JulBrew to JulBust Shows Minority Business Risks

To James and Gwen McClellan, JulBrew was the perfect beer to quench the thirst of sun-parched Southern Californians.

It was 1981, the height of the import beer craze, and the Orange couple thought they had a sure thing when they formed Graeco International Inc. to bring the amber West African beverage to trend-conscious U.S. drinkers.

Four years later, the McClellans had nothing to show for their efforts but a second mortgage on their home and a bitter taste in their mouths. JulBrew beer was a bust.

“It was going to be our fortune,” said James McClellan, who drew on his experiences with Graeco to form the Black Business Alliance of Orange County in 1982. “It was going to get us the mansion on the hill in Laguna, but it didn’t happen.”

In a county where white-owned-and-operated businesses outnumber minority businesses more than 2 to 1, the saga of JulBrew beer is a cautionary tale, symbolic of the possibilities and problems that pepper the Orange County business landscape for the growing ranks of ethnic entrepreneurs.

Today, the McClellans are back on the payrolls of others, their dreams of entrepreneurial fortune far behind them. And they are not alone.

A composite picture painted by industry experts describes the “average” minority business as a poorly planned, underfinanced mom-and-pop service enterprise, with gross annual revenues of $200,000 to $300,000--one that has been here for fewer than five years and probably won’t be here in 10 more.

It is an enterprise plagued with many of the same problems of small businesses in general, but those problems--and their effects--are intensified when the small business owner is a minority member, say experts and business owners alike. In short, it is a company that is doomed to fail.

The possible reasons behind such difficulties were explained, James McClellan said, by one banker who startled the couple with the realities of a stereotype: ‘ ‘Jim,’ he said, ‘we have histories of blacks owning barbecue businesses, running shoeshine stands and limo services. We don’t associate your background with success in the import business because no one of your race has done this.’ ”

Despite the bleak outlook, though, the number of Orange County-based minority businesses nearly tripled between 1977 and 1982, even as the numbers of blacks and American Indians living in the county dropped. Local ethnic entrepreneurs say that if minority business owners can overcome the triple threat of bad backing, poor planning, and what some delicately call “cultural bias,” Orange County is an ideal place for them to start businesses.

“It takes a strong constitution to stay here in Orange County when L.A. is just up the road,” McClellan said. “You meet your black counterpart in L.A., he’s turning away customers . . . and he asks you, ‘What are you doing staying in Orange County?’ ”

That question is easily answered, said McClellan, for “there’s an undeniably positive business environment here. By all measurements, this is the place to be if you’re an entrepreneur.”

Orange County’s Vietnamese business community, which is considered the largest such enclave in the country, shows what is possible. In 1980, when the Vietnamese Chamber of Commerce was just beginning to form, the county was home to only a few Vietnamese-run businesses. Today, the chamber estimates the number of local Vietnamese businesses at more than 1,000, clustered mostly in Garden Grove and Westminster.

But such phenomenal growth is not all good news. Loc T. Nguyen, the chamber’s executive director, contends that competition for Vietnamese customers here is so stiff that Vietnamese businesses have begun to force prices down and ultimately are killing each other off.

“The growth of Vietnamese businesses is so great that there is cut-throat competition,” Nguyen said. “The only solution for the Vietnamese business is to branch out into the greater American market.”

A 1982 U.S. Bureau of Census study (the most recent available) shows that 14,382 of the 47,813 businesses in Orange County are owned and operated by ethnic minority members ranging from blacks and Latinos to Asians, Pacific Islanders and American Indians, making the county second behind Los Angeles as a home to ethnic entrepreneurs in California.

Five years earlier, a similar study showed that only 5,778 such businesses operated in Orange County. A census bureau spokesman said that the 1977 statistics did not measure numbers of businesses in exactly the same way as the 1982 study, possibly deflating the 1977 numbers and somewhat exaggerating the jump. Still, the increase is significant. White-owned businesses more than doubled to 33,431 from 14,734 during the same period.

