"The way we’re going to compete is by running people for office who can appreciate some issues that attract young people and independents: civil liberties, as well as a less aggressive foreign policy, not putting people in jail for marijuana, a much more tolerant type of point of view. If you have Republican candidates like that then I think all of a sudden you’d find California back in play.”
Rand's solution is largely correct, but applied to the wrong goal. A state that is as entrenched Democrat as CA needs to be taken back by the liberty movement, not the GOP. This can be done primarily through taking over the Democratic districts by running liberty Democrats, since winnable districts for Republicans are sparse. In fact, most of the Republicans in office are part of the problem, not the solution. Don't build the GOP, leverage the lock Republicans and Democrats have demographically in the districts they control to get more liberty candidates elected, to either party, first and foremost.
Step 1, look for the toss-up districts that are winnable by either major party, defined as seats where the incumbent won the last couple of cycles by 4-5% or less. Concentrate on the open seats (less machine opposition) and winning the primaries (fewer people voting). Where Paulites have an organization or coalition, get a liberty Republican to win the nomination. Hedge your bets by fielding a LP or CP activist to run for the Democratic nomination, use the Liberty Democrat as leverage to keep the establishment GOP from forcing their hack candidate over the liberty Republican.
Step 2, in the districts that are hopelessly Democratic, run a liberty Democrat in the open seat races, period. Tolerate a bit of libertarian flexibility on the social issues (i.e., support for abortion or gay marriage if it's done on solidly libertarian grounds, not social liberal grounds) in exchange for the candidates being soundly anti-Fed, anti-war, pro-civil liberties, and pro-Constitution. Over time, this will build a base of consistently pro-liberty elected officials that is independent of the two-party paradigm, even in CA.