Can small, independent businesses survive in Des Moines?

by Michael Swanger

Small business owners, the backbone of our economy, embody the American Dream. They are the risk takers, the innovators, the movers and shakers. They work long, hard days with little fanfare in exchange for individuality and freedom from corporate control. Their do-it-yourself attitude is motivated by their willingness to improve their community, and, as many have come to learn over the years, as small business goes, so, too, does the economy.

But some entrepreneurs say to launch and operate a small business in Des Moines it takes more than ambition, a solid business plan and a willing lender. They say it takes political clout, a landlord with moxie, the patience of Job and a good lawyer to fight unforeseen powers and problems that weren't factored into their original business plan.

City officials, civic leaders and developers often talk about the important role small businesses play in contributing to Des Moines' quality of life, but a handful of business owners interviewed by Cityview doubt their sincerity when it comes to fostering a business climate that encourages independence, flavor and a fair playing field. They say if Des Moines wants to expand its creative class economy it needs to pay more attention to the needs of small-business owners - particularly those who operate independent, funky businesses - or risk gentrification.

Linda Shepley and Denise Diaz, co-owners of the Ritual Cafè, gaze out the window of their new coffeehouse at 1301 Locust. It's a sunny midweek afternoon and the sound of silence is deafening as the shop sits empty and nary a construction worker can be found on the closed street that runs in front of their business.

The two women opened their cafè in March knowing the city would close a portion of 13th Street from August until the beginning of October as part of the revitalization of the Western Gateway. But agonizing construction delays and a lack of communication from city officials frustrate them.

"The not knowing is the hardest part," Shepley says. "Why can't someone communicate something to us? We understand things happen, but we've had a lot of nice days where nobody's been working on the street and nobody's in our shop. It's frustrating."

Shepley and Diaz say morning traffic at the Ritual Cafè has been cut by more than half since the street closed for repairs. To help draw customers' attention they asked the city to post signs on Grand Avenue and Locust Street to direct people to their business. The city agreed to do so, but was two weeks late delivering them.

"Part of our charm is our storefront. So if we don't have that, we rely on the signs," Diaz says. "Some of our customers have been visibly upset and offered to call the city on our behalf. It seems like every other customer has a comment about the construction."

Rick Clark, assistant city manager, says the city works hard to maintain construction deadlines and open lines of communication.

"I'm sympathetic to small businesses when it comes to street improvements," he says. "There's plenty of room for frustration on their part. We do our best to let them know where we are and to compress deadlines. But in the end, we can't make all the disruptions go away. It's not because we don't care."

Shepley and Diaz say they contacted city officials several times to voice their complaints, but fear their comments fell on deaf ears because they're a small business without political clout.

"I think it plays a role because we're not a high-tax-base business for the city," Shepley says.

Diaz concurs, adding it's a case of David versus Goliath.

"Who's going to listen to two women who own a coffee shop?" she says. "We could scream at the top of our lungs, but it's all about money."

The city's perceived indifference toward small businesses, Shepley says, leaves her feeling troubled and perplexed about owning a small business in Des Moines.

"I feel like you've got to want it bad enough and you have to ask the right questions or you won't get anywhere with them," she says. "I think in the end it will be worth being here, but I'd be lying if I said it hasn't created a lot of stress."

A few doors down from the Ritual Cafè at Beggar's Banquet, owner Kyle Maxwell is making early morning food preparations for the day as a construction crew erects a bright orange plastic fence outside his kitchen door to serve as a barricade for the work they're about to do. The three-man crew, with the help of a small end-loader, is tearing up the sidewalk next to Beggar's Banquet. And like some of the construction work being performed there during the past two months, Maxwell says, it's done without consideration to his customers or his business.

"A few days ago they cut a hole in the sidewalk during lunch hour and my customers were complaining about the dust and the noise," Maxwell says. "I've had a lot of people say, 'Are they trying to run you out of business?' It would be nice if a foreman would tell us they're going to do things like that."

Clark says the street will reopen this week and that the payoff of being located in the revitalized Western Gateway will exceed the temporary inconveniences of street repairs. Maxwell agrees, noting it helps temper his frustration with the current situation, but he's also concerned about how his business has been affected during the past two months.

"I know I need to hold on and it's going to be great," he says of the new street. "But it's driving me crazy."

So, too, did the predicament Maxwell faced this summer when he decided to close one of his businesses. The 35-year-old restaurateur purchased the original Beggar's Banquet located in the heart of the Drake neighborhood in 1997 with the intention of keeping the longtime eatery there, but he says construction delays which led to revenue losses persuaded him to close the restaurant and focus on the second location he opened downtown in 2002.

