Latinos’ Old Guard Passing the Torch

Joe Gutierrez grew his business slowly, starting with little more than $1,000 in cash and skills learned in his father’s Texas flooring company. Thirty-five years later, his JJJ Floor Covering Inc. helps form the backbone of Los Angeles County’s Latino business economy, pulling in $21 million in annual revenue.

Despite record rates of Latino business formation during the last decade, a countywide Times survey of small business has found the core of the Latino business community to be long established and solidly successful, with substantial staying power.

Half of the 394 Latino entrepreneurs surveyed had been in business two decades or longer, and fully 70% of their businesses were created before 1980, with a number of those passed down from the previous generation. While Gutierrez’s stellar sales figures are exceptional, 41% of respondents reported more than half a million dollars in annual revenue, and nearly two-thirds described business as robust. A third of the foreign-born topped the half-million mark for revenues, reflecting their established status.

But the old guard--many of them concentrated in low-glamour sectors of wholesale and retail trade, manufacturing, construction and related fields--is in transition. As established business owners age, they are facing harsh competitive pressures and pondering plans to hand off their ventures or shut down altogether.

The transfer of power is changing the complexion of the Latino business community, as younger entrepreneurs enter the market with schooling and options their parents never had. While the older set often had little choice in the industries they came to master, newcomers are moving into a wider array of enterprises, including high-skill professional and business services and technology-related fields that were out of reach or unheard of just one generation ago, interviews show.

Today, corporate advertisers and politicians--including both presidential front-runners--have come to recognize the Latino business boom with near-faddish enthusiasm. And next week, NBC will launch the first nationwide television program to highlight Latino business owners. The groundwork for that boom, the survey indicates, was laid by entrepreneurs such as Gutierrez through decades of quiet growth.

“At the time we came, there were no other opportunities. That’s why a lot of Hispanics went into business,” said Mexican-born Hector Barreto Sr., founder of the U.S. Hispanic Chamber of Commerce and father of Hector Barreto Jr., owner of a financial services firm and chairman of Los Angeles’ thriving Latin Business Assn.

The Number of Latino Businesses Exploded

“Today’s generation, they are better equipped. They are better educated. And they have the backbone of the older generation [to build on],” the elder Barreto said. “When I came into this country, I was a second-class citizen. I wanted to make sure my children would be first-class citizens.”

Data show they are taking on the challenge.

The Times survey relied on a Dun & Bradstreet database that tends to favor more-established enterprises. But other data show a burst of new entrepreneurs in recent years. Nationally, the number of Latino businesses exploded by 232% between 1987 and 1997, faster than any group, U.S. Census figures and projections show.

In the five-county Southern California region alone last year, there were 307,000 Latino-owned firms, double the number just six years earlier, according to projections by David Hayes-Bautista, director of UCLA’s Center for the Study of Latino Health.

To be sure, many of the recent enterprises are small mom-and-pop outfits in low-growth retail. But some of the younger companies are making inroads in fast-growing industries. Of the firms chronicled by Hayes-Bautista’s study, 17,500 were in finance, insurance and real estate--double the number in manufacturing. And technology firms and construction-related companies riding the wave of a boom economy dominated a recent list of the nation’s fastest-growing Latino companies published by Hispanic Business magazine.

“What you are definitely seeing is a passing of the torch,” said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. “There is more of a feeling of confidence, of ‘We can succeed.’ They are more risk takers than their parents were.”

Take Mark Macias. Raised by a grandmother who worked long hours as a machinist, Macias had a troubled youth, dropping out of school. But today his business posts $200,000 in yearly revenue, and he preaches the value of the new economy to school-age Latinos.

Macias earned his computer science degree while working full time. A string of top-line corporate internships and jobs followed. Ultimately, he said, he crashed against a glass ceiling. But when he made the choice to go solo, he had the skills to succeed.

“One of the things I always say is that in the technology field, there’s unlimited potential,” said Macias, 34, whose Macias Internetworking Services Inc. provides high-level technology consulting on computer systems development and implementation.

