Business and Markets

Latino Business Can Save the Economy — If We Help It

May 30, 2017  • Mark Madrid & Abigail Golden-Vazquez

At a time when new business is shrinking in the United States, Latinos are playing a critical role in driving our economy through outsized new business growth. Traditionally, the US economy has relied on small businesses as chief drivers of economic growth and new job creation, but we have experienced a decrease in new business growth since the early 2000s, made worse by the Great Recession.

In this environment, Latinos have managed to start new business enterprises at multiple times the rates of the rest of the population. This high business creation rate is unique in the US — the five-year average growth rate in the number of Latino firms has remained at double or triple that of the national average for the past 15 years, according to The State of Latino Entrepreneurship 2016 by the Stanford Latino Entrepreneurship Initiative. Latinos are starting businesses 50 times faster than any other demographic, per the Georgetown Public Policy review. Whatever the source, there is agreement that Latino business growth is explosive and has incredible potential to positively impact our economy at a time when it’s most needed. As Latinos increase as a share of the population expected to reach 30 percent by 2060, the need to nurture this entrepreneurial spirit becomes even more urgent.

Latinos are not the only group outperforming traditional new business drivers. Minority business growth is up over all and African America and Hispanic woman are outperforming other groups. However, given the size and growth trajectory of the Latino population overall, focused attention on this group is uniquely important.

We need more Latino unicorns and gazelles.

The phenomenal growth rates of Latinos business should be great news and would appear to be just the elixir the economy needs. But there is a small catch. Latino businesses tend to remain small, struggle to scale, and experience higher than average failure rates. Most Latino firms earn less than $100,000 in annual revenue and do not have any employees. Only 2 percent of Latino firms across the US earn $1 million or more in revenue. Some of the reasons for low growth include low access to capital and markets, less utilization of external funding sources, lack of networks, and unawareness of opportunities and other resources that could help them to grow.

Whatever the reasons, it’s clear that Latino-owned businesses face internal and external circumstances that prevent them from increasing revenue and employment at the levels required to contribute their full potential and fuel the growth America needs. To do this, more needs to be done to help Latino businesses scale in size and revenue, and we need more Latino unicorns and gazelles.

When Latino businesses don’t scale up, it presents a huge economic opportunity loss for the companies, as well as for the American economy overall. The State of Latino Entrepreneurship 2016 says that Latino firms made one-quarter of what non-Latino firms made in revenues in 2012. The sales that Latino firms generate, versus what they would generate if on par with the average non-Latino business, present an opportunity gap of $1.38 trillion for the US economy.

To help address this challenge, the Aspen Institute Latinos and Society Program is holding a unique three-day convening called The Forum on Latino Owned Business Growth, with the Latino Business Action Network as research partner, that will bring leaders and stakeholders together from across sectors and disciplines to grapple with the issues that prevent Latino-owned businesses from growing and building greater wealth, and seek out concrete actionable solutions.

We are bringing together local and national economic and enterprise-development and support organizations, Latino business owners, financial institutions, philanthropy organizations, government, and academia to identify the high-value interventions, policy changes, and collaborations with the greatest probability of unlocking unmet Latino business potential. The focus of this gathering will be an examination of how to best direct finite resources and interventions to accelerate the scale of Latino businesses. The Forum will also focus on the emerging issues that will shape Latino small business growth in years to come, such as:

  • the ecosystems necessary for Latino-owned businesses to thrive
  • supply and demand side issues that limit the level of capital invested in Latino-owned firms
  • the engagement of Latinos in more lucrative sectors
  • non-financial services, such as financial acumen, management skills, and technical training that can help Latinos to grow their businesses
  • the factors that inhibit Latinos from accessing resources and programs that support entrepreneurs
  • high-impact ways that philanthropy, government, community organizations, traditional and alternative financing programs can accelerate Latino business growth

We believe that the recommendations from this group could play a catalytic role in fostering real economic and financial opportunity for millions of Latino American families and the other Americans that they employ, work with, and otherwise benefit. The ideas and solutions generated by the Forum will be captured in a published report with actionable solutions for key stakeholders and will be released this November.

Abigail Golden-Vazquez is vice president and executive director of the Aspen Institute Latinos and Society Program. Mark Madrid is the executive director of the Latino Business Action Network. This is the first in a series of posts on the Forum on Latino Owned Businesses. Participants from local and national economic and enterprise development and support organizations, Latino business owners, financial institutions, philanthropy, government and academia will share their perspectives on the challenges and solutions scaling to Latino owned businesses.

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