A look at why Las Vegas, a city with little history and very few natural resources, is the country's hottest spot for start-ups. It produced over 17,000 new businesses in 1997.
A look at why Las Vegas, a city with little history and very few natural resources, is the country's hottest spot for start-ups. It produced over 17,000 new businesses in 1997.
Why here? Why now? What makes Las Vegas the ground zero of the new-business boom?
If Rodney Taylor had his way, he wouldn't be starting a business--not now, not ever. "I was pushed to do this," he says.
Taylor, 34, was working as a full-time personal trainer when last November he suddenly found himself unwelcome in two of the gyms where he regularly worked out his clients. In the next three months, he whipped up a business plan for a new health club, rounded up some partners, and gathered up $200,000 in financing. "I got creative," says the president of Taylor Made Bodies, who was scheduled to open his first facility May 15.
If only every inexperienced hothead could so easily amass the resources to get an enterprise going. But for most entrepreneurs there is always more money to be scraped up, more market research to be compiled, another consultant to be overpaid--on this planet, anyhow. Taylor, though, lives in Las Vegas, the country's start-up capital (see " Start-up Almanac"), where last year his was one of 17,662 businesses to get their legs. Ever a domain unto itself (where else can you find a dry cleaner open at 4 a.m.?), the city has now added another dimension to its otherwordliness: you can start a business here just because you feel like it. Or even if, like Taylor, you don't. "There are people starting businesses here who wouldn't start a business anywhere else," says Mary Jane Wirges, an executive vice-president at Hi Tech Health Care Services Inc., which was founded way back in 1990.
Not everybody succeeds, of course. But then, how long could a rare-reptile store survive anywhere else? In a region blessed with precious little in terms of natural resources--nobody's descending into the neon mines--Las Vegas has transformed itself into a world-class manufacturer: the place stamps out entrepreneurs, one after another. "It just happened," says Ron Canosa, who has opened two car-stereo stores in the past two years, much to his own surprise. "We were growing so fast, I couldn't think about where I was going."
He didn't have to--this is Las Vegas. Business happens. "I've never seen so many shopping centers in all my life, with so many people doing the exact same thing: 1,000 shoe-repair places, 1,000 landscapers, 1,000 dry cleaners," observes Canosa, whose company, Audio Excellence Inc., cranked up sales of more than $900,000 last year. "And they are all busy."
Tucked into a valley more than 200 miles from the nearest major city, Las Vegas rises up like an entrepreneurial oasis. The overdose of opportunity has created a laboratory of sorts: When starting a business is made easy, what kind of people become entrepreneurs? What shape do their businesses take? "There's no business model for what I'm doing," says 31-year-old David Lessnick, who started the Custom Cook Inc. in December 1994. "It's a big blank whiteboard." Lessnick did no formal market research before starting his venture, which enables people to rent the services of a professional chef. The company, he claims, posted sales of $300,000 last year, with after-tax profits exceeding 30%. "We have a very healthy bank balance," he says.
He expects it to stay that way. Not that he--nor anyone else lifted and transported by this powerful boom--has got the time to mull over the kinds of questions that any outsider can't help but ask: What, exactly, is going on here? Why is it happening now? In a city where entrepreneurship may soon upend blackjack as everyone's odds-on favorite route to riches, it's only natural to wonder: What's it like to start a business?
This city, part of a county where natives make up less than 20% of the population, is itself a start-up. In Detroit or Philadelphia, folks grouse about the cost of maintaining the decaying downtown areas. Las Vegas doesn't have any old areas; as recently as 1960, you could hardly find it on a map. True, the architecture of some of the casinos harks back to earlier eras but more out of competition than out of any respect for history. Given its gargantuan size, the pyramid-shaped Luxor looks bent on making those puny Egyptian originals obsolete. Casinos are dynamited before they can shuffle into middle age; most recently, the 31-year-old Aladdin got blown away. It's all so disposable.
Then again, the strip--that sparkling fuse of casinos that line Las Vegas Boulevard--doesn't pretend to subscribe to any mythology but one: quick riches. "Cash Your Paycheck and Win $250,000," scrolls the sign outside the Barbary Coast casino. Even the curbside entertainment, from the pirate-ship battle outside Treasure Island to the Mirage's erupting volcano, lasts just long enough to make you stop and explore the Keno cards or slot-machine carousels inside. To the tune of $6 billion a year, the gamblers come and go.
