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El Millonario Next Door

Wednesday, July 1, 1998

The Untold Story of Hispanic entrepreneurship

Many Americans seem to regard the nation’s Hispanics with apprehension. Their high poverty rates, low education levels, and tendency to create separate cultural enclaves feed a perception that Hispanics are not following the upwardly mobile immigrant path worn by their Asian, European, and Middle Eastern predecessors.

America, meet Bartolo Lopez.

In 1970, at age 17, Lopez crossed the Mexican border into California with barely enough money to pay the "coyote"—immigrants’ slang for the guide hired to bring them illegally across the border. At first he, like many Mexican immigrants, labored in the fields of northern California. Finding that wearisome, he began working for a Japanese gardener, who taught him the art of landscape design: skills such as reading blueprints, placing boulders, and creating waterfalls.

After earning legal residency as a licensed landscape technician, Lopez joined a landscaping firm in Los Angeles for several years. But when a recession hit in 1982, his salary dropped by half. That setback drove him to start 3 Pinos Landscaping, a landscape design and maintenance firm.

At first he was stuck mowing residential lawns, but within a year he had 10 employees and design projects ranging from $10,000 to $100,000. His business now takes in nearly $2 million in annual revenues serving a predominately upper-middle-class clientele. And Lopez, who once worked dusk-to-dawn picking strawberries for pennies, now earns nearly $100,000 a year designing and creating opulent backyard Xanadus for the San Fernando Valley’s upper crust.

The Flowering

The qualities that prompted Lopez to launch his own enterprise are the same ones that brought him to America in the first place: a penchant for risk-taking and a willingness to sacrifice and work hard in pursuit of a better life. These attitudes are typically strong among immigrants, and they help to explain why a vibrant entrepreneurial culture is developing within the Hispanic community. Indeed, Latinos, more than a third of whom are foreign-born, represent the nation’s fastest-growing pool of business owners—a deeply encouraging sign of their desire to join preceding waves of immigrants in pursuit of the American Dream.

From 1987 to 1992, the last year for which Census Bureau statistics are available, the number of U.S. businesses owned by Hispanics rose 76 percent, from 490,000 to 863,000. Meanwhile, the number of U.S. firms overall grew by just 26 percent, from 13.7 million to 17.3 million. During the same period, total receipts for Hispanic-owned firms more than doubled, from $32.8 billion to $76 billion, at a time when receipts for all U.S. firms grew by only 67 percent, from $2 trillion to $3.3 trillion. In the space of a decade, from 1982 to 1992, the number of Hispanic-owned firms nearly quadrupled. Assuming similar growth rates since 1992 (a conservative assumption considering the U.S. economy’s strong recent performance), the U.S. Hispanic Chamber of Commerce estimates that Hispanics now own 1.3 million U.S. businesses generating more than $200 billion in annual revenues.

The overall size of the Hispanic business community is not yet as impressive as its recent growth. Although they are 11 percent of the U.S. population, Latinos owned just 5 percent of all firms in 1992, accounting for 2 percent of gross receipts. Nearly half of all Hispanic-owned businesses earned less than $10,000, and only 15 percent had paid employees. Only two Hispanic-owned firms, Burt Automotive Network and Goya Foods Inc., made Forbes magazine’s 1997 listing of the nation’s 500 largest privately held companies.

That Hispanic entrepreneurs have some catching up to do should not be surprising. The median age of Latinos is more than a decade younger than America’s non-Hispanic whites, and the newly arrived immigrants among them tend to have a limited grasp of English, scant capital, and few sophisticated work skills. They haven’t been running firms long enough to expand through reinvesting profits and developing a strong customer base.

Hispanic entrepreneurial growth might be compared more usefully with that of other, equally young minority groups, such as Asians and blacks, the other minorities surveyed by the Census Bureau. In 1992, Hispanics in this country owned 43 percent more firms than Asians, widely known for their prolific business formation. The number of Hispanic-owned firms also grew faster than Asian-owned companies between 1987 and 1992. Relatively speaking, however, Asians still come out ahead. They make up only 3 percent of the population, yet their smaller number of firms still generated 26 percent more total receipts than Hispanic-owned concerns.

