The Year of Living Dangerously: Stories of Survival If you’re thinking about going into business for yourself, take heed: That first year is a killer. While it’s hard to get a handle on the diverse range of enterprises known as start-up businesses, the U.S. Small Business Administration estimates that somewhere around 60 percent don’t make it to their fifth year. The reasons are well known: lack of sufficient capital, lack of a good business plan, sometimes just simply not enough sales. Still, every day more brave souls are going into business for themselves and making a success of it. Here are a few stories from the owners and founders of successful San Fernando Valley small businesses about that treacherous first year, and how they survived it. Conscience and the Cats Topanga Oil Products Sylmar The turning point for Henry Spitzer might have been the cats, a couple of hundred of them in a kennel in Topanga Canyon. “We didn’t understand we were in a service business,” Spitzer said. Today he runs his $16 million wholesale oil products business with 35 employees from a warehouse complex in Sylmar. But it started out when the then-salesman for educational films and his wife decided in 1973 they wanted a little sideline, “a business we could have some control over.” So, they paid $6,500 for Topanga Oil Products, a business distributing heating oil to residents in Topanga Canyon. At first, it meant his wife would drive a truck around the canyon one day a week, delivering heating oil 30 or 50 gallons at a time. A few years later, a man with a similar company in Van Nuys asked Spitzer to buy him out. That company came with something Spitzer did not realize at the time was that significant: a Valvoline distributorship, the value of which became more obvious as time went on. But in that first year, the rudest awakening was “understanding what kind of business we were in,” Spitzer said. It was the service that was important, not the product. “If we had a customer up in Topanga and it was a cold night,” Spitzer said, “we had an unhappy customer.” Like the woman with the cat kennel. “The last thing I wanted on my conscience was a bunch of dead cats.” Michael Hart The Fine Print All Phase Electrical Systems Van Nuys Red tape. That’s pretty much all James Cordaro remembers from 1984, his first year in business as owner of All Phase Electrical Systems. According to him, navigating the city’s policies on business permits, its tax structure and operational regulations for electricians was the most difficult part of that first year. “I would have to say that not knowing all the rules and regulations that the city places on everyone before you can actually pull a permit was the toughest part for me,” said Cordaro. “The city never really had anything spelled out for me and I had to go to so many different departments to get answers. There was no one easy way to get information, so it was a real learning curve getting the business off the ground.” “Then, some of the pitfalls of day-to-day operations on top of those had to do with managing people for the first time in my life,” said Cordaro. “Many think it’s great to work for yourself, and it is. But then you get an employee and insurance, and other issues kick in. It’s a whole new world, and I think there should be a one-stop shop for people to go to that has classes that are reasonably priced to teach business owners how to keep doing all these things correctly and efficiently. Even now, 12 years later, every day there is a new law and a new regulation trying to squeeze you out of business.” Jacqueline Fox Get Your Footage in the Door The Footage Store Burbank Matthew Cramer had been in the entertainment industry for some time when he decided to open The Footage Store in Burbank three years ago. He knew the ropes, where to go and how to get it done. Still, he says, “There’s things I wish I could have done. I wish I had more money for actual advertisements.” Cramer’s business, leasing stock film footage to entertainment and production companies, as well as advertising agencies and corporate marketers, relies on getting the phone to ring. “The hardest part was getting the name out there,” says Cramer. “Just letting people know.” Cramer built a Web site and got his company listed in what he calls “the right directories and trade publications.” He also spent time making sure that The Footage Store appeared on popular search engines and, when potential clients did find the site, that it conveyed the right image. But in a business where competition is fierce, and many of his rivals are far larger operations, some with multi-national locations, more conventional advertising vehicles can be a tremendous help. “Getting a Web presence is relatively inexpensive compared to taking out ads in the backs of publications,” said Cramer. “At the same time, when every dollar that comes in goes to paying rent and putting food on the table, you have to sacrifice some things for others. You go for what is the most cost-effective way to get your name out there.” The Footage Store began with what was primarily a wildlife footage library because, Cramer said, “it seems to be something people are always looking for.” Later he branched out into other areas. In