As have entrepreneurs, historically. In the 1940s the overhyped "Bugsy" (Benjamin to you) Siegel built the high-caliber Flamingo Hotel and was plugged with an ordinary .30-caliber for his effort. During the 1960s the underscrubbed Howard Hughes, that aviator-turned-billionaire-turned-germophobic-recluse, ruled the strip from his hotel bed. During the past decade the high-haired Steve Wynn, chairman of Mirage Resorts, has led the way, ushering in the era of themed resorts when he opened the Mirage, in 1989. "Before that, any way that locals could avoid the strip, they'd do it," recalls 36-year-old native Clark C. Peterson, vice-president and general manager of Nextlink Nevada, a phone-service provider. "But when we heard about the volcano, we flocked down there like tourists to watch it explode."
So the locals began acting like visitors, and the visitors--well, some of the more entrepreneurial among them saw the hubbub as reason enough to stay. When Cynthia Coletti paid a visit to Las Vegas, she was well aware that she and her son, Daniel, needed to move from Colorado Springs, where they ran a home-building business. "We had a real bad downturn there" in the late 1980s, says Coletti, who originally started the business in Florida, leaving when interest rates skyrocketed. Seeing all the activity in Las Vegas, she decided that "the climate looked great both ways. I'm not analytical. It just looked like we could do well here."
Sales at their re-start-up, Sun West, have now topped $6 million. Daniel, 34, who serves as vice-president, attributes Sun West's growth to its targeted marketing. "We know how to reach those people most likely to move here," he says.
Coletti, defying her proven inability to stay put, isn't leaving anytime soon. "I have no intention of leaving here like I've left before," says the 59-year-old. "I never go down to the strip, but just to look out and know that it's humming away is a security blanket for me."
What she's hearing is the sound of America's fastest-growing metro area (the U.S. Census Bureau says so), where nobody's getting hung up on all those spirit-suffocating subtleties, like market segmentation and pricing strategy. If you're starting up, only one number matters: 4,500. That's the current count of refugees (40% from California) settling in this job-rich desert every month, lured by higher temperatures (the average is 69 degrees when El Niño's in check) and lower taxes (no personal or corporate state income taxes). And what jobs await those newcomers. No, you can't earn $75,000 as a parking valet at one of the casinos on the strip. At least not right away. And by century's end, almost 18,000 new hotel rooms will come on line--and every room creates about three jobs. For entrepreneurs, that influx of customers is as real a jackpot as the payout that follows a 7 or 11 "come-out" roll at the craps table.
All those newcomers are enabling Steve Mack to reimagine his shops as "financial centers." Anywhere else, they'd be referred to as--and maybe scorned as--pawnshops. Mack, a fourth-generation pawnbroker, migrated to Las Vegas from Reno in 1991, launching SuperPawn. He's now got 13 units in Las Vegas, many of them situated in residential nongaming areas, alongside such suburban stalwarts as Home Depot, Circuit City, and Costco. Beyond offering quick cash--for those who pawn jewelry, musical instruments, and the occasional motorized surfboard--he's offering check cashing and life insurance; next he may get into renters' insurance. Half of SuperPawn's customers don't have any formal banking relationship. "They've taken all of their money out of a bank account at home," says Mack, 39. "And they are coming to Las Vegas to start something new."
Not everyone comes to start businesses, of course. But sometimes, in the process of remaking themselves, the newcomers end up in business for themselves. Being around so much opportunity--and in the presence of so many people taking big chances--makes entrepreneurship look less daunting.
It hasn't even been three years since Joseph J. Palladino turned in his badge as a New York City cop after getting "banged up pretty bad" when a stairwell collapsed as he was pursuing church robbers in the South Bronx. Inspired by a 10-day stay at the MGM Grand, he decided to remain in Las Vegas, figuring he could parlay his brief stint as a maître d' and dining-room manager at Yonkers Raceway into further restaurant work. Three months into his job search, he hadn't gotten a nibble.
These days he's fending off "all kinds of crazy job offers" as he scouts out the next location for Portobella, the Italian eatery he opened with three partners last December.
Summerlin, where the restaurant is located, is a suburb in the northwestern foothills. It's a master-planned community (America's fastest growing, as if you couldn't guess) that's home to 30,000. Eight years ago it was sand. Green Valley, the southeastern community where Palladino lives, is barely 20 years old. It's an upscale section of Henderson, ranked by the U.S. Census Bureau as--ready for this?--the country's fastest-growing city. These ready-made neighborhoods, with their tree-lined streets and lavish landscaping, are so new they look like movie sets.
Even so, Palladino shuns special effects. In a city where the high-end prime-rib buffet runs to a whopping $14.95, the former cop's strategy boils down to lots of bells and whistles--removing them, that is. He's opened a restaurant that's actually for eating, with nary a video-poker machine in sight. "I want people to have a place where they can get away from all the bells going off and all the gambling," says the 35-year-old general manager, who projects sales of $2 million this year at the 164-seat restaurant. "We've created a warm, romantic ambience; people will know who you are here, not like at the MGM Grand. There's a market for this here, I know that," he says.
