4 Secrets for Survival With a New Restaurant

The myth that it’s nearly impossible for a restaurant to succeed started with a TV ad about 10 years ago, says Greg McNally.

McNally is a former restaurateur who runs Restaurant Profit Technologies, a consulting business in Los Angeles. The infamous ad he remembers had a celebrity chef claiming that 90% of restaurants fail within their first year. And even though no facts backed it up, the statistic stuck.

The restaurant industry has a reputation for frequent failure, but McNally says every industry has a substantial failure rate, and some (like the furniture industry) see businesses fail more often. McNally concedes that many restaurants do shut down in the first year, but the failure rate decreases the longer a restaurant is open. Well-capitalized restaurants typically have a high success rate, he says, since the root cause of most failures is business problems rather than food or service issues.

Christin Fernandez of the National Restaurant Association says that every year, around 60,000 restaurants open and about 50,000 close. While that illustrates churn in the industry, she says, not all of those closures are failures. Sometimes the owner is ready to move on or wants to change locations.

Despite overblown failure rates, the truth is there are common mistakes that contribute to many restaurants shuttering each year. Here are four ways to overcome the most common mistakes McNally sees, with advice from successful restaurateurs who have been there.

1. Don’t start undercapitalized
or underestimate costs

“Most restaurant operators underestimate the capital requirements to get the business started,” McNally says. “It’s a complicated, difficult business, and people get into it not recognizing the complexity and run out of money.” He says operators often don’t realize they need to pay for building permits, government licenses, real estate brokers, architects, engineers, contractors, shipping equipment and even music. Newbies are often astonished to learn the extent of the choices and costs required, McNally says. (He adds that he’s never seen a restaurant come in under budget).

Industry insight

“Neither [my business partner nor I] had owned a restaurant before. We thought we had enough going into it. We knew we’d be working with a very tight budget … but pretty much everything costs almost double what you expect. Permits were a lot more expensive than we thought. Even with friends helping with furniture, it was so much more expensive than planned. Architects ended up doing thousands of dollars of work in trade for mac and cheese. We were planning on keeping a big chunk aside when we opened for operating expenses, but we pretty much had two weeks of operating expenses when we opened, which was really scary.

“Luckily for us, Homeroom was pretty successful right off the bat. If we weren’t busy right from the beginning, we wouldn’t have made it. People should really try to have at least three months of operating expenses saved before you open. When you’re new, vendors won’t take credit from you; they want you to pay right away until you establish history. You need extra money on hand to be able to pay people. We recently opened a to-go location around the block, and we learned a lot from opening the first location. We definitely did things smarter the second time around.”
—Allison Arevalo, co-owner of Homeroom in Oakland, California, since 2011

2. Have a business plan

New restaurateurs often open with the idea they’ll succeed by having better food and service than anyone else, McNally says. But that’s not enough — everyone expects that. You need a strong concept and a business plan, two things he’s seen countless restaurants open without. “A business plan isn’t a recipe for success; it’s a road map,” he says. “And without a road map, you don’t know where you’re going.”

Industry insight

“I think a business plan is as much for yourself as anyone else. People think you need to write one for the banks, but I see a lot of restaurants who don’t even know who they are before they open their doors. They haven’t established that identity, they don’t know what their mission is, what they’re trying to accomplish, who they’re trying to serve or what they’re trying to serve. My first business plan was probably my most thorough. After that, in my second two restaurants, I still put together a business plan, had a financial forecast, and reasons why the location will work. It was for myself. You can write whatever you want to make the bank happy, but ultimately, a business plan is your own roadmap for how you’ll launch and why.”
— Josh Wolkon, owner of Vesta Dipping Grill (since 1997), Steuben’s Food Service (since 2006) and Ace (since 2012) in Denver

3. Recognize the challenge of managing people

“A restaurant is the only business I know of that takes a raw product and manufactures that product, markets the product, delivers the product, cleans it up and collects money from the end user, all in an entire experience,” McNally says. For all these processes, you need people with different skills, experiences and temperaments. “It becomes a team sport, and we need people in different positions to fulfill the role for the success of the team.” The problem? Most restaurant owners are entrepreneurs with strong personalities, and they often struggle to share their vision and passion with others.

Industry insight

“What a lot of people don’t realize is that they get really good at a specific skill set and then they think they’re so good at it, it will overcome all other inadequacies. I see this all the time with chefs: They’re really good cooks and think all they have to do is be awesome, and then everyone will just follow along and do exactly what they say. You have to know where your gaps are and get the right people in place, and not try to do everything. If you’re an emotional leader, it’s important to understand your emotions, since anger and all those things trickle down to the culture of the restaurant. The more you can do work based on facts, what is and isn’t happening, and trying to minimize the emotional charge of the work culture is really important, so people can talk to each other about what needs to get done.

