Tuesday, November 29, 2022

New GEM Report Recommends Action to Support Women Entrepreneurs

Written by: Thought & Action Staff



Women continue to make major strides in entrepreneurship but need more support from policymakers and program leaders, according to a new report from the Global Entrepreneurship Monitor (GEM).

The new GEM 2021/2022 Women’s Entrepreneurship Report—released November 18 and authored by Amanda Elam, research fellow at the Diana International Research Institute at Babson College—illustrates the state of women’s entrepreneurship two years after the onset of the COVID-19 pandemic. The report found that startup rates for women dropped by 15% from 2019 to 2020, but held constant in 2021.

The report also highlighted gender differences in entrepreneurial intentions. Women experienced sharper declines than men in their intentions to start a business within three years and overall startup rates in 2020, but not in upper middle-income countries.

“Women represent two out of every five early-stage entrepreneurs,” Elam said. “Entrepreneurship is a part of the economy where women are continuing to take an active role. It’s important for educators, leaders, and policymakers to understand the drivers of gender differences in this critical market activity.”

Focused on Solutions

GEM, a global consortium of academic researchers co-founded by Babson College in 1999, studies entrepreneurial motivation and activity around the world. Its latest report sheds light on the actions that policymakers and others should take to support women entrepreneurs.

The report highlights the gender composition of high-potential startup populations, pandemic impacts on male and female entrepreneurs, and structural and environmental inequalities that need to be addressed on a policy level.

“Entrepreneurship is a part of the economy where women are continuing to take an active role. It’s important for educators, leaders, and policymakers to understand the drivers of gender differences in this critical market activity.”
Amanda Elam, research fellow at the Diana International Research Institute at Babson College


“GEM is the only global research source that collects data on entrepreneurship directly from the source—entrepreneurs,” GEM Executive Director Aileen Ionescu-Somers said. “Applying a well-informed gender lens to the evidence points policymakers and program leaders toward more effective tailor-made solutions to address the barriers to business startup and growth for women entrepreneurs.”

The report provided guidance for policymakers and program leaders to help address the barriers to business startup and growth for women entrepreneurs:
  1. Because women entrepreneurs are underrepresented in traditionally male-dominated sectors, policymakers can provide support to women entrepreneurs equally in all sectors and countries, especially in male-dominated sectors where negative stereotypes are triggered.
  2. Because women represent one in three high-potential entrepreneurs, policy programming is needed to mobilize financing and other support toward the sectors where women are currently active.
  3. As academic research suggests that women are just as likely as men to succeed when starting similar businesses in comparable industry sectors, structural barriers can be more directly addressed to debunk negative stereotypes about women entrepreneurs.
  4. National experts taking part in the research agree that there is currently little cultural support for female entrepreneurs. It is important to celebrate and promote successful women founders as role models.
More Key Findings

According to the GEM report’s executive summary, women around the world “represent about one in three high-growth entrepreneurs and one in three innovation entrepreneurs focused on national and international markets.”

The report’s findings—based on a trend analysis of women’s entrepreneurship across 50 countries from GEM 2021–2022 data—also illustrated the importance of a strong environment to support entrepreneurial intentions among women. Women in upper middle-income countries represent some of the most innovative, high-growth entrepreneurs in the world, at parity with men for international market focus.

Countries with the highest expert ratings also saw the highest levels of entrepreneurial intentions. However, national experts generally rated the enabling environment for women entrepreneurs very poorly in most countries, which may explain why women have a slightly lower perception of entrepreneurship as a career choice compared to men.

Other key findings from the report include:

  • Business exit rates for women rose from 2.9% to 3.6% over the two-year pandemic period, in contrast to the higher rates for men (3.5% to 4.4%). Women in upper middle-income countries showed the largest pandemic impact on business exit with a 74% increase from 2019 to 2021, compared with 34% for men.
  • Almost half of women entrepreneurs worldwide are involved in the wholesale/retail sector and one in five women entrepreneurs in the government and social services sector (18.5% women vs. 10.1% men). However, only 2.7% of women compared with 4.7% of men are starting businesses in information, computers, and technology (ICT), the sector that draws the majority of venture capital dollars worldwide.
  • In every country surveyed, women were much less active in business than men and tended to make much smaller related investments. The most significant gender differences were found in lower-income countries, while women in upper middle-income countries were closest to gender parity.

Wednesday, November 23, 2022

Happy Thanksgiving Day 2022

A special greeting of Thanksgiving time to express to your our sincere appreciation for your confidence and loyalty. We are deeply thankful and extend to you our best wishes for a happy and healthy Thanksgiving Day.


 

Tuesday, November 22, 2022

The economic state of Latinos in the US: Determined to thrive



Written by: Ana Paula Calvo is a consultant in McKinsey's Miami office, where Carolina Mazuera is an associate partner; Jordan Morris is a consultant in the Chicago office, where Bernardo Sichel is a partner; and Lucy Pérez is a senior partner in the Boston office.
 


US Latinos account for the fastest-growing portion of US GDP. So much so, that if we considered US Latinos as their own country, it would be third only to the GDP growth rate of China and India in the past decade.1 At a time of economic uncertainty with concerns about a possible recession growing, consumers are looking for additional support. Our research estimates that the Latino consumer base has unmet needs of more than $100 billion currently, and this could grow six-fold to $660 billion if we address the parity gap between Latinos and non-Latino Whites based on share of population (see sidebar “The journey continues”).

We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Latino consumers are driving growth while their needs go unmet


Over the past decade, Latinos have grown their household consumption to reach a cumulative $1 trillion market in 2021—a 6 percent annual growth rate over the last decade. Their household spend is higher compared to other groups at similar income levels, and yet marketing spend directed at Latinos most likely does not reflect this.2 Latinos are conscious of their impact, choosing brands that value the environment and their employees, all of which makes them more influential than their income levels would suggest.

The journey continues

However, Latino consumers are often highly dissatisfied with the products offered to them—especially compared to their non-Latino White counterparts. This dissatisfaction ranges across product categories, from food and beverages to financial products, which may point to unresolved needs that impact their daily life. If brands address the drivers of dissatisfaction in terms of access and value proposition, there is a collective $109 billion of revenue at stake, when considering current spending and future potential should improved products be offered.


We strive to provide individuals with disabilities equal access to our website. If you would like information about this content we will be happy to work with you. Please email us at: McKinsey_Website_Accessibility@mckinsey.com

Latino voices remain underrepresented in the C-suites of corporate America where product offerings and capital allocation decisions are made, and this is particularly true of Latina women. As a result, Latino consumers are often overlooked by companies that do not recognize them as a priority demographic. Less than 5 percent of seats in Fortune 500 boards and in C-suites of corporate America are occupied by Latinos despite this community representing 19 percent of the US population.3 Latina women hold 1 percent of seats in Fortune 500 boards, the smallest percentage of board seats compared to any racial or ethnic demographic in the United States.4 Furthermore, Latina women may be further marginalized at work as described in our latest Women in the workplace report.5


Latinos have been more heavily impacted by COVID-19 and inflation than other populations.

At the same time, Latinos have also been more heavily impacted by COVID-19 and inflation than other populations, and this has exposed their vulnerabilities. Consequently, Latinos are expected to change their consumer spending and take aggressive action to switch to brands that better meet their needs. Companies that support Latino consumers by optimizing value propositions and tailoring their marketing and sales strategies have a singular opportunity to capture the potential this growing market represents.

Closing the Latino wealth gap would strengthen the existing consumer opportunity by more than 500 percent

In a scenario in which Latinos match their spend to their share of population, Latino consumers would spend around $554 billion more than today. Closing this gap would require addressing the underlying income and savings gaps between Latinos and non-Latino Whites. Employers and society at large have much to gain from providing Latinos with better jobs that also provide advancement and leadership opportunities.

In pursuing greater prosperity and fulfilment, Latinos increased their share of professional roles to 25 percent—a five percentage point gain over the past decade. However, Latinos still face barriers in the workplace, through discrimination, implicit biases, or a lack of opportunities for advancement in new roles. In fact, if Latinos were represented at job levels in line with their share of the population, and paid the same as non-Latino Whites, they would receive an additional $281 billion in annual income that could be further deployed to drive economic growth.6

Latino savers have only a fifth of the median wealth of their non-Latino White counterparts, and their savings have been depleted; today, almost half of Latinos have little or no retirement savings. Only 23 percent of Latinos are considered financially healthy in 2022 compared to 35 percent of non-Latino Whites. Nevertheless, Latinos’ net wealth is increasing at a faster rate (9 percent for Latinos, versus 4 percent for non-Latino Whites), narrowing—but not yet closing—the gap with non-Latino Whites. If the trend continues, Latino households could reach an average net worth of $47,000 this year.