Hispanic business ownership has already surpassed that of blacks, a racial group of similar size, and appears to have done so without as much reliance on government assistance. With 12 percent of the nation’s population, blacks as a group owned 242,000 fewer firms in 1992. The average black-owned firm earned only $52,000 that year, slightly more than half the Hispanic average. (This might be partly explained by the fact that blacks tend to own businesses in the low-cost states of the South, Hispanics in relatively high-cost states.)

As one of the largest minority business set-aside programs in the federal government, the Small Business Administration’s Section 8(a) program is a good indicator of the degree to which different minority groups depend upon government help. Of the 6,183 firms certified last year to participate in the program, which limits competition for certain government contracts to small, minority-owned firms, blacks owned 45 percent, Hispanics only 25 percent. "When you compare the Hispanic and black business worlds," says Joel Kotkin, a senior fellow at the Pepperdine School of Public Policy, "Hispanics have traditionally been much more tied into the private sector of the economy."

The soaring growth of the Hispanic business community is not only lifting Hispanic incomes. It is also revitalizing neglected areas of cities where Hispanics have established a strong presence. Along Florence Avenue in South Central Los Angeles, a once predominately black community, many of the storefronts destroyed during the 1992 riots have been replaced by small, Hispanic-owned retail stores and mini-marts. In Chicago, Hispanic jewelers, restaurateurs, and clothing retailers control commerce along 26th Street, generating sales-tax revenue second only to Michigan Avenue, Chicago’s wealthiest retail strip. And, as Peter Beinart reported in the New Republic in 1997, Roosevelt Avenue in Queens, New York, is lined with the small shops established by Ecuadorean, Dominican, Columbian, and Mexican immigrants who have moved in only during the past two decades.

City of Latinos

Just as the blanket terms "Latinos" and "Hispanics" gloss over the variety of races and ethnicities among Latin Americans, aggregate statistics don’t even begin to describe the varied character of Latino-owned businesses, from the newer immigrant startups in Los Angeles to the larger and more profitable media firms of Miami.

In Los Angeles, the Hispanic population has grown so large and prosperous that banks have started advertising in Spanish and real-estate firms hire bilingual sales agents to cater to the Latino market. Unsurprisingly, the city boasts the most Hispanic-owned firms of any U.S. metropolitan area, just ahead of Miami. According to UCLA’s Center for the Study of Latino Health, the number of businesses in Los Angeles County owned by Latinos—mostly Mexican Americans—has nearly doubled since 1992, from 109,000 to 210,000. If those estimates are correct, nearly one-sixth of all Latino-owned businesses in the U.S. are located in L.A. County.

These businesses range from La Reina Inc., Mauro Robles’s $40-million Mexican-food-manufacturing enterprise, to the small tacquerias that dot the city’s neighborhoods. In Venice Beach, Latinos occupy small retail stalls that sell everything from sunglasses to Muscle Beach t-shirts; in Reseda, their retail shops dominate the indoor swap meets.

Latinos such as Francisco Pinedo, a furniture maker, have also helped to create a boom in light manufacturing, including toys, clothing, and food, that has made L.A. County the largest manufacturing center in the nation. Pinedo’s father, a Mexican migrant worker, brought his family to South Central L.A. when Pinedo was 12. A short time later, his father hurt himself and his mother fell ill, leaving Francisco to support the family. He dropped out of the 11th grade and began working full-time at a local upholstery shop.

Soon he became an upholsterer at a larger company, where he worked for nine years. After brief employment at a smaller firm, Pinedo decided it was time to start his own enterprise. "My goal was always to have my own company," he says.

