The Stanford Latino Entrepreneurship Initiative (SLEI) celebrated its fourth year by unveiling its 2018 State of Latino Entrepreneurship Research Report on January 25, 2019.
SLEI is a collaboration between Stanford Graduate School of Business and the Latino Business Action Network, headed by CEO Mark Madrid. Since 2015, the initiative has annually collected data on Latino business owners across the United States to provide trends in Latino entrepreneurship. The 2018 report compiles data from SLEI’s survey of 5,000 entrepreneurs, its research panel of more than 1,000 participants, and other national sources.
“Getting our arms around the data is essential to learning the successes and challenges for Latino business owners,” said Persis Drell, Stanford University provost, during introductions at the State of Latino Entrepreneurship Forum.
SLEI faculty advisor Jerry I. Porras emphasized the significance of the Latino population in the coming years. Today, Latinos make up 17 percent of the US population and soon will make up one-third of the population. “Not only are Latinos part of the mainstream, but tomorrow their impact will be substantially greater,” Porras said.
“But these Latino businesses remain relatively small. There is a large gap on the scaling side. What’s keeping these firms from growing?”
Paul Oyer, also a SLEI faculty advisor, spoke about the tremendous growth in Latino-owned businesses that they have seen in the past few decades. The number of Latino-owned businesses grew by 46 percent, and there are around 5 million Latino-owned businesses in the United States. The growth rate outpaces that of all other groups, including those owned by whites, Asians, and African Americans.
“But these Latino businesses remain relatively small,” Oyer said. Three percent of all Latino-owned businesses are generating $1 million gross revenue. “There is a large gap on the scaling side. What’s keeping these firms from growing?”
Latino and white business owners are applying at comparable rates, said Marlene Orozco, lead research analyst for SLEI. “However,” she said, “we found that among Latino business owners, one quarter gets fully funded compared to half of white business owners who apply.”
“Twenty-two percent of scaled firms applied for $100,000 or less and even though Latino owners are applying for smaller amounts, the research shows that they are still not getting approved,” Orozco explained. One of the reasons is insufficient collateral.
The report found that 72 percent of all small business owners don’t know their business credit score and 60 percent don’t know how to find it, Orozco said of the finding. “Many firms with proven track records rely on the owner’s personal credit scores,” she said. “We do see that even with good personal credit, some are still asked to put down personal collateral.”
Surveys also show that two strategies positively correlated to scale include business certification and exporting goods and services. Scaled Latino-owned firms (58 percent) are more likely than unscaled firms to hold Minority- and Women-owned Business Enterprise business certification, which provides access to contracts not available to uncertified firms. As for exporting, the report found that 14 percent of all Latino-owned companies export and are more likely to be profitable and scaled companies.
Following the report findings presentations was a panel moderated by Victor Arias, chairman and cofounder of the Latino Business Action Network. The panel was composed of four SLEI-Ed alumni: Rafael Alvarez, founder of ATAX Franchise; Christine Sax Stotesbery, president of Dorado Accessories; Derek Goldstein, CEO of Casaplex; and Maria Marin, president and CEO of Unlimited Recycling.
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Each panelist shared their beginnings with their respective businesses and their personal experiences with the key findings from the report.
“Financing is a challenge, not only for Latino-owned businesses but as a woman, those are compounded,” said Christine Sax Stotesbery. “That is the largest obstacle for me to scale my business.”
Stotesbery’s company, Dorado Accessories, sells to major retailers in the United States, and Stotesbery spoke on the importance of exporting when it comes to scaling the business. Dorado currently exports to Canada, Japan, the United Kingdom, and Mexico. With a new office in Puerto Rico, Stotesbery hopes to use that to expand to Caribbean and Latin American countries.
For Derek Goldstein and his company Casaplex, funding came organically for the first ten years before the company ran into a cash flow issue. After going to twelve banks, one provided a quarter-million dollars and Goldstein and his partner put their houses up as collateral. “That’s the only financing we’ve got so far, and it’s still inhibiting us,” he said. “Access to capital has always been a struggle. We’ve learned the hard way.”
Rafael Alvarez wasn’t surprised about personal credit because to him, that was always part of the package. But receiving funding is rough. When he began his business in 1986, he had $200 in savings, two computers, a fax machine, and $18,000 that he had received as a loan from his closest friends.
“I have been lucky enough to find funding, but it is more than clear to me that banks don’t lend money to people looking for money,” Alvarez said. “Maybe I am discriminated against. But it’s okay, because I have been able to survive.”
Now, he is the first Latino to establish a franchise in the tax prep industry with sixty locations worldwide and two headquarters (one in New York and one in San Francisco). By franchising, Alvarez was able to join formal networking, one of the strategies listed in the SLEI report. “But I feel kind of lonely,” he said. “I’ve been in it for twelve years, and I don’t see Latinos. There are more than 3,500 franchise concepts [like McDonald’s] across the US and I’ve seen maybe five or six Latino-owned franchises.”
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Maria Marin has been able to find success in scaling her business, Unlimited Recycling, through certifications and networking. Soon after incorporating her business, she earned her minority-owned business certification.
In addition to earning her certification, Marin also sought out organizations to be involved with, such as a building association. “When you network, you start finding what’s out there,” she explained. Then, in 2002 at the recommendation of one of her clients, she completed the Small Business Administration’s 8(a) Certification program.
To cap off the two-hour forum was a fireside chat between legendary businessman Sol Trujillo and Century21’s former president and CEO Nick Bailey. The pair spoke about innovating as a leader and the responsibility of leaders to fill the gaps.
Trujillo shared how he has been trying to get people to understand what twenty-first century America looks like. “If we look at who is driving growth today,” he said, “it is tied to the US Latino cohort. I could go on and on for every sector. Companies are rethinking how they do what they do.”
And when it comes to applying for a line of credit, Bailey said it is all about mind-set: that bank is there to sell you money.
“I’ve never gone to one person; I’ve gone to two or three and let them earn my business. Sounds arrogant, but I want to put that out there,” he said. “Don’t stop at asking one person, but don’t ask one at a time. Negotiate with them. You’re in charge of buying the money because they are selling it.”
You can download the 2018 State of Latino Entrepreneurship Report here.