Sunday, 05 February 2017 18:20

Stanford Business Conference Reveals Surprising Findings about U.S. Latino Businesses Featured

Written by  Jorge Ribas, MAHCC President & CEO
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Stanford University Graduate School of business

The Stanford Latino Entrepreneurship Initiative (SLEI) is a research initiative housed within Stanford Graduate School of Business (GBS), which explores and expands our knowledge of the Latino entrepreneurship segment in our economy through research, knowledge dissemination, and facilitated collaboration. On January 18, 2017, in partnership with the Latino Business Action Network (LBAN), it unveiled a report entitledEmeritus Professor Jerry Porras Stanford Graduate Business State of Latino Entrepreneurship 2016, which included survey responses from more than 4,900 Latino companies and a database of 1.2 million Hispanic businesses across the U.S. It offers a profile of Latino businesses and their geographic and demographic characteristics from startups to mature firms and it examines funding sources, growth patterns, and networking experiences of scaled versus non-scaled businesses. It defines scaled Latino firms in terms of three criteria: Revenue (>$1M annual revenues) or having more than 50 employees or experiencing growth in employment count.

Dr. Jerry Porras, co-faculty director of the Stanford Latino Entrepreneurship Initiative and Lane Professor Emeritus of Organizational Behavior and Change at Stanford GSB said that the report supports the finding that "there are two very powerful realities about the Latino community in the United States: One is that the percentage of the [Latino] population nationally is growing rapidly, from 17 percent today to 30 percent by 2050. The other reality is that Latino-owned businesses already are growing and providing jobs for the American labor force, and that will only become a bigger part of our economy."

According to 2012 Census data, 12% of all firms in the U.S. are Latino (3.3 million). Compared to all other demographics in the country, the survey results found that Latino-owned businesses are the fastest growing, even during the Great Recession when business growth in the nation slowed dramatically.

Key geographical characteristics for Latino-owned businesses include:
• About 60% are found in four states: California, Texas, New York, and Florida
• 1 in 9 are in just five cities: New York City, San Antonio, Los Angeles, Miami, and Austin
• More than 75% serve non-Latino neighborhoods

Latinos born in the U.S. or recent immigrants, their education, and age status:
• 71% are owned by people born in the U.S. (1st and 2nd generation)
• 29% are owned by latinos born overseas
• 48% have a four-year college degree
• 39% have some level of higher education
• 13% have a high school degree or less
• 43% are Millennials

How they started:
• 73% were started alone
• 21% were started with others
• 14% were purchased
• 2% were inherited

Stanford Latino Biz Sol Trujillo-Rupert Murdock 01-18-2017The report confirmed what many business leaders have suspected, that Latino-owned businesses are a driving force in the American economy and are increasing over the last decade in number even faster than non-Latino companies. But companies owned by Latinos still struggle to gain access to capital and to expand enough to generate at least $1 million in annual revenue.

The number of immigrants who own businesses increased from 13% in 2012 to 29% in 2016. Given this increase, analysts suggest that tracking immigrant-owned businesses will further the understanding of the state of Latino firms going forward. Moreover, 75% of Latino firms are in a majority of non-Latino neighborhoods, less than one-quarter of firms are in majority Latino neighborhoods. Further, a majority of firms report that over half of their clients or employees are non-Latinos. Together these findings tell us that Latino firms serve a broader constituency than just Latinos, and that an increase in their wealth would impact more than just the Latino community.

The survey also analyzed funding patterns for startups and scaled Latino-owned businesses, but it did not examine how funding patterns affect Latino-owned business ability to scale up. The report states there are two types of funding sources:

• Internal: 31% credit cards; 62% personal funds; 14% inheritance
• External: 6% angel investors; 8% government loans; 15% business/bank loans; 8% vendor credit; 6% venture capital

Uses of Funding Sources are as follows:
• 56% use zero to one capital sources to finance the startup phase
• 50% use only internal funding at both the startup and growth stages
• The majority of scaled firms (75%) that did use external funding at startup/early stages also did so at the growth stage

The report revealed that the growth of Latino firms is significantly greater than that of non-Latino firms although they tend to be smaller. In terms of sales, they made 25% of what non-Latino businesses did. This difference represents a gap of $1.38 trillion and offers an untapped opportunity to expand the economy if their sales equaled that of non-Latino owned businesses. Thus, understanding how Latino businesses can set themselves apart and begin to close this gap involves the challenging process of scaling up as they grow.

As firms mature, they typically expand in terms of revenue and employees as well as in number and types of funding sources and networking activities. The 2016 survey results show a positive correlation between funding and scale. Moreover, capital sources utilized by scaled Latino-owned businesses are greater both in number and type. However, Latino entrepreneurs continue to have difficulty in accessing capital.

Firms that scaled up also used a variety of capital sources. The survey reveals that Latino-owned business who do scale up make greater use of capital sources than they did early on and they tend to engage in meaningful networking, including mentorships and participation in a variety of business-oriented organizations and groups.

Stanford Latino Biz Ribas-Porras 01-18-2017Latino-owned businesses can benefit by engaging in networking. In fact, over half (54%) of scaled Latino-owned businesses are actively engaged in more networking than are other firms. Networking includes activities such as participation and membership in a variety of business-oriented organizations as well as mentoring relationships. One-third of Latino business owners reported having mentors.

Despite the successes of Latino-owned firms, the report states that most earn less than $100K annually and have very few employees and that only 3% earn more than $1 million. By examining the differences between scaled and non-scaled Latino-owned firms, Latino business owners can begin to understand how they can overcome the difficulties of scaling up in order to experience the advantages scaled firms enjoy. Policy makers can become more informed about the characteristics of Latino-owned businesses which can translate into data-driven policy-making decisions. And, lenders can gain insights into funding patterns of Latino-owned business and thereby utilize their expertise to tap into an underutilized segment of the business community that offers the nation a significant potential for economic expansion.

Following the report of the data and conclusions, the Mid-Atlantic Hispanic Chamber of Commerce participated in a discussion of the findings led by Latino entrepreneur Sol Trujillo, former CEO of Telstra Corp., (Australia's largest telecommunications and media company) and media mogul Rupert Murdoch. In response to a question by MAHCC President Jorge Ribas, Murdoch said that "the strong institution of the Latino family is a great asset that can help launch and support entrepreneurial endeavors." Trujillo reinforced the importance of understanding the new economic reality in the U.S. in terms of new business formation and recognizing that "entrepreneurship is in the blood of Latinos in the United States," a reality which will have a significant influence on the socio-economic growth of the country.


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