The Accidental Entrepreneur

As you can imagine, landlords are less than enchanted to rent to start ups, so to counter that I had to put down a hefty deposit (which I never got back, but that’s another story) and a personal guarantee. I found office space, cobbled together used desks and chairs and bought some cheap computers and printers. It isn’t really all that expensive to find this stuff if you are careful and clever.

A couple of mistakes I made – one was willy-nilly renting in the City of Los Angeles. As much as I love LA, which I do, I didn’t investigate the various tax consequences of such a move, and I was surprised to learn LA has an odd tax set-up with a 1% gross revenue business tax. Yes, that’s gross, not net. So you can lose money and still owe them lots. I corrected that by moving when our three year lease was up, going into the city of Burbank, virtually across the street, where business taxes are low. Why do you think that Warner Brothers and Disney are in Burbank? Not to mention why Sony (the old MGM) and Columbia are in Culver City, Fox is in Beverly Hills, Universal Studios is in Universal City, DreamWorks is in Glendale, several of the artsy independents are in Santa Monica. Of the major studios, only Paramount is in the borders of the City of LA. I have even spoken to the mayor and his deputy mayor about this, but it would appear that it is politically impossible to change this counter-productive tax structure.

Decisions and timing

Let’s step back for a second from the infrastructure discussion and talk about timing—when is it right to make the jump to being an entrepreneur? Ah, timing. I started my company in March of 1990, just as a recession was starting – this was the recession that G.H. Bush was unmoved by and Clinton was referring to with his famously effective mantra: “It’s the economy, stupid.” So this made for a rough couple of years, but we survived partly because during a downturn, companies have to be even more careful how they spend their money, so they invest in research to be sure they’re making the right move. And when the economy came back, we were there and ready. In retrospect I’m glad we started in a down economy as we developed good habits and didn’t grow so fast that we would be clobbered by the next downturn.

Some of the timing answer is surrounded by the biggest decision of all—to fund on your own or seek business investors. I arrogantly started this operation without any investors, without deep pockets (I soon found out $35K is not a lot of money), I was single and had a car payment and a mortgage and child support to pay. Gasp. When I look back I shudder at the risks I took, but it seems one thing every entrepreneur needs is ice water in their veins (or a big blind spot). Consumer research isn’t the kind of sexy business that easily attracts venture capital in any case, and we didn’t have any grand plans, just incremental dreams.

Also, being a Latino from a poor family with no money and few connections, I had no idea where to start, where to look, who to talk to or how the process might work. People in East LA didn’t discuss venture capital maneuvers at the Saturday carne asadas. Puts and calls weren’t the stuff of dinner conversations over lengua con arroz y frijoles. I should have studied those issues as I began my entrepreneurial journey, but it wasn’t as easy then as it is now with the internet. Check it out and familiarize yourself with the terminology and the common structures of venture capital investments.