From the November 1998 issue of Entrepreneur

It has often been said that Los Angeles is one of the most futuristic cities, a dynamic metropolis linked to the world by trade and Hollywood, a boiling melting pot of opportunity and risk. Leading this thriving city into the next millennium is its mayor, Richard J. Riordan, an ultrasuccessful businessman and Republican twice elected in a predominantly Democratic city. Despite a charter that gives most of the power to the city council, Riordan has used his bully pulpit and business connections to help transform this city of more than 3.6 million from a place where businesses are burned by rioters into a center for realizing entrepreneurial dreams.

With surprising energy at age 68, Riordan has worked hard to bring Los Angeles back from riots and recession. But he didn't plan to go into politics. Born in Flushing, New York, he graduated from Princeton University in 1952 with a degree in philosophy, served in the Army during the Korean War, then earned a law degree from the University of Michigan in 1956. He was recruited to Los Angeles by the politically connected law firm O'Melveny & Myers LLP. There he became involved in the firm's tradition of philanthropy, and people involved in charitable organizations soon sought him out as the man who could solve problems.

By the 1970s, Riordan had established his own law practice and had become increasingly interested in venture capital, investing in and running various businesses. His most profitable investment was in Mattel, where he helped the company refocus on the Barbie doll. This venture added significantly to his personal fortune, now estimated in the hundreds of millions. (He's given away $32 million, almost half of it to literacy programs.)

Due to his business skills and the fact that he made a contribution to former Los Angeles Mayor Tom Bradley's unsuccessful campaign for the California governorship in 1982, Riordan was appointed to the city's Department of Parks and Recreation. After the city's riots a decade later, he felt a calling to help in a more significant way and, with the encouragement of the business community, ran for mayor and won, serving for just $1 a year.

Riordan's tenure as mayor has not been easy. The area has been hit by everything from a major earthquake to floods while he's been in office. But things are looking up, due in large part to his efforts. Serious crimes are down by 40 percent since 1993, while murders have dropped 47 percent. With the approval of the city council, Riordan drafted a balanced Los Angeles budget without imposing new taxes. He has boosted business construction by simplifying the building permit process, and he supported a business-development task force in 1995 that has created 300,000 new jobs. Riordan is recruiting biotechnology companies to the area and also has ambitious plans to increase international trade by upgrading the city's infrastructure, including LAX and the harbor. Now in his second term, he has placed improving L.A.'s long-suffering school system at the top of his list of priorities.

Despite his busy schedule--including owning the legendary 24-hour downtown restaurant, the Original Pantry Cafe--Riordan shared his thoughts about being successful in small business, now that he has a city-hall perspective.

Entrepreneur:Many small-business owners feel frustrated in their dealings with local government and alienated by the political process. Now that you're on the other side of the desk, what's your message to them?

Richard J. Riordan: First, you need to organize as a group. If you try to change things by yourself, you'll go crazy. Throughout the city, we have Business Improvement Districts, where the businesses have decided to pay a small tax, which buys them increased city services like street cleaning.

When I speak to business and neighborhood groups, they often want to know what I will do for them, but the truth is, you have to do much of what you want yourself. Business owners also need to make campaign donations because, unfortunately, that's the way to get attention. You can even run for office or find someone with similar ideas to support. (For more on campaign donations, see "Legal Aid," October.)

Entrepreneur:What have you done in Los Angeles to change the business climate?

Riordan: The number-one thing you have to do is make a city safe, and L.A. is [nearly] 50 percent safer than it was five years ago. You also need to make the government business-friendly. For example, the city used to be seen as the enemy of entertainment companies--it took four or five visits to city hall to get a permit [to film in a city location]. I put new people in and merged the city and county processes--you can now get a permit seven days a week by fax.

To attract and retain business, you have to improve the infrastructure, such as roads and airports. We're
using the city's telecommunications right-of-way authority to work with businesses to install the most sophisticated fiber-optics system in the nation. Ultimately, we want to see every business and home connected to the Internet.

