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Vegas, Baby!

Care to let your entrepreneurial fortunes ride out in the Nevada desert?
December 1, 2002
URL: http://www.entrepreneur.com/article/57092

Most people do not associate Las Vegas, the nation's capital of excess, with anything small. Vegas is a metropolis where the massive Mirage casino has to make $1 million per day just to break even, the Strip houses nine of the largest hotels in the world, and casino owners spend millions of dollars to manufacture fake volcanoes and other gargantuan amusements.

Yet even as Las Vegas has boomed-Vegas' population grew by 66 percent between 1990 and 2000, the largest growth of any major U.S. city-and the casino business has expanded, the city has become an entrepreneurial town. In fact, Las Vegas ranked second in the West in D&B and Entrepreneur's 2002 "Best Cities for Entrepreneurship."

Now, after more than a decade of breakneck growth, as well as several months of economic slowdown, the entrepreneurs of "Sin City" face three concurrent challenges. How entrepreneurs handle these challenges will determine whether they succeed or, like many migrants to Las Vegas, fail and then leave town, just more dreamers who gambled and lost.

A Land of Promise
In many ways, Las Vegas seems a natural destination for entrepreneurs, for dreamers and schemers planning to strike it rich in the desert. "Vegas draws people who are adventuresome, since it is a city focused on taking chances," says Sharolyn Craft, counseling director at the Nevada Small Business Development Center. "In most cities, people moving there already have a job when they arrive. But many people move to Vegas without a job, hoping to set up a business here."

Paula Yakubik, 30, co-founder of Mass Media/Vanguard, a marketing firm with 11 employees in Las Vegas, understands what Craft means. "Vegas loves entrepreneurs, and it's a young city compared to New York or Los Angeles, so it embraces its young," she says. "I can go to a meeting with a client who's 55 and be treated like an equal."

The city's most famous figure, Brooklyn-born mobster Bugsy Siegel, was a self-starting dreamer. In the 1940s, Siegel moved to Vegas, which had already legalized gambling but had only a few dingy betting parlors, with the idea of turning the city into a tourist destination by building gleaming casinos, taking craps, roulette and other games upscale. In December 1946, he opened the swank Flamingo Hotel, a luxurious and profitable gambling joint that triggered the fast growth of the Vegas Strip. By 2001, the city was drawing more than 36 million visitors a year.

As the city has grown, its leaders have adopted some of the most pro-small-business policies in the nation. Nevada has no income tax and relatively low corporate taxes, and the lack of excessive regulations on housing has helped developers keep new-home prices among the lowest in the country, allowing entrepreneurs to stretch their dollars. "I have a huge house here that I never could have afforded when I lived in the Bay area," says Mark Olson, 45, president of Olson/Ballard Communications, an eight-person Vegas consulting and public relations firm. Indeed, the cost of living in San Francisco is 171 percent higher than in Las Vegas.

These low-tax, anti-red-tape policies attract thousands of retirees to the state, providing consumers for small businesses and making it relatively easy to start a company in Nevada. What's more, because Vegas boasts few large corporations other than casinos, small businesses enjoy significant influence over the chamber of commerce and other local instruments of power, a rarity in most American cities.

The fact that the casinos depend on small-scale contractors also promotes growth. Add a work force accustomed to handling shifts at any time because the casinos stay open all night, a favorable climate and incessant evangelizing from mayor Oscar Goodman (a former mob lawyer), and Vegas' charms become even more alluring. Goodman, who drinks and gambles frequently yet is seen as a highly skilled politician, has started a range of incentive programs to lure even more businesses to Sin City.

Hardly surprising, then, that entrepreneurs have been coming to Vegas with a gold-rush mentality, creating a huge and diverse community of small businesses. Boutique developers have built upscale condominiums for seniors who want to retire in style; one condo complex contains anti-aging spas and elegant cigar bars. The Greater Las Vegas Yellow Pages lists 98 pages of advertisements for adult entertainment proprietors and escort services, most of which are small businesses. Vegas supports hundreds of florists, many of which handle the conventions, weddings and other massive events held at casino hotels. Joe Valdes, 34, co-founder of Flowers2U, a 24-hour florist with 12 employees, says his shop frequently prepares massive bouquets for shotgun weddings or sends hundreds of dead, black roses to recent divorcees-fitting for the quickie marriage and divorce capital of the country. Meanwhile, Systems Research & Development, a tiny Vegas company backed by the CIA's venture-capital fund, creates software that helps casinos detect card cheats and other thieves.

Beyond Gold and Glitter

But growth has major downsides. As Las Vegas has become the fastest-expanding city in America, small businesses have faced three major obstacles. They've had to plan for the city's constantly changing future, fight off thousands of entrepreneurs arriving in town, and handle serious threats to the city's high quality of life.

For small companies with limited capital, forecasting the future in the midst of Vegas' rapid expansion has become difficult, especially since 9/11, which decimated the casino business. Nearly 70 percent of Vegas small businesses conduct some form of commerce with the gambling industry. After 9/11, the casinos, which depend heavily on tourists arriving by air, laid off 15,000 workers and slashed contracts with thousands of small suppliers.

The long-run gambling picture remains clouded as well. New American Indian casinos in California have begun stealing business from Nevada: A report by investment banking firm Bear Sterns concluded that by 2004, California casinos will cost Nevada gambling centers more than $600 million per year in lost revenue.

