1042-2587 © 2007 by Baylor University

Homeboy Industries: E T&P An Incubator of Hope and Businesses David Y. Choi Fred Kiesner

This case presents the story of Homeboy Industries, which was founded by Father Greg Boyle, S.J. to offer employment opportunities to former gang members in East Los Angeles. Homeboy Industries has successfully launched several businesses to hire and train “homies” who otherwise may not have found jobs. Michael Baca, the new operations director, is faced with the decision of whether to pursue expansion of the promising mer- chandising division. Complicating the decision is the need to balance both the social and business objectives of Homeboy Industries while dealing with the organization’s extreme shortage of managerial and financial resources. This depiction of an unusual entrepreneurial environment also illustrates several organizational challenges and philosophical dilemmas that are common among social ventures.

The cool, pleasant morning was rapidly turning into a typically steamy summer day in Los Angeles. Michael Baca, a retired firefighter and since 2003 the operations director for Homeboy Industries, drove along First Street toward the organization’s headquarters, where a staff meeting would soon begin. He had pondered all morning what to do about Homeboy Industry’s merchandising division, whether to make the investment of capital and effort to expand the division’s business or to leave it the way it was. Several people in the organization had become excited about the market potential of Homeboy Merchan- dise over the years, and now in 2004 they were eager to take the next steps. They wanted to propose an expansion plan for the division to Father Boyle, the founder and Executive Director of Homeboy Industries, and they wanted Michael’s support. Others in the organization thought that the merchandising division was a poor fit with Homeboy Industries. Father Boyle and others worried that its merchandise might become gang wear—the last thing that the organization wanted to have happen. Michael knew that all the staff members wanted his opinion. As he pulled into Homeboy’s parking lot and entered the building, he knew he had only a few minutes to make a decision one way or the other.

Please send correspondence to: David Y. Choi, tel.: (310) 338-2344; e-mail: [email protected]. The case was prepared solely to provide material for discussion and is not intended to illustrate either effective or ineffective handling of managerial situation.

September, 2007 769 Boyle Heights

To a middle-class visitor driving down First Street, the Boyle Heights neighborhood of East Los Angeles felt like a different world, both familiar and strange. A local market sold milk, and children were walking to school. A group of heavily tattooed young men in baggy pants and Los Angeles Raiders football jerseys also walked along the street, their eyes seeming to show both fear and anger. Beyond a police station, a building adorned with graffiti came into view: Homeboy Industries. Across the street from the police station, children milled around their school yard. Farther down the block, a pushcart vendor sold fruit to two older women. Boyle Heights, named in 1875 for Andrew Boyle of the Boyle-Workman family, was notorious for having one of the worst gang problems in all of Los Angeles. Within its 16 square miles, 60 different gangs claimed 10,000 members—among an official population of 90,000. Their presence ensured violence and plenty of action for the Los Angeles Police Department (LAPD). The neighborhood’s intense gang activity had historical roots in the rapid migration of illegal immigrants to Los Angeles, where the poorest of them concen- trated in East Los Angeles. The center of Jewish and Japanese-American life in the early twentieth century, Boyle Heights was now 94.95% Hispanic or Latino.1 Two large housing projects, Pico Gardens and Aliso Village, made up much of the neighborhood; most kids lived in one or the other. Attempts to slow the growth of the gangs had proved futile. Community Resources Against Street Hoodlums (CRASH), the LAPD’s special gang unit, constantly patrolled Boyle Heights. Even so, gang violence continued to wreak havoc.2 Something else needed to be done. Needless to say, Boyle Heights (like much of East Los Angeles) offered its children few opportunities. Instead of jobs, kids found themselves looking for member- ship in the local gangs. They saw their brothers and sisters, for some their only role models, running with gangs. For some, gangs were all they knew and the only way to get what they wanted in this neighborhood.

Homeboy Industries

Inside the Homeboy Industries building, there unfolded a study of contrasts and juxtaposition. The fashionably decorated, air-conditioned lobby displayed a hub of PCs no different from a customer service center at a larger corporation. The receptionist was a polite young Latino, professional in dress and appearance. A closer look revealed multiple tattoos on his fingers and face, all related to the gang life he formerly called his own. Young men and one woman worked at the PCs, answering phones and working busily. They wore baggy shorts and either black shirts bearing the Homeboy Industries logo or Raiders jerseys. A tattooed “LA” showed through the stubble of one recently shaved head. Another employee had horns tattooed on his forehead. The art displayed on the office walls included pictorial collages of life in the rough housing projects of Boyle Heights. They served as a reminder to Homeboy’s employees that they had good reasons to stay out of the gang life.

1. U.S. Census 2000, U.S. Census Bureau, available at http://www.census.gov/. 2. See, for example, Earl Ofari Hutchinson (2002, Nov 24), “L.A. Has to Gang Up on Violence.” Los Angeles Times. pg. M.5, which discusses how years of antigang campaigns have been unsuccessful over many years in spite of the CRASH program.

