Small Business

These Businesses Can Help Drive the Economic Recovery

May 15, 2020  • Monika Mantilla

Latino-owned businesses (LOBs) have been a significant engine of new business creation in the US. They helped pull us out of the last recession. And now there is a subset of LOBs that are poised to lead in the next economic recovery, given the right support to weather the present storm and grow in the future.

Of the 4.8 million LOBs—14 percent of all US businesses—Gacelas, the Spanish word for gazelles, are a rapidly growing segment with the greatest potential to scale up. They could make a big dent in the $1.47 trillion opportunity gap, which is the additional amount LOBs would contribute if they were able to grow to scale at the same rate as non-Hispanic, white-owned businesses. Their job creation potential is also significant: before the pandemic LOBs were on track to create an additional 5.5 million jobs if parity of capital were reached. These numbers should clearly guide public policy, both legislative and executive, especially in light of the deep unemployment crisis the country is currently experiencing.

A typical Gacela has an annual revenue of over $5 million and the potential to quickly double or triple their revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA). This high-growth sector of LOBs exhibits the entrepreneurial spirit that can transform the American economy, not only by maximizing human potential but by creating shifts to a much stronger and more inclusive economy. The more sectors and human capital that are put to work effectively, the faster our economy will bounce back.

Right-fit financing and strategic support are critical for Gacelas to scale, which means having financial and support institutions that can identify the capital needs of different types of businesses, as well as business owners who are informed of different options for sourcing capital and key growth resources appropriate for their needs. Having awareness of and access to the necessary resources to identify the correct value maximization path through capital investment, leveraged acquisition, divestiture, or strategic partnerships to accelerate growth, can make the difference in scaling up Gacelas.

Now more than ever, it is important to put weight behind the segments of the economy that can spur growth and recovery.

A Playbook for Scaling Latino-Owned Businesses includes a play specifically geared to Gacelas and the stakeholders that serve them. It results from my experiences talking to hundreds of these businesses across the country for more than a decade and seeing how some businesses flourish and expand, while others stagnate or even decline. The Playbook focuses on how to support these high-growth potential Latino business owners to develop a growth mindset and boost their businesses’ trajectory through mentoring and proactive coaching along the growth process and the provision of other wraparound services. It looks at an ecosystem of supports including capital providers, entrepreneurship support organizations, corporations offering contracts, and mission-aligned business leaders who all can help take these businesses to the next level. Now more than ever, it is important to put weight behind the segments of the economy that can spur growth and recovery.

Through the companies I lead and the non-profit boards I serve on, I have worked with Gacelas whose experiences illustrate not only the ability to scale but exemplify leadership in adapting to economic disruptions. Cidrines, a Puerto Rican bread company that has expanded into all 50 US states, has shifted its sales online to provide their products to customers within safe parameters. AGTools, a Latina-created platform for connecting farmers with industry buyers, is leveraging its data-driven insights into the quickly evolving food supply chain, playing a critical role in supporting farmers and consumers. 9th Wonder Media advertising, creates branding and media plans for corporate clients on how to weather the impacts of the pandemic by engaging in culturally and linguistically relevant ways. Mas Global Consulting, partners with global corporations to accelerate their digital transformation and deliver modern and intelligent web, mobile, and cloud applications, services that are sure to be in high demand as brick and mortar operations increasingly turn to e-commerce and artificial intelligence platforms.

For Gacelas to maximize their potential they need support from across the capital and business ecosystem. Alongside the private sector, the Federal Government, the Federal Reserve, the Small Business Administration, and the US Department of Treasury must find ways to create public-private partnerships to fuel this growth. Strategies from the last recession designed to salvage banks and mortgage securities market, such as the TARP programs can be examples for the government’s role. Today, the question is how to salvage and inject growth to small and middle-market companies across all sectors of the economy. Diverse owned financial institutions and money managers should be included as valuable voices in any programmatic evaluation. We must have a role as the architects of our own solutions, and our experts have the opportunity to provide input on legislation and programs that the Executive Branch and the Federal Reserve put together for short-, mid- and long-term relief for our business owners to survive and most importantly thrive.

Beyond public intervention, the right capital structure and door opening can make the difference in getting Gacelas where they need to go. CDFIs and community banks can identify and tee up these businesses so that private debt and equity funds can continue to support them, and partner with them. Strategic resources and partnerships with mentors, strategic planners, data analytics, value-added service providers such as McKinsey and Bain, and executive partners can make the difference in achieving scale.

While our priority is on the overlooked potential of Gacelas, we must not forget the larger universe of the underserved high potential for growth businesses, including African American, Asian American, women, veteran, disability, and LBGTQ-owned businesses. These segments together represent almost half of the small and middle-market economy, yet receive significantly less capital and strategic resources.

Of course, at a time like this, we are reminded of the need for LOBs of all sizes to be supported, particularly since the majority are small, vulnerable, and at risk of shutting down due to the consequences of COVID-19. LOB’s generate $485 billion in annual receipts generated by 4.8 million businesses. If we think in terms of short-term solutions, these businesses need $40.4 billion a month to close the hole COVID has left. A three-month hole amounts to $121 billion. Assuming a 10 percent overall EBITDA margin and a conservative 2x leverage, every quarter these companies have debt needs of at least $24 billion and equity needs of at least another $24 billion. Total short- and mid-term needs are therefore quantified at $169 billion for the quarter. We need capital solutions to address this hole. And that is just the Latinx market. The minority market’s annual receipts are $1.4 trillion. By that same logic, assuming a 40% decline in revenue for one quarter, the capital need for the minority market can be quantified at $700 billion annually. Not an insignificant number, and vital to economic reactivation. How much of the mainstream lending program will go to these firms? If not clearly earmarked, very little.

Let’s start with Gacelas. If given the right capital and tools, they can lead the economic recovery not only for smaller LOBs but for the entire country. Let’s not leave these businesses behind, let’s help them lead the entire economy.

Monika Mantilla is the President and CEO, Managing Partner of Altura Capital/Small Business Community Capital SBCC. She is a member of the Aspen Institute Forum on Latino Business and participated in the 2017 and 2019 deep dive convenings of the Forum. She also sits on the boards of the US Hispanic Chamber of Commerce and the Stamford Latino Entrepreneurship Initiative, LBAN, and serves on the Capital Advisory Board of the Billion Dollar Roundtable. This is the 4th blog in the series on scaling Latino-owned businesses, coming out of the Forum. Reach out to Monika via twitter @alturacap.

Economic Development
We Need More than Loan Packages to Save the Backbone of American Business
March 27, 2020 • Mark Madrid & 1 more