Helping Latino Businesses Keep Pace

Written

Helping Latino Businesses Keep Pace

The Stanford Latino Entrepreneurship Initiative is amassing a huge database and network to nourish the fast-growing sector.
July 25, 2018
Mexican currency is seen in the cash register drawer alongside U.S. Dollars as a cashier at Pizza Patron makes change for a customer in Dallas, Texas. Credit: REUTERS/Jessica Rinaldi
Latinos are starting companies at a faster rate than any other ethnic group in the U.S. | Reuters/Jessica Rinaldi

Marlene Orozco spends a lot of time collecting and analyzing data on Latino business owners around the U.S. The fact that the information — much of which has never before been compiled in such depth — is designed to directly support Latino entrepreneurs is never far from her mind. In fact, for Orozco, it’s personal.

“My father just retired. He was a construction laborer for 40 years,” says Orozco, lead research analyst for the Stanford Latino Entrepreneurship Initiative, known as SLEI. “He tried to start his own construction company twice but was not successful. Had I known more, I could have supported him. Now I’m collecting research and data to better equip not just people like him, but also those who help businesses start and grow. I’m very excited about this.”

Housed at Stanford GSB, SLEI was established in 2014, spearheaded by Jerry Porras, the Lane Professor of Organizational Behavior and Change, Emeritus. Back in 2012, Porras, together with a small group of Stanford GSB Latino alumni, had formed the Latino Business Action Network (LBAN), an independent nonprofit based in Palo Alto.

Porras knew a storm was coming: Latinos are expected to make up 30% of the U.S. population by 2050, yet their socioeconomic level isn’t keeping pace with that growth. If the group’s financial progress doesn’t improve, it could threaten the economic health of the nation.

This is a segment of the population that can no longer be ignored. We’re hoping that through our efforts, we’re changing the narrative.
Marlene Orozco

Looking for the quickest way to help Latino communities create income and wealth, Porras and LBAN members turned to entrepreneurs, where they found a huge problem. Despite the fact that Latinos start companies at a faster rate than any other ethnic group in the country — 1 million new net startups every 5 years over the last decade and a half — only 3% of the 5 million Latino-owned companies have annual revenue exceeding $1 million.

“This was the big ‘aha’ moment,” Porras says. “We decided we wanted to focus on helping Latinos grow big, highly scaled companies. Big companies have a huge effect on society.”

Porras envisioned a program that would collect data to inform public policy, provide training and education to entrepreneurs, and build an ecosystem to support the development and growth of Latino businesses.

“Our conclusion was that we had to create a connection to Stanford,” Porras says. “That collaboration created SLEI.”

Findings from the latest SLEI report highlight the challenges. The share of the Latino population in the U.S. is now 17%, with Latinos owning nearly 13% of all businesses in the country, up from 8% in the 1990s. Yet those businesses represent only 6% of all employer businesses and less than 5% of all employer businesses with more than $1 million in annual revenue. Closing this gap would add $1.47 trillion to the U.S. GDP, along with 650,000 new businesses and 5.3 million jobs.

In response, SLEI operates on different fronts. It hosts a growing database of close to 2 million Latino-owned companies in the U.S. and works with partners across the country to conduct an annual survey that now includes about 5,000 entrepreneurs — the most comprehensive dataset of its kind.

“No one else in the country is doing this research to this scale,” Orozco says.

Complementing that research is SLEI’s Education-Scaling Program, a combined in-residence and online six-week executive education course for promising Latino business owners from around the country. Developed by organizational behavior professors Hayagreeva “Huggy” Rao and Robert Sutton, the course gives entrepreneurs the knowledge and skills to scale their businesses. Cohort members work online, have access to mentors and each other, and spend three days at Stanford GSB, where they present a pitch deck to capital providers. Their post-course progress is tracked, and participants are encouraged to maintain contact and do business with each other.

The 450 graduates of the course to date include owners of a funeral home, a waste disposal company, and a tax preparation firm that has grown from 70 to 100 franchises. It’s a unique opportunity for participants, says Stanford GSB economics professor Paul Oyer, who is co-director of SLEI.

“This is a fantastic program that brings together a group of people who might not otherwise be able to take advantage of Stanford’s business education program,” Oyer says. “It’s really a great way to take the teaching aspect of Stanford GSB and deliver it to a new audience.”

SLEI’s challenge will be to continue building its research infrastructure and disseminate its findings to those who can influence policy, Orozco says. The growth potential is clear: Half of U.S.-born Latinos are younger than 18, and millennial Latino immigrants (age 18-34) who came to the U.S. as children now own 86% of scaled immigrant-owned firms.

“Given what we’re seeing with entrepreneurial dynamism with Latino millennials in particular, if the trend continues, there’s a lot of hope there,” Orozco says. “This is a segment of the population that can no longer be ignored. We’re hoping that through our efforts, we’re changing the narrative.”

— By Beth Jensen

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