“I think the people who do really well have a big picture of what goes into a restaurant, and understand and have an appreciation for what other people do. Having an understanding of what is reasonable for people to do and accomplish is so important. It’s one of the few occupations where you’re going to be talking to so many people from so many backgrounds. Being able to talk to people on their level and get them behind you is one of the most fun parts of the jobs, but it’s a really important skill set to have.”
— Trevett Hooper, chef and owner of Legume in Pittsburgh since 2007

4. Know what you’re getting into

Experience is key for restaurant success. McNally is often approached by people who want to open a restaurant but have no experience. He likes to ask them, “Why would you like to enter this industry? What makes you believe you would be successful?” Just because someone has been successful in another type of business doesn’t guarantee that those skills or successes will transfer well. Running a restaurant isn’t a job, he says; it’s a lifestyle requiring extreme hours and commitment. McNally has found that a strong management team can help an inexperienced restaurateur succeed, but those going it alone are likely to struggle.

Industry insight

“Mother’s wasn’t an overnight success. I had the idea in 1992, and everything I did for the next eight years was getting ready to open this restaurant. I had the idea while working for Weight Watchers; I knew a lot about cooking and did catering on the side. I knew I was going to get laid off, so I decided to go to cooking school so I knew the way of doing things. I paid my dues. You have to pay your dues and know every job in your restaurant; you can’t open a restaurant or get into the business without knowing how to wait tables, do some work in the kitchen or bartend. I can do any job in the restaurant; if a server doesn’t show up, I can wait tables. If the cook is out, I’m on the line. I’ve heard of restaurateurs who don’t even know what’s on their menu. Be a cook, waitress or bartender first. I did those before opening. Know what you’re getting into.”
— Lisa Schroeder, chef and owner of Mother’s Bistro & Bar in Portland, Oregon, since 2000

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Emily Starbuck Crone is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @emstarbuck and on Google+.

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The Comcast-Time Warner Cable Merger Is Dead

Plans for a $42.5 billion merger that would have created a mammoth Internet and cable giant out of Comcast and Time Warner Cable have been dropped.

The Comcast takeover of TWC, which critics argued would flirt dangerously with creating a monopoly that would stifle consumer choice, had faced a rising tide of opposition from lawmakers and federal regulators, who would have needed to approve the deal.

“Today, we move on,” Comcast Chairman and CEO Brian L. Roberts said Friday in a written statement. “Of course, we would have liked to bring our great products to new cities, but we structured this deal so that if the government didn’t agree, we could walk away.”

If the deal between the two largest U.S. cable providers had been approved, the resulting company would have controlled almost 60% of the broadband market in the United States and about 30% of the nation’s pay television.

As word that the deal was unraveling began leaking Thursday, opponents were quick to celebrate the news.

“I’ve been opposed to this deal since it was first announced, and I’m glad that over the last 15 months, more and more people have come to see it the way I do,” said U.S. Sen. Al Franken, a Minnesota Democrat, in a written statement. “This transaction would create a telecom behemoth that would lead to higher prices, fewer choices, and even worse service. We need more competition in this space, not less. If reports of the collapse of the deal are true, it would be a huge victory for American consumers.”

Franken and other critics were afraid that the clout a combined Comcast and Time Warner Cable would have wielded would have led to higher prices and worse service for customers who, in many cases, would have had fewer and fewer options.

Comcast and Time Warner Cable (which became independent from parent company Time Warner in 2009) already were ranked as the two “most hated” companies in the United States, according to the University of Michigan’s American Customer Satisfaction Index.

Roberts maintained that Comcast still has “strong momentum.”

“I couldn’t be more proud of this company and I am truly excited for what’s next,” he said.

Doug Gross is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @doug_gross and on Google+.

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Q&A: Small Business Is Big Business in Miami, Chamber Leader Says

With a heavy influx of tourists year-round, a diverse, entrepreneur-focused economy, numerous higher education institutions and plenty of local resources that offer guidance, starting a small business in Miami comes with plenty of potential benefits.

As for the challenges, Miami is a complex market due to its multicultural population, and its entrepreneurs are not immune to the problems faced by small business owners nationwide, says Barry Johnson, president and CEO of the Greater Miami Chamber of Commerce, the largest business organization in South Florida. The chamber represents four counties and member companies with more than 400,000 employees.

NerdWallet recently spoke with Johnson about how the chamber helps small businesses, the business outlook in Miami, some of the common challenges facing small business owners and other useful local resources for businesses.

NerdWallet: Can you tell us a little bit about the local economy in Miami and how the chamber supports it?

Johnson: Our program of work is focused along the lines of a combination of support for domestic business programs — community growth is one area, which looks at the functional areas of the community, such as transportation, infrastructure, education, military affairs. We’ve got a strong military presence down here. We’ve got probably the most active sports market in America here.

And then we get into our industry growth areas, which are those that are the engines of our economy. They are largely entrepreneurial, but also include tourism, real estate, banking and finance, technology, creative industries, and so forth. From there, we move to our international programs — because of who we are and where we are, international business is a big deal here, and we do inbound missions, we welcome ambassadors from around the world, and we take our members on trips to cities throughout the world.

