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Fifty percent of Hispanic owned businesses fail in the first year

October 8, 2010

Houston, TX–It has been said that “necessity is the mother of invention”, the current economic condition has fueled the necessity of many to start their own businesses.  According to one study done at the University of Ohio in 1999 only 35% of these start ups will make it past the tenth year.

How does that success rate compare to Hispanic owned businesses?  The short answer is that it depends on who you listen to. According to one study done at the University of Phoenix with twenty Hispanic business owners, a snap shot emerges of the many challenges Hispanic entrepreneurs face in fighting the odds to succeed.

One common myth is that most small businesses fail due to underfunding in the first phase of launch, the “Early Struggle.” While it is an important element and some financial advisors recommend that you triple what you think your startup should be, many fail for other reasons.  According to Richard David CEO/ Director of Finance from Bancofino of New York,  50% of Hispanic owned businesses will fail in the first year and 20% in the fifth. Compared to the General Market the failure rate almost seems to be reversed; in the first year it’s 15% and in the fifth year 50%.

What are the main reasons small business fail?  According to Patricia Schaefer the top seven reasons are:
1.    You start a business for the wrong reasons.
2.    Poor Management
3.    Insufficient Capital
4.    Bad Location
5.    Lack of Planning
6.    Over expansion
7.    No Website

In one study one primary reason for Hispanics failing is poor decision making skills. Bancofino is out to change that by creating a business model that funds startups and supplies services and expert advice to act as an incubator for the first five years (the most at risk).  Bancofino is bullish on the Hispanic business in Houston with a planned expansion soon to be announced.

As mentioned in the previous story in this series, Hispanic business owners are growing at twice the national rate. Many of these business are filling a need by providing products and services no one else is providing Hispanics. Some such as “Fiesta Supermarkets” based in Houston have grown to service both the General and Hispanic marketplace.

One conclusion from the Phoenix study is that more academic studies and modeling of successful Hispanic businesses are needed.  This is starting to be addressed by Hispanic Chambers of Commerce, business organizations, and Civic groups, and most recently corporate America who sees an opportunity.

In the next story of this series, you will learn about the new breed of Millennials and Generation Xers who are staring new businesses.

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2 Comments leave one →
  1. October 8, 2010 10:47 am

    “…modeling of successful Hispanic businesses are needed.” I think we need best practices or case studies. This blog has some of those more are coming soon!

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