Yet even as the casinos struggle, the population of Las Vegas continues to expand. Though the population of Clark County, which is dominated by metropolitan Las Vegas, reached 700,000 only in the late 1980s, it currently approaches 1.6 million. "You have this divergence of trends--a soft economy now but projections of more massive migration to Vegas--that makes it tough to develop long-term business plans," says Craig Miller, 58, president and CEO of Pictographics, a digital imaging firm with 33 employees. "Big businesses can plan ahead and make mistakes, but small businesses, especially in such a competitive environment, will get killed if they plan poorly."

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Many Vegas entrepreneurs are trying to consolidate their grip on the market while avoiding the kind of expansion the city's population explosion might otherwise warrant. Bishop Air Service, a 25-person air-conditioning/heating firm headed by Ron Bishop, 37, recently built a 15,000-square-foot facility in Henderson, a Las Vegas suburb. Yet the company has held off on hiring new staff. Similarly, Valdes says: "Because the city is in such flux, we've decided not to open new stores for now. Instead, we're considering franchising Flowers2U."

While attempting to plan for the future, entrepreneurs also must learn how to grow their businesses while fending off newly arrived rivals, roughly half of whom will fail and leave Vegas. "A competitor in New York has just opened an office in Vegas," says Miller. "They are clearly going to affect the business of all digital imaging firms here."

Newcomers arriving in Sin City play hard, though few firms employ the methods used by Bugsy and his competitors, who settled disputes by spraying lead. "Most don't have a customer base, so they compete on price, offering huge discounts to clients that result in everyone's bottom line taking a hit," says Floyd Henderson, 40, owner of Exquisite Impressions, a special-event planning company.

Some entrepreneurs have increased branding efforts and moved into specific niches to retain market share. "With so many florists in Vegas, we've concentrated more on upscale custom arrangements you can't get at a corner shop," says Valdes.

The continuous influx of new arrivals can also create a labor crunch. Though the recent economic downturn has led to a slight softening in the labor market, before last fall, many small businesses had enormous difficulty retaining quality staff, and unemployment rates are dropping once again. "I would have to hire 10 people to get one receptionist who actually knew how to answer the phones," says Yakubik. "Because there are so many businesses opening, and because the casinos pay blue-collar workers so well, I'd have to search forever to find decent staff."

Growth has also impacted quality of life, a key to finding and retaining skilled staff. Clark County's school systems are crowded, with as many as 40 students per classroom. Las Vegas now has some of the worst traffic and the poorest air quality in the West, and the city is scrambling to provide enough basic infrastructure--roads, plumbing, tap water--for all the new arrivals.

Hidden Gems
Here are some industries that are still underserved in Las Vegas:
  • Elder Care: Vegas demographers predict the city's retiree population will more than double in the next decade, yet the Greater Las Vegas area still suffers from a shortage of elder care businesses that provide food delivery and other services to seniors.
  • Health Care: In part because of the high price of malpractice insurance in Nevada, Las Vegas suffers from a severe shortage of doctors. Sharolyn Craft of the Nevada Small Business Development Center believes Nevada legislature will soon address the malpractice rates crisis and that enterprising physicians could easily open new offices in Vegas and quickly build a strong patient base.
  • Marketing: Public relations firms already operating in Vegas believe the city's PR market is far from saturated. Though the major casinos all have in-house public relations departments, few Vegas small businesses, including the growing number of real estate developers and agents, employ full-time marketing staffs.
  • Security: Although Vegas is full of old-school security firms that provide the muscle needed to protect the casinos and staff fights and other events, the city still lacks local online security firms that could handle the casinos' future moneymaker: Internet gambling.

Rolling the Dice

Despite their worries, most entrepreneurs in Sin City are relatively upbeat about the future of their businesses, and of Vegas itself. "It can be hard to plan for the future, and the city is definitely becoming very competitive, but what other cities in America wouldn't want this type of growth?" asks Olson. What's more, Olson notes, Goodman and other leaders are working hard to address quality of life issues. Though libertarian Nevada historically favors weak governments, Goodman and his aggressive lieutenants have developed clean-air initiatives, and the mayor has dedicated his term to redeveloping the city's downtown into a cultural center. Meanwhile, the Las Vegas Board of Education has embarked upon the most aggressive school-building campaign in the country.

Many believe the city's inherent advantages--an entrepreneurial spirit, no taxes and a warm climate--almost guarantee a positive future. "Even now," says Bishop, "with Vegas' economy slowing, if I call someone in Nebraska in December and suggest they come to Vegas where we're barbecuing at Christmas time, to take a job or open a business, they'll listen to me."



Feeling Lucky?
Recent Vegas arrivals suggest that businesspeople considering moving to Sin City use several strategies.
  • Extra, Extra: Before moving to Vegas, many entrepreneurs read the online edition of the Las Vegas Review-Journal or the Las Vegas Business Press,/i>, the two newspapers with the best business coverage. Both have columns on commercial real estate, the labor market and other issues important to entrepreneurs.
  • Night Owls: Entrepreneurs should also think about whether they are willing to work late-night shifts, especially if they are in industries that supply goods to casinos. Even businesses unrelated to the casino industry are expected to remain open late in Vegas: Mark Olson of Olson/Ballard Communications once had a dentist appointment at 10 p.m.
  • Call the Bankers: Though lending has dried up a bit in Las Vegas over the past year, many banks and other lenders such as the SBA's Community Express program are still extending credit. However, Sharolyn Craft of the Nevada Small Business Development Center notes that loan criteria in Vegas have always been conservative, especially for recent arrivals, since so many fail and leave town. Entrepreneurs should visit Vegas and schedule appointments with lenders before deciding whether to move to Nevada.

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