Thoughts on the challenges of running a small business in LA

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Owners of Fleur de Lys

As we are diving into this new election season, many local candidates have stopped by our small businesses to discuss the issues we are facing as business owners and listen to our suggestions on ways to overcome them. This has been a great opportunity for us to socialize and gather some thoughts.

Some of us have been established for years, some for months, some have closed their businesses recently, and some are about to open one, waiting to see what the future holds for them. We, at Fleur de Lys, have been established for only eight months but an interview of Cyndi Wells, owner of Pet Pangaea, published on Dec. 19, 2012, resonates strongly with our experience, not only because she has also started a small business in our town while being a LANL scientist but also because what she described in 2012 all seems so true today, at least for us.

So why is the business environment so challenging in this town? We do not have the pretention of answering this question exhaustively. Rather, we will share our experience on this topic with our community. Several weeks ago, we were contacted by an out-of-town person who was considering moving to Los Alamos to start a business. This person had also considered at some point buying a business that was about to close but backed off at the last minute after speaking to some members of our small-business community. The consensus is that the business environment is very challenging in Los Alamos and that most businesses do not last, most not all, since there are some small businesses in town that have been established for years or decades and that are completely part of the landscape.

Despite what appears to be significant efforts from the existing small businesses to raise awareness, this is not a trend that seems to be changing anytime soon. The challenges of running a business are not the customers, not the distributors, and not the amount of work. In many cases, we started a business because we are so passionate about what we do and do not count the hours. Most of our customers visit us because they enjoy what we have created.

Meanwhile, we try to keep that link with the community alive by supporting community events, schools, and other local activities. Our local politicians often hear us complain about four things: 1/ high rent, 2/ little workforce to hire, 3/ lack of diversity in land ownership, 4/ limited support from the town’s leadership. 1/ and 3/ are closely tied. There is not much we can do right now about the lack of workforce for retail and restaurant activities in this town so let us focus on 3/, lack of diversity in land ownership and 4/, limited support from the town’s leadership.

Lack of Diversity in Land Ownership

Walk or drive through Los Alamos and count the number of commercial spaces that are empty and/or waiting to be rented. Quite a few indeed. Why? If you intend to start a business with a store front, finding a commercial space will be one of the first move you might have to do. The lack of diversity in land ownership means that for this first step, you will have to speak to one of the few land/building owners of this town. Rent is expensive and often times is nonnegotiable, even if the space has been vacant for months or years.

Step two might involve some remodeling of the space. Your business plan says that you will do A, B, and C and in its current state, the space may only allow you to do A, if you are lucky. In most cases, all the remodeling and updating of the space (including plumbing and electricity) is on you, the business owner. Remodeling also means that you need a permit from the county and a general contractor. Both are very expensive and the permit requires a signature from the landlord, who may or may not accept the updates you need. Depending on the amount of work involved, the remodeling bill can range from tens to hundreds of thousands. At that point you can already imagine that the startup costs for your business have ballooned.

Now comes step “n” of your business lifecycle. After a few months or years of operation, you realize that the A, B, C aspects of your business plan need to change to C, D, and E. To make D and E possible, another remodeling is needed with again, permits, signatures, and contractors. The same goes with installing permanent signage outside the building. Size, design, style. Everything has to be approved by the landlord, even if it fits the size requirements established by the county. In some building complexes, the landlord requires channel lettering (that can be lit at night when the business is closed). A stylish outdoor panel signage installed on a building façade costs around $500. Channel lettering costs around ten times this number. Will it help your business? Possibly not. Will your financial statement take a hit? Probably so.

So now let us talk about the end of the business life cycle and/or the end of the lease. The lease is ending and the landlord decides that he will not renew your lease. Or you have been struggling with high rent and small sales for several years and it is time to go out of business. What happens next? You have updated the space and increased the value of the space substantially. The landlord can now rent this space at a much higher price than before. If the space is too expensive for the next business owner and remains empty for an extensive period of time, the landlord can write this loss of income off of the tax return and wait for the deep-pocketed largest employer of our town (or one of its subcontractors) to eventually rent the empty space at a premium. And if your lease was ending and you need to move to another space, chances are, you might end up speaking to the same landlord over and over again for the multiple spaces you will inquire about. In all fairness, some landlords are great in this town. 

There are also some businesses that have been thriving for years if not decades. The business environment is not totally dark but still, it is a challenging one. Lately, there was a chance for diversification on 20th street. We will discuss this in the next section. The fact is, without diversity in land ownership there is little to no competition and without competition or incentives from the town’s leadership, the price per square foot for commercial spaces in Los Alamos County is unlikely to decrease. With high rents, it becomes challenging to increase salaries and lower prices of the good sold. As simple as this.

Limited Support from the Town’s Leadership

The county of Los Alamos has defined four priorities in its economic vitality strategic plan or EVSP:

1/ Support and retain Los Alamos National Laboratory (LANL) as the area’s best wealth producing employer. 2/ Diversify the economic base. 3/ Increase quality of life opportunities. 4/ Increase the availability of housing in the county, both affordable and at market rate. Support to small businesses is our wish, is what our local politicians like to talk about during this election season, but it is not mentioned in the EVSP. “Diversify the economic base” has a broad meaning that can range from chains (corporations) to local small businesses.

Over the years and through its decisions, the town’s leadership has sent clear messages to the community about the meaning of this priority. Several years ago, Smith’s built its new store on Trinity Drive, leaving behind a huge retail space vacant. The space has never been rented so far. The restaurants that were in the building complex either closed or moved to other locations, driven by the high rent. The non-compete agreement that Smith’s negotiated certainly does not help the situation since most retailers selling food (including animal food), cookware, clothes, and other non-food items would be denied a spot in the building complex. We are left with restaurants who cannot afford the rent and an auto-part store.

The end result is an empty building complex while the town is going through a major lodging crisis and the cost of rent is sky rocketing. Now comes the recent sale of a county parcel on 20th street to Verdad Real Estate to open a third Starbucks in town while the proposal submitted by Cyndi Wells to build a new home for Pet Pangaea, a business with multiple awards established for years, was rejected. The request for proposal put out by the county for a new commercial project on 20th street asked for a mixed commercial/residential space, among other things. This mixed space was included in the project submitted by Cyndi Wells, along with renewable energy and an extra space for a café or bakery. Instead of this meaningful project, Los Alamos will get to host a third Starbucks. 

This is amazing for a town that has less than 20,000 people. The fact that the new CEO of Starbucks is originally from Los Alamos is not an excuse but perhaps a catalyst, who knows. If you dive a little more into the strategic plan of our town, you will discover the following: “Consumer preference for chain and ‘big box’ brands along with the growth of online shopping over the past 20 years have reduced the number of retail outlets.” The vibrant and lively downtowns we have lived in or visited in the past are usually not a mere aggregate of chains but rather a network of small businesses, each with a history, original products, and link to the community. When we attended Virginia Tech for years, the downtown of Blacksburg, Virginia, which is also a small town isolated in the mountains, was a lively network of small businesses. It was a place we wanted to hang out after class, just like Los Alamos has the potential to become a place where we would like to hang out after work. Trinity Drive already hosts Smith’s, McDonald’s, O’Reilly Auto Parts, Holiday Inn Express, and soon a new Starbucks. 

At some point, the philosophy of letting the private sector run the show completely, or in more politically correct terms, “letting the political decisions be driven by the market” has some limits. 

The role of the politician is also to insufflate a vision and make some tough decisions, especially during negotiation times. It is not all about the money and market value, it is also about our community and where we want to head.