770 ENTREPRENEURSHIP THEORY and PRACTICE Father Greg Boyle founded Jobs for a Future (JFF), a nonprofit employment referral center, in 1988. He believed that to eliminate gang violence, it was necessary to root out its cause—the lack of hope arising from a lack of opportunities. He was confident that gang violence in Boyle Heights would disappear if its young people had the opportunity to “plan their futures not their funerals.” JFF’s slogan expressed its objective: “Nothing stops a bullet like a job.” Here, former gang members could receive counseling, job placement assistance, and coaching in interview skills, all in an attempt to provide a new future. Many of JFF’s clients had been ordered to receive individual or family counseling as a condition of probation. JFF employed two professional therapists on-site to provide these services to the probationers and to anyone in the community who needed the extra support that counseling could not provide. Both JFF employees and volunteers acted as “navigators” for JFF’s clients. Navigators helped juveniles released from detention facili- ties to enroll in school, register for any required classes, check in with probation officers, obtain driver’s licenses, and attend job interviews. One of the more interesting and unusual services provided by JFF was free tattoo removal. “Ya ‘Stuvo3 Tattoo Removal” offered gang members a way to erase a link to their past and start clean. The program was available to anyone who wanted it done, although priority was given to facial tattoos. Because of its popularity, there was a nine-month wait for this service. JFF annually placed over 350 clients in jobs—an achievement that was only a small fraction of the more than 1,000 gang members who passed through the office in a typical month. Demand far exceeded supply! The organization desperately wanted to have a greater impact. Many clients continued to struggle against obstacles to their employment, such as felony records, visible gang tattoos, and lack of work experience. It was for these most challenged individuals that Father Boyle created Homeboy Industries in 1992, following the Los Angeles riots. Homeboy shared the building used by JFF. Homeboy developed several business enterprises, each of which hired the “homies” who attended JFF’s training programs. Homeboy Industries started with the purchase of a bakery that became Homeboy Bakery. It grew to include Homeboy Silkscreen, Homeboy Merchandise, and Homeboy Graffiti Removal and Maintenance. These busi- nesses and the Homeboy headquarters employed over 70 homies at any one time. Employ- ees learned to clock in on time, to build lasting work habits and skills, and to work side by side with former members of enemy gangs. Avisitor to the Homeboy Industries office in 2004 would likely notice its playful mood. The teenagers laughed and told stories. The receptionist spoke with evident pride about everything Homeboy Industries had done to help him and the community. He pointed to the Homeboy brochure, which quoted an employee: “Because Homeboy Industries decided to believe in me, I decided to believe in myself. And the best way I can think of paying them back, is by changing my life, and that’s exactly what I’ve decided to do.”

“Father G” For over 20 years, Father Greg Boyle, who was known throughout the neighborhood as “Father G,” just “G,” or even “G Dog,” had embraced the boys and girls others shunned. (See Figure 1 for a picture of Father Boyle.) Visiting them in hospitals and prisons, he had prodded hundreds of gang members to trade their lives of violent crime for honest work. He had become a legendary figure in the barrio, where widespread stories told of Father Boyle driving his car or riding his bike into the middle of a gunfight in an attempt to part

3. Translates into “That’s enough, I’m done with that.”

September, 2007 771 Figure 1

Picture of Father Greg Boyle

feuding gangs. Father Boyle was known to be willing to give up his life to keep the kids from killing each other. Even so, Father Boyle had been forced to bury over 120 young people from the neighborhood, a somber reminder of the challenges that remained. Father Boyle, who was a Los Angeles native and was ordained a priest in 1984, became a pastor of the Dolores Mission church in Boyle Heights in 1986. From there he saw firsthand one of the worst gang problems in the United States. Believing that someone must help the young people escape from the horrible cycle that had engulfed them, Father Boyle developed a vision: Get these kids jobs, get them off the street, give them market- able skills, and remove them from the gangs that surround them. “Jobs not Jails” and “Nothing stops a bullet like a job” became mottos that expressed his vision. As he put it, “At Homeboy Industries what we try to do always is be a manufacturer of hope in a community with a fatal lack of it.” Father Boyle was regularly asked to speak at functions and tell stories about Homeboy Industries. Those speeches both informed and inspired his audiences: [The homies] think they’re the bad son. I keep telling them over and over, “You are the son that any parents would be proud to claim as their own.” That’s the truth. That’s not some fantasy. As soon as they know that they’re exactly what God had in mind when God made them, then they become that. Then they like who they are. Once they can do that—love themselves—they’re not inclined to shoot somebody or hurt somebody or be out there gang-banging.4

4. Morrow, C. (1999, August). Jesuit Greg Boyle, Gang Priest, St. Anthony Messenger Magazine. Available at http://www.americancatholic.org/Messenger/Aug1999/feature1.asp.

772 ENTREPRENEURSHIP THEORY and PRACTICE Father Boyle may have seemed a legend to many in the neighborhood, but his mortality was revealed in March 2003, when he was diagnosed with leukemia. He was deluged with visits, calls, and letters from people ranging from the LAPD chief to homies in prison. Homies he had not seen in a decade turned up, tears streaming down their faces, to offer their organs and blood. Other admirers brought juices, vitamins, and offers of Mexican healers and folk remedies. Actor Martin Sheen urged Father Boyle to take an all-expense-paid trip to Lourdes, France, where healing miracles were said to occur. “Death and life-threatening illnesses are not even on my top 10 list of things I dread,” Father Boyle shrugged off the bad news. “How are we going to pay our bills on Friday? That’s real-life dread.” Despite chemotherapy, Boyle looked fit and energetic. He claimed that his cancer was in remission. No one at Homeboy Industries was sure about his true health. When people asked him about his health, his typical response was “Sometimes I run out of gas, but so do cars.”

