CityWatchLA - Big Obstacles for Small Businesses

CityWatch, Feb 22, 2011
Vol 9 Issue 15

CUTTING THROUGH THE RED TAPE

Last week I claimed “one of the simplest strategies for jump-starting LA’s local economy would be to retool the current ‘bigger is better’ approach to business development in favor of a model that supports small businesses.”

That proverbial swing at the hornet’s nest drew quick protests from both bureaucrats and academics.

Cries of “We’re already doing it!” to “It’ll never work!” coming from people who are content with a faltering economy left me convinced that I was on the right track.

From inside City Hall I heard, “Deputy Mayor Austin Beutner is already committed to streamlining the process so that small businesses don’t have to deal with so many departments.”

Apart from the fact that such a common sense standard applies to everybody, not just small businesses, this claim of victory falls so far short as to simply be an irrelevant non-starter.

Small businesses face obstacles at the local, county, state, and federal level and it is imperative that the City of LA leverage funding to create a network of support for those who are in the best position to create jobs for Angelenos.

By way of example, Film LA is a nonprofit that services the film industry and navigates the interdepartmental multi-jurisdictional journey for film production, a model that could be used to support small businesses. At one time, Film LA also collected data that was used to support the industry, again a model for leveraging funding and political will to drive the success of small businesses.

Small businesses spend 36 % more per employee than larger firms to comply with federal regulations. Very small firms spend 4 ½ times as much per employee to comply with environmental regulations and 3 times more per employee on tax compliance than their largest counterparts.

Cutting red-tape at city hall is a nice start but it is only a start. LA must take a leadership role in leveraging federal funds to create Small Business Development Centers that support LA’s entrepreneurs.

From Academia I heard “every day, many small businesses fail. Why pour our money into small businesses, many of which are likely to fail?”

Businesses fail, both small and large, but the simple fact is this: small businesses are responsible for generating 65% of net new jobs over the past 17 years.

As for longevity, 7 out of 10 new employer firms survive at least 2 years, ½ at least 5 years, ⅓ at least 10 years, and ¼ stay in business 15 years or more.

Perhaps it’s time to look at the obstacles that impact the survival rate, not simply cut our losses and walk away. While “facilitating the permitting process and eliminating other administrative barriers to growth” are noble first steps, they are simply first steps.

Small businesses struggle for working capital, for access to markets, and for the resources and benefits that will allow them to compete for talented and skilled employees.

Yet, somehow they are able to produce 13 times more patents per employee than large patenting firms. Somehow they are able to create and innovate and prosper while those in control debate their value.

Now is the time to come out from behind the City Hall counter, to get off the academic high horse, and to meet the small businesses on the street, where our economy takes place.

Start with the City of LA as a client and consider how difficult it is to do business in LA. Small businesses currently find it difficult to bid on City Hall contracts while larger companies find the process so cumbersome that the price immediately goes up when the City of LA is the client.

This is why small businesses eventually give up and move to surrounding communities where they find a supportive environment and eager customers. If City Hall can’t clean up City Hall, there’s no chance they’ll ever clean up the City of LA!

A couple of years ago, I sat with a group of community advocates in a small facility that was going to be developed as a community room. It was in a brand new building and our room needed to be finished.

A little paint, a little carpet. We were excited!

Unfortunately it doesn’t work that way in LA. Apparently no one will bid on a contract so small. We were told to think big!

The next time we met, an architect had come on board and the “finishing work” now had a budget of $250,000. Now this was a project that was worth bidding on!

The community room was never finished, it still sits empty, unpainted and uncarpeted. The weight of bureaucracy crushed it and the bias in favor of large companies willing to do business with LA reared its ugly head and destroyed our hopes for a community room.

Ironically, we were not allowed to do the work ourselves because we weren’t an approved vendor for the City of LA.

Small businesses are the backbone of LA’s local economy. They are agile and they are flexible and they put Angelenos to work. They provide the services and products that LA’s City Hall needs and that is the place to start.

City Hall’s role is not to make an “either/or” choice between large and small companies, it’s to support them based on their value and their potential for success.

That simple standard puts small businesses in a priority position for City Hall’s support!

(Stephen Box is a grassroots advocate and writes for CityWatch. He can be reached at: Stephen@thirdeyecreative.net. Disclosure: Box is also a candidate for 4th District Councilman.)