David L. Torres, Ph.D.
MASRC Working Paper # 7 (June 1986)
During the period from 1972 to 1977, Hispanic businesses increased in numbers by some 52.5% compared to a more modest 30% for businesses in general (Triana and Balkan, 1983:10) and the trend seems to be continuing through the 1980s (U. S. Small Business Administration; 1985:339). An increase in founding rates is desirable, given the fact that the 220,000 to 250,000 firms accounted for in the last Census count in 1977 (Nordlinger, 1981) represented only about 2.2% of all businesses.
Not so desirable is what appears to be a limited growth potential for individual Hispanic firms. To begin with, the vast majority of firms are very small businesses. Approximately 81% of Hispanic firms in 1977 were one-man operations (Llevada, 1983). Only 36 firms, or two-tenths of one percent, employed over 100 individuals in 1977. The average size of Hispanic businesses increased by only 14.5%, as compared to 26.2% for all businesses (Triana and Balkan, 1983:11). The survival rate for Hispanic firms is lower than the norm for business in general. The Department of Commerce’s Minority Business Development Agency (1982) estimates that the failure rates for minority firms are two to four tines higher than those for similar non-minority firms. At Senate hearings in 1978, the head of the Small Business Administration stated that only 30 of some 3,400 firms receiving aid under Section 8(a) during the previous ten-year period could still be located by that agency.
The existing state of Hispanic business serves to illustrate two important aspects of the problem of minority underrepresentation in business—getting minorities to participate in the first place and making them a competitive force once they get there. Ultimately, the problem is one of developing entrepreneurship within minority sectors. Definitions of entrepreneurship vary; however, few would argue that the aim of most entrepreneurs would be to foster growth and innovation within the firm (Carland et al., 1984). Entrepreneurship has been studied from numerous perspectives, the most common being studies of personality traits of entrepreneurs. This approach has yielded rather inconsistent results. For example, the propensity to take risks has been attributed to entrepreneurs (McClelland, 1961; Timmons, 1978) but such a propensity has been de-emphasized or redirected to investors rather than business owners by other theorists (see Brockhaus, 1980). A similar situation exists for need for achievement, another trait associated with entrepreneurs (Planco, Inc., 1981). Traits like an internal locus of control (Borland, 1974) and growth initiative (Dunkelberg and Cooper, 1982) have not been examined with regard to minority businesses. Indeed, for minority individuals possessing the traits identified here, opportunities outside of business ownership may seem more lucrative, given the current state of minority businesses (Chen and Stevens, 1984:10; Caplovitz, 1973; Brimmer and Terrell, 1971). From their own review of the literature, the Minority Business Development Agency (1981:27) determined that there were no “identifiable personality characteristics, innate or learned, that predict entrepreneurial behavior.” Thus, while research on the personalities of business owners and entrepreneurs has generated much data, it has yet to solidify into a cogent theoretical framework.
This paper takes a different view of entrepreneurship. Assuming that innovative, growth-oriented business owners are also recipients of higher profits, self-employed income is examined as a function of selected determinants of success for self-employed Mexican American business owners. Determinants of success are seen as emanating from social structures rather than personalities. Thus segregation, class-related characteristics, industry, and other factors which may determine success chances for Mexican American entrepreneurial efforts are examined. The paper (1) summarizes the literature on minority entrepreneurship and business ownership; (2) tests the relevance of theoretical models proposed by the literature for studying the Mexican American situation in the Southwest; and (3) begins to establish a new theoretical model based on specific findings.