Saving Small Business
Artwork credit: St. Louis Public Radio
By Joel P. Engardio
Everyone can name a favorite neighborhood business that makes San Francisco special. Places like Shaws candy in West Portal or Lucca Ravioli in the Mission. Tech companies like Stripe probably don’t come to mind. But all these businesses have something in common: they stopped doing business here.
It’s important to note they closed or left during boom times. They weren’t victims of the coronavirus recession that recently decimated the local economy.
Long before Covid-19, City Hall bureaucrats were oddly effective at squeezing every bit of life from a business plan while squashing the entrepreneurial spirit. Just ask the co-owner of San Francisco’s eighth-oldest restaurant, St. Francis Fountain.
“We were already undergoing an extinction level event for small businesses,” Peter Hood told the Chronicle. “We could survive a pandemic. The deeper question is why? Why even try in a city that has been actively driving small businesses out of business for over a decade?”
Consider the Ice Cream Bar in Cole Valley. It was an innovative idea that became a hit. But back in 2012, the concept of bourbon milkshakes short-circuited City Hall regulators. Was it an ice cream parlor? Was it a bar? It checked none of the boxes on existing forms. So instead of welcoming something new, City Hall responded with roadblocks. It took the owner two years of permitting hell and $200,000 to open. The saga was so incredible, it was featured in the New York Times.
Most entrepreneurs don’t have the resources or resilience to survive running City Hall’s gauntlet, so we’re left to wonder how many creative ideas never happened that we would have loved.
The national media attention over the travails of the Ice Cream Bar spurred politicians to promise they would do better by entrepreneurs. But nothing changed. No lessons were learned. A decade later, small businesses were still being snuffed out by regulations in the best of times.
Last year, 384 entrepreneurs asked for permits to open new restaurants. But 535 restaurants closed in the same period — when the economy was booming. Opening a simple food truck can take six months and requires 11 permits.
San Francisco was accelerating the extinction of small businesses well before the arrival of the coronavirus pandemic. Now that we face Great Depression-level unemployment and we need to help small businesses more than ever, should we be hopeful that City Hall will suddenly change its ways?
It doesn’t instill much confidence when the owner of the 102-year-old St. Francis Fountain openly says why bother.
Who chooses San Francisco?
It’s a wonder why anyone would voluntarily choose to do business in such a difficult place as San Francisco when there are plenty of other cities and states more attractive to small businesses.
The short answer is San Francisco’s unique charms and natural beauty give it an advantage over other places. Business owners are willing to take a chance on a city with such high costs because so many people (and potential customers) want to be here, including millions of tourists each year.
Realizing this, City Hall assumed enough businesses would put up with the onerous fees, rules, and requirements that feed the bureaucracy’s bloated budget. When occasional bumps in the economy exposed how much small businesses struggle, City Hall would create departments and task forces to cover up the problems it made — all while adding more layers of bureaucrats on the city payroll.
Today, businesses are shuttering because a pandemic wiped out the tourist and convention revenue flow. Facing unprecedented financial trouble, who does City Hall look to for economic revival? The same bureaucrats who put small business extinction into motion.
There’s very little private sector experience on the Board of Supervisors. And yet, they’re writing the rules for the entire private sector of our local economy.
Business taxes account for more than $1 billion of City Hall’s annual general fund, and businesses were leaving San Francisco in droves before the coronavirus shut down. The economic catastrophe sparked by the pandemic has only revealed just how much City Hall has hamstrung one of its largest sources of revenue.
What City Hall has done — and what it still needs to do
We should recognize that City Hall’s response to the pandemic with an early shelter-in-place order helped save lives. While we’ve been good at focusing on the health of San Francisco’s residents, we’re still ignoring the long-term health of our small businesses.
In recent weeks, supervisors have passed legislation to help relieve some of the immediate problems facing businesses. Yet they haven’t shown how they’re going to keep businesses in San Francisco — and the tax revenue those businesses create — as we emerge from the pandemic. If businesses were already leaving before the coronavirus crisis, why would they agree to endure the same gauntlet of fees and regulations during an uncertain recovery?
In San Francisco, the wait for permit approval is long. It often means an entrepreneur has to pay substantial overhead while they wait to learn if they can open. Anyone with a good business idea needs enough resources to afford six months of commercial rent, a lawyer, an architect and a renovation crew before they see any income. And they need to be able cover those expenses knowing the permits could be denied and they’ll have to start the process all over again.
Companies both large and small will see if City Hall goes back to its old ways when deciding whether to stay in San Francisco after Covid-19.
San Francisco has never had to compete for investment dollars before. We could lazily rely on our charm and geography to lure tourists and businesses. But with the advantage of tourism revenue gone, we will now be forced to compete against places that are more attractive to business: cities like San Jose and San Diego, and states like Nevada and Texas.