"It seems like everywhere I go I'm under construction," he says.
But problems with construction were only half the battle Maxwell faced in the Drake neighborhood. He says University Avenue LLC, a company whose investors include local attorney and Drake neighborhood resident Larry James Jr., purchased the University Avenue property that housed his former business a few years ago and promised to renovate the building with Regency general contractors, giving existing tenants like Beggar's Banquet and Hip Hop Heaven first choice to stay there. And though Maxwell admits he was slow to make a decision whether to stay, allowing owners to seek another tenant, he says their decision to lease a nearby space to a competing business, Planet Sub, ultimately forced him to close his shop in July.

"I didn't have a problem with the owners, but Regency is as corporate as corporate gets," he says. "They're so used to building strip malls in the suburbs that they didn't know what they were doing in the city. I think Larry felt bad about it, but there was nothing he could do."

James says he wishes Beggar's Banquet and Hip Hop Heaven, which also moved, would have stayed. But says it was their choice to leave.

"We wanted them to stay, but it was a business decision," he says. "We offered them below-market rates for five years compared to what we could get off the street. Our intention wasn't to force anyone off the block. It's unfortunate because I liked them as people and as business owners."

Jermaine Parkey, owner of Hip Hop Heaven, was another business owner James says he hated to see go. Parkey, a 32-year-old Drake area resident, brought business flair to the neighborhood.

"Obviously, we wanted Jermaine to stay," James says. "He added a great deal of flavor to the area, which is important to me because I don't want it to be another strip mall. But it comes down to business owners making a leap of faith. We've invested in this project because we think the area is blossoming."

Parkey says he would have liked to remain there, too, but construction delays, which affected customer traffic, greatly affected the bottom line. The clothier says he asked his landlords to temporarily reduce his monthly rent to help absorb his loss of business and help him stay in the area where he built his clientele, but they refused to do so and he closed in August. Parkey says he blames the ownership group's investors for overlooking the contributions of small, independent businesses like his to the community, calling it another example of urban renewal.

"It's nothing personal, it's business," he says. "But when you bring in a machine to deal with the situation, they act like a machine. We're small businesses and part of the community. But the machine doesn't care about the character of the community. We were the ones who made it cool to be there in the first place for them to come in and redo it. Now they've pushed the small man out of the picture."

Parkey says he plans to reopen Hip Hop Heaven in Merle Hay Mall by the end of the month.

"I wasn't going to sit there and wait for my business to die," he says. "I wish I could be part of its success, but I don't regret going to Merle Hay."

Someday, however, Parkey says he would like to find a way to return to the Drake neighborhood, perhaps opening up a second location.

"I still feel that connection because I live there," he says. "I always will."
Ideally, Parkey says, he would like to become a property owner so he could help other young entrepreneurs.

"I wouldn't let my dream get so big it would kill someone else's dream," he says.

Finding that perfect city to start a business isn't easy. Some might say it's impossible. And Des Moines, depending on who you talk to, has its share of good points and bad.

Politicians, government officials, economic-development groups and business leaders tout Iowa's location, educated workforce, quality of life and growing small-business activity (the Small Business Administration reported a spike in small-business loans from $139 million in fiscal 2004 to $197 million in fiscal 2005) among the numerous reasons entrepreneurs should find Iowa an attractive place to start a business. From the Iowa Values Fund, tax credits and loan programs, to technical assistance and entrepreneurial development programs for women, minorities and low-income business owners, they say Iowa is ideal for start-up businesses - especially those in the sectors of life sciences, advanced manufacturing and information solutions.

"My own experience is that we're doing pretty well here," says Clark, noting the increase in technology-related and venture capital businesses in Des Moines and the city's LowDoc program that helps fund new businesses. "One of the objectives we have is to work with small businesses and facilitate small business."

But not everyone agrees, including Entrepreneur magazine and the National Policy Research Center, whose joint study published in this month's issue of Entrepreneur found Iowa ranks last in the country when it comes to being a favorable place for small business start-ups. Des Moines faired slightly better, ranking 36th out of 55 mid-size cities.

Another study, released last week by the Washington-based Small Business and Entrepreneurship Council, ranked Iowa 41st on its 2005 Small Business Survival Index. The group's criteria was based on several government-imposed or government-related costs that affect small businesses.

"My personal experience is that it's challenging to grow business here," says Kathryn Dickel, co-founder of IowaTix.com and the Iowa Entrepreneur's Coalition, a group devoted to promoting, supporting and protecting the interests of Iowa entrepreneurs. "My business partner and I joke if we can make it here we can make it anywhere."

