Business Update with Mark Lacter

LA-based company posts 10,000% profit over three years

KPCC's business analyst Mark Lacter says some businesses in Los Angeles are doing very, very well.

Steve Julian: Mark, you've been scanning the list of L.A.'s fastest growing businesses.

Mark Lacter: That's right, Steve. Inc. magazine looks at revenue from 2008 to 2011 - not exactly a great time for the economy - and yet there's an L.A. company that shot up by 10,160 percent during those three years. The company is called Nasty Gal - it's an online retailer of new and used clothing, it's based downtown, and its founder is 28-year-old Sophia Amoruso, who got her start selling on eBay (she'd pick stuff up at flea markets and used clothing stores, and then jack up the price).

Julian: Tell me she has an MBA...

Lacter: She doesn't have any degree, but she does know the kind of clothing that young women want, and she also knows how to market on the Internet. Back in 2008, the company had sales of $223,000. Last year, Nasty Gal was at $23 million, and this year it's expected to be way more than that. The website gets 250,000 visitors a day. Now, we should point out that new businesses typically grow a lot faster, percentage wise, than the mature ones. But 10,000 percent over three years is pretty amazing, and as you might guess a venture capital firm has already noticed - it's provided around $50 million in funding. So, this is an exceptional story, but the Inc. magazine list is loaded with Southern California companies that have skyrocketed in the last few years - right when the economy was supposed to have been in the pits.

Julian: Who else?

Lacter: You have a Pasadena marketing and advertising firm called RateSpecial Interactive - it's 3-year growth was 8,600 percent; a financial services company in Newport Beach called Jackson Hunter Morris & Knight had growth of 7,100 percent; and there's a distributor of remote control toys in El Monte called Xenon Project International that went up 3,600 percent - and Steve, I'm just on page 1 of the Inc. List. It goes on for 51 pages. The moral of the story: if you're an entrepreneur with a good idea and have access to at least some start-up money, there are opportunities - and you don't have to be the next Mark Zuckerberg. (Actually, judging by Facebook's stock price, you probably don't even want to be the next Mark Zuckerberg).

Julian: But don't most start-up ventures fail?

Lacter: They do - failure rate is about 80 percent for first-time entrepreneurs (and two out of 10 will max out on their credit cards). What's interesting is that the business start-up rate has remained pretty constant both in good years and bad years. What varies quite a bit is the backgrounds of the people involved. It turns out that the highest rate of entrepreneurial activity involves the 55-to-64 age bracket (perhaps folks leaving corporate jobs to go out on their own). One study I saw showed that a large percentage of successful entrepreneurs start businesses as kids - and the earlier you start, the more successful you're likely to become. And despite the success of Nasty Gal, only about one-third of all startup owners are women.

Julian: What do successful entrepreneurs have in common?

Lacter: Steve, they all have a willingness to go into battle no matter what the overall economy is doing. Matter of fact, most of them say that taking risks is more important than avoiding mistakes, and, whether you believe this one or not, two-thirds say that making money is not their prime motivator in starting a business. In general, entrepreneurs are okay with the possibility of being broke at some point in their careers - it's really part of the deal. That's why the folks who do make it big tend not to go wild and crazy by buying fancy houses and cars. They usually manage their money quite well - and they're also good planners. I'm always amazed at how many people think they'll miraculously stumble into a successful situation.

Julian: Any other qualities I don't have?

Lacter: It helps if you're a shameless self-promoter (that's more important now than ever before because there is so much competition for everyone's time and money); and maybe most important, you have to project a positive attitude to both the people who work for you and the customers who do business with you. Sounds simple enough. But just try keeping a smile on your face when you have to meet payroll when there's no money in the bank.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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