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Selvi Pragasam, founder of the Indo-Fusion Dance Academy, worked at Lockheed Martin for eight years as a web designer before giving it up to open her dance school. She is the first entrepreneur in her family. When she left the security of a salary to plunge into the world of small business, she was fully aware that the financial rewards might not materialize for several years, but her dream of creating a performing arts hub in the San Francisco Bay Area was too compelling to resist.
Harpal Mangat decided to branch off on his own because “there was more room for innovation and if we provided great service to our customers the sky was the limit.” He is a physician who has a private practice in the Washington, D.C. metro area.
Tanya Momi, who runs the Spoil Me Full Service Salon in Mountain View, California, was forced by a bitter divorce to become financially independent. She gravitated to nail work because of her interest in drawing a
nd painting and is now a well-known artist in addition to managing her salon.
“My father is a tax attorney and C.P.A. in Calcutta and has had his own firm for the past 50 years,” recounts southern California lawyer, Amy Ghosh. “My grandfather was a well known lawyer who mainly litigated cases in the Indian Supreme Court and had a very successful solo practice. Hence, my family background motivated me to start my own practice after working briefly for a large law firm.”
Rennu Dhillon, founder of Genius Kids, Fremont, CA, came up with the idea of an enrichment-driven program as a single parent looking for educational opportunities for her daughters. “When I worked as a recruiter, I realized the crying need to develop public speaking and confidence in the next generation.” Her center concentrates almost exclusively on public speaking and science in the early years.
In every case, the overriding sentiment is a preference to work for oneself. “We Indians are very hard-working,” argues Dhillon, “so why should the fruits of our labors go to someone else?”
Pragasam adds that her strongest incentive is that she can pursue her interests without restrictions and with relative independence. “Dance is my passion and I am lucky that I have made it my profession.”
Risks vs Rewards
The Indian American community has been a significant component of Silicon Valley’s prosperity, much of which has arisen from the technology sector. Indeed, one would be hard pressed to find a technology start-up that does not feature a name like Khosla, Rajaraman, or Ranadive.
But these tech entrepreneurs form the attractive tip of an iceberg whose concealed bulk features many other Indian American entrepreneurs and small business owners who toil in relative obscurity—grocers, restaurant owners, dance school teachers—and who get by without the support system of incubators, professional networks, and access to community forums.
The proliferation of small business entities in cities like Sunnyvale in Northern California, Artesia in Southern California and Fairfax in Virginia belie the reality that small businesses have easy entry points but an alarmingly high risk of failure.
According to analysis published by the Small Business Administration (SBA), a quarter of small businesses fail within the first year of operation. Why is this number so high and is this any different for the Asian and Indian American enterprises?
As per the Census Bureau, there were 1.5 million Asian owned small businesses in 2007, and out of this number 20% were owned by Asian Indian entrepreneurs. Interestingly, of all the ethnic groups, Asian Americans were most likely to own small businesses. University of Massachusetts, Amherst, Sociology Professor and Director of the Asian and Asian American Studies, C.N. Le states that in his research he has found that when second and third generation Asian Indians are looking at career tracks, a growing proportion are looking at profesional service industries, like doctors, lawyers, tax consultants, etc. Le’s analysis supports the fact that Asian Indians also had the highest average annual revenue among all Asian ethnicities, about $494,304.
Unlike the technology sector, where the concept of angel investing at least opens up some opportunities for the budding entrepreneur, funding for the average small business is much harder to come by.
Dhillon used her savings from her work as a recruiter to break ground on her first center.
Dev Sagar, founder/CEO of Best Graphic Image, a hardware support company in Fremont, CA, continued to work at his job while he started his own company because he wanted to play it safe. His business grew very slowly as a result but he feels happy with his decision.
In the case of Mangat, there were loans being offered by banks and marketed to South Asian physicians. “This was before the banking crisis,” clarified Mangat, “and we didn’t really understand how the banking industry worked. But it seemed the right thing to do then.”
“I did approach the banks,” said Pragasam, “the rates however were very high. I also approached SBA Loans. But my business revenue was not big enough for them to consider my application.” So Pragasam used the savings from her tech job to fund her dance school, with the proviso that expenses from the school not encroach on her family finances.
According to Hector Gandhi, Vice President Commercial Loan Officer at Wells Fargo Bank, there are several options available to small business entrepreneurs and “not all financing options are created equal.” Gandhi suggests business credit cards, business lines of credit and business loans as possible funding solutions.
Gandhi asserts that at Wells Fargo, the intention is to approve as many business loan applications as possible. “As the economy improves and business owners find opportunities to grow and improve their businesses, our small business lending has been growing. We’re seeing stronger loan applications contributing to an increase in approved loans.”