The “Homies” Each employee of Homeboy Industries had his own stories to tell, a story of violence and an inspirational story of a life being transformed. These two are representative of others as well. Carlos Nieto’s résumé at age 24 included an armed robbery conviction, several stints in state prison for parole violations, and a 12-year membership in the notorious Tooner- ville street gang, where his moniker had been “Sneaky.” His job skills, which were acquired in prison, included the abilities to make tattoo ink by melting down chess pieces and to fashion a spear from a rolled newspaper and syrup. Tattoos of demonic horns seemingly sprouted from both sides of his shaved head; murals of jailhouse ink ran the lengths of his arms. But in 2 months at Homeboy Industries, Carlos had begun to acquire skills that could far better serve him outside prison. He learned to show up daily at 9 a.m., clean, sober, and ready to work. Talking on the phone without using vernaculars was another lesson, as was suppressing the urge to be belligerence to a coworker. Carlos said he planned to use what he was learning at Homeboy Industries to launch a new life that he hoped would include college and a career as a counselor to troubled teens. A recent conversation with Father Boyle had convinced Carlos that he would stay out of prison for good. “He looked at me the other day and said, ‘I want you to know that I’m very proud of you,’” Nieto recalled. “He said, ‘Now I know that when my day comes I can rest in peace knowing that my son is doing something with himself.’” Felipe Antonio had also turned his life around, thanks to Homeboy Industries. A young man with a gentle demeanor, he recalled his childhood: “I didn’t have parents. My sister raised me from the time I was eight. Nobody was checking on me—I was free. I was in a gang. We went to parties, got into fights. We did graffiti.” In 1997, as Felipe climbed from his car one evening, he was shot in the spine. He was only 17. “I just passed away a little bit,” he recounted, “and when I woke up I couldn’t feel my legs no more.” Now he was in a wheelchair, paralyzed from the chest down. Nevertheless, Felipe was hopeful about his future and planned to attend California State University-Los Angeles for a degree in social services.

A Series of Commercial Enterprises

Since its founding in 1992, Homeboy Industries had launched a series of business ventures. By 2004, Homeboy’s commercial ventures comprised four units.

September, 2007 773 Homeboy Bakery—The First Venture After the riots in 1992, Father Boyle raised enough money to buy an old bakery in Boyle Heights. It was at “Homeboy Bakery” that Father Boyle saw his vision become a reality. His homies turned the bakery into a fully operational, successful business. It put troubled teens to work, giving them a hands-on job experience, and generated profits to fund other Homeboy ventures—until a fire destroyed the bakery in 1999. Since then, Father Boyle had been on a mission to start another bakery. In 2003, an opportunity presented itself for Homeboy Industries to acquire a profitable bakery with a monthly revenue of $700,000. Its impressive customer list included Trader Joe’s.5 The bakery’s 75 employees all could eventually be replaced by homies. Father Boyle thought that the bakery could earn up to $800,000 annually, which would support all of Homeboy’s operations without future fund-raising. Father Boyle and the board of Homeboy Industries decided to go after the acquisition. The business, including its land and building, was priced at $4.8 million. Father Boyle and the board engaged in an aggressive capital campaign to purchase the bakery. They planned to raise the purchase price plus enough for needed renovations and contingencies. With the help of private foundations, the federal government, and private donors, Homeboy had raised more than $3.6 million by early 2004.

Homeboy Silkscreen The idea for Homeboy Silkscreen came from Ruben Rodriguez, who believed that he owed his changed life to Father Boyle. Struggling with drinking and holding down a job, Ruben had looked to Father Boyle for direction. Just a few meetings with Father Boyle changed Ruben’s life—forever. Father Boyle got him to stop drinking and helped him land a steady job with the city. Wanting to repay this kindness, Ruben saw an opportunity to utilize his wife’s silkscreening skills. In Spring 1996, he presented Father Boyle with the idea of starting a business to offer custom silkscreen and embroidery services for t-shirts, sweatshirts, hats, bags, and several other products. Most important, it would hire some of the kids from the neighborhood. Father Boyle loved the idea because it would provide even more jobs for young people in Boyle Heights. Ruben spent hours searching for great deals on used, high-quality silkscreen equip- ment. When he showed Father Boyle his budget based on what he had found, Father Boyle was concerned by the numbers. He told Ruben that he need not find the cheapest equipment; in fact, he said, a new business should have all new, top-of-the-line machines. Father Boyle did not want to cut costs at the outset for fear of dooming the venture from the beginning. Although new equipment meant significantly higher investment, Father Boyle thought that skimping on equipment could be extremely costly in the long run. Ruben revised his figures to reflect the new equipment, and Father Boyle approved the new budget. Finding a location for Homeboy Silkscreen proved to be difficult. Landlords feared that the ex-gang members would break into other tenants’ or customers’ cars. Another challenge was that several of the possible sites lay inside the territory of one gang or

5. Trader Joe’s is a popular specialty retail grocery store with about 200 stores in Arizona, California, Connecticut, Delaware, Illinois, Indiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Virginia, and Washington. It is widely know for its unique grocery items and for having the highest revenue per square footage in the industry.

