Vegas, Baby!

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.

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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."

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.

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