While Latinos have about half as much debt as non-Latino White counterparts, this may be because they find it difficult to access appropriate financial products. Latinos are 1.7 times more likely than non-Latino Whites to be turned down for a loan, and 30 percent are unbanked or underbanked compared to 12 percent of their non-Latino White counterparts.7 For financial institutions, this is a significant opportunity to address an underserved consumer market.

Investing in Latino entrepreneurs is a key part of the answer

Latinos are the most entrepreneurial group in the US economy, but they face significant barriers in access to capital—including lower approval rates than non-Latino White-owned businesses for bank loans, private-equity funding, and factoring. Less than 5 percent of venture capital is directed toward Latino entrepreneurs.8 These obstacles, along with Latino businesses’ lower representation in fast-growing economic sectors, limit their expansion and their opportunity to contribute to a more diversified product offering that meets the needs of American consumers.

If Latino businesses’ access to capital were improved, and their representation in growing sectors increased, they would contribute an additional $2.3 trillion in revenue to the economy and create 750,000 new employer firms, resulting in more than six million jobs.9 Interventions to improve access to funding, both from financial institutions and procurement-led organizations, and investments in digital capabilities for Latino businesses can help realize this potential.

Latinos’ proven resilience through the pandemic indicates strong fundamentals for economic mobility

Latinos play a crucial and growing role in the US economy and have demonstrated resourcefulness, hard work, and creativity—despite being challenged by lower-paying jobs, less education, and widespread bias. Over the past year, it has become clear that Latinos are also uniquely vulnerable to income disruption. When COVID-19-associated lockdowns began to be implemented, Latinos found themselves in a precarious position: they were more concentrated in low-wage occupations than non-Latino Whites.10 As a result, almost 60 percent of Latinos—who are overrepresented in industries most impacted by COVID-19, such as hospitality—lost their jobs or had to take a pay cut, and they are now more vulnerable to high inflation than other groups.

The longer-term challenges Latinos face have been compounded recently by the triplicate effects of COVID-19, supply chain disruptions, and high inflation affecting Latino businesses’ operations. Altogether, 60 percent of Latino-owned businesses had to reduce or modify their operations during the pandemic—to such a degree that some could not survive without government assistance. Fortunately, 80 percent of Latino businesses had stabilized their sales back to 2019 levels by the second half of 2021.

Our latest findings point to other welcome signs of agility among economically active Latinos. Over the past year, they have increased their share in professional occupations, raised their net worth faster than their non-Latino White counterparts, and shown their mettle as the fastest-growing minority entrepreneurial group. As consumers, Latinos already represent a $1 trillion market, and their spending power is rising (6 percent compounded annual growth in the last decade, compared to 3 percent for the non-Latino White population).11

Latinos have been making significant strides over the past decade, and even more recently in the aftermath of the disruption presented by the COVID-19 pandemic. Nevertheless, deliberate intervention is necessary to close the gap and fuel a stronger US economy. If companies, investors, nonprofits and philanthropists, and policymakers act now, they can address the barriers that hinder full economic participation by Latinos.

The right combination of structural and immediate interventions can accelerate Latino economic advancement and prosperity. Action is needed in several key areas: improving Latino representation and inclusion in decision-making bodies; expanding product portfolios, optimizing value propositions and targeting marketing and sales strategies for Latino consumers; increasing access to capital for Latino entrepreneurs; improving access to education, reskilling opportunities, and better jobs for Latino workers; and removing bias and discrimination.

Winning the US Latino consumer, worker, saver, and entrepreneur is an outsize opportunity for organizations that act now and invest in the right people, processes, and systems to serve a market that has not been as visible as its numbers would foretell.

Wednesday, November 2, 2022

LinkedIn 1000 Followers celebration

Thank you to our 1000 followers on STC Consulting LinkedIn page!

We would like to give special thanks to our clients, friends, contractors and partners who have supported us since the beginning.

We are a firm that was created to unlock the full potential and to bring success to our clients. Your business, referrals and support inspire us to work harder and better every day. Looking forward to an even brighter future!

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Our solutions are: For Corporations, CFO On-demand, Controller On-demand, and Financial Speaker. For business owners & start-up: Financial Management, Financial Coaching & Training and Business Consulting.

We are offering a 30 Minutes complimentary call. Schedule yours now at Office: (346) 227-2895 or Mobile: (832) 998-136,
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Tuesday, October 11, 2022

Bilingual/Bicultural Hispanics and their Streaming Revolution



Writen by: Maria Twena, Chief Marketing Officer at AdsMovil

Today’s Hispanic market is not the market of the 70s and 80s. While it remains primarily of Mexican ancestry (62%), it’s growing in diversity every day. Additionally, most of the market is U.S. born (67%), a fact that’s overlooked by many. And if you dig a little further, 55% of the market is either a 1.5 or a 2.0 generation immigrant. We lovingly refer to them as the Bilingual/Bicultural Hispanics.


The 1.5 immigrant came to the U.S. at the age of 10 or younger, and the 2.0 is born here with at least one immigrant parent. Because the 1.5 is technically a first-generation immigrant, the data misrepresents the market repeatedly, making many believe that the market remains a Spanish-dominant only constituency.

In fact, today, the Spanish Dominant sector (the first generation) represents 28% of the market; the Bilingual/Bicultural cohort (the 1.5/2.0 generations) embodies 55% of the market; and the English Dominant (3.0+ generation) accounts for 17% of the market.

The Spanish Dominant sector (the first-generation) represents 28% of the market; the Bilingual/Bicultural cohort (the 1.5/2.0 generations) embodies 55% of the market.



Why does this matter?

Maria Twena Chief Marketing Officer at AdsMovil.

The growth of the Bilingual/Bicultural is astounding and will continue. They are important to marketers not just because of their size (34 million+), but because they tend to be influencers for their Spanish preferred relatives and friends– a role they assume at an early age and one which continues as they mature. They translate the language, decode the U.S. ethos of individualism, which is very distinct from Latin collectivism, inform brand and product purchases, and demystify services and technologies. Furthermore, as they mature, their sphere of influence eventually becomes culturally agnostic.

And yet, original content for this cohort has been absent or a ‘hit and miss’ often. And it’s this community that MOST needs content that’s culturally and linguistically relevant, and available to them at an early age. For years there’s been content available for the Spanish Dominant and the English Dominant, which is very important, but the Bilingual/Bicultural have needed content that authentically connects with them and represents them – empowering them to embrace their hybridity and accept their duality (ni de aquí, ni de allá) – for a long time.

Bicultural Hispanic consumers lead the marketplace in number of streaming platforms enjoyed, averaging 5.4. streaming platforms for movies and shows.

This group was an early web adopter, back in the day, interested in reading content, creating content, and connecting with others that were like them, because they weren’t seeing themselves in traditional media. And we’re seeing this same phenomenon with streaming services. According to Collage Group, Bicultural Hispanic consumers lead the marketplace in number of streaming platforms enjoyed, averaging 5.4. streaming platforms for movies and shows. This is greater than the other groups within the Hispanic market (unacculturated: 4.0; and, acculturated: 4.8). Additionally, it’s higher than all other groups, including Black (4.7), Asian (4.1), or White (3.9).

Nuestra.TV was created to better serve the holistic Hispanic market across acculturation levels, linguistic proficiency, device proclivity, and cultural origins. Our bilingual footprint facilitates code switching and communal viewing. And most importantly, we have bilingual/bicultural content created for our bilingual viewers by bilingual content creators.

Join Adsmovil on October 12th in their Nuestra.TV Town Hall and meet some of the esteemed creators making Nuestra.TV truly “nuestra.” Click here to register.


Source: Collage Group Media Survey, August 2021 (18-75 population, unweighted)

Written by: Maria Twena, Chief Marketing Officer at AdsMovil

*Cover image by pch.vector on Freepik

Tuesday, October 4, 2022

Testimonial Zoraida Montesdeoca, Star Building Services


 

Empowering economic growth in the Latino community



Domenika Lynch, head of the Aspen Institute’s Latinos and Society Program, and McKinsey’s Bernardo Sichel discuss the economic state of Latinos in America and ways to remove barriers to participation.


Latinos are projected to make up more than 30 percent of the US labor force by 2060. This episode of McKinsey’s Future of America podcast explores the economic experiences of Latinos in the United States and the prospects for their full participation in the US economy, based on lessons learned in a joint research project with the Aspen Institute. A summary of the results appears in the report The economic state of Latinos in America: The American dream deferred, published by McKinsey in partnership with The Aspen Institute Latinos and Society Program in December 2021.

To share what this report uncovers about the economic state of Latinos in America, Domenika Lynch, head of the Aspen Institute’s Latinos and Society Program, and McKinsey’s Bernardo Sichel recently met with McKinsey’s Kweilin Ellingrud. Lynch and Sichel also suggest ways to break down barriers to economic participation and build a more inclusive economy. The following transcript has been edited for clarity.