774 ENTREPRENEURSHIP THEORY and PRACTICE another. Members or former members of rival gangs would risk their lives just to get to work. Eventually, Ruben found the perfect place—outside the gang territories but still close enough for the kids to get there. Homeboy Silkscreen received a boost in its early months when Power 106 FM, a favorite radio station of teenagers throughout Los Angeles, ordered 10,000 t-shirts for $45,000 and began running free commercials for the business. Ruben remembered in 2004 that every time a commercial aired, 20 callers would ask Homeboy Silkscreen about its services. Over the years, Power 106 had remained as one of Homeboy Silkscreen’s biggest clients. Through the radio station’s connections, several record labels also became silkscreening customers. Ruben and his employees were proud of the quality of their work. Homeboy Silk- screen employed 11–15 workers at any time and had employed a total of 350 homies over the life of the business. Homeboy Silkscreen usually kept employees for 90 days to ensure proper job training and adjustment to the working world until they were deemed ready for other employment by Michael or Father Boyle and referred back to JFF.

Homeboy Graffiti Removal Services and Homeboy Maintenance Services

Homeboy Graffiti Removal Services removed graffiti in an effort to beautify Boyle Heights and reduce the violence that gang graffiti provoked. The service, available to anyone in the neighborhood, proved very popular. Homeboy received several requests a day for its services. Newer to Homeboy Industries was its maintenance program, a separate but related business. Homeboy Maintenance acted as a general service to “keep the neighborhood clean.” It collected and hauled refrigerators, furniture, and other large items to its recla- mation center. Homeboy Maintenance also sponsored neighborhood clean-ups and trash collection for the residents of Boyle Heights. Both Graffiti Removal Services and Maintenance Services proved very powerful because they not only put the teens to work, but also helped make the neighborhood a better place to live. Both of the services were paid for by the city of Los Angeles.

Homeboy Merchandise Homeboy Merchandise started soon after Homeboy Silkscreen began production in 1996. No one was sure who should be credited for starting Homeboy Merchandise or who created the initial design for the merchandise. Homeboy Industries had begun printing t-shirts with the Homeboy logo that many employees wore proudly (see Figure 2). Even Father Boyle often sported a denim shirt with the logo embroidered on the right pocket. The uniforms proved to be popular; soon, friends of Homeboy were asking where they could get a Homeboy t-shirt. In response, Homeboy Industries began printing a wide range of Homeboy-themed products. Homeboy’s new catalog contained all of its current merchandise. The catalog was professionally done, with sharp pictures of merchandise surrounded by social messages in the foreground. Its approximately 40 items included t-shirts with the Homeboy or Home- girl logo, children’s and baby clothes, bags, mouse pads, wallets, hats, and coffee mugs. Prices ranged from $15 for basic t-shirts to $25 for the Homeboy attaché bag. All of the items came in a range of colors, some with different types of artwork on them. The t-shirts displayed various catchy phrases associated with Homeboy Industries. Customers could mail or fax orders and pay by credit card, check, or money order.

September, 2007 775 Figure 2

Sample Homeboy Merchandise

Homeboy Merchandise was in charge of the design, marketing, and distribution, while it outsourced the production of its clothing to Homeboy Silkscreen. In reality, most ideas for new products appeared to come from the silkscreen operation. Some Homeboy employees felt that the Homeboy logo and the design of the merchandise offered by Homeboy Merchandise needed a “makeover.” Homeboy’s online catalog was a passive website that did not make transactions. Homeboy Merchandise struggled to find retail outlets to for its products. Its biggest sales occurred at religious conferences where Father Boyle spoke. The Religious Educa- tion Congress was Homeboy Industries’ biggest sales event each year. At one such event, Homeboy would sell $6,000–7,000 worth of its merchandise. In fact, Father Boyle was the company’s No.1 sales person.

776 ENTREPRENEURSHIP THEORY and PRACTICE Michael Baca

Michael Baca, a good friend of Father Boyle, was similarly dedicated to the cause of helping homies. Having grown up in the projects himself, he was very familiar with the gangs and the devastation they caused to families. In fact, Michael’s three brothers had been gang members, and one was still serving a 26-year prison sentence. Even as a child, Michael was never interested in joining the gangs. Instead, he wanted to make a life for himself and at the age of 20 became a firefighter and a certified emergency medical technician. Unfortunately, 6 years later in 2000 his career ended abruptly when he fell from a roof and injured his back. Rather than feeling sorry for himself while hospitalized, Michael began giving back to his community. He realized that the best opportunity to intervene in the life of a gang member was when he was being received at the hospital for a gunshot wound, had just been connected to an IV, and was crying “Don’t let me die!” So Michael started the first hospital-based gang intervention program. It offered extensive counseling, GED planning, tattoo removal, and job mentoring, many of the services that Father Boyle was offering. Thus, when the operations director of Homeboy Industries resigned late in 2002, Father Boyle asked Michael to accept the position. Although Michael was not an experienced corporate manager, Father Boyle was confident that he had many talents critical to Homeboy Industries. Michael projected a vastly different personality than Father Boyle. He was less philosophical and more serious, intense and hands-on. Although Michael shared Father Boyle’s vision, he was more focused on day-to-day operation and achieving measurable results. Michael mentioned to the case writer that most of the pressures and stress he felt on the job were self-imposed. He felt a sense of urgency that the organization should be doing even better and accomplishing more. The more successful Homeboy Industries was, the more homies it could help.

