If you've started a business in the last ten years, there's a really, really good chance that you have a Latino background. According to a new report from the Stanford Latino Enterprise Institute, a program of the university's business school, Latinos are starting new businesses at triple the rate of the rest of the country.
As Sol Trujillo, chairman of Trujillo Group Investments and member of the board of SLEI, told me, the average growth rate for new Latino businesses was about 7 percent to 8 percent a year between 2002 and 2012. If you factored out Latino businesses, the rest of small business formation would have declined by 2 percent. If you think small businesses are important to the economy, and it is (biggest creator of new jobs, for example), then you want to see Latino businesses thrive.
But there's a problem. The average 2012 sales for a Latino business was $156,000. For non-Latino businesses it was $573,000. That's one massive difference -- in total, $1.4 trillion annually. There are two clichéd reasons that might be given for the disparity: choice of industry and a focus on a Latino-only customer base.
As the study found, there was no difference in industry concentration between Latino and non-Latino owned businesses, and 80 percent of the Latino businesses sold to a mixed customer base. Then what are the reasons? Here are several:
- Because the wave of creation is recent, many Latino businesses are relatively young and revenue strength comes over time. The companies just aren't old enough yet.
- Latino entrepreneurs have a primary focus on creating businesses to have something to pass on to family members rather than necessarily being interested in creating an empire. (Hardly a "bad" thing, but one that can affect growth potential
- Business owners are also focused on keeping control and worry that traditional routes of gaining capital could lead to losing that control.
- Although many knew they would need capital, most were unaware of U.S. Small Business Administration loans and the Small Business Innovation Research program, two common sources of loans.
- The biggest reason is that many of the Latino business owners aren't part of the old boys/elite schools clubs and their associated networks. The owners don't get brought into the orbit of angel investors and VCs.
Here are some logical steps, for Latino owners who want to grow their businesses, that fall out of all this:
- Learn about the programs out there. Do research on the Internet, talk to the local SBA office, and take some entrepreneurship classes to learn about what resources might be available.
- Understand that it's possible to gain necessary capital without signing over your business to someone else.
- Find local networks of entrepreneurs and investors and become part of them. Get to know who is looking for investments.
- As the businesses of you and your colleagues and contemporaries grow, build your own networks. Create your own alliances and connections.