The changing face of business Featured

9:46am EDT October 31, 2002
There was a time not so long ago when it was impossible to open the pages of a newspaper or business magazine without seeing a story about some young, hip entrepreneur who founded a business no one really understood and spent money that, it turned out, no one was really accountable for.

Today, however, those entrepreneurs, the so-called whiz kids, are at best more annoying than fascinating to anyone who has actually started and ran a real business. Worse, for everyone who's watched their 401(k) money disappear and their mutual funds shrink, those unrestrained entrepreneurs of the new economy were, at times, dangerous.

Chalk it up to irrational exuberance and hope we've learned our lessons about business and will never be as gullible again. But the fact remains that there is a lot of pressure on the entrepreneur.

Conventional wisdom has all but abandoned the idea that government drives growth. Mix in a growing mistrust of large corporations and their commitment to our communities, and you're left with the reality that when it comes to leading and growing any economy, the individual entrepreneur carries the burden.

That's a lot of pressure for these small businessmen and women, but history shows they've always been up to the challenge. According to the National Commission on Entrepreneurship, since World War II, 67 percent of inventions and 95 percent of radical inventions are the result of entrepreneurial ventures.

Approximately 10 percent of American jobs disappear annually because of business closures and downsizing. As a result, nearly 13 million new positions must be created every year to maintain a healthy job market.

But recent economic woes have left entrepreneurs a little gun-shy, at least relative to the start-up crazed 1990s. Irrational exuberance, as Federal Reserve Chairman Alan Greenspan dubbed it, has given way to cautious risk-taking and a conservative investment environment.

According to the Global Entrepreneurship Monitor (GEM), entrepreneurial activity in the United States -- the percentage of the population involved in the start-up process or in business less than four years -- last year plummeted to 11.7 percent, from 16.7 percent in 2000.

Enthusiasm has also taken a beating. According to GEM, only 35 percent of adults believe good opportunities will develop over the next six months, down dramatically from 52 percent in 2000 and 57 percent in 1999. And venture capitalists are feeling the heat, with GEM reporting that many younger venture capitalist firms are closing, while existing firms are far less likely to invest in seed-stage companies.

Call it a backlash resulting in part from the Internet bubble burst or simply pragmatic risk assessment during a recession, but one thing is certain: Business is changing again.

Today, we are seeing a different type of resilient businessperson. Minority-owned business are growing four times faster than other small businesses. These new ventures employ 4.5 million people while generating $591 billion in annual revenue.

The face of business is changing.

It's very often younger, female, and, in many cases, not white. According to a study entitled "Trends for a New Century" by the Research Institute for Small & Emerging Business, "The makeup of entrepreneurship will change dramatically in the next 10 to 15 years as demographics shift ... the next generation of entrepreneurs are predicted to be female and Hispanic or African-American."

Between 1973 and 1992, the U.S. Small Business Administration granted $5.7 billion in loans to women. That increased to $12.2 billion between 1993 and 2000. Of the SBA's Community Express program, two-thirds of the loans went to woman and minority business owners.

Not only are business owners changing, the types of business they're starting are also different. These new entrepreneurs are finding new markets and new customer bases.

Although we witnessed something similar with the dot-com boom, the difference is that these new businessmen and women are being held -- and holding themselves -- to a stricter and more conventional standard of success.

The flan that ate Cleveland

Ten million people visit the West Side Market every year. And for as long as many Clevelanders can remember, the immediate area surrounding the market has been at best an eyesore and at worst dilapidated and dangerous. So why pick an area such as West 25th to start a bakery or cafe?

Alma Alfonzo, president and co-owner of Lelolai, an Hispanic bakery, says the answer is simple -- she believes the city is committed to developing the area.

Alfonzo and her sister, Maria Sapia, who is co-owner and the baker behind the bakery, were born in Puerto Rico and came to the United States 23 years ago. And, although she is not forthcoming about her age, Alma Alfonzo admits she spent more than a decade working in hospital administration before going out on her own.

Inside the bright white café, Alfonzo points to a place on the floor.

"There was a big hole there," she says. "I remember in the beginning, I would bring people in and they would say, 'I hope you know what you're doing.' But you have to know what you're doing. You have to envision it and get others to envision it."

Alfonzo says when she was toying with the idea of opening her own business, she saw the city making a commitment to improving the area.

"Basically I was interested in the fact that they had plans," she says. "There was such a commitment to improve the area, we wanted to be a part of it."

There was risk, but Alfonzo had confidence in her business abilities and her product.

"This is a new concept," she says. "There was no such thing as a Hispanic bakery, and there is no competition at this point."

There are, of course, other bakeries, but Alfonzo's is positioned close to downtown. That leads to visits by a baseball player or two, and occasionally the mayor and a few judges, all looking for a Cuban sandwich, coffee and the Lelolai speciality, the flan.