Audio interview: https://mck.co/3LQTVm6

Kweilin Ellingrud: Welcome to McKinsey’s Future of America podcast, where we explore how we can build a future that drives sustainable and inclusive growth. Join us in conversation with leaders who are accelerating progress to grow, broaden, and sustain prosperity for more Americans.

I’m your host for today, Kweilin. I’m the McKinsey Global Institute director and a senior partner based in Minneapolis. Today, I’m joined by Domenika Lynch of the Aspen Institute and Bernardo Sichel, a partner here at McKinsey. Domenika leads the Latinos and Society Program at the Aspen Institute, and Bernardo is based in Chicago, where he is a leader in McKinsey’s Consumer Packaged Goods Practice. Domenika and Bernardo, welcome, and thank you for being here today.

Bernardo Sichel: Thanks for having us.

Domenika Lynch: Thank you for having us.

Kweilin Ellingrud: Can you tell us a little bit more about your background? Domenika, let’s start with you.

Domenika Lynch: Sure, Kweilin. I am really excited that I am part of the Aspen Institute and the head of the Latinos and Society Program. It now feels like the pinnacle of my career and everything that I’ve been doing across the public and private sectors.

I want to start with a story that I think captures my “why” and my why at the Aspen Institute as the head of the Latinos and Society Program. As a first-generation college student at the University of Southern California [USC], I attended a gala where one of our top students was being honored at the Beverly Wilshire Hotel, the Pretty Woman hotel. Being a guest there and being inspired by meeting doctors and lawyers, policy makers, presidents of universities that were Latino—they looked like me and gave me hope that one day I could be that too.


When a young woman got up on stage who was a peer of mine and was celebrated for her GPA, celebrated for her dream of becoming a doctor, she asked her mother to stand, and she said, “This award belongs to my mother, who for the first time in 25 years tonight is not a maid at the hotel but is an honored guest.” In that moment, all the servers came down. They lined up, and they had flowers. And we were all moved to tears. The recognition that in America that was possible—from one generation to the next, you can go from being the maid in a hotel as beautiful as the Beverly Wilshire Hotel to having a daughter that was bound to go to medical school—I wanted to be part of that movement and part of that work.

Through my work at USC, at the Congressional Hispanic Caucus Institute, and now at the Aspen Latinos and Society Program, it is about that economic mobility. It is about the American dream and how it benefits us all. I was inspired then, and I’m still inspired when I tell that story. That is the why behind my work and a lot of what I do. We will talk more later about that.

Kweilin Ellingrud: Amazing. Thank you for sharing that incredibly touching story. Bernardo, I would love to hear a bit more about your background.

Bernardo Sichel: Thanks, Kweilin. I’m Bernardo Sichel. I’m a partner at McKinsey in our Consumer Packaged Goods Practice. I think more important than that, I’m a Latino myself as well. I migrated to the US 20 years ago with my wife to start a new life from our home country of Venezuela. We are proud parents of two first-generation boys that were born here in the US.

In my case, it was really during the pandemic that I decided to become much more involved with Latino topics. I raised my hand to be one of the coauthors of the study that we published last year along with the Aspen Institute. I am very happy to be here today, sharing the results of that study and sharing a little bit about my own story as well.

Addressing the opportunity gaps for Latino Americans

Kweilin Ellingrud: Bernardo, let’s begin at a high level. What’s the state of play for Latinos in America? And you were a coauthor on the report overall; I would love to understand the highlights.

Bernardo Sichel: Thanks, Kweilin. Let me first provide some context to the study itself. The study is the first major study that McKinsey has done on Latinos. We were trying to understand the enablers and barriers of Latino economic mobility and the impact that these enablers and barriers have not only on Latinos but on the overall economy.

To do that, we used secondary data, but we also used a survey of more than 4,000 respondents, trying to identify the gaps and potential solutions. The key message of the study—and I think it’s a critical one—is that while there’s evidence that Latinos are pursuing and achieving the American dream in terms of upward mobility, greater education, and middle-class stability, the economic parity of Latinos remains elusive for this group.

Let me provide some detail on the four different roles that we studied during this report, which are Latinos as workers, Latinos as business owners,

 Latinos as consumers, and finally Latinos as savers.

Everybody knows that Latinos are a fast-growing population, and they will represent one in four Americans by 2050. Everybody knows that Latinos are a rapidly growing labor force—they will make up more than one in five workers by 2030 and one in three by 2060.

What is less known is how dynamic this population is. Latinos have rates of intergenerational mobility comparable to Whites. At the lower segments, it’s much higher. For Latinos, if their parents are in the 25th percentile, there is a high chance that their children will be almost by the middle of the road in terms of wealth over time. However, Latino workers have a massive wage gap and underrepresentation in higher-paying jobs.

For example, Latinos receive only two-thirds of what their White counterparts are paid in the same occupations. Latinos that are born in the US represent 18 percent of the overall population. The size of this gap is like $300 billion. To put it in perspective, it is about half of the revenue of a company like Walmart.

If we look at Latinos as business owners, Latino business owners are growing at a huge rate, but they face huge challenges growing and scaling their businesses. Only 6 percent of all businesses in the US are owned by Latinos. Their revenues are only half of that of their White counterparts, and they have higher failure rates. Access to capital is a huge issue. Only one in three Latinos that go to get funding get approval. Three out of four Latinos have to use their personal funds to be able to start new businesses.

If we close this disparity, we’re talking about opening almost 800,000 new firms that will create more than seven million jobs. And that has the potential of creating $2.3 trillion in additional revenues to the US economy.

Finally, the role to highlight here is that Latinos are savers. They have only one-fifth of the wealth of White households, even though they’re growing at a 25 percent increase from one generation to the next. The issue here is low intergenerational transfer.

Only 6 percent of Latino households receive inheri­tances, versus 24 percent of White households. And when they do receive inheritances, it’s only a third of the size. This represents a gap that is more than $400 billion, which is comparable to a lot of the assets under management at many of the large investment firms.

Those are some very comprehensive things that we found in doing the study. And, again, the big picture to bring it back together again is one of growth for Latinos, but there is still a huge gap to fill, especially compared with Whites—and one that needs to be filled quickly if not only this group but also the US economy is going to achieve its goals in the decades to come.

The big picture is one of growth for Latinos, but there is still a huge gap to fill if not only this group but also the US economy is going to achieve its goals in the decades to come.Bernardo Sichel

Kweilin Ellingrud:
Thank you, Bernardo. Domenika, your program at Aspen states that it’s committed to diversity of thought and inclusive growth. Tell us a bit more about your work at Aspen.

Domenika Lynch: Our North Star is about wealth creation and wealth building. We understand that the Latino community is so diverse, and the needs are going to be unique depending on the geography of where Latinos live. Our approach is both bottom up and top down.

In 2021, on the heels of confronting the challenges on the ground with the pandemic, we launched the City Learning and Action Lab and focused on how we could help with the equitable recovery of our businesses and strengthen the local ecosystems. We are currently in six Latino-majority cities. Those cities are Miami, Chicago, El Paso, San Antonio, Phoenix, and San Bernardino. We were led to those cities by members of our board but also because there is a high population of Latinos there.

In partnership with the Drexel University team and Bruce Katz, a renowned urbanist, we came together to understand how we can organize local leaders so that we can develop a shared understanding of what the local landscape looks like and how can we maximize this moment of federal investments.

Because the community is so diverse, we knew that what would work in Miami would not work in El Paso or San Antonio or Phoenix. For us, it was important to source local expertise, to understand how to bridge the knowledge gaps through peer learning and community building and also coaching from national experts.

The Aspen Institute’s tremendous convening power also allows us to attract investments in areas that have been overlooked and to understand what policies are necessary to create change and combat some of the disparities we see at the local level. It’s been a work of collaboration, coordination, and action. We’re now a year or so into the program, and we have seen some tremendous changes at the local level.

Kweilin Ellingrud: Bernardo, what one or two facts from the report stood out to you most?

Bernardo Sichel: I would actually share three. The first one, which is not a fact but is the biggest finding that we found, is that Latino economic mobility is no longer a Latino issue, it’s an American one. If we really want, as a country, to achieve our goals in the decades to come, we need to improve in a significant way the Latino participation in our economy. That is the first thing that really stood out to me, because it completely changes the narrative and even the interventions we need to do.

In terms of the positive, the thing that stood out to me is the level of entrepreneurial participation of Latinos. The report states that one in 200 Latinos starts a new business on a monthly basis. Let me give you two more facts around that. The growth rate of Latino businesses is more than twice that of Whites in the US, and that’s just impressive.