If a city has a good quality of life, it attracts good people, so we've added parks and libraries. At the same time, we don't simply wait for businesses to come here; we have an economic development team that looks for companies seeking to relocate, and we help them find locations, get credit or financing, and cut the red tape.

Entrepreneur:The failure rate for small businesses is very high. What are some of the most common mistakes that lead to business failure?

Riordan: Many people aren't prepared to do all the hard things you have to do to run a successful business. You have to think about it constantly, and you should always be looking around your company for something to improve. If you stop innovating because your product is doing well, you risk failure later.

Entrepreneur:How can small businesses maximize their ability to successfully raise start-up capital?

Riordan: It's tough, because professional venture capitalists won't help start-ups except in some high-tech niches. Entrepreneurs shouldn't approach them directly; instead, hire a good lawyer, accountant or consultant to make the call. You generally have to rely on family and friends, and when you've proved yourself, then go to banks and the SBA.

Entrepreneur:What suggestions do you have about screening the people you work with and hire?

Riordan: As a general rule, don't go into business with friends--unless you want to lose them. It's hard to be tough with friends and fire them if need be. By and large, partnerships are dangerous because you lose control. Surround yourself with the best possible people, whether that's accountants or investors or employees.

Don't hire based on first impressions, because a good salesperson can act like a good CEO better than a real CEO can. Don't just call references, either; take an in-depth look at the quality of the person. Give your employees higher pay and more stock than they expect because then they'll work harder for you.

Entrepreneur:Can similar businesses work together to help an industry, or do they risk giving away their competitive secrets?

Riordan: I don't think you should worry about that because you can always find ways to do things better. Nine out of 10 companies would be flattered if competitors asked them for advice. Also, trade associations allow companies to compare ideas.

There should be a database for each industry in a given region so everyone knows where to get products and services. In the fashion industry in Los Angeles, small firms have pooled their resources to share high-tech equipment to design and cut clothes. If you congregate in the same geographic area, like the auto dealers downtown, then people know where to go. There is strength in close association.

Entrepreneur:You're focusing on the Pacific Rim to increase trade. What can a small business do to participate in the global economy?

Riordan: Talk to people who are already doing business internationally, whether they own firms like yours or are distributors. Get involved in a trade group. Find out whether the country you're going to do business in has strong laws on contract enforcement. [The foreign courts in many countries don't uphold business contracts], in which case you'll need to protect yourself with a letter of credit from a banker you trust.

Entrepreneur:With English the primary language of business around the world, is it necessary to know another language?

Riordan: It can help cement relationships in other countries, and the more languages you know, the more effectively you can deal with a greater number of countries. But it's also useful in catering to a domestic ethnic market; in L.A., for example, 86 languages are recognized by the Los Angeles Unified School District.

Entrepreneur:What is the local government doing to help minority-owned companies?

Riordan: We've helped to certify thousands of minority businesses in L.A. [so they can] compete for government contracts, and as a result, they've received $5 billion in contracts. Before, you had to be certified by each city department, and small businesses didn't bother, so all the minority contracting went to a few big firms.

Entrepreneur:How can bad neighborhoods be improved so businesses are willing to move in?

Riordan: Businesses want a safe area and a stable work force. We've [reached out to] the inner city with economic development programs, but the key is a quality of life that will attract business.

The government can improve the educational system and provide better roads to help make an area desirable. We've persuaded 30,000 people to volunteer to improve their communities, and mentors are helping new businesses in [disadvantaged] areas. I'd like to see companies donate more computers to the schools in these areas. If we help the poorest people, they'll be productive and less prone to antisocial behavior. They can help meet the demand for workers and [participate more fully in the economy]. I also think it's the duty of those of us who have done well to help those who have been dealt a bad hand.


Scott S. Smith is a freelance journalist living in Los Angeles.