Part of the rise of the minority businesses was caused by the flood of refugees and immigrants that hit the area in the late 1970s and early 1980s. But part can be attributed to increased opportunity for minority members. Many minority entrepreneurs are moving away from stereotypic businesses such as restaurants and ethnic grocery stores and into the world of microchips and manufacturing.

“What I’ve seen over the years is the gradual maturity and sophistication of minority businessmen “ said Andrew Delgado, executive director of the Orange County Minority Business Development Center.

Since 1969, the federal government has created opportunities such as the so-called Small Business Administration 8(a) program--through which minority businesses compete against each other alone for federal contracts.

Such a rosy picture is not entirely accurate, though, according to small business experts and owners. Many complain that the 8(a) program is all show and no commitment, costing minority business owners large amounts of money to become certified to take part and not getting them enough contracts to make participation worthwhile.

In addition, while mentioning that investment in minority firms through the SBA has increased, the SBA’s 1986 report on small business said that the Reagan Administration has proposed discontinuing credit assistance programs such as the SBA’s.

“The Reagan Administration has curtailed assistance to small business, and when small business hurts, minority business hurts even more,” Delgado said.

And finally, much of the growth in the minority business community nationwide and locally has been in small businesses--whose employees are family members and do not draw salaries--rather than in larger minority-owned companies.

Still there is growth, and Orange County is a good example of it. Since 1980 alone, nearly a dozen business organizations have sprung up in Orange County to address the needs of minority business owners. In recent years, nearly 20 local businesses--ranging from the Newport Beach advertising agency of Mendoza, Dillon & Asociados to the Santa Ana-based Orange County Electrical Supply--have made it into Hispanic Business magazine’s directory of the nation’s 500 largest Latino corporations.

Local experts contend that the economic outlook seems brightest in Orange County for Latinos and Asians, in part because of the sheer size of the two ethnic communities and the existence of identifiable business districts.

“There’s no black community here, no Watts, no Harlem, no North Side as in Chicago,” said the Black Business Alliance’s McClellan. “If you only served the black community in Orange County, you’d starve to death.”

The black community here has never been large, and it currently is shrinking, according to the Orange County Forecast and Analysis Center. In 1980, blacks made up 1.3% of the county population, or 25,287 residents. A 1985 study estimated that the percentage dropped to 1.1%, or 23,217 residents.

Still, the number of black businesses more than doubled between 1977 and 1982, rising from 485 to 1,029, according to the U.S. Bureau of Census Survey of Minority-Owned Business Enterprises. But what they face when they open up is difficulty finding initial capital, few other black business owners to support them and a hostility that some contend borders on racism.

“Tapping into the market that is Orange County, a lot of entrepreneurs find that their markets are limited falsely because people think you just serve the black community,” McClellan said.

To McClellan, it is cultural bias; to Ron Harding, owner and founder of Ron Harding Moving Service Inc., it is racism.

Harding’s moving company is considered the largest black-owned business in Orange County and will do more than $3 million in sales in fiscal 1987. But Harding says most of his business comes from outside of the county, and he has only one large local client.

“Sometimes people come in and apply for a job and find out I’m black and leave,” Harding said.

In addition, most black entrepreneurs have not been able to break out of the ranks of service industries, unlike many Latino business owners, who have made headway in the area of sophisticated manufacturing.

“There is a discrepancy between Hispanic and black participation in economic development,” Delgado said. “I think the history here is that it hasn’t been very good for the black community. . . . I don’t know why.”

Such a disparity is easily seen when comparing Harding’s business with the largest Latino-owned firm in the county--Mendoza, Dillon & Asociados, which did an estimated $30 million in sales in fiscal 1986, according to Hispanic Business magazine.

Latinos own the second largest number of minority businesses in Orange County--behind Asians--and Los Angeles is the only county in the state with more Latino businesses.

Orange County was home to 5,317 Latino-owned businesses in 1982, up from an estimated 2,743 in 1977. One reason for the relative health of the Latino business community here is the size of the Latino population, which rose from 14.8% of the population, or 286,339 in 1980, to an estimated 15.6%, or 329,355 in 1985.