But the flip side of that, which is a little bit negative, is that the size of the gaps are astronomical. It really stood out to me that, for example, Latino workers at parity are receiving only two-thirds of what their counterparts in other demographics, especially Whites, are receiving. If you add that up, you’re talking about, in the case of workers alone, more than $300 billion of opportunity.

I would summarize it in those three ways. One is the big takeaway of this study, which is that this is no longer an issue of one demographic, Latinos, but much more a national one. The second one is just how entrepreneurial Latinos are. And the third one is the size of the gaps are still massive and need to be addressed in a very structural way.

Latinos as entrepreneurs


Kweilin Ellingrud:
What can we do to better support Latino entrepreneurs?

Bernardo Sichel: If you go and look deeper into the Latino entrepreneurs, you will see things like Latinos are the most entrepreneurial yet still represent only 6 percent of total businesses. In the US, Latino-owned businesses are only 6 percent, whereas the total population is 18 percent, which is only a third of what it should be, if you see it from that perspective.

From a revenue perspective, Latino-owned businesses have only half the revenues of businesses owned by Whites in the US. From an access-to-capital perspective, Latino businesses, in 75 percent of the cases, use their own personal savings and networks to start businesses. Less than 50 percent of Latinos get funding from banks.

We need to change a few things to be able to fix this. Access to capital is absolutely essential. The second thing we need to do is to promote Latino businesses going into areas of the economy that have a higher survival rate and potential for growth.

Kweilin Ellingrud: Bernardo, can you tell me more about how Latinos are starting businesses at a higher rate but then the businesses themselves are growing at a slower rate compared to others?

Bernardo Sichel: Yeah, that is correct, Kweilin. The number of new businesses is growing at a higher rate than other demographics. That growth rate of new businesses is 12 percent for Latino-owned businesses, versus 5 percent for Whites. Once the business is up and running, the growth rate is not necessarily higher, and certainly the survival rate is lower, because they are in some sectors that have higher failure rates and because they lack the capa­bilities needed to scale up their businesses. You’re absolutely right: there is a difference between the number of businesses that are starting and how those are performing once they start.

Kweilin Ellingrud: Domenika, your program at the Aspen Institute states that it’s committed to diversity of thought and inclusive growth. Can you tell us a bit more about your work at the Aspen Institute?

Domenika Lynch: What we do at Latinos and Society is focus on building long-term economic growth and ensure that Latinos have an upward trajectory and that they can fully realize their potential and the American dream. We are great contributors to this economy. We are now quantifying how we contribute to our businesses. We are also more than ever educated and taking advantage of the opportunities in diverse sectors. What we find is that, at large, Latinos are not represented. We are not visible, so we are misunderstood.

The most exciting thing for me about the report that McKinsey did, as a Latina, is that I felt seen by such a big brand, and that had not happened before. I felt that it was great to be seen in an authentic way, where the report wasn’t just pandering to big numbers of Latinos.

Latinos have tremendous potential—$2.3 trillion worth of growth if our businesses grow, 6.6 million jobs created—yet it has stalled. And it could literally be out of reach if we’re not proactive about the interventions necessary.

Latinos have tremendous potential, yet it has stalled. And it could literally be out of reach if we’re not proactive about the interventions necessary.Domenika Lynch

That’s what the work we’re doing at Aspen is about. It is not just having this one report but really taking solutions that are cocreated from the community. That cocreation is what inspires young people to be owners of their destiny and not victims of circumstance.

That is why I’m so proud of Latinos in America: we live to our saying, Al mal tiempo, buena cara—in bad times, a good face. And even in the midst of the pandemic, when we were so hard hit—20 percent of Latinos, in terms of the unemployment rate, had to leave the workplace to take care of their children and their parents—we were still hopeful groups and positive and ventured out to start more businesses. Many of them are driven by young people that, in seeing their parents fall a little bit into despair, refuse to do so.

I think that is the story of America. I don’t see a difference between the Latino community and what the American narrative is and how it’s been for Italians and Irish and every other group.

The report captured it, but the report is also a tale of if we don’t do anything about it, if we don’t intervene to bring the resources to this community, it’s too large of a community to fail. It will bring the rest of the country down. That’s why it’s not a Latino issue, it’s an American issue.

Kweilin Ellingrud: So powerful, Domenika. Thank you for sharing that. Bernardo, what are your thoughts on mentorship for the Latino community?

Bernardo Sichel: Beyond mentorship, which is absolutely critical, the Latino business leaders have a huge responsibility. Think about how inspirational someone like [Walgreens Boots Alliance CEO] Roz Brewer is and the role she plays with women and with African American women in the community.

Many business leaders decide to put on hold getting involved until after they retire from whatever roles they have. I think that needs to change. A lot of it has to do with role modeling, and a lot of it has to do with inspiration. I think Latino leaders, myself included, need to get involved earlier. Beyond just formal mentorship, there’s a lot of role modeling and inspiration that we need to provide to our people.

Shrinking the Latino wealth gap


Kweilin Ellingrud: We talked about the dynamics within the Latino economy and the community’s economic outlook. Now let’s dive deeper into potential solutions. Latinos have a sizable wealth gap compared to their White peers, and median Latino wealth stands at about 20 percent of that of White households. Bernardo, can you help us drill down into this a little bit more? We know that US-born Latinos, for example, have greater wealth and income prospects compared to foreign-born Latinos. Why is this?

Bernardo Sichel: It’s in big part because of opportunity. You know, first-generation Latinos go through the educational process and have access to better jobs than maybe their parents did. It is about going through the whole journey and process that allows them to have better outcomes in terms of income. The income over time then generates the wealth that builds from one generation to the next.

Kweilin Ellingrud: Domenika, how can we ensure that foreign-born Latinos have access to sustainable and inclusive growth earlier in their immigration journey?

Domenika Lynch: When we think of new immigrants, it’s really important to think about how we create on-ramps to integrate them into mainstream living. When we don’t do that, they become a subset of the community, and then they’re not able to plug into the resources.

For Latino entrepreneurs, for example, the journey is always one that if the job opportunity doesn’t present itself, then you create it. You create it based on the talent and the skills you have. Whether it’s a good meal you can cook or a clean home you can have or a beautiful garden or landscape that you have, then that becomes sort of your first point of entry, and that helps you to start connecting with others. However, if you don’t have the education or a plug-in to the resources to grow your businesses, to understand financial systems, to be able to market yourself as a professional, then you’ve created just another job for yourself, and you will not have the opportunity for economic mobility or ability to scale your business.

For foreign-born Latinos who came for economic opportunity in the United States, it’s important to have Hispanic Chambers of Commerce. It’s important to have entrepreneurs serving organizations that are culturally competent and culturally relevant as they are welcoming new Latino immigrants.

Professional Latino immigrants—those that have degrees or are architects or dentists or lawyers in their own countries—also struggle because their degrees are not valued like they are in their home countries. They also have to connect to networks. Through those networks, they can understand how they can get certified once again or what kind of credentialing they need in this country. It’s a tragedy when you have a former dentist who is unable to get those new credentials and remains a taxi driver years later, after coming to the United States.

Onboarding professionals, especially if they don’t have family or community networks here, is extremely important. It’s access, but it’s also the infrastructure of opportunity that needs to be offered by that local community.

Kweilin Ellingrud:
Bernardo, I want to explore a bit more this median wealth gap. Latinos have about 20 percent of the household wealth of white households. Why is that? How should we think about it?

Bernardo Sichel: The majority of the difference between wealth that you see of Latinos and non-Latinos happens because of intergenerational transfers. We are talking about inheritances between one generation and the next.

The huge difference that happens there is that only 5 percent of Latinos get intergenerational transfers, compared with more than 20 percent of Whites. And when Latinos do receive an inheritance, it’s a third of the size of what Whites receive. So their starting position is very different, not only because of the income that they’re generating but because of, again, the starting point they have.

That also explains why, from one generation to the next, you see those differences happen. It’s because the next generations not only get higher income, but they have a little bit of a better starting point than what their parents had when they arrived at the US. That’s one of the most compelling explanations of why the difference persists, but it’s also one of the reasons why this is something that’s going to take generations rather than years to be solved.
Latinos as consumers

Kweilin Ellingrud: We’ve explored Latinos as workers and their economic mobility. We’ve explored them as ntrepreneurs, as well as in terms of their wealth gap. I’d like to shift now to Latinos as consumers. The report states that there’s about $160 billion yearly of unsatisfied demand for Latino consumers. What can we do to better address the needs of Latino consumers?

Bernardo Sichel: What is driving that is really three factors. One has to do with access. The second one has to do with income. And the third one has to do with satisfaction with the products and services that are out there.

Going one by one, one is about access—just making sure that Latinos where they live have access to all the different categories of products and services they would be able and would be willing to pay for if they were available. It is no surprise for us to talk about food deserts, but it’s a lot more than just food deserts. It’s across many different categories, including telecommunications, housing, and others—health, et cetera.