the first years, he said, “you really have highs and lows.” “There’s that excitement factor in starting up your business for the first time,” Cramer said. “When you finally see your name in print, when you start to get lots of phone calls, and somebody says, ‘Hi. I’m looking for such and such,’ and you know you reached them. It’s a good feeling to know your hard work paid off.” Each year since opening, he has done better than the last, although business has slowed considerably this year as the entertainment industry has cut back. Still, Cramer says he is doing what he set out to do be his own boss. “Anybody who starts their own business,” he said, “doesn’t expect to get rich overnight.” Shelly Garcia Give the Guy Credit Cyber F/X Inc. Glendale Dick Cavdek thought he had the right idea about using computer scanners for something different. So he started Cyber F/X Inc. in 1992, using high-end scanners and other sophisticated machining equipment to create something nobody else had. “I thought a lot of people would want to have sculptures of themselves, but it didn’t happen,” said Cavdek, who at the time was a computer programmer and head of research and development at a camera firm in Los Angeles. “I got $60,000 from my father to get things going, but nothing was happening for the first six months.” Then when things did start cooking, he found the companies he wanted to lease equipment from skeptical of his prospects. “I had my own credit record but no background in business, so for the longest time I couldn’t get anyone to lease me equipment,” he said. “I had to wait a couple of years in some cases.” Cavdek’s plan was to scan people’s bodies and then use the digitized information and specially designed machining equipment to recreate a three-dimensional version out of plastic or metal. Finally, thanks to some friends in the entertainment business, Cavdek’s name came to the attention of the Academy of Television Arts and Sciences in North Hollywood which was interested in commissioning a bust of Emmy-winning television producer David L. Wolper. “That was our break, and we’ve been working with Hollywood ever since,” said Cavdek, whose firm makes statues for films along with full-bodied models of celebrities for costume fittings. “It’s expensive to a studio to have celebrities spend hours at a costume fitting when they could have a celebrity come in for a few minutes and get their body scanned,” he said. Carlos Martinez Feeding the Fund Adams Monaci Consulting Sherman Oaks Sheri Adams has started four companies so far. And the latest, a consulting firm that helps companies evaluate their technology and their operations that took form in 1989, began not very differently from the others in its earliest conception. The biggest concern, Adams said, is “the threat to your capital.” The obvious challenge is, well, obvious. “You’re wearing so many hats,” she said. “You have to market, you have to sell, you have to keep accounts, service clients, do billable hours.” And when you begin to experience a little success, it only gets worse. “You’re selling more work than you have the resources to perform,” Adams said. Once she began to get commitments on a few projects, it became clear that the little consulting business she thought she could run out of her home for a few years just wasn’t going to work. “The budget I had anticipated for two people suddenly is five people,” she said. Turning work down at that stage wasn’t an option either. “Projects that are due to start don’t always start, so you always have to have your pipeline full.” Cash, consequently, to fund this success, to move her firm out of her living room and into a real office, was the challenge. “First, I funded it from deposits I got from projects,” Adams said. “From a $5,000 deposit, I took $2,500 for equipment and furniture.” She dipped into her savings. “And when all else failed, I went into the credit cards,” she said. “In the end it all worked out. I’m still here. But it’s very frightening because at the time you don’t know how it’s going to work out.” Michael Hart On Your Own Really Promotionally Minded Encino Hank Yuloff went into business for himself in 1987 in competition with the boss he’d just said goodbye to. As a result, Yuloff, owner of Promotionally Minded in Encino, which sells promotional products for trade shows and corporate clients, has some simple advice: leave much of what you learned behind when you go. “Obviously, a big challenge my first year was generating cash flow,” said Yuloff, who started his company in 1997. “But in order to do that successfully, I had to rethink the way I worked. Before I had worked for our competitor and I had a difficult time getting it through my mind that this was my own business. I had to convince myself that I could set up my own rules and policies. It took me a while to figure out how to do that and effectively work with clients.” “I had worked for someone else for a little more than 10 years, and I was subject to their whims and sometimes seemingly emotional decisions,” said Yuloff. “I just continually had to remind myself and catch myself in old patterns and ask myself if something I was doing was an old habit or something I created and wanted to hang on