The outlook for Asian entrepreneurs in Orange County, however, “is the best anywhere,” says Loc Nguyen of the Vietnamese Chamber of Commerce, and statistics bear him out. For while Latinos form the largest minority group in Orange County, Asian businesses here outnumber Latino businesses nearly 2 to 1.

Among the 8,036 Asian businesses that call Orange County home--up from an estimated 2,550 in 1977--there are large numbers of Korean-, Japanese- and Chinese-owned businesses. But the Vietnamese business community here offers what is perhaps the most dramatic picture of economic growth.

It did not exist 10 years ago, when refugees from war-torn Southeast Asia were pouring into the United States. Today, it is known as the “Mecca” of Vietnamese culture and capitalism in the United States. The so-called Bolsa Strip--which runs along Bolsa Avenue approximately from Beach Boulevard to Brookhurst Street--is the Vietnamese business hub.

“It’s almost like being back in Vietnam,” Nguyen said. “ . . . you almost think you are back home.”

One reason the Vietnamese business community has grown so rapidly is that the only employment many new refugees could find was self-employment, Nguyen said. When many of the refugees arrived in the United States, their English was either bad or non-existent. As a result, entire families lived together, saved together and later opened up small businesses together, employing family members who might not otherwise find work, he said.

But employment, sales tax and revenues are not all that the proliferation of Vietnamese small businesses has spawned. It has also created problems, chief among them stiff competition for the Vietnamese customer.

Simon Kwok, manager of Sunrise Printing in Garden Grove, said there were fewer than half a dozen Vietnamese printers in the area when his business opened in 1983. Today, the Vietnam Business Directory lists 23.

Kwok’s company charges about $37 to offset print 1,000 flyers; at least one new competitor is charging $15 for the same service.

“It costs $10 for the paper alone,” he said. “That’s very big competition, and they keep coming out (with) new shops. . . . There’s a good chance (to succeed) in Orange County, but we have to survive, we have to dig all the time.”

Nguyen and Delgado contend that the way out of this bind is for Vietnamese business owners to reach out to the larger community. Many are starting to try.

Hoang V. Tran is president of Thiet Lap Tailoring Inc., a firm run by his parents that hand-sews the traditional Vietnamese dress called the ao dai . Tran is also a business consultant, and in Thiet Lap’s first three years of business, Tran poured at least $2,000 every month from the consulting firm into the tailoring firm to keep the latter alive.

But last year he decided that the tailoring business could prosper on its own--with a little help. The help came in the form of a slick, 12-page catalogue the company started mailing last April throughout the United States and in several foreign countries.

“The business has doubled since we put this out,” Tran said. “The potential customers are out there. You just have to reach them.”

NUMBER OF BUSINESSES IN ORANGE COUNTY

1977 1982 GAIN White 14,734 33,431 120% Asian/Pac. Island 2,550 8,036 215% Black 485 1,029 112% Latino 2,743 5,317 94% TOTALS 20,512 47,813 133%

Source: U.S. Census Bureau

NOTE: The 1977 statistics do not measure numbers of businesses in exactly the same way as the 1982 study, possibly deflating the 1977 numbers.

TOP STATE COUNTIES: MINORITY BUSINESSES

County Latino Black Asian/other Total minority- businesses businesses businesses owned businesses Los Angeles 29,982 23,520 38,331 91,833 Orange 5,317 1,029 8,036 14,382 Alameda 2,433 5,049 5,893 13,375 Santa Clara 4,243 1,575 7,370 13,188 San Francisco 1,759 7,812 1,980 11,551 San Diego 4,903 2,030 4,482 11,415 San Bernardino 2,975 1,125 1,689 5,789 San Mateo 1,658 889 3,202 5,749 Sacramento 1,285 1,430 2,696 5,411 Contra Costa 1,481 1,310 2,215 5,006

Source: U.S. Census Bureau 1982 Economic Survey, published September, 1986