Macias’ home-based Whittier business may be the wave of the future, but the Latino entrepreneurial trail was blazed by an old guard in more traditional industries.

Like Gutierrez, many of the older entrepreneurs learned their trade from relatives or honed their skills in union-sponsored apprenticeships. And like him, some have adapted to a rapidly shifting economy, steadily taking their businesses to new heights. But others increasingly have been squeezed by competition, industry consolidation and environmental regulation, stagnating despite their staying power.

While the Latinos surveyed had been in business longer than any other respondents--including whites--they posted slower revenue growth than their white counterparts: A third of the Latino firms reported gains in the last year, compared with half of white-owned firms. Half expected their revenues to increase in the coming year, compared with nearly two-thirds of whites.

Latino enterprises captured by the survey were also more likely to manufacture goods than any other group and were heavily represented in the metals industry.

“It was probably one of the few areas open to ethnic and racial minorities,” said Linda Wong, director of Community Development Technologies Center’s Los Angeles Manufacturing Networks Initiative.

Many Manufacturers Struggling to Survive

In the years when many got their start, “if they went to school they tended to be directed to the trades, as opposed to the professions,” she added.

But many small manufacturers now find themselves struggling. The only way to increase profits is to decrease costs, often by overhauling production systems, automating or bringing in outside professional management, said Fabio Gomez, director of the Los Angeles and Burbank centers of the California Manufacturing Technology Center, which offers training to keep companies competitive. Many small Latino firms are reluctant to do so or don’t know where to turn for help.

Ramon Amezquita is among those who wish they had done things differently. His Regency Fine Furniture and Roman Empire Furniture Parts Manufacturing in downtown Los Angeles have been operating for 30 years but are now limping toward an uncertain end.

Cheap imports from Asia battered the industry, and a spate of workers’ compensation claims in the 1980s almost did him in, said Amezquita, 68, who immigrated from the Mexican state of Jalisco in 1952.

“I recall the time when we were without any competition. I could have reduced the labor and increased my profit, but I felt I didn’t need it,” he said. “It was not too smart on my part. . . . At this point I’m not making a single penny.”

Efforts to sell the business to outsiders have been fruitless, so for now Amezquita keeps working. “I was planning to leave my business to my kids . . . but if I leave it at this point they won’t be able to sustain it,” he said.

Those that adapted to the shifting economy, however, are enjoying plump returns.

Sergio Alvarez launched Los Angeles Scrap Metal Corp. in 1983 and saw export markets for aluminum, copper, brass and stainless steel balloon, then plummet. When the recession hammered the economy, he suffered too, as much of his merchandise is sold to the construction and automotive industries.

But the Cuban-born Alvarez expanded volume to serve much of the western United States. He recently built an aluminum smelting plant in Adelanto, Calif., and is in the process of acquiring a second in Los Angeles. And his company recently began hauling scrap metal from maquiladoras (foreign-owned manufacturing facilities south of the border) and processing it in Otay Mesa, Calif.

To make those changes, he took on management partners with expertise.

“Instead of buying other people or being bought out . . . we’re growing within ourselves to expand our reach,” said Alvarez, whose company expects to post $40 million in revenue this year.

Particularly for those in construction-related industries, the current economy has spelled prosperity. But to weather the slump of the early 1990s, entrepreneurs needed adaptation skills.

Gutierrez, whose JJJ Floor Covering is based in Pico Rivera, has maintained his edge in a consolidating industry by serving an ever-changing roster of institutional and corporate clients. In addition, he launched a maintenance arm and signed on as a DuPont franchisee, making him one of a select group of distributors and installers who can offer the corporate giant’s technology and guarantee its care.

He also helped create an employee training school enjoyed equally by his competitors. There, workers spend four paid weeks each year honing their skills. The program has reduced turnover and markedly improved morale.

“I’m finding out that I had to align and I had to keep up,” said Gutierrez, 62.

Other firms--a higher percentage of them immigrant-owned--have been content to remain small, opting for staying power over expansion.

“In many cases . . . growing and dealing with banks is not part of the culture. Starting the business is,” said Joel Russell, a senior editor at Hispanic Business. Older proprietors are now asking “what to do with that success. . . . They are looking to pass the baton to the next generation.”

