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San Diego’s climate and large, stable military presence have long attracted entrepreneurs here to launch their dreams of working for themselves.
If you ask any of them what the most difficult thing is about running their own company, the complaints you’ll hear will likely have little to do with the substance of their chosen field. Instead, these entrepreneurs air frustrations with finding and winning customers, or the difficulty they have understanding and complying with rules imposed by government at all levels.
So we at Thumbtack.com, a consumer service that links individuals to professionals to help them with personal projects, partnered for the third year in a row with the Kauffman Foundation to ask nearly 13,000 small business owners nationwide what their government could do better.
We received 212 responses from small companies around the city of San Diego. Their responses offer constructive insights about what’s working in the region and what could use improving.
Unlike other business climate rankings, our survey attempted to find out straight from business owners what they think makes for a friendly environment, instead of presupposing what those factors are.
The businesses in San Diego that responded to the survey were primarily small service businesses — plumbers and photographers who largely don’t run retail spaces or have storefronts. Sixty percent had no employees and 90 percent had five employees or fewer. Fifty-nine percent were in business for themselves for the first time, and 41 percent were running businesses that were 4 years old or younger.
These small businesses told us that San Diego could do a better job of serving them. The city received an F grade for overall friendliness, one of the worst grades out of the 82 cities we looked at. In California, only Sacramento received a worse grade for its friendliness.
What’s going wrong in San Diego? For one thing, survey respondents complained about the difficulty of starting a business, specifically that the process was too time-consuming and convoluted. A photographer in San Diego complained that “the government does not provide any information online about getting started as a business owner.”
San Diego also got dinged for unfriendly regulations. The city earned a D based on its tax code, zoning rules, labor law and environmental regulations. Very small businesses rarely have the resources to navigate a convoluted series of city-imposed rules. As one videographer in San Diego put it, “I’m a sole proprietor and have a tough time finding time to do the tax and licensing.”
Of all the rules that businesses struggled with, licensing was the single most important regulatory difficulty that survey respondents cited. Sixty percent of San Diego-based small service businesses reported that they were required to carry a professional license to do their jobs, 20 percent higher than the national average. In a 2012 study, California was named the second most onerously licensed state in the nation.
Of course, not all the complaints about licensing rules were about the government being in the way. A limo driver in Spring Valley complained that the industry regulators were “grossly understaffed.” This led to inconsistent enforcement of regulations and a flood of what he called “illegal operations” taking business from him.
Also, many San Diego service professionals said they actually valued the licensing and regulatory requirements of their professions, as they kept lower-quality (and lower-priced) competitors off the market and helped protect consumers from unscrupulous actors.
But overall, problems understanding and complying with the rules of the road were common among small businesses in our survey.
That might explain why governments that ranked well for actively offering training and networking programs for business owners tended to do so much better than governments that didn’t. Business owners value it when their local governments reach out to help them succeed. This can be done in partnership with a civic organization such as the Chamber of Commerce, but the important thing is that business owners are made aware these opportunities exist.
San Diego earned a B- for the strength of its training and networking opportunities, a bright spot in our survey, and an area of strength that the city can build upon.
California’s large economy and San Diego’s strong industrial base make it an attractive place for business owners. But policymakers can’t just assume that nice weather will keep independent businesses around. They need to do a better job of making the region an ideal place to start and expand a business.
Let’s get the ball rolling.
• Streamline the rules for starting a business. Move this process online as much as possible (San Diego has already done a good job of this through the city treasurer’s website) and make this process cheap. Business owners want to pour what capital they have into the growth of their business, not fund unrelated government operations through excessive fees.
• Make sure the tax rules are simple to understand and comply with even without the assistance of a professional accountant.
• Publicize what assistance is available from the city to business owners just starting out.
• Effectively and consistently enforce the rules that are on the books, especially those related to the operation of unlicensed businesses.
• Establish reciprocity for licenses with surrounding communities so that service professionals can operate in La Jolla as easily as they can operate in Chula Vista.
• Make sure that the necessary licenses and permits to work in the area are simple to obtain and only as burdensome as necessary to protect the public. Making service professionals wait two days at City Hall to pull a permit for a plumbing job when they could be building their businesses and serving clients is a sure way to hold onto that F grade.
Protecting consumers, workers and the environment are critical responsibilities, and they’re values shared by the small businesses we talked to in our survey. But that doesn’t mean the state and city should lay the burden of complicated regulations on business owners.
Jon Lieber is chief economist at Thumbtack.com. Lieber’s commentary has been edited for style and clarity. See anything in there we should fact check? Tell us what to check out here.