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Finally, rounding out the portfolios of programs, our leadership program is designed to help our members become better business professionals. We run a series of programs, from Leadership Miami, Senior Executive Orientation, Youth Leadership Miami, and a host of other programs. Altogether, we have 25 different committees with over 150 events a year.

How does the chamber help small business owners?

We work in a number of ways for small business owners, largely because small business is big business for us in this part of the country. Here, in Miami-Dade county — our largest county in the four we serve — we have more small businesses than any other county in America, except for Los Angeles and Orange counties in California, according to the SBA.

On top of that, we’re pretty much a college town, with Florida International University and several private colleges, Nova Southeastern and Barry University, among others, and, of course, Miami Dade College. We have a lot more graduates coming out of those institutions than traditional employers — we don’t have a plethora of large businesses here, manufacturing plants or anything along those lines.

So one of the initiatives we do a lot is transition the students and give them an opportunity to have an entrepreneurial experience and help them grow their business. A large number of programs that we provide are instructional, in terms of seminars and others, to help business people become better business professionals, both individually and with their business.

We do a program called Business Excellence, which provides opportunities to understand and learn from businesses that have been successful, and we do several awards programs, one of which is called Good to Great, named after the book by Jim Collins, which spotlights businesses that have gone from good to great. And all of the finalists are also speakers for us in the Business Excellence program.

What are some of the main challenges facing small-business owners in Miami?

Probably the same challenges that face small businesses all over. That is, having a good business plan, and then finding the funding to be able to sustain and then grow the business. Obviously, there’s a great deal of pressure on small businesses to survive. As the odds tell us, most of them do not.

It’s imperative that businesses not only have those two things — a solid business plan and financial resources — but also reaching out and being able to learn, and to connect in business organizations like ours, that gives them a leg up and helps short-cut a lot of the difficulty and despair that comes with learning how to grow your business. Utilizing the successes of others is a key way to cut some of those corners.

The challenges unique to South Florida, I think, is that we are a very complex marketplace, a very international marketplace. You have the challenges of a multicultural marketplace if you will — we are predominantly a Hispanic community, with also the largest segment of Caribbean black residents than any other market in the U.S. So the dynamics here are a little more challenging, because we are not as harmonious as Kansas City would be, for example, that did not have all the variations in market segments.

But other than that, I don’t see any other challenges that would make it more unique than any other marketplace; I think the opportunities are incredible, especially those businesses focused on areas in international business.

Where do Miami’s small businesses go for funding?

Anywhere they can find it. There are some programs available through the Small Business Administration. The community banks here in the last year or so have been easier to deal with then they have been in the years throughout the economic downturn.

Family funding is still probably key to the growth in small business. Some crowdfunding you will see happening here, as it is elsewhere. And there’s more venture capitalists in town looking for smart business people and small businesses with unique potential, especially those in the area of technology, of sustainable energy — those are the things that seem to be attracting a lot of interest from people who are looking to invest.

What are some other useful resources for Miami small-business owners?

One of the best engines for small businesses here is the expertise located inside Miami Dade College, which has a really terrific idea center that helps entrepreneurs really launch their business.

Beyond that, certainly the Miami Beacon Council, which is our county’s economic development agency. It has programming available. And often we refer smaller businesses to organizations like SCORE, which has some volunteers that can be very valuable in terms of helping to guide them.

There’s another group of retired professionals that is gaining ground here, called ReServe, which are basically people hired at minimum wage who really don’t want to retire but want to do something to give back. That group is helpful as well.

So there are a lot of different resources — some government-focused, but others that have come out of the business community here, such as the EDC — the Economic Development Council of South Miami-Dade.

What advice do you have for small business owners in Miami and nationwide?

At the end of the day, solid management and access to capital are the two keys to success, and on top of that, networking. Networking for a small business is critical, although it is challenging, because you have less man-hours to put into that.

But separating your brand, differentiating your product, showing where you are pre-emptive in what you’re doing, are all elements to lead you to success. There are no magic bullets – it’s just a lot of hard work.

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Steve Nicastro is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @StevenNicastro and on Google+.

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Charleston, S.C.: A Friendly Place to Run a Small Business

Considering its rich history and architecture, booming restaurant scene, proximity to the beach and Southern hospitality (it’s the friendliest city in the entire country, according to one survey), it’s no surprise that Charleston, South Carolina, is a major tourist destination. However, Charleston’s small-business owners and experts also say it’s a pretty attractive place to own a business.

Here are some of the potential benefits and challenges to owning a small business in Charleston, as well as some important local resources.

Overview of Charleston

Founded in 1670 as Charles Town in honor of King Charles II of England, Charleston is the oldest and second-largest city in South Carolina, with a 2013 population of 127,999. The city is home to numerous luxury hotels, a historic district with museums, art galleries, a shopping and live theater scene, and plantations and gardens that are open to the public.