The second one has to do with income, which is an obvious one. As income goes up, Latinos will have higher access to products and services they could not pay for before. I think the recent COVID-19 pandemic was a great example of how vulnerable this particular part of the US population is, as they had the biggest drop in terms of employment, in terms of consumption, of any demographic group.

Then the final thing has to do with satisfaction, and that is really providing products and services that cater to the needs and preferences of this population. It’s interesting, because we came up with and we’re doing a study now that goes into much more detail, but in many cases, we’re talking about Latinos willing to pay 10 percent or higher premiums for products and services if they were catered to their specific needs. This is not only a matter of language, but also a matter of the products and services really fulfilling the desires and needs that this part of the population has.

Kweilin Ellingrud: Domenika, what would you like to see from business leaders, from policy makers, to address this Latino consumption gap?

Domenika Lynch: What I found interesting in how McKinsey framed the consumption gap—and I hadn’t thought of it this way before—is how Latino businesses are uniquely positioned to fill that gap because they understand the nostalgia for certain products from their home countries but also specific needs for the Latino community.

It got me thinking about the access to capital and the support to understand how to grow their businesses, but you have a group of people that intuitively know the market without having all the analysis. They know what’s missing because they’re missing it, and they put together business plans to satisfy as best they can. What we need are more innovations around financial products—quality financial products that can help Latino businesses scale their companies.

I am really excited to work with companies like Coca-Cola. Thirty percent of the Coca-Cola bottlers in the United States are Latinos. So they’re going to understand certain drinks that are reminiscent with certain foods in the Coca-Cola family, and Coca-Cola has bought some of these products.

Those are the things that need to happen more and more. It’s a cocreation. It’s a public–private partnership where we’re seeing our products made by Latinos for Latinos, so we’re creating wealth, we’re satisfying the demand. That’s what’s so unique about the McKinsey report: that it didn’t just offer up Latinos for consumption. It is not “Oh, they need more shoes; Nike, please make more shoes.” It’s more about “Well, maybe there is a Latino version of Nike—our own company that can compete for the market.”

If there was a more intentional effort to understand the potential of the Latino market going into businesses and satisfying the consumption needs, then that’s exciting. I’d like to profile more and more of those companies.

Progress toward greater economic opportunity

Kweilin Ellingrud: I’d love to shift to looking at where we are today but in a more historical perspective. Bernardo, let’s start with you and then shift over to you, Domenika. Where are you seeing progress in access to this Latino economic opportunity?

Bernardo Sichel: I think that the trends are very clear. Even if you take the four different roles that the study took, in each one of them, you see structural progress in the last few years, maybe with the retrenchment that we have seen during COVID-19.

The trend is very clear. It’s very clear in terms of intergenerational mobility. That’s maybe where you have the highest level. I’ll give you a number here that was really surprising when we did this study. For parents who were in the 25th percentile, their children have the chance of being in the 46th percentile. The growth in terms of mobility is absolutely fantastic and is happening all over the place.

To me, it’s much more about how can we accelerate this to achieve the entire potential of the demo­graphic. It’s going in a positive trend; it’s just not going fast enough. As we discussed in the beginning of our conversation, this is no longer an issue of Latinos alone. If this trend doesn’t accelerate, it’s going to have an impact on the overall economy.

Kweilin Ellingrud: Domenika, in your interactions with young Latino leaders, are you seeing progress—a change in culture or the optimism you were mentioning before?

The growth in terms of mobility is absolutely fantastic and is happening all over the place. It’s going in a positive trend; it’s just not going fast enough. Bernardo Sichel

Domenika Lynch: I am. I see young people that are socially and consciously aware, not only of their own progress but of the power of investing in their education, of being also connected to brands and businesses that do good for our community and that are inclusive of our own narrative.

I have a grown son, and he’s very intentional about how he shops. It’s really important for him that we support products and businesses that do good by the community—by Black, Latino, and Indigenous communities. We know that in general with Generation Z, the millennial generation; we already have seen that.

I’m optimistic. The one piece I worry about is a little bit of getting frustrated and discouraged. There are some hard challenges, from climate change to even as we tackle structural racism and discrimination. Change isn’t going to happen overnight. It’s going to take intentionality from all of us. And optimism is a requisite for change; there is no substitution for it. That’s what makes me both excited and a little nervous about when we all get too frustrated in our silos, because cynicism is really what we have to guard against. But overall, I’m very optimistic.

Creating a more sustainable, inclusive future

Kweilin Ellingrud: Thank you both for sharing your insights with us today. I love the examples of different Latino brands, the examples of the racial wealth gap, and also the state of entrepreneurship and more businesses starting in the Latino community, but there is a real gap in terms of financing and growth.

We’re wrapping up each of our Future of America episodes with a rapid-fire Q&A. Domenika, I’ll start with you. Is there a book or an article you’ve read recently that excites you about a more sustainable and inclusive future?

Domenika Lynch: Yes. Absolutely. A book that was written during the pandemic by a woman, and it’s called What We Owe Each Other: A New Social Contract for a Better Society. It’s written by Minouche Shafik; she is the director of the London School of Economics.

I was so inspired by it because one of the first stories that she opened up with was about being in Ecuador, which is my home country, and witnessing the birth of a little girl in the Amazon forest, and how her parents were going to name her after the author, Minouche. She wandered the trajectory of these two lives. In this moment of the pandemic for her, it’s really about all hands on deck and recognizing the interdependency that we have, all around the world. The pandemic brought us together—how what affects one of us affects all of us.

She also gives some solutions, and most importantly she made me very aware of, even in the United States, how many generations it’s going to take to go from low income to middle income in different countries. I was a little heartbroken to read that in the United States, she projected five generations, which is not my experience and isn’t the experience of that story I opened up with—that from one generation in this country, you can go from cleaning a fancy hotel to becoming a medical doctor.

I highly recommend it. It’s very inspirational and very timely. There is a lot of good wisdom there.

Kweilin Ellingrud:
What makes you optimistic that we can achieve sustainable and inclusive growth?

Domenika Lynch: Local and national leaders. The work of the Aspen Institute, convening thoughtful people that care so much about human progress—our collective, shared humanity and good life experience. It’s a short life. To bring people together, to roll our sleeves up and to say, “We can change this” is important. I think that as long as we can see it at the local level and then bridge that with national leaders, real change will happen. That’s what makes me optimistic, particularly in where I am, where I sit, at the Aspen Institute.

To bring people together, to roll our sleeves up and to say, ‘We can change this’ is important. As long as we can see it at the local level and then bridge that with national leaders, real change will happen. Domenika Lynch

Kweilin Ellingrud:
What is the one thing that listeners can do today to help promote sustainable and inclusive growth for Latinos in particular?

Domenika Lynch: Through this journey, if we’re talking about scaling and accelerating change, like Bernardo said, it is important to be mindful of your own company’s habits, where you work, and even companies that we own.

For example, at the Aspen Institute, I’m now sitting on the procurement committee. I really want to understand who our suppliers are. If there is an opportunity to create spaces for Black, Latino, and Indigenous businesses, so that we can walk our talk, especially at the Aspen Institute, we do that.

I’m really proud that my colleagues are very intentional. We’ve learned that in moments of crisis, change is very difficult. It’s necessary, but it’s also very difficult. When it comes to how we procure services and goods, efficiency will always trump equity. Always. So we have to be careful and mindful. I’m paying more attention where I work in terms of our procurement habits and making sure that that’s a door we can open and be intentional about.

Kweilin Ellingrud:
Thank you, Domenika. Bernardo, I’d love to shift to you. Is there a book or an article you’ve read recently that excites you about a more sustainable and inclusive future?

Bernardo Sichel: As part of the work that I do combining consumer and technology, I went back to an article in a presentation by a South African author named Busi Radebe at Harvard’s Growth Lab, at the Symposium on Inclusive Growth and Development. It’s called “Re-inventing the corner store.”1

The premise of what he came up with is how to give access to technology and how to build an ecosystem of corner stores so that the stores can not only have more access to financial services but also create some scale in procurement and generate jobs and well-being for the owners of those stores.

There’s certainly no reason why that’s something that needs to be confined to South Africa or Latin America or other emerging markets. It’s very much the reality of many Latinos in the US. When I saw that, I was inspired and thought about the impact it could have at home.

I really recommend it. The paper is dense, but the presentation at the Growth Lab at Harvard is very inspiring.

Kweilin Ellingrud: Wonderful. What makes you optimistic that we can achieve sustainable and inclusive growth?

Bernardo Sichel: I would say two things from my side. The first one is the resilience I have seen from Latinos during COVID-19. The other is awareness, despite the political rhetoric, that inclusivity is an absolute must to achieve our common goals in the future. I would say those two things give me hope that we are heading in the right direction.