If you don't know what a flan is, Alfonzo is planning to change that. If you've never had the pleasure of a flan or crème caramel, she says the closest description is a sort of pudding or Jell-O alternative. The basic ingredients are sugar and eggs, and it is a staple in many Spanish cultures.

Alfonzo admits that what is so common in Puerto Rico is exotic for some Clevelanders.

"There is a whole education to the flan," she says. "You have to flip it over, there's a sweet sauce."

There is also an education for her bakery's suppliers.

"Most of the ingredients come from Puerto Rico," she says. "It was difficult to explain what I needed, but it's getting a lot easier."

Suppliers have their work cut out for them. According to the 2000 Census, the number of Hispanic-owned firms has increased 12.8 percent in the last decade. That translates into 1.4 million businesses with annual sales growth of 24 percent.

Those statistics weren't Alfonzo's reason for starting the business, though. Rather, she had a good idea, received a loan from the SBA, and, in March 2001, the economy hadn't tanked yet.

"We started when things were positive," she says. "If I had waited until after Sept. 11 ... it made us re-evaluate our goals and postpone the second phase of the business -- the wholesale side."

There was another factor -- a growing Hispanic population in Cleveland.

"Originally, when we put the business plan together, it was with the Hispanic market in mind," Alfonzo says. "But actually, 70 percent of our customers are non-Hispanic. It was a pleasant surprise. It really says a lot about how diverse Cleveland is."

The other surprise was the quick success of Lelolai. The café is already surpassing the average sale amount per customer in the industry.

"The potential is enormous," Alfonzo says, adding that she won't rule out franchising the café, expanding the wholesale flan business or moving into other markets.

She is currently working on restaurant and grocery store distribution, as well as moving the flan into public schools, hospital and nursing homes to capitalize on its high protein content. But in the end, Alfonzo has one simple goal: "Make flan the staple in the American diet."

Punk printing

There's a good chance that the oldest piece of clothing in your wardrobe is a T-shirt -- faded, ripped or threadbare. You can't part with it because it's from your favorite band or that show you saw, or perhaps from your favorite sports team's best season.

It's not just a T-shirt. It's a moment in time. A memory. Not bad for the $15 you paid for it.

One would think the T-shirt market is saturated, with little room for newcomers. But two local entrepreneurs have carved out their niche in the market.

Jacob Edwards and Dameon Guess' Jak Prints is an entertainment promotion and apparel company that caters to bands, artists and clubs, a market often ignored by traditional printers.

"We both played in bands," says Edwards, the 24-year-old president. "We would work for awhile, then do something really irresponsible and quit the job to go on tour."

The two were living on and off on the road, and out of necessity, Edwards was creating his own T-shirts and promotional products.

"After awhile, other bands started asking about my T-shirts," says Edwards.

And what began as him doing favors for other groups turned into a full-fledged apparel company.

At the same time, Guess was free-lancing as a Web-page designer and signed on to design his childhood friend's Web site. But when the site was finished, Edwards realized what Guess already knew -- that the two should go into business as partners.

"It was right there the whole time, and one day he called me to see the site and I walked up to the computer and it says, 'Jak Prints' instead of 'Jak Apparel.'" Edwards immediately built a desk for Guess in his small office and the collaboration began.

Guess, then 24, and Edwards, then 22, became almost accidental entrepreneurs. They may seem young by conventional standards, but today more and more businesses are being started by entrepreneurs in their 20s. According to the Kauffman Foundation, young men between the ages of 25 to 34 are one of the most active demographic groups when it comes to entrepreneurial activity.

The youth market is nothing to sneeze at. Twenty-five percent of the U.S. population is under the age of 18, and youth in the urban and inner-city areas alone represent $300 billion in buying power. When you factor in college students, who have roughly $100 billion in discretionary money, you're talking about a lot of potential dollars.

A one-stop entertainment, promotions and apparel outlet, Jak Prints originally marketed specifically to smaller independent bands, local clubs and art galleries. Today, its job list includes work for U.S. Rep. Stephanie Tubbs-Jones, Derek Hess and a several nationally-known bands.

Walk down West 6th Street or near the Rock Hall and you'll see many examples of Jak's influence -- postcards, posters and other eye-popping pieces of art announcing the latest event, show or exhibit.

"We are one of the biggest in town now," says Edwards. "We are really quick, everything in-shop can be turned around in seven to 10 days."

Their understanding of the business comes from knowing the industries they serve.

"Our customers will call up and say, 'I'm in Seattle but I will be in L.A. in three days and I need shirts sent to this club," says Edwards.

Most printers, he claims, see this type of customer as a logistical nightmare and charge accordingly.

"I don't think these other printers know how important promotion is to these bands," he says.

But Edwards and Guess know. In fact, when they were starting out, they went so far as to drive T-shirts to a band appearing in Washington, D.C.

"It's because we know what it's like," Edward says. "We've been on tour, and we've been in a van for months."