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Besides tourism, Charleston also benefits from a diverse economy. The area is home to private sector employers such as Boeing, Blackbaud, Trident Health System, Google and Verizon, as well as public sector employers such as the Medical University of South Carolina, the College of Charleston, the Citadel and the Charleston County School District.

Just a few minutes away in North Charleston is Joint Base Charleston, a military facility that supports the Navy, Air Force, Marines, Coast Guard and Army and employs more than 20,000 active-duty, reserve and civilian personnel.

Charleston has also been nicknamed “Silicon Harbor” for its growing tech scene, with over 200 tech companies calling Charleston home, including Benefitfocus, BoomTown, PeopleMatter, BlueKey and PhishLabs, according to CharlestonWorks.

Benefits to owning a business in Charleston

There are many benefits to owning a small business in Charleston, according to some of Charleston’s small-business owners and experts.

Growing population: One main benefit is population growth, as Charleston County’s population has soared from 350,204 in 2010 to an estimated 381,015 by 2014, an 8.8% increase, according to Census figures.

“We’re blessed that we live in an area that many people are moving to, whether it’s because of the beauty, or the weather, or numerous other things,” says Laura Bright, vice president of marketing with the Charleston Metro Chamber of Commerce.

Low unemployment: Charleston’s unemployment rate is 5%, compared to a 5.8% national average and a 6.8% rate in the state of South Carolina, according to recent data from the U.S. Bureau of Labor Statistics.  Forbes has listed Charleston as No. 59 in the Best Places for Business and Careers, and projects annual job growth of 2%. According to the Chamber’s 2015-16 Economic Outlook Forecast, total employment is projected to increase by more than 6,000 net new jobs in 2015 and another 5,000 in 2016.

Tourism economy: The tourism scene is a big positive for food and beverage companies, says Max Blackman, co-founder of Holy Smoke Smoked Olive Oil.

“There are a lot of really great restaurants and bars in town, farmers markets, and gourmet shops and gift shops,” Blackman says. “We see a lot of business passing through every summer because people just flock down to Charleston.”

Friendly people: Paula Dezzutti-Hewlette, CEO and founder of the Daniel Island-based Local Choice Spirits, says Charleston’s small-business owners like to work together, collaborate and exchange ideas instead of waging war against each other.

“I think everybody here has just been really warm and welcoming,” says Dezzutti-Hewlette. “It’s a great opportunity to start a business here because it’s such an eclectic group of people, and there’s a great amount of wealth, experience and resources in this community.” 

Mark O’Driscoll owns a Marco’s Pizza franchise in James Island and West Ashley, two neighborhoods in Charleston. Originally from Dublin, Ireland, O’Driscoll has also lived for years in New York and Florida, but has called Charleston home for the past 10 years and said he doesn’t regret the decision.

“I think everything’s a little bit easier here, from walking down to the city and meeting with helpful people who will walk you through the whole permitting process,” O’Driscoll says. “There just seem to be some good, friendly, helpful people down here. I just found that from the health inspector to the fire officer, you can get them on the phone.”

Challenges to owning a business in Charleston

Rising cost of living: Charleston’s cost of living is 7.9% higher than the national average, according to Forbes. The median 2-bedroom apartment rent is $1,057 per month, while the median three-bedroom, two-bath home costs $250,589, according to NerdWallet’s Cost of Living Calculator.

“Real estate is kind of expensive because there’s a huge housing boom here,” Blackman says. “So finding an adequate space for a reasonable amount of rent is pretty hard to do.” 

Permitting: You’ll face a little bit of red tape when starting up a small business.

“One of the things we think is very important is that all of our municipalities and counties become a little bit more streamlined in the licensing, regulation and permitting process,” Bright says.  “And right now, it’s still relatively fragmented, depending on which municipality you live in. So that’s something that we can work on, and we are.”

Lack of funding: Finding financing is a problem for small-business owners nationwide, and Charleston is no different. Traditional banks typically lend only to established companies that are already profitable and will likely require collateral to back a loan.

“Banks are not keen on helping startups, and other investors like to come on later in their growth stage,” Bright says.

Not enough workers: The restaurant industry is struggling to hire enough workers to keep up with the demand, O’Driscoll says. “It’s growing so fast and most people in the restaurant business will say it’s tough to keep good people,” he says. “There’s not enough quality coming through.”

Resources for local small-business owners

“I love Charleston because they’re very committed to supporting local business,” says Dezzutti-Hewlette. “There’s so many organizations that really bring attention to what a difference you make when you support local.”

South Carolina Business One Stop (SCBOS): SCBOS is a vital resource for small-business owners. This business-to-government portal is where you’ll file permits, licenses, registrations, and pay your taxes. The portal also links to useful external startup business resources.

Charleston Metro Chamber of Commerce: Established in 1773, the Charleston Metro Chamber of Commerce represents the entire region. It’s a 17,000-member organization that provides small businesses with resources and support.