The Homeboy Organization and Processes

While many observers were impressed with Homeboy Industries’ ability to create new businesses, Father Boyle did not view Homeboy Industries as an incubator—at least not in the same sense that most business people would. Homeboy Industries remained a division of a 501 (c) (3), nonprofit organization, with community-based board of directors overseeing the operation. Its stated mission was “to assist at-risk and former gang involved youth to become contributing members of our community” and mentioned nothing about businesses. Furthermore, Father Boyle did not consider himself to be an entrepreneur or businessman. Homeboy Industries’ standard for success was vastly different from those of most business incubators. Actually, Father Boyle hesitated to speak in terms of success or failure. “I feel called to be faithful, not successful,” he expressed in a Catholic family magazine.4 “I feel called to be faithful to an approach and to a certain wisdom about who these kids are. I believe that if they are given a chance, then they’ll thrive and they’ll begin to imagine a future for themselves.” Michael thought that one quantitative measure of success could be the number of Homeboy Industries’ past and current clientele. But he agreed with Father Boyle that there were other important standards of success. “We also measure success in terms of how much an individual changes,” Michael explained. “Also, when two enemy gang members all of a sudden get along, that is success.” However, Homeboy Industries as an

September, 2007 777 organization was not systematically tracking the number of “successes” or “failures” of any kind. Michael agreed that there were still a wide range of financial and operational objectives that could be defined and measured. “We cannot depend on divine intervention alone,” Michael explained. “We must do a much better job and be more effective opera- tionally. To be more effective, we need to define our goals and measure our progress.” Certainly, everyone at Homeboy Industries regarded it as a success when an ex-gang member who learned good work habits and skills “graduated” from Homeboy and landed a respectable job. Some of the homies were ready for the workforce in 90 days, while others would take 6 months or even years to change their ways. About half dropped out of Homeboy’s programs rather than graduate. While working for Homeboy Industries, most homies were paid close to $9 an hour. Father Boyle’s approach with respect to his ventures was quite different from that of Brother James Holub of Milwaukee, Wisconsin, who borrowed the concept and started Homeboy Enterprises, his own version of Homeboy Industries. Brother Holub’s Homeboy Enterprises included Homeboy Printing and Homeboyz Graphics. Unlike Father Boyle, Brother Holub saw himself as a businessman and focused on making his ventures self-sufficient. Although Homeboy Enterprises’ main purpose remained getting gang members off the streets, its businesses were believed to be profitable. On the contrary, most of Father Boyle’s ventures were struggling (see Figure 3). Homeboy Industries operated with an annual capital budget that was reviewed and approved by its board of directors each year. The business operations were far from being profitable and had to be supplemented through three major fundraising activities: a yearly dinner, a direct mail campaign, and Father Boyle’s speaking engagements. Homeboy Industries employed several professional staff members in the office who headed up the programs or divisions within Homeboy Industries and JFF (see Figure 4). Some business units did not have full-time general managers. Michael often found himself rushing between businesses and projects, in effect continuing his career as a firefighter but with figurative, business “fires” to put out. Turnover among the staff members and homies, while not documented, was thought to be low compared to most businesses or nonprofit organizations. Father Boyle had not implemented formal structures or consistent processes for making important decisions for Homeboy Industries. He queried and consulted with Michael or the board of directors on some issues and, at other times, he made decisions all by himself. Despite Father Boyle’s imperfections as a manager, the board was usually sympathetic with him. Father Boyle was, after all, a beloved figure, and the directors did not want to challenge what were certainly admirable methods and achievements. Never- theless, there were talks among board members about setting up finance and human resources committees that would create more formal structure and processes at Homeboy Industries.

The Merchandising Opportunity

Many people at Homeboy Industries, including Michael, had often thought that Homeboy Merchandise could be a much bigger business and raise the brand recognition of the entire organization. Merchandising offered a chance to tell the “story” of Homeboy Industries, which could have a broad commercial appeal. In the past, Homeboy Industries had attempted to sell its merchandise to various retailers in the Los Angeles area. This was a challenge from the beginning as many of the homies who worked as sales reps reacted badly to rejections, taking them personally and

778 ENTREPRENEURSHIP THEORY and PRACTICE Figure 3(A)

Homeboy Industries Statement of Activities 2003

PUBLIC SUPPORT Total

Contributions $ 879,609 Foundation Grants 635,080 Government Grants and Subcontracts 1,499,136

TOTAL PUBLIC SUPPORT 3,013,825

REVENUE

Silkscreen Sales 693,104 Merchandise Income 12,410 Other Income 6,369

TOTAL REVENUE 711,883

TOTAL PUBLIC SUPPORT AND REVENUE 3,725,708

EXPENSES

Program Services 3,201,321 Management and General 435,070 Fundraising 234,913

TOTAL EXPENSES 3,871,304

CHANGE IN NET ASSETS (145,596)

NET ASSETS, BEGINNING OF YEAR 1,825,576

NET ASSETS, END OF YEAR $ 1,679,980 reacting with anger or dejection. Michael Boca thought that selling was a difficult task for most homies considering that they had faced rejection all their lives. In the mid-1990s, Homeboy Industries placed its merchandise in a handful of stores in shopping malls but was unable to maintain stable relationships with the merchants, causing most of the arrangements to disintegrate. For a time, Homeboy Merchandise sold its items via a kiosk in the Santa Monica Shopping Center, a hub for shoppers and tourists. Unfortunately, it could not sell enough volume to pay for the lease and operation of the kiosk and had to cancel the project, forfeiting all the investments that had been made. Furthermore, there were rumors that other merchants complained that Homeboy’s pres- ence detracted from the mall’s atmosphere. Homeboy Merchandise had never attempted direct marketing. Unfortunately, Homeboy Industries had not kept a good database of its past supporters or customers. Nonetheless, a direct mail campaign for donations at the end of 2003 yielded a 12% response and raised $180,000. To Michael the campaign’s success indicated the level of support Homeboy Industries received from the community. He thought that direct mar- keting by Homeboy Merchandise could garner a similar response.

