California state seal

The birthplace of Google, McDonald's, Levi Strauss and Apple Inc., the Golden State never falls short on innovation. Its success stories set a strong example of the American dream fulfilled, but what about the small businesses cropping up throughout the state that will never achieve their size and scope?

Small businesses contribute greatly to the California economy, comprising 90% of all business throughout the state, according to Juan Arambula, Chairman of the California State Assembly Committee on Jobs, Economic Development, and the Economy. Because they employ more than half of all the workers in the state, Arambula says, "I think our economy is built on the success of small business."

But the right to work for yourself, or own your own creation, can also be fraught with funding and regulatory concerns. The entrepreneur who is unaware of the many state requirements to own and operate a company can be easily tripped up by bureaucratic traps for the unwary.

Several small business owners argue that the state does not recognize the crucial role they provide by hiring more people than their larger counterparts, thus contributing far more to the economy.

Trip Hosley, who opened the award-winning restaurant Sauce in San Francisco nearly three years ago, claims the only reward he receives for creating more jobs is more taxes. "If I had to do it all over again, I probably wouldn't put my business in California...this climate is not for small businesses at all," he says.

Craig Wathen, who has owned and operated the City Beer Store in San Francisco for one year, has similar thoughts. Although his business is thriving simply by word-of-mouth, he says, "If I would've known what I was chancing, I probably wouldn't have done it."

Regardless of the risks, and regardless of the potential financial losses, the entrepreneurial spirit has shown no signs of slowing down. Many lawmakers attribute this to the American tradition of personal liberty and the belief that citizens have the right to shape their own destiny.

"When we talk about liberty and the pursuit of happiness, we're talking about business owners," says Gary McKinsey, chairman of the California Small Business Association. "In this country we have the mindset that yes, this is a place where anyone can improve their standing in life."

Liberty and freedom are not terms Hosley would like to associate with running your own business. He points out that, with a new citywide increase in the minimum wage, his employees work half as many hours as he does, yet earn nearly twice as much per week. Hosley also doesn't feel much financial freedom, he says, knowing that he does not make nearly as much as he could in any other state.

"For a small business owner, an average work week is 75-80 hours, so yes, you get the freedom of being self-employed," Hosley says. "But on the other hand, it's your business so you have to be there all the time to make things happen…everything I own is wrapped up in my business."

Regulation and Competition

Assemblyman Jim Silva, (R-Huntington Beach), says that sometimes legislators can drive away small business with over-regulation. Silva, serving as Vice Chair of the California State Assembly Committee on Jobs, Economic Development, and the Economy, believes lawmakers need to be careful not to overburden the smaller engines that keep the state economy running with too many environmental and safety concerns.

"I think there has to be a balance," Silva says. "We can over-regulate business to the point where it is no longer profitable to keep a business."

Neither Hosley nor Wathen were deterred by safety or environmental regulation. Wathen says, "States like California and New York are known for having more hoops—it wasn't a big deal for me. You just have to know what you're doing."

Small Fish v. Big Fish

But Whathen continues to explain that there are many other obstacles that larger businesses never face. He gives the example of a wine bar that opened down the street. Within a few months of opening, a nearby liquor store protested, claiming unfair competition.

"Basically," he says, "He [the liquor store owner], was trying to bankrupt them, and they [local regulators] wanted to err on the side of not giving them their liquor license, which set them back several more months…I don't think the Whole Foods nearby was criticized when it opened recently. In fact, I don't think I've ever seen a Safeway threatened with losing its liquor license."

Assemblyman Arambula concedes that the scales are tilted significantly towards larger operations when it comes to having the resources to jump through bureaucratic hoops. "It costs almost 50% more for small firms to comply with federal regulations than it does for their larger counterparts," he says.

And it's difficult to make sure the services provided by the state meet the particular needs of small businesses. "It's kind of like trying to drink out of a fire hydrant [for small businesses]," he says. Arambula claims that lawmakers should make it their goal not to harm small businesses because of a "one size fits all" regulatory environment.

The Undying Dream

But for all the hurdles and hoops, some small business owners smoothly sail into the world of high profit margins and near-instant success. James Sime, owner of Isotope Comics in San Francisco's trendy Hayes Valley neighborhood, couldn't think of any major setbacks he faced while starting his business. He says he never went to business school, having previously worked as a bartender. Sime's "comic book lounge" enjoys a steady stream of income and worldwide attention. "I created what I wanted to spend my money on," he states simply.

Sime says he feels fortunate to work in a part of the city that is "not full of soulless outlets," and claims, "Owners can be found behind every counter. They are single-vision, passionate owners out on a limb."

Assemblyman Hector De La Torre (D-South Gate) believes that this attitude marks a key component of the American ideology. "If you think you can do something better or have something unique, you hang out your shingle and you try to prove yourself," he says.

McKinsey pushes this notion further, claiming that it is a spirit passed on from several generations. "We come from a long history of risk takers," he says. "The founding fathers took risks to fight the British. The people who continue to come to this country are taking a risk to leave comfort and family to come to an unknown place. And we're told we can have a better life."