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Starting a Business in L.A.: Build Solid Relationships
When starting a business in any city, building relationships is critical. "Tapping into the right network of individuals who can help you succeed is one of the biggest determinants for success or failure of any early stage business," Suster says.
At first glance, a city the size of Los Angeles would appear an intimidating place to start building that network. However, many L.A. entrepreneurs have found the opposite to be true. "I find the venture capitalists in LA a lot more accessible, especially compared to San Francisco," Dao says. "The community is smaller, and pretty tight knit. It's easier to build relationships."
Programs like Dao's Twiistup conference, Koblasa's Start-Up Weekend LA and Start-Up Nights, and Suster's Launchpad L.A. certainly help make L.A. feel smaller than it is, at least for a start-up. Case in point: Koblasa's latest start-up Ming.ly, a personal relationship manager, got a big boost by participating in the Twiistup conference. "It was a great opportunity to present our business and get valuable feedback," Koblasa says.
It's not Silicon Valley, but venture capital and angel networks are still relatively strong in Los Angeles. "There is a reasonably mature VC structure here," Dao says. "There is money here. It seems to be that people move to L.A. when they've made it."
L.A. start-ups are slightly different in character from their neighbors to the north in Silicon Valley. "What's unique about raising money to start a business here is that most Southern California investors expect to see immediate monetization," Suster says. "They're willing to give you less capital than you might be able to rase in New York or San Francisco, but you find a lot of early stage companies that find ways to make money fast."
Obviously, venture capitalist funding isn't for every type of business. That's why Suster suggests you shouldn't start there. "Start with the experts in your own industry," he says. "Not only are they going to help you with the experiences they have learned, but they often serve as a board of advisors and your initial source of capital."
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Starting a Business in Los Angeles: Prepare for the Challenges
Don't let the sunny skies and sandy beaches fool you: Building a business in Los Angeles does come with its fair share of challenges.
The vast geography of L.A. and its surrounding cities, as well as the notoriously clogged freeways that connect them, is one of the region's major obstacles. "I've missed meetings and had to reschedule because of the 405," Pettigrew says.
California isn't one of the easiest places to set up a business, either. "California is the least friendly business state in the country in terms of regulations, taxes, and the cost of workers comp," says David Glickman, founder of Hometown Telecom, a international telecommunications provider based in Los Angeles. "The cost of living is high. Taxes in the city of Los Angeles are pretty high too. But despite that, the talent of the workforce and the entrepreneurial spirit of L.A. outweighs the difficult business environment."
Another challenge is competition, not just among businesses but even for that top talent Schofield values. "Competition for talent in L.A. is intense," Pettigrew says. "Often newer businesses will overpay for employees which can artificially drive up salaries to levels that are not warranted, even with the higher cost of living in LA."
Despite the challenges, don't be afraid of them. Rather, try to use them to your advantage. "There's definitely a lot of competition in L.A.," Koblasa says. "But the good news is that you immediately have access to those networks of people to learn how to build your business better."
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Starting a Business in L.A.: A Creative City at Your Fingertips
Los Angeles is the creative capital of the world. Well, at least according to a 2009 report on the creative economy by Otis College of Art and Design, which found that one out of every six people in the region is employed in a creative field. So, there's a lot of creative energy pulsating throughout the city, leaving you a good chance to being inspired.
Some inspiration will definitely come in handy to overcome the region's challenges. Hometown Telecom, for example, uses telecommuting to solve the traffic puzzle. The company has no physical office space or administrative support staff — only five principals who manage the day-to-day operations of the company from their homes. "I can't imagine doing this in any other city than L.A.,' Glickman says. "There's an entrepreneurial, 'yes we can' spirit here."
Worried about the cost of rent, but still want an office? Co-working spaces are also becoming popular. Koblasa rents space at one for his latest start-up venture, Ming.ly.
Talent is one of the most important concerns for start-ups. If you're doing business in L.A., then you're in luck. "There is tremendous talent here, especially if you're starting a small company," Glickman says. "Southern California is really a mecca of small and medium sized companies, with lots of resources, especially talent."
You don't have to stay local, either. Calling Los Angeles home base has its advantages when recruiting from other cities and internationally. "There's a very diverse culture here, and we see that as a big advantage for recruiting international talent," Pettigrew says. "It's easier to get them here, rather than if we were in Detroit or Denver."
The diversity of the Los Angeles metro area has fostered an open-mindedness unique to Angelenos. When Doug Zell was looking for another city to expand his Chicago chain of specialty coffee stores, Intelligentsia Coffee, he saw Los Angeles as a natural fit. "I find it refreshing that it's a market where people are willing to embrace new ideas and new products very openly," he says. "It's a place that's built around that."
"There is so much diversity in Los Angeles," Suster says. "We are not in the group tank like Silicon Valley. There is more than one way to build a company here."
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