BUSINESS PULSE : SMALL BUSINESS IN ORANGE COUNTY : Butchers, Bakers, Microchip Makers : Enterprises Thrive in an Economic Greenhouse

All around the country, in growing numbers, people are closing their eyes, gritting their teeth, mortgaging their homes, cashing in their retirement accounts and taking the biggest crap shoot of their careers by starting their own businesses.

And nowhere is the entrepreneurial urge more evident than in Orange County, where nearly 100 new businesses were begun each working day last year.

Orange County, in fact, has become a hotbed of small-business activity, a petri dish culture of cutting-edge capitalism. And the rich mix that fertilizes business development here is expected to produce bountiful growth for years to come.

“This is a breeding ground for new business,” said Chapman College economist James Doti. “We have the colleges and a core of high-technology firms and they throw off people who start their own businesses, and those businesses create the need for service businesses. And it goes on and on.”

No Dominant Industry

Of the more than 80,000 operating businesses in Orange County, 96% have 50 or fewer employees and 64% have no more than five workers. Those proportions aren’t unusual, business statisticians say. Small firms make up the bulk of the business base of most communities.

What is different about Orange County is that there is no big oil cartel or monolithic auto industry dominating the local economy, as in Houston or Detroit. Instead of a collection of similar concerns all feeding into and off of a single industry, Orange County’s business base is made up of a little bit of just about everything.

The federal government recognizes 970 different types of businesses, and at least 720 of them are present in Orange County. In most regional economies, the presence of even 500 different types of businesses would be remarkable, according to specialists like Terry Hill of the National Federation of Independent Business.

It is this diversity that has helped the county’s economy remain strong through several recessions in the last 2 decades.

Post-Industrial Landscape

And it is this diversity that economists and sociologists cite in characterizing Orange County as a leading example of a new post-industrial landscape, in which tens of thousands of small, constantly changing enterprises coalesce to deliver goods and services far more efficiently than America’s aging industrial giants and corporate conglomerates ever could.

Management guru Tom Peters, in a recent speech, called the Orange County area “the most exciting economy on Earth.”

And Alan J. Scott of UCLA, an economic geographer and urban analyst, cited Orange County as a model for “the new patterns of industrialization and urbanization that are now being laid down on the American economic landscape.”

Both said they find the county exciting because of its dynamic community of small businesses which, by necessity, are able to rapidly adapt to a changing environment.

Local business owners seem to agree with that assessment.

In a recent survey of 522 small-business owners conducted for the The Times Orange County Edition by Mark Baldassare & Associates, 88% of the respondents rated the county good or excellent as a business location.

But a vibrant economy like Orange County’s is sure to experience its share of growing pains, and the Times Small Business Poll reflects a few rough spots in the local landscape.

Predictably, the problems tend to be linked directly to the phenomenal growth and development--Orange County’s population has soared from 650,000 to 2.2 million in the past 3 decades--that has helped make the county such a fertile place for business formation.

Traffic congestion and the inadequacy of the surface transportation system topped the list of troubles, with 46% of the survey respondents calling it a big problem for their businesses and 37% saying it is somewhat of a problem.

The soaring cost of homes--and the lack of sufficient housing to satisfy demand--ranked second on the list of problems adversely affecting county businesses, followed by the cost of commercial land and rents, the cost of labor, the supply of labor, and difficulties in dealing with local government regulations.

Despite the problems, 51% of the respondents said they expect to expand their facilities in the county over the next 5 years, while a whopping 86% said they expect to increase employment within the same period.

But why is the small-business community so strong here? And what has made the county an incubator for innovative enterprises?

Simply stated, the county has an infrastructure geared to support business, said Michael D. Ames, a professor of management at Cal State Fullerton and director of the university’s Small Business Institute.

Ames defined that infrastructure as “physical assets, plus people, plus mechanisms for improvement” and cited the planning of prezoned industrial parks in communities like Irvine as a major factor in the business boom that has given the county a $60-billion annual economy.

The county also tends to attract people from higher socioeconomic strata, Ames said. That, in turn, has created a financial and educational base to support new businesses and a cadre of trained or easily trainable workers and managers to run them.

