• Analysis
  • October 12, 2015
  • 19 minutes
  • 0

L.A. brings entrepreneurs into government to boost startups

The world-first 'entrepreneurs in residence' program helps local business flourish

Entrepreneurs have traditionally not thought much of public servants. As Amir Tehrani, one of the world’s two first ever ‘City Entrepreneurs in Residence’, puts it: ‘There’s this feeling that they’re not businesspeople, they don’t understand.’

That strained relationship is often strained further by innovative companies – witness the worldwide wrangling between city halls and the mobile cab firm Uber. And that strain impedes the growth of what city hall and businesses both want above all else: prosperity.

So Eric Garcetti, the forward-thinking mayor of Los Angeles, who plays jazz piano and has been a foster father, conceptually borrowed from the venture capital industry to invent the position of a City Entrepreneur in Residence. His goal: for the public and private sector to work together in helping small businesses expand, creating jobs for Angelenos and nourishing a startup ecosystem that will drive future prosperity.

Already the role, just over a year old, has led to ingenious ways of helping small companies with everything from investment and real estate to local suppliers and parking space, and also prompted the exploration of imaginative solutions for drawing more capital into the ecosystem.

An American Dream of City Hall

The entrepreneurs Garcetti asked to figure out how the job would actually work are Amir Tehrani and Krisztina ‘Z’ Holly. Both are from families that came to America only one generation ago, and associate the entrepreneurial spirit with the American Dream. Amir’s came from Iran when he was two years old; Krisztina’s parents separately fled Hungary after the Soviet occupation of 1956.

KrisztinaZHolly

Krisztina describes this as ‘what motivates me in my deep core. The thought of my father leaving his family and friends behind, not knowing the language and ending up with advanced degrees from MIT and Harvard, and over 60 patents to his name. There’s something shared in the DNA of entrepreneurs and refugees. They’re pioneers.’

Krisztina co-founded the computer telephony company Stylus, created the first TEDx event, has been an adviser to the Obama administration and contributes to the MIT and USC centres for innovation. She says: ‘My interest, my expertise, my passion is to build these entrepreneurial communities. Doing it for the city was the same but in a different arena.’

Amir, meanwhile, founded the Conrad Asher Licensing Group, a sportswear company, and Coleman Living, which sells barbecue and camping equipment. As he says: ‘The vast majority of entrepreneurs and jobs are not with companies like Google or Facebook, they’re farms, they’re small stores, they’re what America was built on, people who built something from nothing.’ He is also on the boards of numerous businesses and was one of the entrepreneurs to persuade Barack Obama to inaugurate National Entrepreneurs Day.

It was this expertise and drive that Mayor Garcetti wanted to harness for the city. Amir says it is ‘critical’ for this kind of city-business liaison that they are entrepreneurs themselves, ‘a known commodity’.  So when Mayor Garcetti offered a full-time job, Amir turned him down. Instead he asked to be paid a single dollar a year. He said, “It’s interesting because I’m still an entrepreneur. You want someone who’s still doing it currently, not five years ago or ten years ago. You want this person to be an investor in the ecosystem.’

But now that they have, to some degree, come inside City Hall, both emphasise that their experience has shown them how hard it is to steer a machine of that size. Says Krisztina: ‘Government is much harder than business. There’s such a lot of oversight and scrutiny of everything you do. You can’t be cavalier about anything, and government has to serve everyone, not a narrow niche. Anyone who says they want to run government like a business doesn’t know what they’re talking about.

‘It’s much more complex and it’s also longer term. You have to think long-term, but you’re measured short-term. Of course businesses have to think long-term, too, but the city’s hopefully going to be here for hundreds of years. You can’t just go bankrupt, because we all have to live in it.’

What do City Entrepreneurs in Residence actually do?

The role is young and evolving, but already Amir explained that he has found himself able to exert the greatest positive influence in areas that are new and innovative, such as the sharing economy.  ‘On that, we’ve been really pro-active and welcoming. We’ve been a model case of how these things can benefit the city and the citizens. Having an entrepreneur who gets it means we’ve done a pretty good job of being ahead of the curve.’

amir‘Because I have my ear to the ground, because I’m in the ecosystem,’ says Amir, ‘I hear about what’s working. Also, from the city, I see when a new company is growing quickly, so I call them and I say, “I’m the city’s Entrepreneur in Residence and we’d like to know how we can help you.” Let me tell you, I always get that meeting.’

Of the hundreds of companies Amir has approached, around a third have benefitted primarily from guidance through the ‘giant maze’ of all that the city can do for them. Many are unaware of subsidies, tax breaks (such as a three-year exemption for new businesses) or industry programmes they are eligible for. Others are rapidly outgrowing their premises and can’t get their hands on extra space quickly enough. In that case, Amir makes introductions to developers and to planning officials, who can help with the regulatory hurdles.

The day-to-day help is as practical as that. Amir gives the example of a logistics company that grew from 25 to 100 staff and moved into a converted warehouse. Because it was zoned as light industrial space, there wasn’t enough parking and, in a city as totally reliant on the car as Los Angeles: ‘It’s a real problem. Public transport is non-existent and you’ve got 75 people who have to park somewhere to get to work. So we, the city, figure out how to make changes, because we want those 75 jobs. We ease the ordinances and we help them find nearby properties that have extra space.

‘But we also talk to Uber, who we’re already on good terms with, and they set up a car pool for the employees. The company gives us their addresses and we see that a lot of them live in the same area. We take a map and work out routes to pick them up.’