For example, the Chamber hosts several events throughout the year to help small-business owners develop relationships and get a better understanding of the local economy, such as “Business in Your Backyard” and “Perfect Pitch.” The Chamber also started the Charleston Entrepreneur Ecosystem as a tool to help small-business owners find funding, skills and support to grow their company. 

Charleston SCORE Chapter: This organization provides free business mentoring for Charleston entrepreneurs, plus existing and startup businesses. You just need to request a meeting and complete a form with some information about yourself and your company.

“You just apply at the SCORE office and they sent you up with one of their mentor‘s who’s been working in your field — they help you with your finances, your marketing,” Blackman says.

SCORE also hosts several workshops each month to help small-business owners tackle important issues, such as help with taxes, how to recruit and train employees and how to get financing for a small business. Another useful resource is the websites’ templates and tools page rel=”nofollow”, where important questions are answered for small-business owners. 

South Carolina Small Business Development Center (SBDC): Operating in partnership with the U.S. Small Business Administration, this organization provides one-on-one consultation to startups and existing small-business owners in Charleston, Berkeley and Dorchester counties.

The services are free and available by appointment only. Free workshops include help with small-business taxes, QuickBooks and how to prepare a business plan. The website also provides free templates such as a business plan, cash flow template, marketing plan and startup checklist.

Charleston Digital Corridor: The Digital Corridor focuses on the growing technology industry in Charleston and was created to attract, nurture and promote Charleston’s knowledge economy, says Ernest Andrade, its founder and director.

The corridor provides networking opportunities through numerous events throughout the year, matches qualified career seekers with job openings, trains workers, provides two incubator working spaces in downtown Charleston (with a third space opening in 2016) and offers guidance on startup financing options.

Charleston Local Development Corporation (LDC): The Charleston LDC serves as a funding resource for small businesses in Charleston. It works with banks and financial institutions to provide small-business loans, whether it’s for startup, expansion or business continuation financing.

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Steve Nicastro is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @StevenNicastro and on Google+.

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Breaking Down the Average Salary in San Francisco’s Top Industries

There’s more to San Francisco than fog, Haight-Ashbury and the Golden Gate Bridge. It’s also a great city for recent college grads to make a living. It can be expensive to live in San Francisco, a fact that really hits home when you’re looking for an apartment. But pay in many industries is higher than average, too.

Annual salaries for full-time employees in San Francisco jumped an average of 2.8% from the first quarter of 2014 to 2015, according to Payscale Inc. Annual pay nationally went up just 1.8% in that time. Your pay and job opportunities will vary depending on the industry you work in, but for lots of grads, working in San Francisco can help kickstart your career — and your bank account.

Tech

San Francisco is known for its startup scene, so it’s no surprise that tech is your best bet for a well-paying job in the city.

“The technology industry is where you will get the highest paycheck,” says Scott Dobroski, a career trends analyst at the career website Glassdoor. “It’s also the one right now with the biggest opportunities for new grads.”

The three highest-paying positions in San Francisco, as self-reported by Glassdoor members, are all in tech. The average salary in San Francisco for a data scientist is $127,000 a year; software engineers make $103,000 a year; and database administrators earn $77,000.

Keep in mind that if you’re coming straight from college, you’ll likely earn slightly less your first year than a more seasoned employee would. But even entry-level salaries for software engineers in San Francisco are high: Their median pay is $97,000 per year, according to a PayScale salary survey.

If you’re not a computer whiz, there’s room at tech companies for graduates with all kinds of backgrounds, Dobroski says. Job seekers will find openings in sales, business development, finance, human resources and facilities management at tech companies in San Francisco.

Plus, once get your foot in the door, equity, stock options and bonuses are additional benefits of working in this industry. Recent grads with a stake in the tech companies they work for will often profit if those companies go public, or sell shares of their stock to investors. When it comes time to negotiate your job offer at a startup, make sure these non-salary benefits are part of your compensation package.

Health care

Tech might be what San Francisco is known for, but the health care sector is the biggest employer in San Francisco, according to a November 2014 study by the Hospital Council of Northern and Central California. More than 120,000 people work in health care in the city, the most of any industry, and construction will start on five new hospitals between 2015 and 2019 — paving the way for even more jobs.

Grads coming out of school with degrees in health care can expect to get paid well, too. Registered nurses in San Francisco make an average of $91,423 a year, according to Glassdoor, compared to the national average of $65,920. Physician assistants in San Francisco earn an average of $115,924 per year, according to salary.com, slightly more than the average base salary of $111,376 that Glassdoor members report for the position.

Glassdoor’s annual ranking of the 25 Best Jobs in America placed physician assistant in the top spot, since they make a high average base salary and there’s a strong demand for them nationwide. Software engineering earned the title of second-best job for 2015. It’s a good sign for new grads in San Francisco that there are a lot of opportunities in the city for these high-demand careers.

