Econ

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Los Angeles often is described as a small-business mecca, with more than 90 percent of local firms employing fewer than 100 people.

But with its large population of newcomers and immigrants, its absence of large Fortune 500 firms, and a vast population and economic base to support entrepreneurial ventures, L.A. also could be described as one of the nation’s centers for family business.

“Given L.A.’s demographic slant, we’re probably the capital of family-owned businesses in the U.S.,” said Jack Kyser, chief economist with the Economic Development Corp. of L.A. County.

No statistics exist on the number of family firms in L.A. County, but in 1994, the International Institute for Management estimated that family companies those either owned or significantly controlled by family members accounted for 96 percent of all U.S. firms, producing about half of the nation’s goods and services. More conservative estimates have put the number of family firms at about 70 percent of the nation’s total still a significant proportion.

With L.A.’s large and growing Latino and Asian population which is more likely to operate family businesses than the population at large family firms play a particularly significant role in the county’s economic life.

“This group is very important to L.A.’s economy since they are the ones starting businesses,” Kyser said. “They are the ones keeping the business environment diverse.”

They certainly keep the region’s investment bankers busy.

“It is a major strength of the L.A. economy,” said Lloyd Greif, managing director of L.A. investment bank Greif & Co. “You have a lot of entrepreneurial families out there whether they are owned by the immigrants that have come to Los Angeles, or are part of the post-World War II boom. It’s a big factor.”

Greif, who has worked with family firms of all manner and size, says they share one thing in common when engaging the services of an investment banker: the founding entrepreneur, generally the father, has built a prosperous business and is ready to retire, but the children either are unable or unwilling to take the reins.

Such situations are particularly attractive to private equity funds.

“Private equity groups love these closely held businesses. Why? Once you take the family out, you can bring in the best management money can buy” and take the company even further, Greif said.

On the other hand, Greif has negotiated plenty of other deals in which the parent essentially sells the company to the next generation. That way, Mom and Dad get the cash to retire, and the children get the opportunity to take over an already healthy business, he said.

Those businesses that do negotiate the transition to the next generation often emerge stronger than their non-family-held competitors, said Keely Cormier, director of research for the Owner Managed Business Institute, a Santa Barbara consulting firm.

Family members “are very dedicated shareholders, so they’re much more likely to accept low or no dividends,” Cormier said. “All of the money goes back into the business for reinvesting. It helps to make the business stronger. If public companies had those kinds of shareholders, they would be really, really successful.”

But the large number of family firms in L.A. has an impact that goes far beyond the bottom line, according to James Ellis, director of the USC Family Business Program.

“Family businesses tend to have strong ties to the community, and support organizations such as the Rotary Club, the Chamber of Commerce as well as non-profit activities,” Ellis said. “They are much more involved than large corporations with their headquarters elsewhere.”

Such behavior is motivated by more than the desire to be a good neighbor. Maintaining strong community ties can be crucial in helping a small, family firm to survive in a business environment increasingly populated by national chains, said Michael Hawkings, a partner in Pasadena’s Green Street restaurant, which has been family-owned for two decades.

“We’re at the soccer games, in the schools, at PTA meetings we’re out there and we’ll do anything to support the community,” Hawkings said. “It’s one of the biggest assets of a family business if you can be good business people and understand the market, all of that is enhanced because you are seen as being a member of the community.”

Staff reporter Sara Fisher contributed to this story.

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