September, 2007 779 Figure 3(B)

Homeboy Industries Schedule of Revenues and Expenditures 2003

REVENUE Management and General $ 280,989 Fundraising 312,175 Drop Off Center 645,558 Bakery 208,538 Grafiiti 462,731 Jobs for a Future 824,057 Merchandise 14,702 Silkscreen 695,470 Release Program 218,888 Project WIN 62,600

TOTAL REVENUES 3,725,708

EXPENSES Salary and Wages 1,234,572 Payroll Taxes 110,687 Health Insurance 68,048 Worker's Compensation 88,775

SUBTOTAL 1,502,082

Accounting 20,631 Advertising 130 Bad Debt Expense 12,760 Bank Charges 2,365 Depreciation 100,698 Equipment Expense 3,567 Fundraising 135,867 Insurance 72,142 Maintenance & Repairs 25,539 Miscellaneous 17,138 New Development Expense 118,292 New Image Clothing 16,801 Office Supplies 20,826 Paint and Graffiti Supplies 98,443 Permits/License/Taxes 15,765 Postage and Delivery 7,916 Printing and Reproduction 23,496 Professional Fees 64,580 Program Activities 132,006 Program Activities - Vouchers 489,878 Rentals/Leases 46,568 Security 888 Stipends 441,978 Subscription/Seminars/Internet 1,634 Telephone Expense 78,108 Travel, Meals, and Entertainment 38,853 Utilities 13,726 Vehicle Expenses 51,600 Cost of Goods Sold 306,107 Embroidery Machine Supplies 1,896 Silkscreening Supplies 9,124

TOTAL EXPENSES $ 3,871,304 NET INCREASE $ (145,596)

780 ENTREPRENEURSHIP THEORY and PRACTICE Figure 3(C)

Homeboy Merchandise Schedule of Revenues and Expenditures 2003

TOTAL REVENUES $ 14,702

EXPENSES

Salary and Wages 13,629 Payroll Taxes 1,272 Health Insurance - Worker's Compensation 1,140

SUBTOTAL 16,041

Accounting - Advertising - Bad Debt Expense - Bank Charges - Depreciation - Equipment Expense - Fundraising - Insurance - Maintenance & Repairs - Miscellaneous - New Development Expense - New Image Clothing - Office Supplies 418 Paint and Graffiti Supplies - Permits/License/Taxes 946 Postage and Delivery 658 Printing and Reproduction - Professional Fees - Program Activities 475 Program Activities - Vouchers - Rentals/Leases - Security - Stipends - Subscription/Seminars/Internet - Telephone Expense - Travel, Meals, and Entertainment - Utilities - Vehicle Expenses - Cost of Goods Sold 6,882 Embroidery Machine Supplies - Silkscreening Supplies -

TOTAL EXPENSES $ 25,420 NET INCREASE $ (10,718)

Homeboy’s financial statement showed that the merchandising business had sales of about $14,000 in 2003 (Figure 3). However, the figures did not account for the free merchandise that Father Boyle gave liberally to donors, visitors, and friends. There was a storage room inside the office for merchandise, but until recently, no one had kept track of the inventory.

September, 2007 781 Figure 4

Homeboy Industries Organization Chart

Father Gregory Boyle, SJ Executive Director

Michael Baca Operations Director

Allison Gustorf Felix Garcia Development Finance Director Director

JOBS FOR HOMEBOY A FUTURE INDUSTRIES

Sarah Weiss Mario Prietto Norma Gillette Jaime Saldana Ruben Elizabeth Parra Maintenance Bakery Merchandise Case Mgmt, Release Sr. Job Tattoo Graffiti Rodriguez Staff Dev Program Developer Removal Removal Silkscreen Counseling

Fabian Montez Gabby Guillen Johnny Green Sr. Job Developer

Another reason for Michael’s optimism about the merchandising business was that many celebrities had expressed over the years their interest in helping Homeboy Indus- tries. The producer of ABC’s comedy “8 Simple Rules for Dating My Teenage Daughter,” whom Father Boyle had taught in high school, placed a large merchandise order and was interested in having his cast’s teenage girls wear Homegirl t-shirts. Actor Martin Sheen was a longtime supporter and personal friend of Father Boyle. Angelica Huston was an associate board member of Homeboy Industries, while Kirk Douglas had donated quite a bit of money. Nevertheless, Michael was perplexed about Homeboy’s target market. Speaking broadly, the teen market was the largest target. However, he was aware that not all teens would want to own Homeboy clothing. Homeboy Industry was seen as an “eastside” organization, and teens elsewhere might not want merchandise tied to East Los Angeles. On the other hand, he thought, the gang culture had become so popular that a “white boy” from Pacific Palisades might want to buy Homeboy gear. Michael could foresee targeting the “hip-hop” culture that had been so lucrative in the past few years. Two related growth areas in the apparel market were the “urban youth” and the “antiestablishment” segments. One leading urban youth brand was Phat Farm, which was owned by record mogul Russell Simmons. Fubu was another firm that was popular with the urban youth. Fubu (which stood for For Us, By Us) began as a clothing firm targeting young African-Americans but successfully crossed over to other segments, reaching annual revenues of $1 billion. The antiestablishment segment also appeared to have exploded in high schools across the United States. The trend had been around for