Kweilin Ellingrud:
What’s one thing that listeners can do today to help promote sustainable and inclusive growth?

Bernardo Sichel: I think it’s critical not to leave this to policy makers. It’s about our daily decisions that make a difference at the end of the day. If you’re a business owner, I would say, provide equitable pay. Most likely, those frontline workers that you have are Latinos. Also, create job opportunities and internships, et cetera, for Latinos. That would be amazing.

For consumers, as Domenika touched upon, it’s about our daily choices on what we buy and what we consume. It is about the little things that each one of us does on a daily basis that make up the big impact over time.

Kweilin Ellingrud: Thank you, Domenika and Bernardo. That was Domenika Lynch, executive director of the Latinos and Society Program at the Aspen Institute, and Bernardo Sichel, a partner in McKinsey’s Chicago office. I’m Kweilin Ellingrud. You have been listening to McKinsey’s Future of America podcast series. Thank you for joining us.


ABOUT THE AUTHOR(S)


Kweilin Ellingrud is a director of the McKinsey Global Institute and a senior partner in McKinsey’s Minneapolis office, and Bernardo Sichel is a partner in the Chicago office. Domenika Lynch is executive director of the Aspen Institute Latinos and Society Program (AILAS).

Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

Tuesday, September 27, 2022

What is inflation?

Source: https://tinyurl.com/4pfrrzmv


Inflation is the gradual loss of purchasing power, reflected in a broad rise in prices for goods and services. This is just one entry in our McKinsey Explainer series.

Inflation refers to a broad rise in the prices of goods and services across the economy over time, eroding purchasing power for both consumers and businesses. In other words, your dollar (or whatever currency you use for purchases) will not go as far today as it did yesterday. To understand the effects of inflation, take a commonly consumed item and compare its price from one period with another. For example, in 1970, the average cup of coffee cost 25 cents; by 2019, it had climbed to $1.59. So for $5, you would have been able to buy about three cups of coffee in 2019, versus 20 cups in 1970. That’s inflation, and it isn’t limited to price spikes for any single item or service; it refers to increases in prices across a sector, such as retail or automotive—and, ultimately, a country’s economy.

In a healthy economy, annual inflation is typically in the range of two percentage points, which is what economists consider a signal of pricing stability. And there can be positive effects of inflation when it’s within range: for instance, it can stimulate spending, and thus spur demand and productivity, when the economy is slowing down and needs a boost. Conversely, when inflation begins to surpass wage growth, it can be a warning sign of a struggling economy.

Inflation affects consumers most directly, but businesses can also feel the impact. Here’s a quick explanation of the differences in how inflation affects consumers and companies:
  • Households, or consumers, lose purchasing power when the prices of items they buy, such as food, utilities, and gasoline, increase.
  • Companies lose purchasing power, and risk seeing their margins decline, when prices increase for inputs used in production, such as raw materials like coal and crude oil, intermediate products such as flour and steel, and finished machinery. In response, companies typically raise the prices of their products or services to offset inflation, meaning consumers absorb these price increases. For many companies, the trick is to strike a balance between raising prices to make up for input cost increases while simultaneously ensuring that they don’t rise so much that it suppresses demand, which is touched on later in this article.
How is inflation measured?

Statistical agencies measure inflation by first determining the current value of a “basket” of various goods and services consumed by households, referred to as a price index. To calculate the rate of inflation, or percentage change, over time, agencies compare the value of the index over one period to another, such as month to month, which gives a monthly rate of inflation, or year to year, which gives an annual rate of inflation.

For example, in the United States, that country’s Bureau of Labor Statistics publishes its Consumer Price Index (CPI), which measures the cost of items that urban consumers buy out of pocket. The CPI is broken down by regions and is reported for the country as a whole. The Personal Consumption Expenditures (PCE) price index—published by the US government’s Bureau of Economic Analysis—takes into account a broader range of consumers’ expenditures, including healthcare. It is also weighted by data acquired through business surveys.What are the main causes of inflation?

There are two primary types, or causes, of inflation:
  • Demand-pull inflation occurs when the demand for goods and services in the economy exceeds the economy’s ability to produce them. For example, when demand for new cars recovered more quickly than anticipated from its sharp dip at the beginning of the COVID-19 pandemic, an intervening shortage in the supply of semiconductors made it hard for the automotive industry to keep up with this renewed demand. The subsequent shortage of new vehicles resulted in a spike in prices for new and used cars.
  • Cost-push inflation occurs when the rising price of input goods and services increases the price of final goods and services. For example, commodity prices spiked sharply during the pandemic as a result of radical shifts in demand, buying patterns, cost to serve, and perceived value across sectors and value chains. To offset inflation and minimize impact on financial performance, industrial companies were forced to consider price increases that would be passed on to their end consumers.
How does inflation today differ from historical inflation?

In January 2022, inflation in the United States accelerated to 7.5 percent, its highest level since February 1982, as a result of soaring energy costs, labor mismatches, and supply disruptions. But inflation is not a new phenomenon; countries have weathered inflation throughout history.

A common comparison to the current inflationary period is with that of the post–World War II era, when price controls, supply problems, and extraordinary demand fueled double-digit inflation gains—peaking at 20 percent in 1947—before subsiding at the end of the decade, according to the US Bureau of Labor Statistics. Consumption patterns today have been similarly distorted, and supply chains have been disrupted by the pandemic.

The period from the mid-1960s through the early 1980s, deemed as “The Great Inflation,” saw some of the highest rates of inflation, with a peak of 14.8 percent in 1980. To combat this inflation, the Federal Reserve raised interest rates to nearly 20 percent. Some economists attribute this episode partially to monetary policy mistakes rather than to other purported causes, such as high oil prices. The Great Inflation signaled the need for public trust in the Federal Reserve’s ability to lessen inflationary pressures.

How does inflation affect pricing?

When inflation occurs, companies typically pay more for input materials. One way for companies to offset losses and maintain gross margins is by raising prices for consumers, but if price increases are not executed thoughtfully, companies can damage customer relationships, depress sales, and hurt margins. An exposure matrix that assesses which categories are exposed to market forces, and whether the market is inflating or deflating, can help companies make more informed decisions.

Done the right way, recovering the cost of inflation for a given product can strengthen relationships and overall margins. There are five steps companies can take to ADAPT (Adjust, Develop, Accelerate, Plan, and Track) to inflation:
  1. Adjust discounting and promotions and revisit other aspects of sales unrelated to the base price, such as lengthened production schedules or surcharges and delivery fees for rush or low-volume orders.
  2. Develop the art and science of price change. Don’t make across-the-board price changes; rather, tailor pricing actions to account for inflation exposure, customer willingness to pay, and product attributes.
  3. Accelerate decision making tenfold. Establish an “inflation council” that includes dedicated cross-functional, inflation-focused decision makers who can act nimbly and quickly on customer feedback.
  4. Plan options beyond pricing to reduce costs. Use “value engineering” to reimagine your portfolio and provide cost-reducing alternatives to price increases.
  5. Track execution relentlessly. Create a central supporting team to address revenue leakage and to manage performance rigorously.
Beyond pricing, a variety of commercial and technical levers can help companies deal with price increases in an inflationary market, but other sectors may require a more tailored response to pricing. In the chemicals industry, for instance, category managers contending with soaring prices of commodities can make the following five moves to save their companies money:
  1. Gain a full understanding of supply–market dynamics and outlook. Understand and track the elements that trigger price increases and rescind these increases once those drivers are no longer applicable.
  2. Ensure that suppliers can clearly articulate the impact that price increases in the market have on suppliers’ prices. In times of upward price pressure, sellers often overstate the share of raw materials in input costs, taking the opportunity to inflate their margins. Using cleansheet methodology to identify and challenge these situations is important.
  3. View unavoidable price increases as temporary surcharges, not the new future state. This mechanism, partly psychological in nature, is very effective in dealing with the stickiness of price increases because it shifts the burden of proof to the supplier.
  4. Prioritize cross-functional initiatives. When prices are high, the impact of yield improvements, waste reduction, or substitutions can be amplified. If any are available, now is the time to make them a priority.
  5. Work with sales to pass on price increases. Category managers work closely with finance and commercial teams to shed light on pure market effects and their impact on the prices of goods sold, while ensuring that the right arguments are advanced to pass market-price increases to customers.

What is the difference between inflation and deflation?

If inflation is one extreme of the pricing spectrum, deflation is the other. Deflation occurs when the overall level of prices in an economy declines and the purchasing power of currency increases. It can be driven by growth in productivity and the abundance of goods and services, by a decrease in aggregate demand, or by a decline in the supply of money and credit.

