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Latinos are the hidden force turbocharging the US economy

It's been nearly 10 years since this country was hit with a recession, the likes of which we hadn't seen for decades. Businesses across the country were closing their doors and unemployment soared. This bleak situation was sharply magnified among Latinos, which reported a 66 percent drop in wealth and a 13 percent unemployment rate.

Yet during this bleak period, Latino entrepreneurs created new businesses at a startling rate, increasing from 2.3 million in 2007 to approximately 4.1 million today. As we come out on the other side of these shifts, we should take stock of our economic environment.

Shining some much-needed light on the current state of Latino entrepreneurship in the United States, the Stanford Graduate School of Business and the Stanford Latino Entrepreneurship Initiative released a study on the nation's Latino business landscape.

Based on findings garnered from surveying 4,900 companies around the country, it is clear that the Latino business community is proliferating, and at a far faster rate than non-Latino companies. To be more precise, the number of Latino-owned businesses has grown an astounding 300 percent faster than the national average over the last decade.

Common misconceptions

This begs the question: Where do these businesses come from? Twenty-nine percent of these business owners and entrepreneurs are immigrants (if we add companies created by children of these immigrants, the percentage balloons to 61 percent). When we consider only those businesses with revenues surpassing $1 million or having more than 50 employees, 40 percent to 50 percent are Latino immigrant-owned.

It is a common misconception that Latino-owned business exist only in Latino neighborhoods, primarily servicing Latinos. The SLEI findings present a different view. Even though 60 percent of all Latino businesses are located in California, Texas, New York and Florida, the truth of the matter is Latino businesses are located across the U.S. Seventy-five percent are in neighborhoods with a non-Latino majority, serving mostly non-Latino customers and proving to be a vital, even critical, part of the nation's economy.

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While the Latino business community has made significant strides, much remains to be done to encourage and solidify growth. The best way the Latino community can assure a positive impact on the economic well-being of this country is by leveraging its entrepreneurial success to increase its income and wealth and trigger the cycle leading to improved schools, better housing, lower crime rates, more jobs, and so on.

The study out of Stanford found that more than half of Latino business owners were millennials, ages 18 to 35, half of which held a four-year degree. This reflects twice of what is seen on the national level. We are seeing more Latino students going to college and harnessing their ambition to grow a thriving business.

This is also made evident when analyzing how these companies are getting started; three-quarters of Latino owners report initially founding their businesses by themselves with over 60 percent of them using their own funds. Of the firms that received external funding, bank loans were the most common at both the start-up and growth stages. However, most striking in the analysis of funding sources was the small numbers of Latino owners, less than 10 percent, who received angel or venture money at either of the two stages.

"By giving back to the Latino community and helping Latino entrepreneurs develop and grow, we are strengthening the whole country."

To help these, and all businesses, scale successfully, we need to see stronger educational programs and offer support for emerging entrepreneurs. Currently, through a collaboration between the Latino Business Action Network and the Stanford Business School, we have organized an intensive online program for Latino entrepreneurs and business owners to teach them how to overcome the challenges preventing them from scaling their businesses. We provide experienced mentors, teach about available types of capital funding and introduce them to investors. Most importantly, we develop a more interconnected network where entrepreneurs can create opportunities with each other and promote business with one another.

There are two truths that must be acknowledged by all those in position to create and develop economic policy. One is simply that the Latino population is growing rapidly — not just in Florida, Texas or California but nationally. In fact, it will nearly double by 2060 to claim 30 percent of the U.S. population. Secondly, policymakers also need to realize that the number of Latino-owned businesses continues to grow rapidly, providing jobs for the American labor force, which will only lead to them playing a much larger role in our economy.

The reality is that by giving back to the Latino community and helping Latino entrepreneurs develop and grow, we are strengthening the whole country.

— Dr. Jerry Porras, Lane Professor Emeritus of Organizational Behavior and Change, Stanford Graduate School of Business

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