782 ENTREPRENEURSHIP THEORY and PRACTICE years and now retailers like Hot Topic were able to cash in on it. Hot Topic specialized in punk fashion by selling t-shirts that featured bands, skulls and crossbones, and anarchist symbols as well as chains and body piercings. Homeboy Industries projected an image vastly different from the usual “hip-hop” or “antiestablishment” brands. Its brand stood for positive messages such as “a second chance” or “a place of hope.” Still, Michael suspected, some parents (mostly in middle- class Los Angeles suburbs) could worry that their kids might be labeled as gang members if they wore Homeboy clothing. Michael also wondered about licensing, a lucrative business in recent years even for organizations that were not part of the fashion industry. Examples included National Geographic’s codeveloped outerwear for multiple climates, Mountain Dew’s branded apparel, and the SNL brand that started Saturday Night Live’s fashion licensing. For these organizations, success in licensed fashion had become a promotional catalyst for their core businesses. Michael, who devoted about 10–20% of his time to Homeboy Merchandise, was the closest thing to a general manager for the division. He oversaw most of the business and did most of the ordering from Homeboy Silkscreen. One of the homies, Juan Carlos, was in charge of filling mail orders, which eased Michael’s burden.

The New Venturing Decision

Father Boyle, Michael, and the staff were constantly looking for new opportunities. The more jobs Homeboy Industries’ businesses offered, the better the chance that someone who walked into the office could find something he or she would pursue. However, starting a new business inside Homeboy Industries was complicated and depended on a wide range of financial and nonfinancial factors. Pointing to the picture of a proposed “Homegirl Cleaners” on his office wall, Father Boyle recalled how someone came in with the idea for that business. However, Father Boyle turned down many business ideas. Some were rejected not because they were bad ideas, but because Father Boyle questioned the intentions of the people proposing them. Inevitably, there were people who seemed to be trying to take advantage of Father Boyle’s generous nature. It was up to him, the staff, and the board of directors to sort out the genuine ideas. Some business ventures did not fit well within Homeboy Industries, while other ideas fit nicely but lacked the right personnel to run them. Homeboy Industries already lacked a champion or manager for several of its existing businesses. A few years ago, two brothers from the neighborhood had wanted to start a plumbing business. Father Boyle welcomed the idea and bought a truck and equipment for them. However, Homeboy’s board of directors consisting of attorneys, businessmen, and com- munity leaders were concerned about the venture. They worried about its viability and the costs involved, especially since the management of Homeboy Industries was already spread thin. The board ordered it closed from the concern that it was a poor fit after only a couple of months in operation. Another new business idea was the Homeboy Café. Back in 2001, Homeboy Indus- tries had bought an empty lot in downtown Los Angeles near Little Tokyo with the idea of building a new bakery. Now in 2004, with the current pending acquisition of an existing bakery, the land could be used for a café instead. However, Father Boyle and his staff were so focused on planning for the new bakery that they had not given it much thought. Few of Homeboy Industries’ staff worried about the start-up funding for the café or other business ventures. They relied on Father Boyle, a prolific fund-raiser. While money