“50% of small businesses fail in the first five years,” says Sudhir Pai, who runs MyTaxFiler, an accounting firm that moved to California recently from Texas. He points out that most small business owners transition to entrepreneurship from previous roles as either employees or homemakers. “Both these roles don’t involve spending and allocating large amounts of money. And the first challenge in running your own business is knowing how to spend your limited capital.”
Most small businesses are service providers, and few entrepreneurs come equipped with the managerial and administrative skills needed.
Pragasam found herself overextended when she leased a large studio to fulfill her dream of creating a performing arts hub. Yearly taxation and accounting requirements had become a headache after her first accountant filed papers incorrectly. “Some years I probably paid my taxes twice over because the accountant registered the academy as both a partnership and a limited liability entity,” she adds uncertainly. “This is not my area of expertise, and I wish someone had helped.” She adds, “Business issues usually take a backseat to my primary focus of teaching dance. I wake up only when there is a crisis.”
“There were days I used to sit in an empty room at my center at the end of the day and wonder if I was going to make it,” reminisces Dhillon, though her business has grown exponentially since those early days.
Says Sunny Kalara, who has a firm specializing in business and tech law, “Indian Americans come with some preconceived notions of how much they should spend on things that are not directly associated with the day-to-day running of the business. For instance, Indian American clients of mine don’t understand the emphasis on protecting trademarks, marketing expenses, and long-term investments. They just want to get started on selling their product or service right away.”
Kalara’s statement is borne out by Ghosh. “Initially, I did not know how to market myself.” She started putting advertisements in various publications and portals. She found advertisements in places like the Yellow Pages were a waste of money whereas ads in the ethnic media were instant successes. Even small advertisements in magazines such as India Currents proved highly effective.”
The Right Partner
According to Pai, “businesses often fail because they try to nickel and dime their choice of partners. But finding the right partner for your growth-oriented business is critical.” He advises owners to look for partners who understand that the business will grow slowly initially.
In the rush to start his own practice and the exhilaration of launching, Mangat didn’t do the due diligence to vet his partner and found it a costly mistake. He quit his first business and had to re-start four years later. “I’m happy to announce that I’m twice as successful, though,” he says with a note of satisfaction in his voice.
“Finding the right business partner can be even more significant than finding a spouse,” says Kalara. When I challenge him on that assertion, he persuasively argues, “In a marriage, there are many areas to find common ground. In a partnership, you are both focused on just one thing—the business. If you cannot agree on that one thing, it all falls apart.”
Competition and Community
Many Indian American small businesses cater to their own community and find the going tough. Says Pragasam, “I try to provide a quality experience, but Indian parents constantly look for cheaper options. It is hard to reconcile my need to be professional with the demands of the market.”
Momi’s competition comes from other ethnic groups like the Vietnamese in the health and beauty service sector, but she too bemoans the difficulty of competing while maintaining high levels of service. “Not every customer appreciates the level of hygiene and meticulousness my salon provides.” That lack of understanding of value among the Indian clientele appears to be a persistent obstacle to success.
As to community unity, according to Mangat, there’s little of that. “A lot of doctors who go into business tend to grasp the lower end of the stick. Help is passive and competition is cut-throat. The community tends to be fragmented and getting people to work together to support a common ideal is tough.”
Kalara notices that “there are many other communities that are more closely knit.”
Amy Ghosh gives the example of the Bangladeshi community, “because I speak Bengali, support from the Bangladeshi community was phenomenal.” She added that word of mouth referrals from the community, bring in a majority of her clients.
The Regulatory Environment
Nearly every small business owner I spoke with agrees that there were lower barriers to entry a decade or two ago. Momi talks about the ease of opening a salon in Mountain View in 1994. “I just walked in to city hall, filled out some papers, took out an ad in the Yellow Pages, and I was ready to start.” Recently, when she tried to open a branch in Palo Alto, she was daunted by the need for residential approval and the mountain of paperwork that is involved these days. She has had to move locations recently, because her landlord wanted “bigger businesses” as clients.
“The bureaucracy has become more intrusive these days,” says Dhillon, who still claims that all the information is out there for the entrepreneur-to-be and one just needs an internet connection and a brain to sort it all out. But new city codes, fire permits and fees, and stricter regulations that arose because of the city’s unhappy experience with unlicensed daycares would make it much more difficult for new businesses to enter her particular market.
According to a survey by Thumbtack and the Kauffman Foundation published in Slate, “local small-business owners give D.C. an F grade in the ease of starting a business.” Other tourist-friendly cities too land poor grades. New York gets an F, Boston and Los Angeles rate Ds and San Francisco gets a D+.