And why was the city already on good terms with Uber? Because it had seen in it a solution to Los Angeles’s chronic drink-driving problem. ‘Part of the drinking and driving is car culture, but part of it is convenience and cost. The people drinking and driving are the younger demographic who are super-comfortable using Uber. And especially if you’re splitting it, Uber is almost a negligible cost.’

So the city smoothed the way for Uber, and is becoming one of the first American cities to give access to the airport, the motherlode of taxi fares. Amir also brought them to a job fair in a deprived part of the city, along with Lyft, AirBnB and other companies that were hiring. ‘Our thinking is: let’s get jobs in this industry to the people who need them most.’

This calling on Uber to help another company throws a light on the long-term thinking that goes far beyond Amir hammering out phone calls day after day: they want to grow what they call an ‘ecosystem’, a self-reinforcing environment for small business in which reciprocal deals and re-investment of the money earned generate far more prosperity than any individual or the city itself ever could.

A virtuous circle

The Entrepreneurs in Residence grow the ecosystem partly by making innumerable connections between individuals, partly by hosting small business conferences or urban manufacturing summits on behalf of the mayor and partly through far more ambitious projects.

For Amir, that has to do with venture capital. Many of the companies he encounters are at the stage of wanting to drastically scale up their business but – because Los Angeles is not Silicon Valley – have trouble finding the investment to do so. He says: ‘In L.A. we have a very good “Angel” investor ecosystem. If you have a good idea and any amount of hustle, you should be able to raise half a million to a million. But if it works, you need maybe ten, fifteen million dollars. At that point, you’re talking institution, professional investors. Only two firms in L.A. have a large enough pool of capital for that. And if you strike out with them, you have to go to San Francisco.’

He gives the example of the company Lookout, whose founder John Hering ‘is an L.A. guy. He grew up here, never wanted to leave. When he did, he had fifteen, sixteen employees. Now he has five hundred, and a $1.5billion turnover. For L.A. it’s an obvious miss of all those jobs and taxes, but also at some point they’ll go public or sell at a premium, for let’s say $4billion. The top forty people become multi-multi-multi millionaires. They’re young, they’re believers in entrepreneurship. They start companies of their own or invest in people they’ve met along the way. And where do they do it? Right where they are.’

However, Amir discovered that the truly big US investors – such as pension funds and universities – will almost never put the funds they allocate for high-risk venture capital into L.A. rather than San Francisco, because it doesn’t have the Silicon Valley credibility. ‘There’s not an appetite from institutional investors domestically, but there is internationally. So the Mayor went to China, Korea, Japan, Singapore…’

Krisztina, meanwhile, has focussed her long-term efforts on the manufacturing sector. Using the Mayor’s office for clout, she has contacted 1,600 businesses for a comprehensive survey of what they do. This information on demographics, growth projections, attitudes to partnering with start-ups and their capacity to produce things for others will be used to ‘write policy recommendations that are actually listened to’. She says, ‘Lots of people are really interested. There’s been a far higher response than usual.’

It could also form the basis of programmes to connect businesses with local manufacturers and suppliers. ‘We’re seeing a lot of growth in people wanting to source from L.A.,’ says Krisztina. This could be in the form of a directory or map, to emphasise the nearness of local supply, or even lead to a tech platform that actively matches buyers and suppliers. Various ideas are currently being tested through an Urban Manufacturing Summit. ‘It’s a really exciting possibility. There’s lots of inventiveness. I mean, I didn’t go into this position thinking my work could lead to a non-profit. But the enthusiasm indicates that maybe we should do just that.’

A Tale for All Cities

For Amir, entrepreneurial thinking is almost an article of faith. ‘The big idea here is actually is not just something great for L.A. If it can work in L.A., it can work anywhere. L.A. is complex, with lots of stakeholders and geographically spread out, so I want to reach that proof point where we can roll out Entrepreneurs in Residence nationally, even internationally.

‘I would love to see this in every country. If the next Google comes out of India, fantastic, it helps the world. There are thousands of Steve Jobs, Elon Musks and Mark Zuckerbergs in the villages of Africa and India. They are the North Star of making things better for everyone.’ Amir does not doubt that there will be entrepreneurs in every city willing to do what he and Krisztina have done in L.A.

She says: ‘The key thing is being very resourceful, and a self-starter. You’ve got to be willing to roll up your sleeves and not be too big for the grunt work. Having a focus is really important. It’s easy to try to boil the ocean and when I started, I almost felt like I was in over my head. But there’s such a lot of opportunity, you just have to keep chipping away.’

The Entrepreneur in Residence programme is simple, inexpensive and working. In a world where every city needs to help small businesses, it may one day become as ubiquitous a role as it is in the world’s most celebrated venture capital firms.  

After borrowing its concept from the private sector, L.A. may also, unexpectedly, catalyse an innovation of great interest to business. The city’s simple approach of looking at jobs growth data – rather than companies in sexy industries or those which excel at pitching – has identified some exciting businesses overlooked by venture capitalists.  

Tempted to take matters into his own hands, Amir is thinking of starting a new venture capital fund for Los Angeles. As he says, ‘I see this void in the market and I ask myself, should I step up and fill the void? What makes the difference between a good investor and a great investor is access to deal flow. And I’m seeing these exciting companies all the time. It’s something that would be beneficial to the city and would also be great business. It’s that double bottom line of do well, and do good.’

Follow Krisztina and Mayor Garcetti’s Office on Twitter and send us your suggestions for Apolitical Pioneers to ideas@apolitical.co.

(Picture credit: Pexels/Pixabay)

 

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