These bands, he says, live and die by promotion -- T-shirts, posters, stickers and flyers for shows -- and Jak Prints provides one-stop shopping, as well as cutting-edge design furnished almost entirely by local talent.

Guess says the use of local talent is key, not only to support the creative community in Cleveland but also to keep up with local and national trends.

"If we need to do a hip hop design and we hire someone into hip hop, they help us by keeping us abreast of the scene," he says.

Guess and Edwards talk like seasoned business pros about niche marketing and maintaining good relationships with customers, so it's often difficult to remember they are self-proclaimed skate punks who dropped out of high school. But it is this level of professionalism and industry knowledge that has landed them such high-profile clients as Atlantic Records and the Rock and Roll Hall of Fame.

And unlike many of their older, more experienced entrepreneurial brethren, Guess and Edwards didn't acquire their seed capital from a bank, nor have they ever written a business plan.

"The business started with zero," Edwards says. "I installed a waterfall at first to buy a computer, Dameon installed carpet, and that was all invested into the company."

But that doesn't mean the pair discounts their place in the business world.

"We are legit," says Edwards. "We have a lawyer and an accountant. We don't make the books too hard, and we don't walk in the gray area.

"It's not easy running a business in Ohio -- there are more acronyms out there you have to cut checks to every month, every quarter."

Something in the wind

Manufacturing may not hold the lofty position it did in Cleveland at the turn of the century, but it's still an integral part of the Northeast Ohio economy. And like the rest of the business community, manufacturing is undergoing change.

Holly Harlan has been through many of these changes. An industrial engineer by training, she has spent more than 20 years in manufacturing. Since the Iowa native moved to Cleveland, she has worked with General Electric, CAMP Inc., WIRE-Net and ShoreBank.

She admits she was "looking for a mission in life. I enjoyed what I was doing, but it was not quite my thing."

The story goes that she went to a talk by a sustainability expert and walked out knowing she wanted to be a part of the new movement.

"I realized there was so much opportunity," says Harlan.

The sustainability movement, she realized, would open up a whole new market for products and processes.

"There's all this business opportunity. When you think about it, it's really low-hanging fruit," she says.

Sustainability means a lot of things, according to Harlan's Web site www.e4sustainability.org. The movement is based on three general principles --reduce, recycle and reuse -- and it can apply to any environments.

This includes "Creating products, services, buildings and communities that improve our quality of life while maintaining the capacity of the environment to provide for future generations."

Harlan focuses these principals on manufacturing processes, where they not only help the environment but decrease costs.

The point is to make business understand that sustainability is not just about being responsible, it also makes good business sense.

That's why Harlan sees herself as a consultant, not an activist.

"I started in business, and I've worked in business for 20 years before starting this," she says.

The "this" she is referring to are her latest enterprises, Entrepreneurs for Sustainability, a not-for-profit dedicated to education and awareness, and Eco-Innovations, a for-profit consulting firm.

"I wanted to put all my energy in this (sustainability), but I still had to make a living," says Harlan.

The organizations fill two distinct needs, while working together to promote awareness and provide assistance to those companies and entrepreneurs looking into sustainability.

Because she had worked with start-up divisions and departments for most of her career, launching her own venture wasn't much of a stretch. But, she points out, those previous risks were taken with someone else's money.

And considering that 82 percent of investors chose a "strong management team" as the single most important element of a business proposal, with a "good business idea" a distant second at 34 percent, entrepreneurs with new ideas can have trouble finding financing.

Luckily for Harlan, the idea of sustainability was making its way into the Cleveland business community's lexicon, with groups like Eco-City Cleveland and the Green Building Coalition raising awareness. So she wrote a business plan and secured funding from The Gund Foundation and the ShoreBank Enterprise Group. With this support, a board of advisers and help from her friends, Harlan has begun what she calls a journey.

One of the advantages she has when working with the manufacturing industry is the fact that she's experienced and understands her clients' priorities.

"I've run plants, so they will listen to me," she says. "I'm someone from the inside. And I think there is money in it (sustainability). The key is to be inclusive."

However, in order to integrate sustainability ideas and processes in businesses, Harlan recognized that education would be crucial. She also understood that the education provided by Entrepreneurs for Sustainability would create more opportunities for Eco Innovations.

"I realized to get this to move faster, I had to work with entrepreneurs," she says.

She is also brokering deals with some of the bigger companies in Cleveland, helping with waste, recycling and green building standards. Explains Harlan, "I've had people say, 'You make me feel guilty because you opened my eyes to it, and now I can't go back.'"

Business is business. But history has shown that it's cyclical. Part of those business cycles is the constant element of change. New entrepreneurs like Alfonzo, Edwards, Guess and Harlan definitely examples of that change. And if history is repeating itself, there are more to come. How to reach: Lelolai Bakery & Cafe, (216) 771-9956; Jak Prints, (440) 942-6324 or www.jakprints.com; Entrepreneurs for Sustainability/Eco-Innovations, (216) 371-1177 or www.e4sustainability.org