Janitor to V.P.
In the 1980s, Frito-Lay had a secret weapon and it didn’t even know it. His name was Richard Montañez, and he came from a long line of grapepickers. He spent his days cleaning bathrooms and mopping floors — he was a janitor at a Frito-Lay plant. However, he was also responsible for America’s hottest snack: The Flamin’ Hot Cheetos. He was the first Frito-Lay employee to question, “what would happen if I put chile on a cheeto?” And so he did.
As a newly minted Vice President of Frito-Lay, Montañez pushed the snack foods conglomerate to introduce its first product catering to the taste buds of an overlooked population in the U.S. — Hispanics. The story is truly fascinating, but also highlights a blindspot of many companies: the Hispanic market. Even at Frito-Lay, a company that originated in the 1940s, 40 years passed before they began to target Hispanic consumers, even then, it was pure serendipity. In this article, I argue why start-ups are best positioned to create companies targeting this coveted U.S. Hispanic. When done correctly, not only does this result in a great business, but also in a company that pushes the needle forward for underrepresented communities residing in the U.S.
As a Mexican Hispanic millennial living in the U.S. for most of my childhood and young adulthood, it seems crazy to think that even the most financially successful American corporations lack the talent and ideas reflective of the entire US population. Even growing up in Texas, where a majority of the minority is Hispanic, Caucasian Americans were oblivious to Hispanic culture. The most culture they learned from us was tacos and even then, they translated it into their own: Tex Mex Tacos. For a nation that prides itself in being a true melting pot of diverse people, cultures, and beliefs, there’s just one thing to say: do better.
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In light of the recent events surrounding George Floyd and the greater Black Lives Matter movement, it’s important to acknowledge the sustained racism minority communities face in their daily American life. Although an actionable conversation surrounding the lives of African Americans is long overdue, racism against other minority communities, like Hispanics, equally deserves to be part of the larger conversation. Hispanics are no strangers to police abuse. This system criminalizes all people of color. We must connect. We are all responsible for dissolving the walls of racism. As it relates to my investment thesis, it’s not just individuals that display racism against others — it’s also the companies and brands that makeup the fabric of our American life. Unfortunately, I think a big reason why most companies overlook marketing to U.S. Hispanics is because they are so fixated on going after Caucasian consumers. Let’s just call a spade a spade: most people making marketing decisions are white men and blind to any life experience that isn’t theirs. They think marketing to Caucasians will yield higher profits, when in reality, it is this very same thinking that births racist undertones. Therefore, I believe taking actions that lead towards a world where racism doesn’t exist will subsequently lead to more companies being created that target minority communities, such as the U.S. Hispanics.
How Big Are We Talking?
Today, it’s no secret that U.S. hispanics epitomize unparalleled growth opportunities for the economy. As of 2019, there were 131 million multicultural Americans, making up around 40% of the U.S. population, with Hispanics accounting for the largest portion. In absolute numbers, there are nearly 60 million US Hispanics and will have the largest increase in population growth. They represent purchasing power totaling more than $1.5 Trillion up 3x from 2010 to 2018 — versus a 2x increase for non-Hispanic white.
U.S. Hispanics Are Leading The Youth
US Hispanics are now the youngest ethnic group in America with the median age being 28 (their Caucasian counterparts median age is 42). For perspective, that’s implying most US hispanics are Selena Gomez’ age and most Causians’ are Tom Brady’s age. US Hispanic youth means an abundance of prime spending years — translation: $$$ for businesses. This group of millennials are digitally savvy and spend unprecedented hours on mobile devices and video; yet, most direct and indirect advertising don’t authentically capture what they care most about: their customs, culture, and values. Legacy/traditional players just don’t get it. And, they just don’t have the clout to lure younger Hispanics into their online or offline storefronts. Let’s just say, no hispanic youth is going to be rushing to the Walmart’s of the world in the same way they are rushing to Supreme or Il Makiage.
Ads from Legacy Brands Getting It Wrong
Check out these examples of brands continuing to play Russian Roulette with the Hispanic market. I’m flabbergasted by companies’ neverending mockery of Hispanic culture. Not only do these brands come off as tone deaf, but even racist. It’s sad to think we live in a world where we have to boycott brands in order to incentivize them to do better. Good behavior on behalf of brands should not be rewarded but rather expected. We are definitely not there.
