At Stanford, Latino Entrepreneurs Forecast Rapid Growth Amid Systemic Challenges

While Latino-owned businesses are growing at a much faster rate than any other business segment in the country, they continue to face greater barriers to financing and report lower than average revenue per company than white-owned companies, according to new data released last week.

On Friday (January 28), the Stanford Latino Entrepreneurship Initiative (SLEI) released its seventh annual research report, State of Latino Entrepreneurship, exploring the impact, challenges, and opportunities of the fastest growing business segment in the U.S. economy. The report includes survey data from SLEI’s largest sample to date: 15,000 businesses across the country – 7,500 Latino-owned businesses and 7,500 white-owned businesses used as a comparison group.

SLEI, founded in 2013, is a research and education collaboration between the Latino Business Action Network and the Stanford GSB Center for Entrepreneurial Studies. Like last year, due to COVID-19 restrictions, the report’s key findings were released in a live video presentation, panel discussion with Latino entrepreneurs, and fireside chat between Stanford Graduate School of Business dean Jonathan Levin and Isabella Casillas Guzman, administrator of the U.S. Small Business Administration, nominated by President Biden and confirmed by the U.S. Senate.

“The Stanford Latino Entrepreneurship Initiative was inspired … by the growing Latino population, the growing number of Latino entrepreneurs, and the recognition that Latino businesses are going to increasingly be an important economic force in the US economy,” Levin said. “At this point, we have now run more than 800 entrepreneurs through the SLEI educational program, and we look forward to this forum every year as a chance to bring that community together and to talk about the latest SLEI research.”

FASTEST GROWING SEGMENT OF THE U.S. BUSINESS POPULATION

Besides the basic principles of fairness and equality, there are powerful economic reasons that everyone should be invested in a thriving Latino business sector. For one, Latinos make up about 19% of the U.S. population, up 23% since 2010, or about 62 million people, according to the 2020 census. That number is expected to rise to 30% by 2050. They are not only consumers, but producers and employers as well.

For another, the growth of Latino-founded businesses outpaces even its explosive population growth, making it the fastest-growing segment of business by leaps and bounds. In 1992, there were fewer than one million Latino-owned businesses in the U.S., or about 5% of businesses overall, according to census data. There were more than 3.3 million in 2012, (about 12% of businesses) and 5 million in 2020. That’s an increase of about 44% over the last decade. Non Latino-owned businesses grew about 4% in the same period, said Jerry Porras, Stanford professor emeritus and co-faculty director of SLEI Research.

Overall, Latinos’ total economic output in 2020 was $2.7 trillion, about 13% of the U.S. GDP – equivalent to the seventh largest GDP in the world, Porras said. Meanwhile, the median household income is about 29% less than of white households. If median incomes of Latino households rose to the same level as white households, it would generate trillions more to the U.S. GDP each year. Closing the gap between Latino-owned and white-owned businesses would generate another $1.5 trillion.

“It behooves us as a country to make sure that this sector of our society is just as prosperous as everyone else,” he said in the report’s video presentation. “We believe that by these measures, Latinos should be considered an asset to the U.S., one that deserves significant investment to promote U.S. economic growth and impact.”

EFFECTS OF COVID-19: 2021 WAS A BOUNCEBACK YEAR

This year’s report had the advantage, if you want to call it that, of having two years of pandemic-era data to compare and identify trends. The big story here is that while the pandemic generally impacted Latino- and white-owned businesses in similarly negative ways, there was a sharp downturn in businesses reporting “large negative effects” from COVID-19 in 2021.

In 2020, 39% of Latino-owned and 34% of white-owned businesses reported a “large negative effect.” Those figures dropped 50% in 2021 to 16% and 17% respectively. (See figure below.)

 

“2021 brought with it some semblance of a bounce back compared to 2020,” said Marlene Orozco, SLEI Research associate director. “The venture industry set a number of records and corporations began to put some real resources behind racial justice and equity efforts. This is just the beginning as there’s more work ahead. And importantly, our data really speak to the opportunities and largely untapped potential of the Latino business segment.”

The report also found that Latino business owners were more likely to respond proactively to the challenges of the pandemic and make strategic changes to their businesses to mitigate the effects.

For example, 21% of Latino businesses reported improving technological capabilities during the pandemic compared to 16% of white businesses. In addition, 18% of Latino businesses moved into the e-commerce space (13% of white businesses), 16% offered a new product or services (11% of white businesses) and 12% hired more employees (7% of white businesses).

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