that are looking at growing and expanding,” said Frances Nevarez, statewide president of the National Assn. of Women Business Owners. “It’s a good time if you definitely have a niche and your company does anything in the Internet area.”

The good times would seem to be over, however, if start-up statistics are taken at face value.

Dun & Bradstreet recorded a 7% decline in start-ups nationally last year compared with 1997 and a 4% decline in California. The National Federation of Independent Business estimated U.S. start-ups declined by 4% in 1997 compared to 1996.

Even the Small Business Administration’s Office of Advocacy, which insists that start-ups are still increasing, found only a 1.5% increase in 1998 after several years of jumps.

What’s slowing starts, economists say, is a strong economy generating good jobs.

“When times are good, it takes some of the steam out of the entrepreneurial boiler,” said Jack Kyser, chief economist with the Los Angeles Economic Development Corp. “Anybody who wants a job who has any type of skill can get one.”

In tough times, people out of work may start businesses out of necessity, which explains why the state saw so many new companies as Southern California’s economy floundered in the early 1990s, Kyser said. But as the economy has improved since 1996, start-ups have slowed.

Now, the rebounding economy is reclaiming some of those entrepreneurs as employees and fueling expansion for those who remain in business. The changes are being felt throughout the small-business community.

Patricia Johnson, president of the Los Angeles NAWBO chapter, said membership is still growing but less rapidly, while long-term members have seen their revenue grow to between $500,000 and $1 million annually. The concerns of members have matured, prompting changes in the chapter’s educational and event programming away from start-up information to more sophisticated business offerings.

“A couple of years ago, access to capital was the big topic,” Johnson said. “Now business expansion is a huge topic and access to markets, how to create alliances, get in on procurement and turn a proposal to cash, fast.”

Johnson’s own entrepreneurial experience probably mirrors that of many chapter members. After starting as a self-employed consultant, two years ago she launched a medical management company, Health Point Services of America, which employs five people in her West Los Angeles office. She hopes to expand the business and position it for acquisition.

For Barry Allen, founder of 6-year-old Consumer Business Network, the change has been even more profound, prompting him to shut down nearly half a dozen weekly networking events that each would draw from 30 to 60 consultants and business owners.

“The market is no longer there,” Allen said. “People aren’t coming to meetings anymore. They have gone to work and gotten jobs.”

Now, as part-owner of FieldWorks Inc., a management-consulting firm in Glendale, he focuses on growing small firms, many grossing $20 million annually.

NAWBO’s Nevarez, who owns her own company, Automation Training Specialists in San Jose, said times are good, not just for small firms already in business but for those thinking of entering. The buoyant economy coupled with free services plus mentor and loan programs mean that there are more opportunities than when she started her company seven years ago. A strong economy also means that banks are more open to lending and more venture capital is out there, while fewer start-ups means fewer competitors.

“It’s sort of counterintuitive, but now is the time to begin thinking about starting a business, especially if it’s a unique product,” Kyser said.

Times staff writer Vicki Torres can be reached at (213) 237-6553 or at vicki.torres@latimes.com.