Ames and other business specialists agree that the county has entered an era in which traffic congestion, the high cost of housing and the increasing labor shortages are eroding some of the area’s attractiveness.

“But we haven’t done too shabbily so far,” Ames said, “and we have the mechanisms for improvement to help address things like land costs. We have people who are clever in designing products people really want and in designing efficient ways to make them so we can squeeze more out of each square foot, often with fewer employees.”

While the infrastructure is important, the county’s role as a business incubator is equally dependent on two factors that aren’t man-made: climate and location.

Industrial psychologist Michael Anthony, deputy director of the Orange County Business Development Center, said the county has prospered precisely because this isn’t Council Bluffs, Iowa, or Mandan, N.D.

“Orange County began as a vacation spot, then became a choice living place for executives, and then they started bringing their businesses down from Los Angeles with them,” Anthony said.

James G. Rourke, a partner in the law firm of Rourke & Woodruff in Orange, has been in Orange County since 1956. “The semi-rural life style appealed to me then,” he said, “and I have to admit that I didn’t foresee that it wouldn’t last long. But the trade-off has been the development of other amenities, so you don’t have to go to Los Angeles for entertainment like you did 35 years ago. And without that growth, we wouldn’t have the vibrant economy that makes this one of the most excellent places in the country to have a business.”

The county’s position between Los Angeles and San Diego counties, with their stables of large aerospace and defense contractors, have also been of considerable importance in developing a healthy small-business community, said Frank Swain, author of the Small Business Administration’s annual report on the state of small business in the United States.

The final ingredient is the presence a large number of educational institutions, including several 4-year colleges, eight community colleges and a major university.

They have provided the basis for the latest wave of small-business formation: the electronics and medical and biomedical research firms that have helped turn the county into a leading technology center, said Chapman College’s Doti.

And that makes Doti sanguine about the future, despite the complaints about traffic congestion, air pollution, expensive housing and labor shortages.

“This has become a high-priced area, and the higher wage rates that are needed argue against some specific types of firms being here,” he said.

“But the county is attracting companies in the business services and high-technology areas,” Doti said. “And these companies tend to offer higher pay and are highly specialized, so we get diversity and a lot of new employment of people who can afford to live here.”

O.C. CLIMATE FOR NEW BUSINESSES

Overall Rating

“Overall, how would you rate Orange County as a location for your business?” Poor: 2% Fair: 10% Good: 33% Excellent: 55% By Number of Employees

Excellent Good Fair Poor 1 to 5 49% 40% 10% 1% 6 to 10 62 26 10 2 11 to 25 57 32 10 1 26 to 50 52 36 10 2 By Industry Retail 63 30 7 -- Construction 61 31 8 -- Services 60 34 5 1 FIRE* 67 27 6 -- Manufacturing 31 38 25 6 Other 55 35 10 --

Biggest Advantage / Biggest Disadvantage

Advantages Customers: 30% OC Economy: 29% Location: 17% Others: 9% Quality of Life: 8% None: 7% Disadvantages Traffic: 33% Labor: 15% Costs: 15% Other: 15% Housing: 8% Competition: 6% Government: 4% None: 4% Profitable? “In the past year, has your company been profitable?”

No: 17% Yes: 83% Specific Problems

“How much of a problem are these features of Orange County’s economy for your business?”

Amount of Problem Big Somewhat None Surface transportation system 46% 37% 17% Housing costs and supply 41 40 19 Building rents and land costs 31 50 19 Labor costs 31 47 22 Labor supply 29 41 30 Local government regulations 22 40 38 Air transportation 7 24 69

Business Plans

“In the next five years, what are your company’s plans for facilities?” Expand in OC: 51% No Change: 29% Shrink in OC: 3% Shrink Elsewhere: 2% Expand Elsewhere: 15% “In the next five years, what are your employment plans for your company?”

Expand Alot: 19% Shrink Alot: 1% Shrink: 3% No Change: 11% Expand Moderately: 67% Source: Times Small Business Poll.