Generally, moderate deflation positively affects consumers’ pocketbooks, as they are able to purchase more with less money. However, deflation can be a sign of a weakening economy, leading to recessions and depressions. While inflation reduces purchasing power, it also reduces the value of debt. During a period of deflation, on the other hand, debt becomes more expensive. Additionally, consumers can protect themselves to an extent during periods of inflation. For instance, consumers who have allocated their money into investments can see their earnings grow faster than the rate of inflation. During episodes of deflation, however, investments, such as stocks, corporate bonds, and real-estate investments, become riskier.

A recent period of deflation in the United States occurred between 2007 and 2008, referred to by economists as the Great Recession. In December 2008, more than half of executives surveyed by McKinsey expected deflation in their countries, and 44 percent expected to decrease the size of their workforces.

When taken to their extremes, both inflation and deflation can significantly and negatively affect consumers, businesses, and investors.

For more in-depth exploration of these topics, see McKinsey’s Operations Insights collection. Learn more about Operations consulting, and check out operations-related job opportunities if you’re interested in working at McKinsey.

Articles referenced include:

Wednesday, September 21, 2022

What Is Compound Interest and How Is It Calculated?

 Compound interest can help savings grow faster or make borrowing more expensive. Understand what it is, how it’s calculated and how to use it to your advantage.

Source: https://tinyurl.com/4p4mfpm4

By My Finance Academy




When you deposit money into a savings, money market or other type of deposit account, you may earn interest — a percentage of the account balance paid to you periodically by the financial institution for allowing them to use your money. When you take out a loan or take on credit card debt, interest works the other way: You periodically pay the financial institution a percentage of your outstanding balance for the privilege of using their money.

Compound interest is interest calculated on an account’s principal plus any accumulated interest. If you were to deposit $1,000 into an account with a 2% annual interest rate, you would earn $20 ($1,000 x .02) in interest the first year. Assuming the bank compounds interest annually, you would earn $20.40 ($1,020 x .02) the second year. (Most banks compound interest much more frequently; we chose annual compounding to simplify this example.)

Simple interest, on the other hand, is calculated on principal only. If you were paid simple interest on the account above, you would earn the same $20 interest a year rather than reaping the rewards of compounding. When interest is based on your growing balance, your funds can snowball over time.

In the case of money you borrow, compounding can work against you. When interest is charged on credit card accounts or loans that use compounding, that interest is calculated based on your principal plus any interest previously accrued on your account. You may end up paying more or needing more time to pay off your balance.

To gain better insight into how much compounding interest can affect what you earn or pay, take a look at how it’s calculated.
How Compound Interest Is Calculated

Whether it is interest you will earn or interest you will pay, compound interest can be calculated using the following formula:

x = P (1+r/n)nt - P

… where

x = compound interest

P = principal (the initial deposit or loan amount)

r = annual interest rate

n = the number of compounding periods per unit of time

t = the number of time units the money is invested or borrowed for



Let’s use an example where you earn interest. Say you deposit $5,000 into a savings account at an annual interest rate of 5%, which is compounded monthly. That deposit would earn $3,235.05 in interest at the end of 10 years. Here’s a breakdown of the math:

x = P (1+r/n)nt - P

x = 5,000 (1+.05/12)12x10 - 5,000

x = 5,000 (1.00416667)120 - 5,000

x = 5,000 (1.64701015) - 5,000

x = 8,235.05 - 5,000

x = 3,235.05

Over that 10-year period, your deposit would grow from $5,000 to $8,235. The same account earning simple interest would grow to only $7,500.

Of course, if you don’t enjoy crunching numbers, you can use an online calculator. Calculators can be particularly helpful when you are regularly making deposits or payments to your accounts, since your balance will be changing as you go.

The frequency of compounding is particularly important to these calculations, because the higher the number of compounding periods, the greater the compound interest. And while interest can be compounded at any frequency determined by a financial institution, the compounding schedule for savings and money market accounts at banks are often daily. The interest on certificates of deposit (CDs) may be compounded daily, monthly or semiannually. For credit cards, compounding often takes place monthly or even daily. More frequent compounding is beneficial to you when you are the investor, but it’s a disadvantage when you are the borrower.
How Compound Interest Can Affect Your Financial Planning

Given that compound interest can be beneficial (when you’re the investor) or disadvantageous (when you’re the borrower), it’s important to consider its potential in your financial plans.

To fully reap the rewards of compound interest, save! Choose deposit and investment accounts that offer compounding interest, and do your best not to make withdrawals so that interest has a chance to really add up.

To avoid paying compound interest, shop for loans that charge simple interest. Many large loans — mortgages and car loans, for example — do use a simple interest formula. By contrast, credit cards and some other loans frequently use compound interest. So use credit cards wisely and be sure to pay off your statement balances every month.

As you become more familiar with compounding interest, you will be able to leverage it to your advantage as you build your wealth and minimize your debt

Tuesday, September 20, 2022

Making Something From Nothing: James R Langabeer Of Yellowstone Research On How To Go From Idea To Launch

Source: https://tinyurl.com/mrrpr6ap

Written by: Fotis Georgiadis

An Interview With Fotis Georgiadis


I wish somebody would have told me was that it just isn’t as fun as you think to be your own boss! You have nobody to blame, or go to for help. Try to find a mentor, or somebody that’s more experienced than you in a similar business or venture. Ask for their help — and take their advice!


As a part of our series called “Making Something From Nothing”, I had the pleasure of interviewing James Langabeer.

James R. Langabeer, PhD is a management strategist, entrepreneur, and professor. He has founded or led several successful companies, including a healthcare information technology company and a business intelligence software firm. He has also developed several large-scale community initiatives and programs as an endowed professor at UTHealth Houston. James is best known for his expertise on management decision-making and founded Yellowstone Research, LLC to provide strategy consulting for leaders in healthcare, supply chain, and consumer goods firms. He was named a finalist for the 2022 Success Magazine most influential leader award, and his writing has been published in Forbes, Psychology Today, and over 125 academic journals. His latest book is The Quest for Wealth: Six Steps for Making Mindful Money Choices (Routledge Press, 2022).

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a bit about your “childhood backstory”?

Iwas very fortunate to have been born overseas in Tokyo Japan, the middle child of an Air Force officer/Certified Public Accountant, and a loving and energetic mother. They were both from the heart of the Midwest in Peoria, Illinois. We moved around quite a bit, which showed me that growth in life is fed by new opportunities and new scenery. We shouldn’t get complacent, or remain in one place, literally or figuratively, too long. With a military family, you learn a lot about discipline, and I was also taught the importance of money and how to make solid conservative financial choices. Our parents constantly tried to model how important it was to exercise leadership, whether in your work or personal life. I tried to lead, travel, and take advantage of as many opportunities as I could to keep moving forward.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

One thing my father used to always goes something like “a coward dies a thousand deaths, a hero only one.” He encouraged us to take chances, get out there, and do something despite potential consequences. He wasn’t afraid of much, and “action” was always preferable to inaction. I’ve been lucky because I believe that risk-taking is essential for innovation and entrepreneurship, so those early lessons have helped me immensely with my ability to get things done.

Is there a particular book, podcast, or film that significantly impacted you? Can you share a story or explain why it resonated with you so much?

I loved the short story “The Secret Life of Walter Mitty” by James Thurber. We read it in high school I believe, and then much later I saw the film version with Ben Stiller. The story made a lasting impression on me. At its core, I believe it is about the difference between dreamers and doers. There are some people who wish they had a better, more exciting, heroic life. And others who go out there and are brave and courageous. Most importantly, it shows that you can go out there and change your life, and make it all come true.

Also, I read in business school the book “Zen and the Art of Motorcycle Maintenance” by Robert Pirsig. I don’t remember much of it, but what stuck with me was the idea that you can be actually grounded in daily rational thinking (about consequences, the future, planning) yet still be present in the moment. That there can be a balance between being analytical and still be mindful. I think that’s really important for us, since we tend to think of things in extremes rather than harmony, and prefer one way over another. Since I focus on how people make big (strategic) choices, I like to know that you can be congruent between these perspectives.

Ok super. Let’s now shift to the main part of our discussion. There is no shortage of good ideas out there. Many people have good ideas all the time. But people seem to struggle in taking a good idea and translating it into an actual business. Can you share a few ideas from your experience about how to overcome this challenge?


