Nascent Nonprofit Aims to Fuel Latino Community Wealth
Two powerhouse Latino developers are launching a national nonprofit entity that aims to build Latino community wealth by financing franchises for first-time entrepreneurs.
The effort--Latino Initiatives for the Next Century (LINC)--will be unveiled in Washington Wednesday. It will fund scholarships, internships and job training programs, but the core of its mission is to channel Latinos into franchising by helping to finance the often-hefty fees that freeze many minorities out of such businesses.
In return, LINC will take a 5% cut of franchisees’ net profits until loans are repaid. LINC plans to recycle the money into educational programs and loans to the next generation of franchise candidates, said LINC co-founder Rudy J. Mulder, CEO of Chicago-based real estate development firm Urban Investment Trust, Inc.
LINC was formed by Mulder and David C. Lizarraga, president and CEO of the East Los Angeles Community Union (TELACU) and will initially roll out in California, Texas, Illinois and New York. The idea developed as the men partnered on commercial developments in communities including Compton and Santa Ana.
“We saw there was a real need for creating Latino ownership and wealth building,” said Mulder, who was born to a Mexican mother and grew up in Mexico. “In order to sustain long-term growth, you have to have that business ownership take place.”
The initiative comes at a time when national franchisers are trying to diversify their franchisee ranks as a way to capture minority spending power and expand into untapped minority neighborhoods.
Franchising can be a relatively low-risk entry to entrepreneurship because the franchiser provides benefits such as name recognition, bulk buying rates and advertising. But whether franchising is the best path to business ownership is a matter of debate.
Franchisees give up varying degrees of control over business operations to the corporate parent. And minority franchisees have filed lawsuits across the country alleging they were prevented from operating in nonminority neighborhoods.
Still, supporters of LINC say the initiative is an innovative plan to help bridge the wealth divide in minority communities.
So far, Dallas-based 7-Eleven Inc. has agreed to work with LINC to create as many as 150 Latino franchises over the next three years, said national franchising director Jack Wilkie. The convenience store chain will pay LINC $5,000 for each referral of a qualified candidate.
There are more than 20,000 franchised units of 7-Eleven in the United States and Canada, and the company is working to expand into minority neighborhoods.
“Whatever neighborhood you’re in there should be a 7-Eleven and it should be reflective of the community,” Wilkie said. “The Hispanic community has been overlooked.”
LINC is negotiating similar deals with half a dozen other franchisers, Mulder said. Arthur Andersen, Bank of America and LaSalle National Bank are among other corporate partners that have agreed to participate.
Urban Investment Trust owns and manages more than $1 billion in commercial and residential properties and is the developer on several Chicago 7-Elevens, where it has pushed for participation of minority subcontractors and employees. It could benefit as a likely developer on new 7-Eleven stores created under LINC.
TELACU, a nonprofit community development corporation, boasts $1 billion in housing and commercial projects and $350 million in assets. Its foundation has provided millions in scholarships to more than 400 students a year.
TELACU and Urban Investment Trust have financed LINC’s launch, placing “millions of dollars” into a nonprofit foundation called Millennium. The experience and clout of Lizarraga and Mulder will likely be key to attracting private sector interest.
“We believe we have a listening ear,” Lizarraga said. “The franchise community wants access to Latino buying power.”
Other nonprofit groups have worked to improve the lives of Latinos through educational scholarships, professional mentoring and small business assistance. But LINC stands out by relying on market economics--not donations--to create wealth for Latino entrepreneurs while delivering the Latino consumer market to corporations.
“This is not a social program. This is about running a business and making sure the business is profitable in order to create community wealth,” said state Sen. Richard Polanco (D-Los Angeles), who is among LINC’s national advisory board members.
LINC will defray the initial franchise fee for candidates in need--a fee that amounts to more than $100,000 in the case of 7-Eleven. It will also provide financial statements for applicants, offering the collateral they need to meet personal net worth requirements.
“I’m circumspect about the whole process,” Susan P. Kezios, president of the Chicago-based American Franchisee Assn. and Women In Franchising, said of LINC. “Franchising is a good vehicle for first time small-business owners, but it all comes down to the contract. We tell people, ‘Look at the amount of control that you’re giving up.’ ”
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Franchise Portal
Latino Initiatives for the Next Century, a new national nonprofit organization, aims to build Latino community wealth by financing franchises for first-time entrepreneurs. Franchising can be a relatively low-risk entry to entrepreneurship because the franchise company provides benefits such as name recognition, bulk buying rates and advertising.
* Number of franchise companies operating in the U.S.: 1,500
* Number of franchised retail units: 320,000
* Average initial investment level for eight of 10 franchises, excluding real estate: Less than $250,000
* Average royalty fees paid to franchise company: 3% to 6% of monthly gross sales.
* Top 10 franchise industries: fast food, retail, service, automotive, restaurants, maintenance, building & construction, retail/food, business services, lodging.
* Top 10 states for franchising, by franchise companies based there: California, Texas, Florida, Georgia, New York, Ohio, Minnesota, Illinois, New Jersey, Maryland.
* Top 10 franchise companies, by number of units: McDonald’s Corp., 7-Eleven Inc., Subway Sandwiches & Salads, Pizza Hut Inc., Burger King Corp., Jani-King International Inc., Tandy Corp., Cendant Corp., International Dairy Queen Inc., KFC Corp.
Source: International Franchise Assn.
