Entrepreneurship
Entrepreneurship is the practice by which individuals or a group of individuals bring a new product or process to the market. Entrepreneurship is typically carried out by creating a start-up company, a new organization that is concerned with establishing a growth-oriented business. Growth is the most important goal of entrepreneurs rather than becoming one’s own boss or other non-financial issues. It is the focus on growth that sets entrepreneurial ventures apart from small businesses and that distinguishes entrepreneurs from small business owners.
If entrepreneurs do not have the personal funds required to open a start-up company, they seek financial assistance from outside sources. If traditional investors such as banks refuse to support the entrepreneur, angel investors may loan their own money (often in exchange for an equity interest in the new business), or venture capitalists may be able to secure monies from other investors. The MassMutual Business Owners Perspectives Study offers advice for entrepreneurs that is appropriate for all phases of the lifecycle of a business.
Hispanic businesses are the fastest growing segment in the U.S. economy and are drivers of growth activity, innovation and job creation. Hispanics are opening businesses at a record rate, exceeding the rate of any other ethnic group. Indeed, the percent of the Hispanic population that becomes entrepreneurs is increasing, whereas this percent is not growing in other groups. According to the 2022 State of Latino Entrepreneurship, between 2007 and 2019 the number of LOBs increased by 34 percent nationally, while the number of white-owned businesses (WOBs) decreased by 7 percent. Hispanic immigrants were 24.5 percent more likely to have their own business than the remainder of the U.S. population.
The economic output of this country’s nearly 5 million LOBs is $2.8 trillion. This amount of economic activity generates an estimated $800 billion of wealth per year. By comparison with WOBs and American businesses at large, LOBs have greater revenue and payroll growth. Approximately 3 million people are employed by the nation’s LOBs, the majority of which hire at least one worker, and more than one-third employ five or more workers. It has been suggested that $1.5 trillion could be added to the U.S. economy if existing Latino businesses continued to grow as fast as the average worth of American businesses.
LOBs exist in all major industries, including manufacturing, education, health services, finance, and construction. The age of Latino business owners tends to be younger than that of non-Latino business owners. “Roughly 33 percent of Latino entrepreneurs are younger than 45, compared to just 22 percent of non-Latino entrepreneurs.” The so-called ‘Dreamers’ have started their own businesses at a rate far exceeding the rate of business ownership among native-born Americans. Dreamers have been relatively more successful among Hispanic entrepreneurs because they have more education (DACA recipients have an “in school” requirement) and, therefore, are more likely to speak English fluently. Further, they are more likely to be involved in strong social networks which contribute to building a successful business.
LOBs are likely to remain relatively small due to a variety of unique factors that make growing a business more difficult for Hispanic entrepreneurs. Acquiring capital to fund a start-up and grow the business is acknowledged to be the single most widespread and serious hurdle to overcome. Hispanics trying to start a business often find it especially difficult to secure funding from traditional small business lending sources such as local banks. When they secure loans from local banks, LOBs pay typically significantly higher interest rates than those charged by national banks. Research has shown that LOBs remain significantly less likely than WOBs to have loan applications greater than $50,000 approved by national banks, despite having a gross revenue that is 3 times larger than WOBs, having similar business and personal credit scores as WOBs, and having lower outstanding debt on average than WOBs.
Due to a lack of trust in financial institutions in their native countries as well as a general lack of financial education, many Hispanics do not rely on traditional financial institutions to save and deposit money. Difficulties with banks have caused Hispanics to seek and receive funding from sources that expose them to more personal financial risk. Small Hispanic start-ups are most likely to seek financing from friends and family, or to rely on their own personal credit cards.
According to the Stanford study, 70 percent of Hispanic entrepreneurs must rely on their personal savings to fund their start-ups, while just six percent get commercial loans. For example, Martha De La Torre sold her house in order to found El Classifado, a print and online publication containing classified ads for Hispanic markets in 47 different Spanish-speaking zones in the U.S. and in Central and South America.
Such restricted access to capital has made it difficult for Hispanics to break into high growth industries. Biz2credit (an online credit resource offering finance to small businesses) reported that in 2019-2020 the average annual revenue for Hispanic-owned businesses was $525,415 as compared with $621,521 for non-Hispanic-owned companies. Those Hispanic entrepreneurs who have high growth potential companies seek funding from venture capital firms. However, the funds invested in Hispanic start-ups has hardly increased. Latino founders received just 2.1 percent of venture capital funding in 2021, a slight increase from 1.8 percent in 2018.
Despite these barriers, average income and homeownership rates among Hispanic entrepreneurs are greater than that of the general Hispanic population. Further, many Hispanic-founded businesses expanded to operate well beyond their immediate communities. Importantly, it is common for Hispanic business owners to give back to their communities. For example, Stephanie Vasquez, a successful Pheonix coffee shop owner, demonstrated her socially conscious approach to business by founding the nonprofit Empowering Latina Leaders in Arizona.