At age 27, with about $11,000 in savings, Pinedo opened an upscale furniture-manufacturing firm in a small garage while his wife continued to work to pay the bills. When he was working for the larger company, Pinedo had developed a small but wealthy personal clientele by making custom furniture at night and on the weekends. They became the first clients of Cisco Brothers, his fledgling business. His strategy was to manufacture the sort of sofas, chairs, and loveseats customers would ordinarily purchase from expensive upholstery shops. With the craftsmanship and expertise gleaned from years of factory work, Pinedo figured out how to make high-end furniture at a lower cost than his competitors. "I knew how to make a sofa worth $7,000 for $300," says Pinedo. Since 1990, the firm has grown from two brothers working in a garage to a 125-employee enterprise based in a South Central factory. Last year, Cisco Brothers earned $9 million in revenues.

For the most part, Mexican immigrants living in California entered the United States with little formal schooling or English proficiency, and no way of supporting themselves besides grudging factory toil—at best. They want the trappings of middle-class life—a home, furniture, perhaps a car—so they take minimum-wage jobs and do "a lot of work after work," says Pinedo. "They are always building stuff on the weekends to make extra money." Often they move into blighted areas such as South Central. There they find cheap homes, often fixer-uppers, that they share with one or two other families. If all goes well, their children will receive good educations and live easier lives.

Their growing numbers and purchasing power—annual estimates range from $250 billion to $350 billion nationwide—have in turn created new market opportunities for Hispanic entrepreneurs. Rising car ownership creates a need for auto mechanics; newly purchased televisions create a need for Spanish-language stations. Economists call this a virtuous cycle: Consumption begets business opportunities, which beget jobs, which beget more consumption, and so on.

The growing Latino population has also created a new class of entrepreneurs: Latino middlemen who leverage their education and knowledge of the Latino community into lucrative consulting work for established companies who desire insight into Hispanic consumer behavior. Jose Legaspi recognized this market before nearly anyone else. In the late 1970s, after stints in real-estate sales, advertising, and insurance, he formed the Legaspi Company, a real-estate development and consulting firm. It combines business with a social mission: establishing firms that provide needed goods, services, and jobs to underserved Latino communities. He began to represent national concerns such as Blockbuster Video and McDonald’s. "A lot of national companies did not know how to deal with Latinos" as customers or employees, says Legaspi, a Mexican immigrant himself. "They need to know what kinds of goods and services to offer and what days are important for an Hispanic worker to take off."

They also need to reach the Latino market through advertising, as the Orcí family well knows. Together, brothers Roberto and Hector Orcí and Hector’s wife Norma own and operate La Agencia de Orcí & Asociados, a $46-million international advertising agency that specializes in reaching Hispanics. Although Roberto and Hector were born in Mexico, they are not typical Mexican entrepreneurs. They boast master’s degrees from top-flight U.S. graduate schools and several years’ experience with major advertising firms. The agency started in 1986 when Hector and Norma took the Hispanic division of a large international firm private; they brought Roberto in two years later. Their first major client, the U.S. government, hired them for an advertising campaign conducted in 48 different languages. Its purpose was to inform illegal immigrants of new laws granting amnesty if they met certain requirements.

Their clients now include Honda Motors, Pepsi, Allstate, and other national and regional marketers. "There are 30 million Hispanics in the U.S. and they prefer entertainment in Spanish," says Roberto. "Companies hire us to reach that target, and it takes the same level of sophistication and expertise as any other type of marketing."

Gateway to Latin America

Although Latino-owned firms are less numerous in Miami than in Los Angeles, in 1992 their total revenue exceeded that of their L.A. counterparts by more than $4 billion. That’s because Miami is the center of a mature business community dominated by Cuban Americans, who owned only 12 percent of Latino firms in the United States but earned more than one-fifth of the revenues.

Unlike most Hispanic immigrants to this country, many of the Cubans fleeing Fidel Castro’s Communist regime in the early 1960s were professionals and businessmen. When they settled in Miami, they set about establishing an infrastructure of Latino culture and commerce. More than three decades later, Miami possesses the flavor of a Latin American city and the bustle of an international trading hub.