to.” Jacqueline Fox It’s Who You Know Alfaro & Alfaro Van Nuys As independent contractors assisting attorneys with legal services, Carlos and Jose Alfaro saw what could happen to a business’s financial footing if it was hit with a lawsuit. So when the brothers decided to start their own business, one they could build and grow and that could offer workers the chance for a career, they settled on an insurance company specializing in asset protection. Alfaro & Alfaro opened on March 1, 1997 in Van Nuys. By March 15, the company had its first client. “But that was one client,” said Carlos Alfaro. “After three months, you’re saying, ‘How do I take this one to another level?'” The partners were getting calls from the advertising they invested in, but Alfaro & Alfaro was one of a long list of insurance companies callers were contacting for quotes. Most cared little for the particular services geared to asset protection and risk management that the partners wanted to offer. “The types of calls we were generating, the majority were not interested in learning about the personalized service,” said Alfaro. “We were looking at the amount of energy and resources we were spending on print advertising, and we did the math and we soon realized it wasn’t making sense for us.” The Alfaro brothers switched gears. They joined the Latin Business Association. They began networking at community organizations and not-for-profit events. They sponsored community events where they could build one-on-one relationships with law firms, CPA’s and professional organizations that could be a source of referrals. Slowly they began to identify insurance programs and services geared especially to risk management and asset protection for e-commerce companies, manufacturers and contractors, not-for-profits, distributors, law firms, medical facilities and CPA firms. The changeover took time. Business declined at first, but by the third year Alfaro & Alfaro had developed a sufficient base of business to sustain itself. Today, the company boasts a long list of local and international clients and employs six people. In September, on the occasion of Hispanic Heritage Month, the company was selected for special honors for its commitment and contribution to the local business community by KCET’s Community Advisory Board and Union Bank of California. If they had it to do all over, Carlos Alfaro said the two would have spent more time working within the insurance industry before striking out on their own. Shelly Garcia Thanks, Dad Capital Office Products Pacoima Carolyn Nelson remembers her first year in business as “a blur.” “I’ve never been so scared in my life,” said the owner of Pacoima-based Capital Office Products, an office supplier in business since 1994. Nelson and her husband Richard went into business for themselves after her father-in-law sold the company Richard had grown up in and Carolyn had sold office supplies for. At first, both Nelsons went to work for other people. “Which didn’t work out,” Nelson said. “Surprise, surprise.” They had both spent too many years in a family business, so her father-in-law didn’t have to work too hard to talk them into trying it on their own. “But then my husband was always saying, ‘My father forgot to tell me about this, or forgot to tell me about that,'” Nelson said. That first year, Nelson and her husband faced three major obstacles, all at once: lack of cash flow, trouble getting vendors to extend them credit and long, long hours. “My husband would start every morning at 3 a.m. (to prepare the orders he would deliver himself) and work until 7 p.m.,” Nelson said. Eventually, three months into the business, Nelson hired two more sales people, who brought along a few of their own accounts. That enabled Capital Office to hire a driver and an office assistant. “But my husband still kept that schedule up for three years,” she said. As far as the cash flow situation was concerned, “Luckily, we had our father-in-law who loaned us money,” she said, and eventually a few vendors remembered the Nelsons from the previous business. In the first full year in business, Capital Office Products had $800,000 in sales. This past year, $2 million. The Nelsons now have nine employees. “The prospect of having to work for somebody else kept us motivated,” Nelson said. Of going into business for themselves, she said, “It’s been the best thing that’s ever happened to us.” Michael Hart Always Be Closing Edge Industrial Design Westlake Village When Bob Hess and Jonathan Oswaks opened Edge Industrial Design nine years ago, e-mail was new and the Internet was more a dirt road than a superhighway. While the lack of technological sophistication made it less expensive for companies like Edge to get started there was also less technology in use for product design it also meant that there were fewer ways for a new company to get in front of potential customers. “Getting the word out and the capabilities of the company and getting people to take a chance on the business” was the most challenging aspect of the startup, said Hess, executive vice president of the Westlake Village-based industrial design firm. Edge, which designs everything from audio speakers to turbine generators and medical appliances for