“California is a particularly complex state
to do business in,” says Pai, who is learning that lesson after starting a successful venture in Texas. “Because there are good markets here, because people have the entrepreneurial spirit, the bureaucracy is backlogged and the service sucks.” Pai adds that under the Obama administration, he has seen higher levels of enforcement, even if regulations have stayed mostly the same. He gives the example of foreign bank assets reporting, which had always been on the books but has recently become a bane to the immigrant community. “Loopholes are getting plugged and audits are increasing.”
Indian American small businesses are unanimous in their opinion that help, attention and support from community organizations is almost exclusively focused on the tech and engineering sector. “I have had no support from the Indian American Chamber of Commerce,” says Dhillon. “And organizations like The Indus Entrepreneurs (TiE) are not available to us.
This was confirmed by a representative at TiE who mentioned that TiE only works with businesses that are scalable and in the technology sector. Small businesses, in most cases, do not meet either of those criteria.
The Bahai community provides its members with interest free funding if they wish to start businesses. “Why can’t we have something like that in our community?” asks Pragasam, “I wouldn’t know how to start getting help from the Indian American Chamber of Commerce. I also don’t know any other small business owners, so I don’t know who to ask for help.” Salons, grocery stores, restaurants and private practices are businesses that fly under the radar of the well-established Indian American network.
Dev Sagar, who is a director of the Indo-American Chamber of Commerce in Northern California, agrees that the organization lacks the resources to provide more than periodic seminars on issues like estate planning and labor laws. “We don’t have any counselors, though we would love to provide that kind of service.”
Small Business Resources
The irony is that many of these small businesses that are struggling on their own have plenty of resources available at the Small Business Administration (SBA) and their city departments, but few access the institutional resources available to them.
Marlow Schindler is a lender relations specialist at the SBA located in the San Francisco Bay Area. “The SBA offers specific resources by region. We can help you with your business plan and provide technical counseling,” she says. Counseling is provided through SCORE, which provides over 11,500 volunteer business counselors throughout the United States and its territories. SCORE members are trained to serve as counselors advisors and mentors to aspiring entrepreneurs and business owners. These services are offered at no fee, as a community service. The SBA also helps businesses through their growth phases.
In addition, small business owners of Asian Indian ethnicity who wish to do business with the government, are eligible as “socially disadvantaged” for the SBA 8(a) program (http://www.sba.gov/content/8a-business-development-0), which helps small, disadvantaged businesses compete in the marketplace.
Christina Briggs, Economic Development Manager for Fremont in California, states: “We take our responsibilities very seriously. Our office of economic development is there solely for the purpose of assisting the business community.”
Her finding is that the biggest help small businesses need is in the area of marketing. “Access to capital and loans are important, but marketing really rises to the top.” Among her plans to boost the business community in her city is a “How to Start a Business” guide in multiple languages, a restaurant info guide and mobile app, and increased collaboration with the local chamber of commerce.
When it comes to small business owners looking to launch their busineses, Gandhi feels that “a long-term relationship with a bank is important—the business has the opportunity to show how it manages its finances, and the bank becomes more familiar with the business owner, the business and its financial needs.” Dealing with loan rejection, according to Gandhi is perhaps very frustrating, but “when a small business is not ready for a loan the best thing Wells Fargo can do is to provide guidance to business owners on how they can improve their financial condition to get a “yes” on a credit application at a later date.”
What is clear is that there is a yawning gap between the help that Indian American small businesses need and what they get. These small businesses are all trying, failing, or succeeding on their own, while attention, time, and money are amply available for their techie cousins in the region.
This gap is not impossible to bridge. If the community chambers of commerce can get more inclusive it would be a great first step or if an organization like TiE can be created to mentor and encourage non-tech businesses, it may be less glamorous but completely worth it.
Who knows, perhaps that’s the kind of impetus needed to fulfill Pragasam’s vision of an arts mecca or Momi’s chain of beauty salons. Why should these small businesses narrow their dreams and curtail their visions, when we as a community are so well provided with knowledge, expertise, and wealth?
But despite all the problems that small businesses face, most entrepreneurs interviewed are unequivocal about their sense of satisfaction. “I would consider myself very successful, because I am pursuing my dream,” says Pragasam. Mangat adds, “I have the opportunity to transform my ideas into practice. That makes it worth the effort.” Momi summarizes it best, “I do enjoy running my own business and being my own boss, mainly because I am working on my dream rather than someone else’s dream.”
Vidya Pradhan is a freelance writer who hosts the weekly radio show Safari Kids Quiz Show on KZDG 1550 AM. She also runs the community blog Water, No Ice and was the editor of India Currents from June 2009 to February 2012. Jaya Padmanabhan contributed to this article.