The entrepreneurial energy of immigrant business owners – and the hidden barriers they face

Most of the 18 men and women around the table had lived in the United States more than 20 years. The photos hanging on the walls in the makeshift conference room – churches and civic monuments set against lush Mexican countryside – stood out in stark contrast to the snow outside in a run-down, working-class neighborhood of Chicago. What brought the group together: everyone in the room, all from the same remote region of Mexico, ran small, family-owned businesses.

Several were construction contractors. A few ran transportation companies: car services, delivery vans, busses carrying other immigrants back and forth to Mexico. Most of the others owned small retail and service businesses – restaurants, a beauty parlor, several landscaping and building maintenance firms. Most had between two and five employees. The most-successful employed 29 workers.

They were proud of their businesses and eager to tell their stories. But as their histories spilled out, it became clear: none had had an easy time of it. There was so much they didn’t know when they first arrived in the U.S. and no one to tell them. The only way to learn was by trial and error – often painful, expensive trial and error.

One contractor hadn’t known he’d need insurance. The woman with the hair salon was surprised when a city inspector showed up at her door. Others had had to learn the hard way about permits and licenses and asking general contractors for down payments.

“Immigrants are hard workers,” one man explained. “But we lack information, and often the only way to find out is when the government finds you. You get a notice, you pay the fine, and you try to do things differently the next time.”

In many ways, immigrant entrepreneurs are no different than other small business owners. They start with a dream. They nurture the seed. And, if all goes well, it grows – bigger than even they had imagined.

The difference for immigrant entrepreneurs: they often start with fewer resources than the native-born. They struggle with things that other small business owners take for granted. And when they need help, they often have no one to turn to – no one but family or an informal network of other newcomers facing the same barriers.

Many succeed despite these odds, but it shouldn’t have to be this hard. For the newcomers themselves and for the sake of the larger economy, there has to be a better way to tap into the energy of immigrant entrepreneurs.

The immigrant entrepreneur project

The session in Chicago was the first of three focus-group-like roundtables my organization, Opportunity America, conducted last year with immigrant entrepreneurs: blue-collar Mexican Americans in Chicago, white-collar Mexican Americans in Phoenix, and a mixed group of Asian Americans – Indian, Chinese, Korean, Vietnamese, and Middle Eastern immigrants – in St. Louis.

The two questions at the heart of this Kauffman Foundation-funded research, which also included a small online survey: what accounts for the extraordinary entrepreneurial energy many newcomers bring to the U.S., and what barriers do they face in starting and growing businesses?

Immigrants are twice as likely as native-born Americans to launch new businesses. Their firms often look similar to other startups: a little smaller, but with similar seed capital and a similar volume of sales per employee. Some are wildly successful – we all know the iconic brands. But many grow more slowly than other small businesses, and they are more likely to fail.

Entrepreneurial energy

When asked why they launched businesses, the overwhelming majority of those who attended our roundtables and responded to our survey told a positive story.

Conventional wisdom holds that there are two kinds of immigrant entrepreneurs, some attracted to the benefits of business ownership, others driven by necessity – because language barriers or discrimination have blocked their opportunities in mainstream U.S. companies.

Some entrepreneurs in our groups talked about barriers of this kind. A few in St. Louis knew fellow Asians who had arrived in the U.S. with college degrees but little English and ended up running retail businesses. Several white-collar Mexican Americans in Phoenix reported that their parents, unauthorized and held back by limited educations, had had to supplement their incomes with small cash businesses. But few people in our sample seemed to have been driven by necessity.

More than half of those who responded to the survey said they had always wanted to own their own businesses. Another 40% said they were drawn by the flexibility and independence of entrepreneurship. Fewer than 5% said they could find no other suitable employment.

Many seemed to feel that entrepreneurship was something they learned from their parents or others in the immigrant enclaves where they came of age – part of their immigrant DNA.

“I grew up in a community where everyone was a risk-taker,” one man recalled, “people who had left everything behind and bet on a new life in America.”

Another participant said she always knew she wanted to be an entrepreneur. “I spent 20 years in the corporate world but always knew I’d leave eventually. I wanted to do what I want to do – I wanted to work for myself.”

Hidden barriers

When the conversation turned to the barriers they faced, many of the entrepreneurs in our groups sounded like any other small business owners. It was hard for them to compete with bigger firms. They had no reserves to cushion an uneven cash flow. They had trouble finding motivated workers.

But most of the discussion centered on obstacles thought to be unique to immigrants.

Credit

Research suggests that newcomers have a somewhat tougher time securing bank loans, but this did not seem to be a major obstacle for the entrepreneurs in our survey.

More than one-quarter had applied for and received a loan. Only 12% had applied and been denied. Another 16% had not applied because they feared they would be denied, but a full third said they didn’t want or need a bank loan.

“We don’t like borrowing from the bank,” one woman explained, speaking for her group. The most commonly cited alternative sources of financing were family, friends, savings, and personal credit cards.

If anything, many newcomers seemed to feel there was something shameful about borrowing – an attitude that might hold them back if they tried to scale their businesses but often seemed to help at the starting gate.

Language and culture

Fewer than 15% of those who answered the survey cited language or cultural barriers – and oddly enough, immigrants who had been in the U.S. more than 20 years were more likely than more recent arrivals to complain about cultural roadblocks.

One possible reason: for many, cultural barriers didn’t arise until they were successful enough to look for customers beyond the immigrant community. One Chinese American man with several restaurants didn’t realize people from different cultures might prefer different cuts of meat until he opened an outpost in the suburbs.

A subtler kind of cultural barrier

Participants in all three groups were painfully honest – acutely aware that they and other immigrant entrepreneurs experience a learning curve unlike anything facing their native-born peers.

“Even when someone explains it to me in Spanish,” one man admitted, “I don’t always understand. I don’t know the context, or something gets lost in translation.”

The most obvious gap was their familiarity with government regulations. Problems with permitting and licensing hit immigrants at all education levels. Another common challenge: knowing how to set your prices, neither too high nor too low, and having the confidence to stick with them.

One Chicago contractor recalled the first time he asked for a customer’s credit history – and narrowly avoided a disaster. A woman in Phoenix remembered learning the hard way how important it is to get a contract in writing.

Several astute entrepreneurs had researched their industries or scouted the local consumer market. Others had gone back to school to learn a new skill. And the longer they had been in the U.S., the more advanced their management practices became – tracking sales and profitability over time, reinvesting profits, and developing plans to increase market share.

Still, despite these differences, a common denominator emerged in all three cities: When the immigrants in our sample launched their businesses, they didn’t know what they didn’t know – and even after more than 20 years in the U.S., many were still discovering the gaps in their knowledge.

“It’s not just that we didn’t know what paperwork we had to file,” one man remembered. “We didn’t know that a business like ours had to file paperwork with the city.”

Call it grit

Participants in all three groups had ideas about how to address their knowledge gaps: networking with other businesses, joining or forming trade associations, seeking assistance from a government agency, taking classes or searching the internet.

But in many cases, this seemed easier said than done – not particularly likely in the near term. And as a practical matter, for many, the best answer seemed to be time. Ultimately, the secret of their success was perseverance and resilience – a determination to succeed against all odds.

“We tried and failed,” one restaurateur recalled. “We opened one, we closed one. We opened a second and closed it too. It took many years. But today we own five restaurants and a food truck. Next step: I’m halfway to my dream of opening St. Louis’ first commercial kitchen.”

Our Bootstrap Obsession: Let each of us own our success, exhibit the grit and determination it takes to forge our own paths to define and achieve it, but with the recognition that we don’t get there alone.