Rodney Taylor's initial market analysis was just a tad less customer oriented. Last fall he was thinking mainly about how the gyms where he trained his customers wanted him to either join their staffs or stop using their facilities. The former alternative was hardly an option: joining the staff of a gym would cut his pay from at least $50 an hour to as low as $8 an hour, and that prospect held roughly as much appeal to him as returning to his previous sales positions at PepsiCo and USA Today.
Still, going into business for himself should have seemed more chancy. He knew how to bill out his own time, but he had never even been close to watching someone else make payroll. To be fair, a couple of years earlier he had hired another trainer, selling him on the idea by assuring him that he would be relieved of the cost of finding new clients for himself. In the end--the arrangement unraveled after about six months--the employee jogged off into the sunset with some of Taylor's clients panting behind him. "I wasn't very professional in the way I managed him," says Taylor. "It wasn't structured and formal enough."
Acquiring such personal skills isn't the only challenge that Taylor and other local entrepreneurs have to meet. Any business novice in Las Vegas seems to face a couple of seemingly archaic hurdles. Unlike other cities--the ones with the decaying cores--Las Vegas has no obvious money trail: there are not many venture capitalists or high-profile business angels or empathetic bankers (granted, a rare species anywhere). It helps, of course, that most of the start-ups tend to be service businesses, meaning that entrepreneurs aren't seeking vast sums. To launch their wedding-cake business last February, cofounders Cindy Cowan and Manfred Schmidhuber rounded up $15,000 from their friends, selling stock in Creations by C&M Inc. "We just needed to do some advertising," Cowan says. There's not exactly a flood of mentors in the desert, either; TEC Worldwide is now in the midst of cobbling together a Las Vegas group.
Taylor may have had little know-how about business, but he knew plenty about how business got done in Las Vegas. "I could not have tried to do this when I first came here, in 1982," says Taylor, who moved to Nevada from Los Angeles. While attending the University of Nevada at Las Vegas, Taylor (who is six feet tall and 190 pounds) played defensive back; his teammates included future pro quarterback Randall Cunningham, now of the Minnesota Vikings, and Ickey Woods, the former Cincinnati Bengals running back renowned for his distinctive "Ickey Shuffle" touchdown jig.
All that tush-tapping camaraderie, as it turns out, wasn't bad preparation for starting a business in Las Vegas. With an infrastructure that still hasn't caught up with its exploding population--the whole state of Nevada still answers to the same area code--Las Vegas remains a place where getting things done requires what the locals refer to as "juice." Taylor knew as much from his clientele. "People here are tied together," he says. "You've got to get one person who knows the entourage: the casino owners, the builders, and the doctors." Everyone's looking for deals, but people are also acutely aware of the attraction the city holds for fly-by-nighters--and they don't want to get scalded. Coletti needed to be in business awhile before clients for whom she was building homes "began asking to invest in our commercial projects," she recalls. Palladino, the cop-turned-restaurateur, didn't get money from the usual suspects, either. He teamed up with a couple where one member is a pathologist and the other is a therapist.
Long before launching his health-club business, Taylor had exploited the community's closeness to build his client base. Send me a friend, he'd urge a client, and I'll train that person free for a week. After that, the friend could sign up for Taylor's services at $30 an hour, roughly $5 above the going rate at the time. Within months of giving up his sales career, Taylor was handling more than 60 sessions a week, bunching as many as 12 in a workday that began at 5 a.m. and concluded 17 hours later. In a city where the rush hour typically begins at 3 p.m.--the roads choked by construction workers ending their day while those on the night shift embark on their prework errands--Taylor would be on the road for three hours. "If I got caught in traffic"--which became less of an if with each arriving newcomer--"my whole day would be off," he says.
Which it was, luckily, one day in 1996, when an accident tied up I-95 as Taylor was tooling his way from an outlying suburb to see a client on the west side of town. When he showed up, 20 minutes late, his client offered a suggestion. "You know what?" Frances Sponer told him. "You should have a place where everybody comes to you." What she said next harked back to what had first lured her--and just about everybody else--to Las Vegas: "You could make more money that way."
"My ears perked up," says Taylor, who replied that he doubted his clients would go along with the idea. You have influence over them, Sponer countered, they'll follow you wherever you go. In what he likes to call a "formal market survey," Taylor tossed out the idea to a few clients, just to see how they would respond. Sponer, as far as he could see, was right.
