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Latino business owners are stepping into 2023 more powerful than ever. Last year, we created five million businesses across the country generating more than $800 billion in annual revenue, representing nearly one-fifth of the US population and the world’s fifth-largest GDP.
“This is a population that is making more out of nothing,” says Arturo Cazares, CEO of the Latino Business Action Network (LBAN). “They are starting from the bottom, often working twice as hard to get the same result. All of that is costing society. We want to find out how can we change that.”
Re-evaluating practices and policies is a big part of the equation, according to Cazares. Conversations between entrepreneurs, institutions, and funding ecosystem leaders can help move the conversation forward to bridge the opportunity, training, and funding gaps where they exist.
From conversations with ecosystem players and findings from the eighth annual State of Latino Entrepreneurship report, these are the top five Latino business trends to watch for in 2023.
1. Latino-owned businesses are recovering well post-pandemic.
While they were certainly affected by the pandemic, the data reveals that Latino-owned businesses’ recovery has been positive. Revenue growth overall has increased at a faster rate for these businesses when compared to white-owned businesses. The sentiment is so positive post-pandemic that many report doing better than pre-pandemic.
Among the reasons that these businesses have been doing so well is their ability to acquire a more diverse customer base. Latino businesses are not just selling to the everyday individual consumer. Studies report an uptick in companies selling to other businesses and selling to the government, especially over the last two years.
Perhaps where business owners have felt the greatest negative impact from the pandemic is via the Great Resignation and highly scalable employers losing employees.
2. Part of their growth is due to employing new marketing strategies.
An important distinction of the Latino cohort is that they have a growing set of marketing tools, and they use them in bold ways. Whether it’s using websites, social media, blogs, radio, or email marketing, they’re exploring different and new ways to get word of their business out to the consumer.
The only marketing strategy used more frequently by white-owned businesses is word of mouth.
3. These businesses are securing contracts more often but at a smaller size, which presents an opportunity for growth.
While Latino-owned businesses are slightly more likely than white-owned businesses to secure government and corporate contracts, their contracts tend to be much smaller: thirty-one times smaller with the government and three times smaller with corporations. This will be a big gap to close in 2023.
Miguel Galarza, founder and president of Yerba Buena Engineering, knows this space well. Galarza has been running his construction start-up firm in the Bay Area for more than twenty years and has net sales today between $10 million to $15 million a year. He explains how developing million-dollar contracts has taken years to foster proper relationships, but net sales have been more important to his business.
“One year I had $42 million in sales, and it cost me $43 million,” he says. “You don’t [always] have managerial, capacity to scale it that quickly. It’s not about gross sales; it’s about the net.”
4. The cohort is over-indexing in tech business creation.
The 2021 State of Latino Entrepreneurship Report noted that Latinos over-index in creation of tech businesses. While the number of Latino tech businesses is still far behind net businesses created, they are quickly gaining traction with 19 percent of Latino businesses developing and selling a tech or software product.
Peruvian-owned IT and server-hosting company VND has been in business for more than twenty years, but as owners Manuel and Javier Oblitas think about the future, they are still focused squarely on tech.
“Especially in the technology services industry, our area of focus is digital transformation,” Manuel says. “Post COVID, many of our clients adopted more remote work operations. This increased the need for cloud services for internal operations, therefore, putting a big demand to reinvent processes to adapt to the new normal.”
5. National banks and other financing sources will play a big role in closing the financing gap.
In 2022, one in three Latino-owned businesses sought out financing, whether it was business or individual credit cards, personal savings, or loans from big banks. Bank loans are one of the most popular forms of financing, but these same businesses face several hurdles to getting approved. When compared to white-owned businesses, Latino owned businesses face significantly lower approval rates when requesting loans more than $50,000.
National banks will play a big role in leveling the playing field and ensuring business owners are able to acquire larger sums of capital—but so will venture funding.
“Latinos over-index on tech, and tech is dependent on equity- or VC-based financing,” LBAN’s Cazares says. “That is a bigger gap for Latinos than debt financing.”
He’s not alone in believing that VC funds will be one big way to close the funding gap. Today, only 2 percent of venture funding goes to Latino founders.
“VC firms play an essential role in helping Latino business owners get ahead. Our community needs to invest in itself,” says Adrian Mendoza, founder of Mendoza Ventures. “We need to make it and invest it back to lift ourselves up. More, larger funds managed by Latinos solves these problems.”
LatinxVC, a nonprofit focused on supporting and growing the Latino venture capital ecosystem, is actively working on leading fellowship cohorts to educate sixty-three new venture capitalists so far; mentorship for current VCs; developing programming for emerging managers and general partners; and improving access to capital for Latino-led venture firms.
“The reason we do this is because we truly believe that when investors are empowered to show up as their authentic selves, the flow from the private capital side of the world flows more easily to venture capital firms and ultimately to startup founders,” says Mariela Salas, LatinxVC’s executive director. “We believe that is the best way that as VCs, we can create a more diversified and impactful VC ecosystem that’s more representative of US demographics.”