September, 2007 783 was scarce, it appeared that whatever Homeboy Industries needed, Father Boyle would generate somehow. As long as he had an idea and a plan, he found a way to raise the necessary funds. Father Boyle was at times successful in recruiting highly skilled volunteers to help with Homeboy’s and JFF’s services and businesses. Dr. Luis Moreno of Ya’stuvo Tattoo Removal Clinic had graduated from Harvard Medical School and was finishing his residency at UCLA. He was making hospital rounds when Father Boyle walked in and asked Luis to work for him. After 8 or 9 months, Homeboy Industries officially added Luis to its staff. He came in twice a week while still working in the emergency rooms at three hospitals. When it came to Homeboy Merchandise, Father Boyle and Michael were not sure whether they should try to turn it into a serious business or maintain it as sort of a “gift shop” for visitors and donors of Homeboy Industries. Some of the volunteers had told Father Boyle and Michael that the Homeboy brand was a gold mine. With the right mix of design, sales, and support, Michael agreed, the business could be hugely successful. Furthermore, Homeboy Merchandise’s success could enhance the Silkscreen business. Michael imagined many positive messages and slogans that the merchandise could display, such as “Be part of the story” or “Work for a better tomorrow.” Not all products had to mention Homeboy Industries, he noted. The opportunity might even be larger if the business could make items with positive social messages without any reference to Homeboy. Ever since Michael joined Homeboy, volunteers came up with ideas for expanding the merchandising business. One idea was to sell to the Chicano stores and colleges in East Los Angeles, so that the residents could have access to the positive messages. Another interesting idea came from Jesuit-in-training Phil Cooke, a summer volunteer. He thought that a great target market would be the 28 Jesuit colleges and universities in the United States. These schools would be willing to do business with Homeboy Industries since many of them would be aware of Father Boyle and Homeboy Industries. Jesuit universities in the United States included Georgetown, Santa Clara University, Loyola University of Chicago, and Loyola Marymount University. (See Figure 5 for a list of Jesuit institutions in the United States.) Phil thought that this initial customer base, although small, could be a great starting point while Homeboy Merchandise established its credibility and fine- tuned its business operations. The next target could be additional hundreds of Catholic and Christian colleges followed by other universities nationwide. Phil could imagine a section of each college bookstore carrying Homeboy goods with a life-size image of Father Boyle promoting the merchandise. Phil also believed that Homeboy Industries could more aggressively pursue direct mailing. The response rate that Homeboy experienced over Christmas was too impressive to ignore. Phil believed that with some investment in mailing addresses and online ordering capability, the business could grow substantially. However, Michael was not sure whether merchandising was the right business for Homeboy Industries. The venture appeared to be a misfit with the skills and temperaments of the youths Homeboy served. The venture also required marketing and sales expertise that Homeboy did not possess. Michael pondered: “It takes weeks to train our guys to show up to work on time. They are so far away from developing marketing skills. Selling is probably the worst type of job for our homies. What if our kids took those rejections personally?” However, Michael also knew that some of the necessary resources and expertise could be hired, and in some cases borrowed. For example, as a volunteer had suggested, Homeboy Merchandise could engage one of the well-known fashion colleges in Los Angeles to develop a new design concept.

784 ENTREPRENEURSHIP THEORY and PRACTICE Figure 5

Jesuit Colleges and Universities in the United States

Institution Location Enrollment

Boston College Chestnut Hill, MA 14,528

Canisius College Buffalo, NY 5,095

College of the Holy Cross Worcester, MA 2,773

Creighton University Omaha, NE 6,226

Fairfield University Fairfield, CT 5,060

Fordham University Bronx, NY 15,814

Georgetown University Washington, DC 13,164

Gonzaga University Spokane, WA 6,100

John Carroll University Cleveland, OH 4,350

Le Moyne College Syracuse, NY 2.900

Loyola College in Maryland Baltimore, MD 6,111

Loyola Marymount University Los Angeles, CA 7,500

Loyola University Chicago Chicago, IL 12,605

Loyola University New Orleans New Orleans, LA 5,279

Marquette University Milwaukee, WI 10,892

Regis University Denver, CO 9,129

Rockhurst University Kansas City, MO 2,727

Saint Joseph's University Philadelphia, PA 6,961

Saint Louis University St. Louis, MO 13,847

Saint Peter's College Jersey City, NJ 3,282

Santa Clara University Santa Clara, CA 7,356

Seattle University Seattle, WA 5,852

Spring Hill College Mobile, AL 1,484

University of Detroit Mercy Detroit MI 6,023

University of San Francisco San Francisco, CA 7,917

University of Scranton Scranton, PA 4,615

Wheeling Jesuit University Wheeling, WV 1,515

Xavier University Cincinnati, OH 6,523

September, 2007 785 The biggest concerns were expressed by Father Boyle and Ruben of Silkscreeen, who were against promoting Homeboy gear. Ruben was concerned that if everything worked out well, Homeboy clothing would be hip enough to become gang wear. “The last thing I want to do,” said Ruben, “is to see some kid committing crime in the clothing we make.” Both Father Boyle and Ruben wanted to make sure that the Homeboy name was used only in a positive light. Michael understood Ruben’s concern. Not knowing for sure how big or successful Homeboy Merchandise could become, it was difficult to muster a strong argument for investment in the business. At times, Michael thought that it would just be easier to keep the merchandising business at the current level. Homeboy Café was another option that Michael could pursue immediately. The location appeared to be viable. Although part of Boyle Heights, it was near Little Tokyo, a much nicer part of town. Daytime foot traffic included professionals who worked nearby in downtown Los Angeles. A Starbucks and similar shops were close by, and many shopping malls, restaurants, and retail stores were within walking distance. The café could train homies quickly and provide job opportunities for dozens of them. However, Michael realized that the decision was much more complicated: Everyone seems to love the Homeboy Café idea, but they don’t know the challenges associated with running a coffee shop or restaurant day in and day out. Poor service could destroy the business. The local professional clientele wouldn’t have any patience with any kind of misbehavior, especially with all those other coffee shops like Starbucks within a couple of blocks. And what if there is a drive-by-shooting? The business would go under in a minute. Plus, does serving coffee really train our kids for better jobs in the future? At least in Homeboy Merchandise, we could provide training for skills that could be really useful for their future careers. Michael was still pondering the options as he pushed open the door to the meeting room. Several of the volunteers and employees of Homeboy Industries were already inside, discussing the future strategies for Homeboy Merchandise. All heads turned to Michael as he shut the door behind him. They were eager to hear what Michael had to say.

David Y. Choi is Assistant Professor of Management and Entrepreneurship and Associate Director of the Hilton Center for Entrepreneurship at Loyola Marymount University.

Fred Kiesner is the Conrad N. Hilton Chair of Entrepreneurship at Loyola Marymount University.

786 ENTREPRENEURSHIP THEORY and PRACTICE