companies ranging from Agilent Technologies Inc. to JBL Professional and NordicTrack, also faced another challenge. The business turns on fresh ideas and new blood. That meant one good job done for a client would not necessarily insure that Edge would land the second assignment. “It’s not an industry with the greatest level of loyalty,” Hess said. As the partner in charge of sales and marketing (Oswaks, who is president, is the industrial engineer), Hess said he put a lot of time into direct mail campaigns and cold calling to get leads. The initial sales and marketing approach was twofold. Hess sought to identify companies in the region that were potential users of Edge’s industrial design services, but he also tried to target those businesses where the staff had prior product design experience. “You’re in a better position to sell those jobs,” Hess said. The strategy paid off. The partners initially expected it to take between 18 and 24 months to establish themselves. “It was in reasonable shape after 18 months and we were profitable and could make a living,” said Hess. His advice to those starting a venture, particularly if, like himself, they come from large organizations? “It’s something I take from ‘Glengarry Glen Ross’,” he said. “Always be closing. If you look at the way a larger corporation operates, you spend a majority of time in meetings and dealing with politics. You have to cut all that out if you’re going to be productive and nimble.” Shelly Garcia Out of the Bedroom Novalogic Inc. Calabasas John Garcia worked out of his bedroom when he started Novalogic Inc., his software and video game development business. With $1,000 sunk into computer equipment, Garcia began in 1985 what he would eventually turn into a successful video game company. “All John had was word of mouth to get him business and an old car that he drove around in,” said Novalogic President Lee Milligan. When Garcia left his job as a programmer with DataSoft Inc. to create software and games for other firms in the fledgling video game market, he had only his Rolodex and a small group of contacts. “Getting customers was always a battle at first, but people started to take notice. It took a year, but it was a start,” Milligan said. The company soon began making PC versions of popular arcade games like PacMan for a number of companies. Building and developing new relationships was the key to eventually moving out of the home office into a storefront in Woodland Hills, Milligan said. It would take four more years before Novalogic could create and market its own games, but its first year was more about finding a niche in the video game market. Carlos Martinez Oh Yeah, Customers Mosaic, The Ad Shoppe Sherman Oaks Helping clients find customers is what the folks at Mosaic, The Ad Shoppe do, building advertising campaigns for department stores, large automotive chains and other retailers. But Bob Charney, the company’s president, started his business back in 1989 without a single customer of his own on board, counting on a background in sales to jumpstart his new career in advertising. Certainly, switching careers was a risk, starting a company without even the first business prospect made it even riskier. “My biggest challenge was, simply, sales,” Charney said. “But I had 18 years of prior marketing experience at the time, so I tapped into my network of friends and business associates for referrals and client leads.” Then Charney realized there was another challenge: his wasn’t the only ad shop around. How then to make Mosaic stand out? Charney decided to do for his own business what he does for others and turned the office into a retail store, complete with a selection of books on retailing, a cashier at the front desk, a moving escalator and a workspace littered with promotional products featuring the Mosaic “brand.” Jacqueline Fox Gimme Just One Customer Infinity Financial Woodland Hills Going from stockbroker to mortgage lender sounded like a good idea three years ago to Milan Vukovic who, along with two partners, founded Infinity Financial Inc. Although the company is today profitable and located in a Warner Center high-rise, Vukovic said he won’t soon forget his company’s first-year struggle to get customers. “I’d go to work and sit at my desk and there wouldn’t be any customers for weeks,” he said, recalling that some of his former Merrill Lynch clients advised him to return to brokering. The hours he spent networking, both in person and on the telephone, seemed useless as he and his partners fought to get their first customer. It took two months, but eventually the long hours spent telephoning potential clients and sending out waves of mailers started to pay off. “Getting customers to know we were here was the biggest hurdle,” he said. “We were trying everything short of putting commercials on TV or radio. But we weren’t getting anything until finally people started calling us. It was amazing.” Although there was no revenue for three months, the company was prepared for a full year without income if necessary, Vukovic said. “It was really the word of mouth that did it. They knew we really wanted their business and that we tried harder than anyone else they tried,” he said. Carlos Martinez