I think this is completely correct. So many people think they have ‘killer ideas’, but don’t act on them. Some times, these are just re-do’s of what is already out there. But in other cases, people have really good ideas, but can’t figure out the first few steps. It’s really rare to find somebody with a good idea, that can actually pull it off. That’s why entrepreneurs who can get an idea to the commercialization phase are fairly rare. When I’m advising young entrepreneurs, the first thing I always ask them to do is to make a few notes, briefly detailing these points:
  • What’s the core concept?
  • Why does this inspire you?
  • Why is this unique?
  • What business problem or need does this solve, and for whom specifically?
  • Why are you the right person to tackle it?
  • How might this be monetized?
These just need to be a sentence or two for each point. I don’t recommend a detailed business plan at first. Details in a traditional business plan just bog people down in a writing exercise and make you think about the “practical” matters. Not having answers at first, is what you have to get comfortable with! So don’t worry about all details at first, try to remain conceptual. We tend to go right into the details, and gloss over the most important aspects. This creates too much focus on the wrong components of planning, which are virtually unknowable at this point. I see people worrying about their pricing strategy (how much to charge) when they really don’t even know who they are solving a problem for. These details will all come later, but first, start with the concept and the innovation.

Often when people think of a new idea, they dismiss it saying someone else must have thought of it before. How would you recommend that someone go about researching whether or not their idea has already been created?

People often dismiss their own abilities and their own originality. I think it’s because people are thinking about ideas for things in the wrong way. Even an incrementally better service, product, or even process enhancement can all be ideas that can be innovated. It’s not necessarily just one ‘big thing’. The best way to really know if this is a unique idea is to more carefully explore it. Write down the answers to the conceptual questions earlier. Try asking a few people what they think of this idea, especially those people who might have the need for the product or service you are thinking about. Then, as we all do, “Google it”. See what exists that is out on the public domains. I wouldn’t worry about a patent or trademark or legal matters at this stage — start by asking questions and doing some basic research.

For the benefit of our readers, can you outline the steps one has to go through, from when they think of the idea, until it finally lands in a customer’s hands? In particular, we’d love to hear about how to file a patent, how to source a good manufacturer, and how to find a retailer to distribute it.


Even before this, let’s talk about what’s most important — developing your ‘story’ about this big idea. You want to work on creating a compelling pitch that will seize people’s interest immediately, yet not too much where you lose them. Think of a 15 or 30 second pitch around your vision. Don’t try to confuse people. Simplify as much as possible, as if you’re talking to somebody who knows nothing about this! That is the most important thing — simplify your ideas, and what it could mean for them or others. Give people a reason to be excited and wanting to hear more.

Then, you’ll need to work through the mechanics. You have to have a solid grasp of competitive intelligence — who are the competitors in this area. Not only other companies but competing products that might fill the same need. What are the gaps today? You want to end up with an idea of the size of the market potential. What is the opportunity? What is the up-side?

Once you have this, people should get some validation on their ideas. You tossed the idea around to a few people earlier, but now you need to get serious with some research. A/B testing is a good way to try to see what potential customers might prefer, if you can narrow things down. Surveys, interviews, or small focus groups might help provide insight. Before investing a lot of your personal money, or that of an investor, validate that this makes sense to potential real customers.

Then think through what you need to make this happen from a value-chain perspective: Do you need to manufacture a product? Open a retail location? What suppliers would you need? What are the start-up to do this in the beginning, and and ongoing costs once fully scaled? What would a team or organization look like for this? This is the heart of the financial projections you’ll need to consider.

With all this information, you should be able to now create a revenue model. Think of a small pilot to deploy this, and always build in a lot more time than you think you need to get something out there. In my projections, I usually expect zero revenue for many months, and only expenses. You’ll need to make sure you have at least 6–12 months of expected expenses saved to get going. This is where you might need to consider financial alternatives: self-funded, angel investors, venture capital, or debt (loans).

See how easy it is to get mired down in details? There is a lot to plan. So take it one step at a time!


What are your “5 Things I Wish Someone Told Me When I First Started Leading My Company” and why?

The first thing I wish somebody would have told me was that it just isn’t as fun as you think to be your own boss! You have nobody to blame, or go to for help. Try to find a mentor, or somebody that’s more experienced than you in a similar business or venture. Ask for their help — and take their advice!

Second, I’d say to others don’t sweat all the details too early on. You just get too overwhelmed. At the same time, I wish I would have thought through financial alternatives earlier too. You might reach a point of financial ‘vulnerability’ or even desperation, where you think of don’t have any alternatives. I have found myself taking funding from companies that probably weren’t in the best interest, but I thought I had no other choices at the time. Strategic planning can help you prepare for these times!

I also think I under-estimated the value of a solid team at start-up. Whiel everything starts and stops with you, it’s not just about you anymore. It has to be about finding partners and employees that share your vision and can take it to the next level. When I started up a healthcare information organization, I brought in a few people immediately that could absorb the vision, and create passion and energy. This is essential to the first year of a new venture.

I sometimes wish I wasn’t always so frugal. For instance, now I know that spending money on outside consultants can be useful. I often find myself thinking through things by myself and probably didn’t reach the best option. If I would have spent a little money on an independent management consultant or market research firm, they could have played a more active role in helping me do the research, simulate alternatives, and come up with a better path forward. I strongly recommend the use of a consultant to help go through these steps from idea to implementation.

Lastly, I wish I had thought through this important question a little more closely: “what does success look like”. We get worked up with a few things, such as customer counts, or dollar volumes of sales. Yet, these aren’t the best indicators for most companies. Entrepreneurs often want to create a product and become rich, successful, or well-known — or just create a useful product or service. But articulating that a lot more clearly, with detailed performance indicators and specific goals, could help you gauge success better.

Let’s imagine that a reader reading this interview has an idea for a product that they would like to invent. What are the first few steps that you would recommend that they take?

The very first step is to be able to articulate the vision into a story. Work on refining the message so well that you can literally tell people what it is, what it does, and why they need it without seeing them yawn or turn away. This crafting of a compelling, yet concise, story is what successful entrepreneurs master. Think about your role this way:
  • Messaging. You own the story, the brand, and the vision.
  • Master Planning. The most important choices are yours to make. Develop and maintain a strategy blueprint.
  • Mobilizing. You have to think about your leadership team, resources, partners, and suppliers. These are all vital to early-stage success.
  • Momentum. Focus your energy on maintaining momentum and moving toward your 1, 3, and 5-year goals.
There are many invention development consultants. Would you recommend that a person with a new idea hire such a consultant, or should they try to strike out on their own?

No, not an invention development consultant. But, I would definitely consider using an independent consultant for helping do some of the initial research and providing advice on markets and competitors. You must own the vision the concept, but you can use a consultant to gather the intelligence and the research to create prototypes. Use a consultant to help you with revenue or cost projections. Or, use them to help work on validation and implementation. They can be worth their weight in gold, and allow you bandwidth to focus on what really matters — your message and momentum-building.

What are your thoughts about bootstrapping vs looking for venture capital? What is the best way to decide if you should do either one?

There are some advantages to both. Generally, for most people, I recommend using your own resources for as long as possible. You’ll hold on to more of your “sweat-equity” and future profits. But this can also limit growth considerably. For some types of companies, such as information systems or those requiring significant capital expenditures, it might be necessary to consider outside investors, such as venture capital firms (VC). VC funding can be great and can help the company sustain years of losses since they aren’t always focused on short-term profitability. I’ve gone through multiple rounds of funding, and each time, you lose a little bit more of your ownership. So make sure the growth of the firm outweighs this ownership devaluation. It’s a hard choice to make. In the end, do the one you feel most comfortable with and can sleep best with. If you go the VC route, make sure you do all the due diligence to find the right partner, future board member, and advisor. That relationship is key to your growth and success.

Ok. We are nearly done. Here are our final questions. How have you used your success to make the world a better place?

To me the most important societal areas we have to address with bold ideas are around mental health, homelessness, climate changes, substance use, and immigration. I have tried to create a few programs to address a few of these, but so much more is needed. One really successful project I have created is helping those who are struggling with substance use and mental health disorders, especially opioids. One of these programs, the Houston Emergency Opioid Engagement System (or HEROES) helps provide free integrated treatment and recovery services for people struggling with substance use disorders in Texas. We’ve helped re-build thousands of lives for individuals and their families. As with any initiative, I think it’s important to define a future state that is better than where you are, and do something rather than nothing. We need innovators in these areas, and I applaud the work of people like the Gates Foundation who are using their resources to combat important social issues.

You are an inspiration to a great many people. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger.

As somebody who is highly vested in the technology world, I’d have to controversially say that we need a better way to manage mobile technology has taken over our life. We need some kind of controls over how phones and technology are dominating our brains! We need better mental health interventions that can help reduce loneliness and suicide rates. I think mobile technology is one area which can be improved significantly.

We are very blessed that some of the biggest names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US, with whom you would love to have a private breakfast or lunch, and why? He or she might just see this if we tag them.

Being a big fan of great leaders and brand-builders, I would love to meet Oprah Winfrey. She’s so smart, always well prepared, and seems to know everything! Everything she touches turns to gold it seems, from her magazine, books, films, podcasts, and other business ventures. She is a terrific role model!

Thank you for these fantastic insights. We greatly appreciate the time you spent on this.