Succession is not always smooth, particularly in an era when choices are more plentiful for the younger set.

But in some cases, the passing of the torch yields exponential growth as the new generation embarks on strategies their parents never practiced.

Son Took Over and Quadrupled Revenue

George Cruz’s father opened R&G; Foodbasket Inc. in Huntington Park 30 years ago, eager to serve the burgeoning Latino community with a specialty supermarket. “My father was one of those old-timers who believed in cash,” Cruz said. “He didn’t expand or invest unless he had the cash to do it. We grew slowly, and when you do that well enough, at some point you have enough assets and collateral” to expand.

Enter the younger Cruz, who took over as president in 1982. Three years ago, he moved the supermarket to a larger Norwalk location, quadrupling its size and the company’s revenue. He is planning to open a second location next year.

“We all made sure that I was ready,” he said. “When the time came, the old man stepped back and let me take off with it.”

That vigor--and the injection of newer industries into the Latino business mix--is building an unprecedented momentum, said demographer Leo F. Estrada, associate professor at UCLA’s School of Public Policy and Social Research.

“Something is pushing them to a new level,” he said. “The critical mass is large enough now that they are taking risks.”

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Latinos in Business

General Views

Foreign-born Latinos were slightly less optimistic than U.S. born Latinos about business conditions, and more concerned about access to capital and the conditions of their neighborhoods. They tended to own smaller businesses, but there were few other differences when it came to business growth.

Business robust

Foreign-born Latinos: 58%

U.S.-born Latinos: 65%

*

Access to capital an important problem

Foreign-born Latinos: 50%

U.S.-born Latinos: 40%

*

Deteriorating area an important problem

Foreign-born Latinos: 42%

U.S.-born Latinos: 29%

*

Annual revenues of more than $500,000

Foreign-born Latinos: 34%

U.S.-born Latinos: 45%

*

Expect revenue increase in next year

Foreign-born Latinos: 47%

U.S.-born Latinos: 53%

*

Revenue increase in past year

Foreign-born Latinos: 33%

U.S.-born Latinos: 31%

*

Business exports goods/services

Foreign-born Latinos: 11%

U.S.-born Latinos: 11%

Length of Ownership

The Times survey tapped an established community of entrepreneurs, many in business for decades. The businesses themselves were even older, indicating they have been purchased or passed down from a previous generation. The survey was conducted in English and relied on a Dun & Bradstreet database, so did not capture many less-established or monolingual entrepreneurs.

Owned business 20 years or less

Foreign-born Latinos: 57%

U.S.-born Latinos: 43%

*

Owned business more than 20 years

Foreign-born Latinos: 42%

U.S.-born Latinos: 55%

*

Business established before 1980

Foreign-born Latinos: 60%

U.S.-born Latinos: 77%

*

Business established since 1980

Foreign-born Latinos: 40%

U.S.-born Latinos: 23%

Source: Los Angeles Times Poll

How the Poll Was Conducted

The Times Poll sampled small-business owners, with an emphasis on minority-owned businesses in Los Angeles County, from May 26 through Aug. 19. It was a two-staged sampling process for the minority small-business owners.

The initial phase of the study involved mailing questionnaires to 875 businesses in each minority subgroup--Asian, Latino and African American small-business owners. If no response was received, phone interviews were conducted. The poll’s respondents included 432 African American small-business owners for a response rate of 59%, 394 Latino small-business owners for a response rate of 52% and 401 Asian small-business owners for a response rate of 53%.

For the overall L.A. County sample, 683 small-business owners were interviewed out of 1,500 randomly selected businesses contacted by phone Aug. 4-19, including 353 white small-business owners. The response rate is 58% for the overall sample. (The base to calculate response rates had fewer small businesses in them because those that were no longer in business and those that could not be located were deleted from the samples. Therefore, the response rates are higher.)

The lists were random selections of small-business owners from Dun & Bradstreet’s business database, which also included businesses that were identified as minority-owned. The database did not contain enough minority businesses to conduct the survey in other counties.