Latino Entrepreneurship Initiative

PUBLICATION OF STANFORD GRADUATE SCHOOL OF BUSINESS | IN COLLABORATION WITH THE LATINO BUSINESS ACTION NETWORK

8 FACTS ABOUT LATINO-OWNED BUSINESSES

ON THE UP AND UP:

THE RISE OF LATINO-OWNED BUSINESSES IN THE U.S.

Latino Entrepreneurship Initiative

SOURCES: U.S. Census Population Surveys, 1990-2010; U.S. Census Survey of Business Owners, 1997-2012; U.S. Hispanic Chamber of Commerce & Geoscape, 2015: “Hispanic Businesses and Entrepreneurs Drive Growth in the New Economy,”

• Between 1990 and 2010, the percentage of Americans self-identifying as Hispanic or Latino increased from 8.8 percent to 16.4 percent

• While Latino population growth averaged 4 percent over the last two decades, Latino business growth averaged 6 percent

• To put this in perspective, the number of Latino-owned businesses was 0.9 million in 1997, 2.3 million in 2007, and an estimated 4.1 million in 2015

1 THE RAPID GROWTHOF U.S. LATINO BUSINESSES OUTPACES THE GROWTH OF THE U.S. LATINO POPULATION

0%’90 ’93 ’96 ’99 ’02 ’05 ’08 ’11

5%

10%

15%

20%

LATINO POPULATIONSIZE GROWTH RATE

LATINO BUSINESS COUNTGROWTH RATE

LATINO BUSINESSESAS PERCENTAGEOF U.S. FIRMS

LATINO POPULATIONAS PERCENTAGE OFU.S. POPULATION

CHANGES IN THE LATINO POPULATION AND NUMBER OF LATINO BUSINESSES OVER TIME

16.4%

12.5%

5.8%6.8%

8.3%

12%

8.8%

4.3% 4.5%

7.3%

3.6%

5.8% 5.8%

Latino Entrepreneurship InitiativeSOURCE: U.S. Census Survey of Business Owners, 2002-2012

• Latino businesses increased in total by 44 percent between 2002 and 2007, and another 47 percent between 2007 and 2012

• This pace is exponentially higher than that of non-Latinos, which increased by only 15 percent from 2002 to 2007, and actually decreased 2 percent from 2007 to 2012

2 LATINOS ARE CREATING BUSINESSESAT FASTER RATES THAN NON-LATINOS

0-10 10 20 30 40 50

43.6%

60.5%

34.9%

40.4%

25.0%

13.5%

17.9%

15.0%

-4.7%

2.0%

-1.9%

46.9%

60

LATINO

AFRICAN AMERICAN

ASIAN

WHITE

ALL FIRMS

ALL FIRMS, EXCLUDING LATINOS

PERCENTAGE CHANGE IN NUMBER OF FIRMS OVER TIME 2002 – 2007 2007 – 2012

Latino Entrepreneurship Initiative

SOURCE: Alberto Davila, Marie Mora, Angela Merk Zeitlin, 2014: “Better Business: How Hispanic Entrepreneurs Are Beating Expectations and Bolstering the U.S. Economy,” Table 8, Partnership for a New American Economy

• Non-Latino businesses decreased in number over the 2008–2010 recession, while Latino businesses increased in number by over a million

• If all of the businesses created by Latinos were eliminated, there would have been fewer businesses in operation in 2012 than in 2007; that is, there would have been no net business formation over a 5-year period

• Researchers estimate that unemployment rates would have risen above 10 percent were it not for Latino business creation

3 WITHOUT LATINO BUSINESS CREATIONTHE U.S. ECONOMY WOULD HAVE BEEN WORSE THROUGH THE 2008–2010 RECESSION

ACTUAL UNEMPLOYMENT

Note: "New" entrepreneurs are defined as the net number of new entrepreneurs in the decade leadingup to the year specified, i.e., all the new entrepreneurs in 2010 started businesses between 2000–2010.

2000Unemployment Count

(in millions)

Unemployment Rate

2010Unemployment Count

(in millions)

Unemployment Rate

If ALL new entrepreneurswere instead unemployed

If new IMMIGRANT entrepreneurswere instead unemployed

UNEMPLOYMENT IF NEW LATINO ENTREPRENEURSWERE INSTEAD UNEMPLOYED

EFFECT OF LATINO ENTREPRENEURS ON THE U.S. UNEMPLOYMENT RATE IN 2000 AND 2010

5.7

4.0%

14.8

9.6%

6.2

4.3%

15.6

10.1%

6.1

4.3%

15.4

10.0%

Latino Entrepreneurship InitiativeSOURCE: U.S. Census Survey of Business Owners, 2012

• Around 66 percent of Latino businesses are in industries with the top five sales growth rates, compared to only 54 percent of non-Latino businesses in those industries

• The percentages of Latino and non-Latino businesses are extremely similar in industries ranked highest in average sales

• This challenges the misconception that Latino businesses fail to grow because they are concentrated in industries with slow or no sales growth

4 LATINO BUSINESSES ARE OVER-INDEXEDIN FOUR OF THE FIVE FASTEST GROWING INDUSTRIES

DISTRIBUTION OF LATINO AND NON-LATINO BUSINESSES ACROSS THE 5 FASTESTGROWING INDUSTRIES

GROWTH RATESINDUSTRY

CONSTRUCTION

LATINO BUSINESSES

ADMINISTRATIVE,SUPPORT & WASTE

OTHER SERVICES(EXCEPT PUBLIC)

