The number of Latino-owned businesses has grown nearly 50 times faster than non-Latino-owned businesses, yet Latino businesses lag far behind in revenue compared with those owned by non-Latinos. The result is a $1.4 trillion opportunity for the U.S. economy, according to a new report from the Stanford Latino Entrepreneurship Initiative.
On Wednesday, the organization gathered founders and CEOs of Mastec, Liberty Power, Senzari, Nearpod, Rokk3r Labs and Endeavor Miami to discuss the findings and what is ahead for its new national project that aims to provide industry research and education programs for accelerating Latino entrepreneurs.
“Today, the primary engine of growth is Latino business formations. That’s a volume statement. This program is focused on catalyzing the gazelles, the companies that can grow very fast and very big,” Sol Trujillo, chairman of Trujillo Group Investments and a member of the SLEI board, told the group gathered in downtown Miami. “This is a national resource we are trying to build at Stanford.”
The 40-page report, titled the State of Latino Entrepreneurship, found that the average annual sales for a Latino-owned business in 2012 was $156,000 versus $573,000 for a non-Latino business. If the average Latino-owned business had generated the same level of sales as the average non-Latino business, Latino businesses would have had an economic impact of $1.9 trillion versus the actual economic impact of $517 billion. That’s a total annual gap of $1.4 trillion that could be added to the national economy, the study’s authors found.
To look at why there is a gap, SLEI interviewed more than 1,800 Latino companies from its proprietary database of 1.4 million Latino business owners. Some commonly cited assumptions about why Latino businesses tend to be smaller — for instance, choice of industries and the type of targeted customer base — were not supported in the data, said SLEI Executive Director Remy Arteaga. The study found no significant difference in the industry distribution between Latino and non-Latino businesses, and 80 percent of Latino businesses sold to both Latino and non-Latino customers, he said.
But the report did find some discernible differences. While Latino business owners said they wanted larger businesses, more than half of the companies were actually growing slowly, stagnant or shrinking. The report pointed out that the ownerswere more likely motivated by internal factors, such as their wish to pass a business on to family members, rather than by external market opportunities.
Also, while nearly 50 percent of Latino entrepreneurs believe additional capital is a key to their future business growth, Latinos were more likely to rely on credit cards and friends for capital than non-Latinos, and more than 90 percent expressed serious concerns about relinquishing equity in their businesses. Trujillo said that what’s missing is an understanding of an angel investor network and venture capital. In addition, the research found that the majority of Latino-owned businesses were not familiar with government lending programs such as the U.S. Small Business Administration and the federal Small Business Innovation Research program.
In particular, the venture-capital industry is overwhelmingly benefiting the non-Latino businesses, with less than one percent of VC funding going to Latino-owned businesses, Arteaga said.
As part of the initiative, Stanford University also launched a six-week Fellows Program for Latino entrepreneurs. In the inaugural program last fall, 78 entrepreneurs participated, including several from South Florida. The first cohort included a custom online course by Stanford Professor Huggy Rao, who is an internationally recognized expert in scaling businesses, as well as in-person programs and mentorship, said Demian Bellumio, co-founder of Miami-based Senzari, who participated in the first cohort. Going forward, Stanford plans to offer at least two cohorts a year.
Because timely, comprehensive data has not been available, SLEI plans to continue to expand its 1.4 million-business database and in another 12 to 18 months hopes to provide data on South Florida and other metro regions, Arteaga said. The research will be expanded and revisited annually, and it’s available at latinoei.org.
Added Trujillo: “We want to take this data to VCs and say here’s the data, open your eyes, you are missing a huge opportunity.”
Nancy Dahlberg; 305-376-3595; @ndahlberg.