This is an environment tailor-made for entrepreneurs like Rafael Puga. Born in Chile, he came to the United States after receiving a degree in biology from the University of Chile. Shortly after he arrived in Miami, a friend in Chile asked if he could sell 40,000 pounds of fresh grouper. Finding little demand in Florida, he flew to California and worked the yellow pages. Puga moved the entire shipment within a few days, and a new career was born.

His business, Beagle Products Inc. (named for Charles Darwin’s ship, the HMS Beagle), now acts as the nation’s primary importer of fresh sea bass, salmon, and swordfish from Chile and Costa Rica. When Puga first started the business in the early 1980s, most imported fish came into the country frozen. He changed that by working with Chilean fishermen to develop new fishing techniques that keep fish fresh longer.

Although Puga’s firm prepares some value-added products, such as frozen, boneless portions, his main business is quickly packaging and shipping fresh catch to wholesalers and restaurants. After a short stay in Puga’s Miami warehouse, the daily cargo is bound for dinner plates in Boston, Houston, and Los Angeles. Puga’s success really lies in doing what everyone else thought could not be done. "Nobody had tried bringing fresh fish by plane before," he says. His initial risk now generates $20 million in annual revenues and a host of copycat competitors.

Puga, much like Jose Legaspi and the Orcís, is using his Hispanic heritage to advantage, acting as the middleman between predominately Anglo-run American wholesalers and Chilean fishermen and exporters. There is a lesson here: In a diverse nation and global economy, few skills will be more highly valued than the ability to operate in various cultures and parts of the globe. Firms that shun Hispanic partners will just be hurting their own bottom line. "I have never felt discriminated against as a Hispanic," says Puga. "If I have the right price and the right product, they don’t care if I’m American or Chilean."

Escaping the Niche

For every Hispanic businessman who is leveraging his ethnicity, however, there are dozens whose ethnicity has nothing to do with their businesses. Latinos are moving into every field, from major telecommunications firms to candle manufacturers. The most successful ones, like Bartolo Lopez and Francisco Pinedo, acquire skills and business acumen working for larger firms, build their savings, and, often with the help of family and friends, finally go into business for themselves.

That’s the path Annette and Victoria Quintana took. Annette worked as a sales representative for IBM before deciding, at age 28, that the time was ripe to move into ownership. "I wasn’t married, I had no children, the car was paid for, and I could live on $800 a month," says Annette. "I didn’t have a whole lot to lose."

In 1990, she started Excel Professional Services, a computer consulting firm. She recruited her sister, Victoria, who was then working for MCI as a product manager, to run the business side of operations while Annette drove sales. And drive them she has. Last year, sales reached $22 million, up from $17 million the year before.

Based in Denver, Excel hires technical experts to solve computer problems, including the Year 2000 bug, for large corporations such as Lucent Technologies and Time Warner. But at a time when federal agencies are scrambling to fix their ancient computer systems, Annette and Victoria decided to avoid government contracting altogether. "We determined that we would need three times the required administrative staff to fill out the paperwork required for government, while profitability is a half to a third of the private, commercial sector," says Annette.

In developing Excel’s business plan, Annette and Victoria surveyed dozens of minority firms certified under the federal Small Business Administration’s 8(a) program. What scared them away from government contracting was the type of work given to 8(a) companies. "The government will not do 8(a) set-asides on future-oriented business," says Annette. "They don’t bring 8(a) companies in to replace old technology, they bring them in to baby-sit the old system. That’s not what you want to build your business or train your employees on." She relates stories of 8(a) firms retaining former high-level government officials to play golf with their old colleagues—to speed up contracts. Instead, the Quintanas hire well-compensated salespeople (on the low end, they earn $100,000 to $160,000 a year) to aggressively cold call the technical and systems divisions of large corporations.