Finance

New York’s Wall Street might be the epicenter of the financial industry, but San Francisco has its own vibrant finance community. San Francisco is home to Wells Fargo’s corporate offices, the Federal Reserve Bank of San Francisco and several venture capital firms that invest in tech companies.

The average salary in San Francisco for financial analysts, often an entry-level position, is $73,751 per year according to Glassdoor — almost $10,000 more than the national average. Some of these positions require prior experience, though, and employers in San Francisco often favor candidates who can show they’ve taken on responsibilities during their college years that set them apart, says Glassdoor’s Dobroski.

“Even though there is a lot of opportunity, there’s a lot of competition,” he says.

You can get a leg up on others hoping to build a career in San Francisco by showing employers that you have some work experience in your chosen field. Internships, leadership positions in on-campus organizations and volunteer organizations will all give your applications to tech, health care and finance companies a boost. Whichever route you choose, it’s likely there’s a place for you as a recent grad on San Francisco’s vigorous job market.

Brianna McGurran is a staff writer covering education and life after college for NerdWallet. Follow her on Twitter.

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Offbeat Santa Cruz Inspires Singular Small Businesses

Santa Cruz made history as the place where in 1885 surfing was introduced to the U.S. mainland. Nowadays, it’s also known as the California coastal city where small businesses make big waves.

Take a company called Surf Office. That’s a communal-workspace company with an unusual perk. If you need a break from office work, you can — what else? — go surfing. Surfboards are provided. The beach is right outside the front door.

Then there’s Best Baby Rentals, which lets you rent a stroller, a crib or baby toys if you’re visiting Santa Cruz with your family. And if you’re into beer, hop on Brew Cruz, a converted school bus that offers tours of the area’s craft breweries.

“Santa Cruz is a very creative city,” Surf Office co-founder Emmanuel Guisset tells NerdWallet. “It has always been full of artists, hippies and surfers, but now more and more startups are popping up, and this creates a creative and innovative environment with different values than Silicon Valley or San Francisco.”

Jeremy Neuner, chief executive and co-founder of NextSpace, cites residents’ work ethic as well as their love of fun. NextSpace is another successful collaborative-workspace company and has already expanded to cities including Los Angeles and San Francisco.

“People want to live here,” he tells NerdWallet, “because they want to work hard and play hard.”

There’s a considerable reserve of creativity and talent in Santa Cruz, says Brent Haddad, director of the Center for Entrepreneurship at the University of California, Santa Cruz.

You need “a whole bunch of things in place” for that environment to  flourish, he tells NerdWallet. Among them, the city “has to have smart, creative people. And Santa Cruz has that in spades.”

Some of the city’s entrepreneurs are people who just came to visit but “ended up falling in love with Santa Cruz and not wanting to go home,” says Rebecca Unitt, economic development coordinator with the city.

That’s what happened to Zach Davis. “Santa Cruz was a place we fell in love with as residents,” he tells NerdWallet.

A few years ago, he and veteran pastry chef Kendra Baker started the Penny Ice Creamery, which makes ice cream from scratch. They eventually expanded the venture into other restaurants now collectively known as The Glass Jar. Their company stresses sustainable food and community, and it became such a shining example of a successful small business following the financial crisis that Baker and Davis were invited to be guests at President Obama’s 2011 State of the Union address.

Willing to take a risk

Davis cites the Santa Cruz environment as one of the keys to their success. “There’s a tremendous amount of … people who are willing to take a bit of a risk,” he says.

Bud Colligan, CEO of the investment firm South Swell Ventures and the former chief executive of Macromedia, pointed to “a broad range of very educated and qualified people” whom small companies can easily tap and a “supportive political environment.”

In some ways, Santa Cruz, a city of 63,400 tucked away in a corner of the Central California coast known for its colorful surfer scene and hippie communities, is an unlikely haven for innovative small-business pioneers.

But that diversity and location drew bold-thinking entrepreneurs, says Peggy Dolgenos, co-founder of the local Internet service company Cruzio.

“Santa Cruz has attracted a motley group because it’s off the beaten track and such a beautiful place,” she tells NerdWallet.

“We have a top-notch university, UC Santa Cruz, so we have the movie theaters, coffee houses and bookshops that intellectuals love. At the same time, we’re surrounded by jagged mountains, towering redwoods and some of the best surf breaks in the world. Who would choose to live in a place like that? Turns out, a lot of creative people do.”

Teresa Thomae, director of the Cabrillo College Small Business Development Center, tells NerdWallet, “Santa Cruz has always been a pretty entrepreneurial community.”

A small-business owner, even someone just starting out, can expect support from local government and organizations and the community itself, says Krista Bordner, who quit her Silicon Valley job to start Best Baby Rentals.

“It’s overwhelming how supportive people have been,” she tells NerdWallet. “It just felt so good to feel supported by our local community and local businesses, to know that they want me to succeed as a small business.”

Christina Glynn, communications director for the Santa Cruz County Conference & Visitors Council, echoed this sentiment, calling Santa Cruz “a perfect environment” for business leaders and innovators. “We are so open to new ideas and thinking outside the box,” she tells NerdWallet.