We might wonder who would ever want to live in Texas weather? But we’ve seen dozens of companies choose to expand their presence in Austin over San Francisco, and medical giant McKesson vacated its downtown San Francisco skyscraper last year for Texas.
Some people in San Francisco might say good riddance to corporations because they aren’t welcome here. But the tax revenue generated by companies large and small (and the ecosystem requires both) pays for crucial city services like firefighters and street maintenance, not to mention social programs for the most vulnerable.
For the first time, San Francisco faces the following question: When other cities go out of their way to support small businesses and attract new businesses, who would ever want to start a business here?
To avoid spiraling into irrelevance, San Francisco must insist that City Hall radically change its relationship to business.
Who’s keeping small business alive?
San Franciscans shouldn’t be expected to do the work of keeping small businesses alive by becoming philanthropists who buy gift cards or crime watch volunteers who patrol neighborhood merchant corridors. City Hall must step up to create an atmosphere conducive to business.
That means, at a minimum, enforcing laws that keep streets clean and punish the criminal sidewalk behavior that scares customers away.
Then, we must undo the most harmful and short-sighted rules that hinder business growth. That means slashing permits, fees, licensing restrictions, and overreaching regulations. We must remove everything excessive. The goal should be to celebrate, rather than stifle, innovation and entrepreneurship.
We need to make it as easy as possible to open new stores as we recover from the pandemic. That means waiving and reducing the myriad of fees for new businesses.
What it takes to open a store in San Francisco
There are more than 200 potential permits a small business may have to apply for in order to open a storefront. This is absurd.
We have to redefine what it’s like to open a business in San Francisco. Rather than a long, complex and expensive process, it should be quick, simple, and affordable.
We should reward people who take a risk to provide a service to the neighborhood, and especially reward the businesses that keep our streets vibrant.
A good example is outdoor restaurant seating. It increases sales at nearby stores and prevents crime, while bringing in new customers. It’s hard to understand, then, why City Hall ever charged restaurants a fee for sidewalk tables. The new era of social distancing will make those tables necessary. They should be set up for free.
Food trucks could become the savior of restaurants that won’t be allowed to fill a crowded dining room. But the Chronicle reported that San Francisco was one of the most difficult cities in the country to obtain permits and licenses to open a food truck. We need to rank as the easiest.
Given the vast number of empty storefronts, we need to allow more pop-up shops. City Hall prohibits a pop-up shop if one had occupied the same location in the previous six months. Why would there be any restriction? We should give entrepreneurs all the access they want to empty storefronts to test ideas and adapt quickly to new trends.
Restrictive limits on flexible retail doesn’t help keep retail shops open. Neither does nonsensical rules like the one that says musicians can’t freely play in any type of business. We need to welcome and foster creative ideas that will benefit our communities and the city’s budget.
Removing roadblocks
Beyond removing unnecessary fees and regulations, we can help small businesses by actively supporting the people who want to bring opportunities to our neighborhoods.
We can reward entrepreneurs who open a store in a vacant lot. We can streamline their approval process and waive permitting costs.
Making it possible to complete and submit all permits at a single location or website lets entrepreneurs focus on creating the business — not navigating a labyrinth of City Hall bureaucracy.
Of course, some regulation is necessary to keep residents and workers safe. But the regulation should serve a noble purpose, not merely be a roadblock to success.
If we can accomplish these policies, word will spread how San Francisco supports small businesses: we enforce laws that keep people safe from criminals while rolling back all the unnecessary regulations that keep an enterprise from seeing its full potential.
Entrepreneurs across America looking to start a new business will consider San Francisco part of their future. We’ll be able to compete with markets like Texas — with the added advantage of being a socially-forward and liberal place for employees and customers.
San Francisco will be truly open for business.
Learn more about Joel Engardio’s views on local issues at engardio.com/issues
Video Interviews with Small Business Owners
The Merchant Doctor Is In
The doctor is in! Joel Engardio interviews Vas Kiniris, San Francisco’s “Merchant Corridor Doctor.” Vas helps diagnose and fix the problems facing small businesses. He was busy before the coronavirus pandemic and now he describes the challenge as “catastrophic.” But Vas offers some hopeful advice for enduring our moment of crisis and what must happen to ensure small business health for the long term.
Scenes From An Italian Restaurant: Coronavirus Edition
Joel Engardio interviews the owner of Trattoria Da Vittorio, a popular West Portal eatery that the Chronicle named one of the city’s best Italian restaurants. The famous song "Scenes from an Italian Restaurant" takes on new meaning in the age of coronavirus. Hear about how Vittorio D'Urzo has handled the challenges facing small businesses: "I'm very lucky I'm in West Portal, this great neighborhood," he said. "It's been a roller coaster of emotions. I'm overwhelmed by all the love and everything we do is a thank you to the people."