That was no surprise, given her entrepreneurial background. Having migrated from southwestern Pennsylvania in 1985, Sponer has owned 14 companies (with combined revenues of $30 million), most of them health-care related. How she ended up with a trucking business--and her reasons for wanting to get a piece of the paving, striping, and flagging market--seems best explained by her overall strategy, which she expresses with a purely Vegas flavor: "Turn up a lot of cards, and eventually you'll get a hit." Her losses included an eight-month attempt to break into health-care services for jails (total loss: $15,000) and a short-lived sleep-disorder clinic that slipped into a coma because it was "too early to market." As she built her companies Sponer was so frequently approached by others who wanted to bounce business ideas off her that she began sharing with them a tool she had developed for her own use, with the genial title of Francie's Venture Criteria Grid. "It forces someone who might be in love with a deal to get to reality and think about every single point," she says. "I just kind of help people do what I have done."
Just as the opportunity overload reshapes civilians into entrepreneurs, so it apparently inspires entrepreneurs to bring others into the fold. Audio Excellence founder Canosa found a mentor in Rick Rood, a customer from Canosa's pre-start-up days. "I kind of pushed him to go out on his own. It made me nervous," confesses Rood, cofounder of Dynatel, a $6-million supplier of custom audio and video equipment. Rood, like Sponer, had only one interest: he just wanted to see his protégé start a business. Taylor still sounds a bit bewildered that Sponer "never asked for anything."
Over time and between leg extensions, Sponer helped Taylor tone his approach toward training. Her questions made him more aware of seasonality (peaks in the spring and fall), so he could better plan advertising. He also boosted his client-retention efforts--by adding such outdoor activities as in-line skating and circuit training--after he became aware that clients, on average, stayed with him no longer than six months. "I didn't even know what business I was in," Taylor says. With Sponer's prompting, he began to see himself as being in the business of "building self-esteem." Toning down the drill-instructor approach that he himself had endured, he began offering more positive reinforcement. "OK," he'd say, running alongside a client, "your breathing is really good and your form is really great, but let's pump those arms a little more." He even paid closer attention to his own attire, tossing out the tank tops. "People felt intimidated," he says. He began weighing and measuring clients every month, giving them the data with which to support their boasting. "I was totally shocked," he says, that clients actually cared--as Sponer predicted they would. She was, after all, still a paying, three-session-a-week customer.
By the time the gyms told Taylor that independent contractors could no longer use their facilities, he had been under Sponer's tutelage for about a year. By December, a month after the gyms announced their decision, he started inquiring of other trainers he knew: Got any thoughts of opening your own place? Oh yeah, where? Summerlin, Spanish Trail, a warehouse right on the strip. "I never said what I was going to do. I was just calmly taking notes," Taylor recalls. "I was actually being told who my competition was going to be." Among his clients there were plenty who could help him answer his own questions about going into business: a county commissioner, a casino owner, doctors, lawyers, accountants. In short order, Taylor developed a system for integrating their collective wisdom. "If I could find three people who concurred on something, then there was a good chance I would do it," he says.
Aside from advice, he got his hands on valuable data: an ad-agency executive slipped him a breakdown of household income according to zip code, as well as estimated future household income levels for areas still undeveloped. From a real estate agent, he got future population estimates, projections about where the town center would be in five years, even guidelines on how much he should pay for rent on a per-square-foot basis. A developer told him how to trade his training services for build-outs; another client, in the textile business, supplied him with towels, carpeting, and blinds in return for his services. By bartering, Taylor estimates, he saved close to $160,000. "Of course," he notes, "I'll be training some people for life, basically." The 2,500-square-foot space he's leased--his advisers set him straight on the fact that 1,000 square feet wouldn't be nearly enough--is on the west side of town, smack-dab at the intersection of four neighborhoods where the household income averages $100,000, twice as high as he had originally sought. It's in a plaza that includes an in-line skating shop, a rock-climbing gym, and a bike store.
To finance Taylor Made Bodies, Taylor and his three partners, all of whom are also personal trainers, agreed to come up with $50,000 apiece. (Taylor has retained a 51% stake in the business, heeding Sponer's warning that "control will become an issue eventually.") Taylor's share of the money came mostly from clients who had expressed an interest in backing him. Curiously, Sponer was not among them, because, she says, "I'm not real passionate about it." Nonetheless, she is helping Taylor obtain a Small Business Administration-backed loan for $100,000 in working capital. The club, which is aimed at those who want to stay in shape but don't adore working out, will offer such amenities as a massage therapist, a chiropractor, and a nutritionist. Taylor not only projects sales of $600,000 the first year--if each owner simply holds on to his current clientele, they'll total about $300,000--but is already thinking about possibilities beyond Las Vegas.