That openness is shared by city and business leaders. Davis of The Glass Jar praises Santa Cruz for offering “some really valuable resources for business.” You can see what he’s talking about on the Santa Cruz city government website, under “Business Support.”

You’ll find information on:

• Local funding programs for small businesses, such as the Opportunity Fund, which offers microloans, and the Grow Santa Cruz Loan program, which the city runs in partnership with the National Development Council and the U.S. Small Business Administration.
• An up-to-date list of available office space and other properties in the city.
• A city-sponsored analysis of the Santa Cruz retail market.
• A “facade improvement program” that offers grants of up to $10,000 to help small businesses “enhance and restore” their storefronts.

Great tool for startups in Santa Cruz

A central feature of the website is Open Counter, the online system the city developed with Code for America, a nonprofit focused on transparency in government. It was set up a few years ago to help entrepreneurs hoping to set up shop in Santa Cruz.

It’s a critical tool for anyone thinking of opening a small business in the city. With Open Counter, you can go through the step-by-step process of setting up your small business in Santa Cruz. Included are a checklist of permits and licenses you’ll need to apply for and a schedule of the fees you will need to pay.

“Our role is to be the advocate for businesses in the community. We focus on providing resources at the early stages, when the business is just starting out,” says Unitt of the Santa Cruz Economic Development department.

In fact, it’s not just for businesses starting out. Davis of The Glass Jar said his company used it when opening his latest restaurant.  “It definitely got things moving a lot quicker, which was pretty cool,” he says.

You can expect help beyond cool online tools, says Bill Tysseling, executive director of the Santa Cruz Area Chamber of Commerce.

“We have lots of experienced people here to help,” he tells NerdWallet.

One of them is Dolgenos of Cruzio, which started in 1989, even before the World Wide Web went live.  It’s no surprise that small companies such as Cruzio have managed not only to survive, but also to thrive despite facing stiff competition from giants including Comcast and AT&T, she says.

“Santa Cruz welcomes new and different ideas, so small businesses here have an advantage,” says Dolgenos, who is also the chair of the Santa Cruz County Business Council.

“People here think that something unique is a good thing. For a company like Cruzio, an independent Internet provider, that allows us to survive,” he says. “We compete with Comcast and AT&T, who have zillion-dollar ad budgets, and yet we have thrived. Our community is willing to support a local alternative to a national corporation.”

Of course, as with any city or region, expect to encounter challenges as a small-business owner in Santa Cruz. “I often sit down with people who are trying to figure out whether they want to jump in,” Tysseling says. “Starting a business anywhere is a daunting process.”

Housing costs a challenge

One challenge he cites is the high cost of housing. The median home price in Santa Cruz is $666,300, according to city data. A low-end one-bedroom apartment in Santa Cruz rents for roughly $1,300 to $1,500, Tysseling says. City and business leaders are looking to build higher-density units, he says, but housing costs are definitely a challenge for companies looking to locate here.

For one thing, it makes recruiting young workers more challenging. “We have a strong base of workers,” he says. “But in general, it is difficult to bring in skilled workers because of the cost of housing.”

Unitt, of the Santa Cruz Economic Development department, also cautions that despite “amazing” ideas for services and products, there can be bumps in the road. “Even having an MBA doesn’t always prepare them for how to get their small business established and growing.”

“Your business plan may be flawless, but your small business will encounter opportunities and adjust to the market,” Unitt says. “Small businesses are at their most precarious when fast growth pounces and vision, values, and strategy struggle to remain balanced.”

This is where city and business leaders can help, she says. “We can connect you with free, confidential, expert business consulting through the Central Coast Small Business Development Center to ensure your fast-growing business has the long game in mind as well.”

The good news is, according to those we talked with, meeting these challenges is more engaging and fun in a place like Santa Cruz.

If you’re thinking of starting a small business in the city, here are some good places to start:

• City of Santa Cruz Economic Development
• Cabrillo College Small Business Development Center (also known as the Central Coast Small Business Development Center)
• Santa Cruz Chamber of Commerce
• Santa Cruz County Conference & Visitors Council
• Center for Entrepreneurship at the University of California, Santa Cruz

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Benjamin Pimentel is a staff writer covering small business for NerdWallet. Follow him on Twitter @benpimentel, on Google+ and on LinkedIn.

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Buyers in Hot Markets Try Creative Home Financing

First-time homebuyers face an uphill battle in the best of circumstances, but in high-price areas, many have a particularly hard time coming up with a big enough down payment. That’s why some buyers in Washington, San Francisco and Seattle are getting creative.

Some turn to a San Francisco-based company called FirstREX, which began providing equity home financing to buyers in 2013. In the business world, a provider of equity financing typically acquires an ownership stake, the way venture capitalists do when they fund a startup. But FirstREX doesn’t become a part owner of the homes it helps finance. Instead, the company enters into a contract in which the buyer agrees to repay the company’s investment plus as much as 40% of the change in value of the home when it’s sold.

