The Hedge | Brutal Honesty Over Hype Since 2008
We’ve spent the past two weeks cataloging everything that makes California difficult for entrepreneurs: the $800 franchise tax, the Series LLC gap, the unanimous consent trap, the cost of living, the talent absorption problem, the 518 regulatory agencies, PAGA, AB5, CEQA, workers’ compensation costs, commercial real estate prices, minimum wage increases, and the California privacy law compliance burden. That’s a formidable list.
Now let’s talk about what to do if you’re in California anyway — either because your business genuinely requires it, because your roots and relationships are there, or because you’ve decided the venture capital access is worth the cost. Being realistic about the challenges doesn’t mean giving up. It means building your business with clear eyes rather than optimistic assumptions that get corrected painfully by reality.
Get Your Legal Structure Right From Day One
If you’re not raising institutional venture capital, form an LLC and get a proper operating agreement drafted by a California business attorney — one who knows RULLCA’s unanimous consent requirements and has drafted around them before. If your revenue is or will soon be above $80,000 in net profit, get an S-corporation election analysis from a CPA who understands the payroll tax savings opportunity. If you are raising institutional venture capital, form a Delaware C-corporation from the start. Don’t try to reorganize later. The cost of getting the structure right initially is far less than the cost of fixing it under pressure.
Build Compliance Into Operations, Not Around Them
California’s compliance requirements — meal and rest break tracking, wage statement formatting, AB5 contractor analysis, PAGA-ready payroll systems — need to be built into your operations from the first employee, not added later when a lawsuit forces you to. The cost of proper HR systems, payroll software that generates PAGA-compliant wage statements, and a fractional HR professional to advise on California-specific requirements is a fraction of the cost of a single PAGA settlement. Build it right from the start.
Model Your Real Costs Before You Sign Anything
Before you sign a commercial lease, before you commit to a California headquarters, before you hire your first California employee, build a complete California operating cost model. Include franchise tax, workers’ compensation insurance, employer payroll taxes, commercial rent, the employee housing premium built into market-rate salaries, and an allowance for legal and compliance costs. Compare that model to an equivalent analysis for Texas, Nevada, or wherever else your business could reasonably operate. Make the decision with real numbers, not optimistic assumptions.
Use California’s Strengths Deliberately
If you’re staying in California, use its genuine advantages — the talent network, the investor ecosystem, the customer access — deliberately and strategically. Build the relationships that only California geography makes possible. Access the capital that California’s venture ecosystem concentrates. Hire from the world-class talent pool that California’s universities produce. Don’t be in California because it’s where you happen to be. Be there because you’re using what California specifically offers. If you can’t articulate what California specifically offers your business, that’s your answer about whether you should be there.
The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.
The Hedge 