Specifically, he foresees expansion into other southwestern cities: Phoenix, El Paso, Santa Fe--all places, by no coincidence, where his clients have business interests. "When you get yourself into a certain circle of people, none of this is hard," he says.
No matter what circle you travel in here, it's easy to feel surrounded by the start-up activity: all those landscaping companies papering your windshield with leaflets, the unfamiliar names bidding against you in jobs, the high percentage of out-of-state license plates crowding every construction site. CEOs, even those who've been here a long time, have gotten used to unfamiliar names staking out more turf on their customer lists: new printing companies, new flower shops, new Internet service providers, new veterinary hospitals. Everybody knows someone who is starting up, and there's always that tedious neighbor who has risen to riches by selling more custom window shutters than anyone thought humanly plausible.
It's in the air: the scent of a fresh start. The newness of it all--the just-add-people neighborhoods springing up everywhere--can be surprisingly seductive. No matter who you are when you arrive, it's not long before you can imagine yourself getting the shot you finally deserve in a place like this, a desert stretch of blank slate open for anyone to make a mark on. Spooked about competition? Talk for a moment to anyone involved in a business here, and you'll get the straight skinny: work hard, and you'll be handsomely rewarded. Work not so hard--and you'll be handsomely rewarded. Las Vegas wants to shed its "party town" image, and yet everyone's having so much fun. You can feel the giddiness, even as folks try to suppress it. "Where else," blurts out Michael Bennett, "could I make the kind of money I'm making?" Bennett serves as vice-president of business development at a four-year-old company, Technology Consultants of Nevada. Do start-up teams sound so exuberant anywhere else?
Sure, there are other hotbeds where you could start a business if you don't mind the extra expense of stationing a security guard in the parking lot and paying the price of retaining employees who consider a two-year stint to be their optimum expression of loyalty. "This was my first business, so I was naïve and I was stupid. But I knew that if I was going to start this business, the place to do it was Las Vegas," says Jonathan Robins, who moved from the San Francisco area to start Rockridge Systems Ltd. in Las Vegas in June 1996. This year he's projecting sales of $3.5 million for the custom-software developer.
Everyone knows the momentum can't last. Every economic boom comes with a firm expiration date attached. And in another 3 years--or 15, depending on whose estimate you believe--there's going to be a brutal shakeout. That's when those who are having such a smooth time of it now are going to pay the kind of dues that are more typically associated with start-ups; instead of slipping out to Lake Mead on Thursday afternoons, they'll be working full weeks. No one knows exactly what that will be like, but some entrepreneurs are already going to great lengths to try to protect themselves from competition that is getting fiercer.
Scott McManus has spent more than $1.5 million to set himself apart from his ever-multiplying rivals. McManus, a former 7-Eleven franchisee, started his own convenience-store chain--is there anywhere else in the country that needs more convenience stores?--in 1993. His 15th Turtle Stop store is designed to be "unique enough to make it a destination for people," the 35-year-old says. "In other parts of the country you won't find this, because they don't need to do it."
Well, the first part of his sentence is certainly true; the 4,000-square-foot store, with mascot Snappy the Turtle at the wheel of a '57 Corvette convertible above its curved entrance, doesn't lack for originality. Inside, customers follow a yellow highway line through a circular layout, which includes a section of merchandise bearing the Turtle Stop logo, and an 18-seat roadside diner. Given the expense of it all, it seems inappropriate to ask whether he considered slapping up a few window banners touting lower milk prices and distinctive travel mugs. But in Las Vegas, where people pay to see such dead-as-a-doornail acts as Elvis, Sammy Davis Jr., and the Spice Girls, there's still room for showmanship. For now.
Besides, who wouldn't get carried away in an atmosphere like this? Canosa's first two customers ordered $25,000 sound systems for their $325,000 Bentleys. "In this city we've got 18-year-olds driving around in $30,000 vehicles," he marvels. "As long as there's disposable income to be spent, we're in business."
And if it should start to dry up--well, by then entrepreneurs like Canosa or Lessnick hope to be too rich to worry about it. Lessnick, who knows of no direct competitors to his personal-chef business, has already explored franchising, but he's decided that licensing is his best route to expansion. "We're pounding away at this niche," he says, "because I fully expect the competitors to come." Isn't he more worried, say, that consumers will dump his service at the first hint of the boom's softening? Nah. "Anything's possible here. This is a whole town that thinks out of the box," he replies. "It's a place where a man built a fake volcano because he wanted to--and it worked."
Joshua Hyatt is a senior editor at Inc.