Formed about a year ago, the IEC lobbies decision-makers and lawmakers to be aware of issues that affect local entrepreneurs and helps to represent Iowa-born companies when it comes to state and local funding decisions. Just as important, it also provides a forum for entrepreneurs to collaborate and talk about their struggles with developers, city officials and competing big businesses.

"I think there's a lack of representation and voices of real entrepreneurs in the halls of decision-makers," Dickel says. "I've heard countless examples of it."

Dickel says if the IEC can't help entrepreneurs solve their problems, they will help find someone who can, noting that entrepreneurs and small business owners lack access to mentors. One of the most daunting tasks Iowa entrepreneurs encounter is where to turn for help given the many groups dedicated to helping small businesses, from the Greater Des Moines Partnership and the Iowa Entrepreneur Network to the Small Business Administration and the Iowa Department of Economic Development.

"We need a more efficient delivery system for entrepreneurs because they can't find or don't know about groups that can help them with their problems because everything is so disjointed," she says. "There's no linear pipeline to move through to become successful."

Rarely do small business owners draw the kind of media attention that Brad Hamilton and Nate Niceswanger have in past weeks, let alone public outcry. But their well-publicized feud with the city over the condition of two East Village buildings, both owned by Hamilton, that house a T-shirt printing shop and Niceswanger's Zzz Records has touched off an emotional response from the public and other small business owners.

"The outpour of support has been amazing," says Niceswanger, who moved his record store from the Temple for Performing Arts to the East Village in 2001. "A lot of people have responded to our situation, including those who have never been in the store. Last month, I was convinced I was going to get kicked out of my building. But I think the city is reconsidering its position, though we're not out of the woods yet."

Three years ago, city officials established guidelines for renovations to take place in the East Village, informing property owners that if improvements weren't made they would face eminent domain. Hamilton submitted a plan for $12,000 in repairs in April, but assistant city manager Rick Clark said it lacked detail and responded with a letter in late August giving Hamilton only 10 days to draft a new plan or face eminent domain. Hamilton, however, did not comply until about a week ago after he and his lawyer negotiated a 30-day extension with the city to draft a new plan.

"We received a letter from Brad's attorney to submit a plan, which is all we were after," Clark says. "He told us he would get it to us in about two or three weeks so there would be an opportunity for public comment and for the council to look at it."

City inspectors will soon inspect the building to make sure it is up to code. Clark says eminent domain would be the city's last option to resolve the situation.

"The general reaction we've heard is why is the city picking on a property owner," he says. "The other response has been from people in the area who want the property to be improved. It's always been about getting the property fixed up."

But Hamilton, who purchased both buildings in 2000 when they were boarded up for about $130,000, says city inspectors already told him the buildings were in fair condition when they last looked at it. Since then, he has spent about $30,000 to update plumbing and electrical work, as well as the building's faade.

"I sent them a letter with specific details of what I've done and what I'm planning to do," Hamilton says. "But what their inspectors are going to find is that I've already made upgrades to the buildings on my own since the first time they were here. I've even requested they send the same inspectors."

Hamilton, who declined an offer of $450,000 from an attorney to buy his properties in August, speculates that the individual's clients, powerful businessmen who also own property in the East Village, are the true motivating forces behind the city's actions. He thinks it was their hope that the city would condemn his buildings and force him to sell to them.

"There's a lot of jealousy in the real estate business," Hamilton says. "Why should I be penalized for making a good business deal? Why shouldn't I be entitled to make good money in the end? I can't help it if others made bad decisions and paid more for their properties than I did."

As for other property owners who complain to the city and not directly to him about the condition of his buildings, Hamilton says he refuses to get caught up in personal politics. "That's their problem," he says. "Let's deal with it on a business level. They're not my customers and they're not my friends."

For now, Hamilton says, he is more concerned about his future dealings with the city.

"I still don't trust them," he says. "Even though it's in the public eye now, I'm worried because I know how they work. They'll let things simmer down in the media and come back with another angle. But I'm not going to budge. I've got a hard head."

Some small business owners like Matt Johnson say they fear the city could be setting a dangerous precedent if it forces Hamilton and Niceswanger to vacate their buildings. He says it's an issue that should concern all small-business owners.

"He's the most important small business in town now because if something happens to him, it can happen to any of us," says the co-owner of Cup O' Kryptonite on the city's South Side. "If all the small businesses disappeared we'd be living in bland, corporate hell. If the city were to help small businesses like it does big businesses, can you imagine how vibrant the city would be? There wouldn't be any complaints that there's nothing here." CV

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