PROFESSIONAL,SCIENTIFIC, TECH

HEALTH CARE &SOCIAL ASSISTANCE

NON-LATINO BUSINESSES

14.36%26%

24%

23%

22%

21%

10.22%

10.52%

15.94%

16.71%12.79%

8.40%14.97%

7.36%

8.92%

Latino Entrepreneurship Initiative

SOURCE: Stanford Latino Entrepreneurship Initiative Survey of Latino Business Owners, 2015

• Generally, engaging a variety of constituents is seen as a harbinger for business growth

• Approximately 75 percent of Latino businesses serve mostly non-Latinos or an equal mixture of Latinos and non-Latinos

• A higher percentage of mature Latino businesses (30+ years) serve non-Latino constituents than do early-stage firms (<5 years)

5 LATINO BUSINESSES SERVEMORE THAN JUST LATINO COMMUNITIES

CUSTOMER CHARACTERISTICS ACROSS FIRM MATURITY

MOSTLYLATINO

MOSTLYNON-LATINO

MOSTLYLATINO

MOSTLYNON-LATINO

MOSTLYLATINO

MOSTLYNON-LATINO

ALL FIRMS FIRMS <5 YEARS OLD

FIRMS 30+YEARS OLD

EQUAL MIXTURE

24%21%

55%EQUAL MIXTURE

23%17%

60%EQUAL MIXTURE

25%30%

45%

Latino Entrepreneurship Initiative

SOURCE: Alberto Davila and Marie Mora, 2013: Hispanics in the 2000s: An Economic Profile and Policy Implications, Stanford University Press

• The self-employment rates of immigrant Latinos continuously increased over the 2000s, while those of U.S.-born Latinos rose and fell

• The rate of self-employment is 7 percent for female immigrants, compared to only 2 percent for male immigrants

• This data demonstrates that Latino immigrants are important drivers of U.S. business creation

6 IMMIGRANTS ACCOUNT FOR A LARGEPORTION OF THE CONTINUOUS INCREASE IN LATINO BUSINESS NUMBERS

4%’00 ’02 ’04 ’06 ’08 ’10

6%

8%

10%

12%

IMMIGRANT BORN: FEMALESIMMIGRANT BORN: MALES

NATIVE BORN: FEMALESNATIVE BORN: MALES

LATINO SELF-EMPLOYMENT RATES BY GENDER & IMMIGRANT STATUS

5.0%

7.8%

8.8%8.9%

8.1%8.4%

9.4%

9.8%

8.6%

8.4%

7.9%

10% 10%

5.2%

8.6%9.1%

10.2%

10.8%11.1%

10.8%

5.7%5.5%

5.1%

4.9%

Latino Entrepreneurship Initiative

SOURCES: U.S. Census Survey of Business Owners, 1997–2012; Stanford Latino Entrepreneurship Initiative Survey of Latino Business Owners, 2015

• In terms of sales, the average Latino business is about one-third the size of the average non-Latino business

• While the difference in employee count is decreasing, the average Latino-owned business employee count is still 75 percent that of the average non-Latino business

• According to 2015 SLEI survey data, the company size differences between Latino and non-Latino businesses are evident irrespective of company age

7 LATINO BUSINESSES ARE SMALLERTHAN NON-LATINO BUSINESSES

1997

2002

2007

2012

$155,242

$141,044

$155,141

$155,806

$436,482

$373,487

$443,125

$575,209

6.6

7.7

7.7

8.6

12.2

10.8

11.1

12.0

1997

2002

2007

2012

ANNUAL SALES BY OWNERSHIP EMPLOYEE COUNT BY OWNERSHIP

LATINO BUSINESSES NON-LATINO BUSINESSES

Latino Entrepreneurship Initiative

SOURCES: U.S. Census Survey of Business Owners, 2012; Stanford Latino Entrepreneurship Initiative Survey of Latino Business Owners, 2015

• Capital used by Latino businesses comes almost exclusively from personal sources, such as personal savings or gifts from friends

• About 12 percent of Latino businesses rely on friends for financing, compared to only 3 percent of non-Latino businesses

• Latino businesses are much less likely to use institutional capital sources, such as credit cards, bank or commercial loans, compared to non-Latino businesses

8 LATINO BUSINESSES ARE MORE LIKELYTHAN NON-LATINO BUSINESSES TO BE FINANCED THROUGH PERSONAL FUNDS

FINANCIAL CAPITAL SOURCES USED BY BUSINESS OWNERS

PERSONAL SAVINGS

CREDIT CARDS

FRIENDS

PERSONAL BANK LOAN

COMMERCIAL BANK LOAN

GOVERNMENT LOAN

69.1%61.7%

18.3%10.5%

12.2%2.6%

10.7%13.4%

6.1%10.8%

2.4%1.3%

LATINO BUSINESSES NON-LATINO BUSINESSES

Note: Numbers do not add to 100 because respondents were allowed to check more than one.

Latino Entrepreneurship Initiative

• The rapid growth of U.S. Latino businesses outpaces the growth of the overall Latino population, as well as the number of businesses created by other demographic groups

• Latino businesses may be smaller than average, but they are contributing positively to the mainstream U.S. economy

• Latino businesses are over-represented in 4 of the 5 fastest growing industries, with customer bases that extend well beyond Latino communities

TAKEAWAYSLATINO BUSINESSES ARE A SIGNIFICANT FORCE IN THE U.S. ECONOMY

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