On a far smaller scale, there’s Norma and David Estrada, owners of Estrada’s Carpet & Upholstery Cleaning in Houston, Texas. Neither has a college education; they grew up poor and married early. After they were both laid off by Continental Airlines, David started working for Sears, Roebuck & Co. as a carpet cleaner and soon decided he could better serve customers on his own. With a $500 loan from his parents, the Estradas bought a carpet cleaning machine and—voilà!—they were in business.

Their finances remained tight for the first few years—they grossed $7,000 in 1993—so they subsisted on welfare and received a cheap mortgage through the U.S. Department of Housing and Urban Development.

Though still cash-strapped, they went off welfare in 1994. "It was just a pain to go down and give the records every month," says Norma. "We had a lot of friends and family members who gave us stuff for garage sales, and we sold half our furniture." They joined the Houston Hispanic Chamber of Commerce, which has put them in contact with both commercial and government purchasing managers. That helped to secure their largest contract—cleaning carpets at a few federal office buildings at the Port of Houston Authority—as well as contracts with a local country music station and several Marriott hotels in Houston.

Their gross revenues have nearly doubled each year to reach $96,000 in 1997, and they have poured most of the money back into the business. "We have what we need to survive and the business is growing," says Norma. "We eat lots of beans and rice, but in Mexico I would be considered rich for what I have now."

Government’s Role

In some fields, particularly construction, technology, and environmental contracting, affirmative-action policies at the federal, state, and local levels have played a significant role in the growth of many Hispanic-owned businesses. But almost 60 percent of Latino firms and 50 percent of Latino revenues are concentrated in services and retail, sectors largely unaffected by government procurement or contracting. Hispanics have also achieved greater business success in a shorter period of time than blacks despite their more limited ties to government.

Many Hispanic firms would depend at least partly on government work, with or without minority set-asides. For instance, Delgado Erectors Inc., a Chicago-area firm with $8 million in annual revenues, erects structural steel for high-rise buildings and bridges. Owner Dominic Delgado, a veteran construction foreman, relies heavily on government contracts because that’s who builds bridges and mass-transit systems. Delgado blames nepotism and the "old boy network" in the building trades for his inability to secure much private work. "We can handle almost any project in the city of Chicago," says Delgado, "but private industry doesn’t look at us yet; they maintain relationships with their friends for years."

The real danger for Hispanic-owned firms that pursue government contracts is failing to diversify. City Wide Security Services Inc., a Latino-owned security firm established in Brooklyn, New York, in the early 1970s, relies almost exclusively on government contracts, from guarding NASA’s Goddard Space Flight Center to New York City government buildings. The firm earned $23 million in 1995, but revenues plummeted to $1 million last year after another security company underbid City Wide on its largest contract, the World Trade Center in New York City.

That bolsters a point made by Bennett Santana, owner of Business Systems of America, a temporary-staffing service based in Chicago. "Eventually the [government] money runs out and these people need to go out into the market and compete and it’s a shock," he says. "The 8(a) programs shelter them from what the real world is."

The Future

Whether the Hispanic business community will ever match the success of other immigrant groups will ultimately depend more on their collective competence than on their ability to reap government set-asides. That means improving their general education levels and nurturing their entrepreneurial spirit.

Their steady improvement will be important because the nation’s economic health will become increasingly tied to Hispanics’ well-being. By 2010, they will surpass blacks to become the nation’s second-largest racial/ethnic group. In Miami, where Hispanics are already the majority, and California, where Hispanics are projected to be the largest ethnic group by the year 2025, the health of the regional economy already depends on a vibrant Latino community.

Unfortunately, political leaders still insist on treating Hispanics as yet another beleaguered minority in need of preferential treatment. In his famous 1995 "mend it, don’t end it" speech to the National Council of La Raza, an Hispanic advocacy group, President Clinton mentioned "affirmative action" 22 times without once acknowledging the tremendous gains Hispanics have made in the business world. This attitude runs the risk of cultivating an entitlement culture rather than one of can-do entrepreneurialism within the Hispanic community. Fortunately, Hispanics generally seem far more intent on self-reliance than on playing racial politics.