“The return on investment to our investors is based strictly on the performance of the property going forward,” says Michael Lyon, director of sales for FirstREX. “We take no ownership.”

Smaller down payments

In most cases, buyers with a smaller down payment can get a loan backed by the Federal Housing Administration, or FHA. But loan limits for these programs top out at $625,500 for single family homes in pricier metro areas like San Francisco or New York, and less in lower-priced cities and regions.

Banks generally don’t accept funding from outside the buyer’s own resources when it comes to down payments. Lenders often regard the down payment as a measure of the buyer’s ability to repay a mortgage loan, because amassing a down payment takes most people more than a few years of saving, and that requires a certain amount of self-discipline. But a handful of lenders, including Seattle’s HomeStreet Bank, give buyers the option of using FirstREX for down payment assistance.

Jumbo loans, which are above lending limits for most mortgages, almost always require a 20% down payment, according to Christopher Caproni, a loan advisor with RPM Mortgage in Mill Valley, California. The limits for home loans that are generally repackaged and sold to investors are set by Fannie Mae and Freddie Mac, the government-sponsored enterprises that backstop most mortgages in the U.S.

In most cases, FirstREX works with buyers who can muster a down payment of 10% to 12.5% of the purchase price. The company matches the buyer’s down payment. That means the buyer is able to get a loan for 80% of the purchase price or less, avoiding private mortgage insurance, which is usually required when a borrower puts up less than 20%. The insurance protects the lender against a default on the debt.

“A lot of people don’t even know they can buy with 10% of their own funds and avoid mortgage insurance,” Caproni says. “People go from fence-sitting to a yes when they hear about this.”

Buying sooner than expected

Steve Lapin and his wife, Courtney, found that an agreement with FirstREX meant they didn’t need to wait to buy the home they wanted. They were renting a loft apartment that Lapin describes as a “bachelor pad” in San Francisco’s Mission District. But the space had no interior walls, and they were expecting their first child.

“We knew we were growing out of the space,” says Lapin, who works in the financial industry. They looked at two-bedroom rentals, but the places they liked cost astronomical amounts. They found a condo for sale in the city’s Inner Richmond district, but couldn’t qualify for a loan. Their bank expected them to come up with 30% of the purchase price — 20% for a down payment and an additional 10% in reserve funds. Time was tight because they were competing against other potential buyers.

“We had to act within 24 hours,” Lapin says. FirstREX connected the couple to RPM Mortgage and matched their 10% down payment to get the deal done.

“This is a way that a first-time buyer can get into a neighborhood that they couldn’t otherwise get into,” Caproni says.

There are other alternative sources for down payment funds. FHA-backed loans permit down payments as low as 3.5%, although mortgage insurance on such loans can be expensive. Freddie Mac’s HomeSteps program offers buyers a chance to score foreclosed homes for a 5% down payment and no mortgage insurance. There are also assistance grants available from some state and local governments. But many of these programs can’t provide enough cash in high-priced markets, which adds to the appeal of FirstREX for some buyers.

Homeowners make no payments to FirstREX, and no interest is charged on the company’s investment. When the owner decides to sell, the property is appraised and that’s used to determine any gain in value due the company. If the owner has renovated or improved the home in ways that increase its sale price, that added value belongs to the owner.

Some buyers may find it challenging to give up a significant percentage of the gain from a sale. But Lapin says it will be worth it.

“I knew I’d have to give up some of the return” on my investment, he says. “But that’s OK, because their capital allowed me to get a bigger home and get the home I wanted for my family. It seems like a pretty fair trade.”

Limited availability

The availability of FirstREX financing is limited to buyers in three states and Washington, D.C., and no other company offers a similar product, according to Lyon, the FirstREX sales director. Buyers don’t need perfect credit for FirstREX to invest — RPM’s Caproni says a 680 FICO score, which is considered average credit, is the minimum needed for a deal with his firm.

Mortgage-appreciation financing first appeared in the 1970s, according to Bloomberg BusinessWeek, which cited Fannie Mae Foundation research. A company in San Diego, EquityKey, offers an alternative to home equity loans using a similar approach. FirstREX also provides homeowners with a way to cash out some of their equity without taking out a second mortgage or refinancing.

Homeowners can buy out FirstREX before selling by returning the company’s initial investment plus its share of any gain in value, based on a third-party appraisal. But there’s a financial penalty for doing so within the first three years. FirstREX investors prefer to partner with homeowners for the long haul.

“REX’s money comes from pension funds and endowment funds,” says Caproni, who is one of the few mortgage lenders in California that provides loans to buyers who have partnered with FirstREX. “Those asset groups are very patient.”

Lapin, meanwhile, says he’s very happy. He and his wife moved into their new home just 10 days before their son was born.

Virginia C. McGuire is a staff writer covering personal finance for NerdWallet. Follow her on Twitter @vcmcguire and on Google+.

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