A local Cincinnati radio station ended up offending the city’s growing population in 2007. This ad not only mocks a native Spanish speaker’s pronunciation of the English word “One”, but also continues to reinforce stereotypes that all Mexicans wear sombreros and ponchos and have cartoon-looking mustaches. Let me just say, I have yet to see a single family member of mine own a poncho, bullet sashe, or donkey.
Burger King ran a commercial in 2009 which accidentally reinforced Mexican men stereotypes of being short. The video received pushback due to its stereotypical portrayal of Mexicans and offensive use of the Mexican flag. There is not a single country that prides their flag more than the United States. I still remember being in 5th grade in Texas where the most competitive student volunteer activity was putting up the USA flag every morning. So, why is it okay for them to ridicule the Mexican flag when they view theirs as almost holy?
This ad is a perfect example of marketing teams not understanding language differences among hispanics. In this 2005 Ad featuring the famous Mexican singer, Thalia, the words “Cajeta Elegancita” is written. In Mexico, Cajeta has the G-rated meaning of milk candy. Unfortunately for Hershey’s, in parts of Latin America cajeta is also a derogatory slang term for a part of the female anatomy. As a fan of Thalia since before I could talk, this definitely soured my opinion of Hershey’s.
In 2012, American Apparel got accused of promoting a new accessory: Mexicans. As a Mexican, I love the idea of seeing more Mexicans represented across brands I shop from, but, I’d rather Mexicans be the main subject as opposed to a Caucasian-looking girl’s side candy.
Most recently in May 2020, Kmart’s Mother’s Day ad shook Spanish speakers. When Kmart decided to make their own blend of a word (Mama + Namaste) they instead created a word informally used by Spanish speakers to mean “to suck” in sexual contexts. And look, I get it, Hispanics are usually very easy-going, but that still doesn’t make it okay for a company older than Girl Scout Cookies to have derogative ad copy.
Unlike the examples above, newcomers and start-ups who step up to the plate and cater to the US Hispanic consumer have a chance to undercut big players and make it big. However, it’s important to understand consumer behaviors among US Hispanics and further distinguish between Hispanics residing in the United States. After all, the easiest way to get in trouble in a Hispanic neighborhood is by calling every single Hispanic Mexican. When I was studying abroad in Spain, this video was played in our Spanish class. It truly drives home my point: Hispanics are very different and even though we speak the same language, we don’t entirely use it in the same way.
U.S Hispanic Consumer Behaviors
If you are a U.S. Hispanic, you probably grew up with parents splurging on tech (bluetooth, connected devices, 4K TV sets, VR, etc). On Christmas Day, the most enviable (yet, common) presents were the latest iPhones, Beats, or IoT toys. It’s not uncommon to see a grade school kid and a mother gifted the same iPhone. In fact, I remember one Christmas my then 9-year old brother and my then 23 year old sister both received an Iphone. And guess who received the newer version (hint: it wasn’t her).
My point is, across socioeconomic classes, Hispanics’ disposable income is unproportionally going to screens (of all types) and tech toys. I mean, just go into your Hispanic friend’s home: they are likely to have more TV screens than people residing in that household. In fact, a bewildering 29% of US Hispanics planned to purchase a new TV set just ahead of the superbowl — guilty as charged. Heck, when my family moved, we bought TV screens for every room even before the living room was furnished. Technology — especially newer tech, is significantly more tempting to hispanics.
But why? It has to do with a hispanic’s innate curiosity and desire to test the untested. In techie terms, Hispanics are early adopters and cross the chasm before most.
Unsurprisingly their phone is their preferred tool for discovery, and they are more engaged with their mobile devices than the everyday crowd. What’s more, Hispanic consumers are more likely to have intentionally clicked on an ad they saw in an app on their phone — not unusual, given their love of this device. Then, they are nearly twice as likely to spread this newly found information with their communities (that happened to be quite diverse themselves). If that’s not enough to entice marketing execs, Hispanics also review products and services online at higher rates than their non-Hispanic counterparts.
Results from Facebook Ad Experiment
Given U.S. Hispanic consumer behaviors (see section above), I ran a short 2 week long experiment on Facebook to prove out my hypothesis.
My hypothesis: Targeting US Hispanics via paid social is cheaper and more effective (higher click-through rate) than targeting their white counterparts.
Experiment: I created a landing page for a fake sunscreen brand, Bounce Skin, with a fake first product, an SPF mist. I created a couple of ads. Then, for 2 weeks, I bought ads on Facebook targeting two audiences I identified: basic white girls vs. Hispanic girls. I directed audience from Facebook to the landing page —
Example of ads used:
- 68% of women were between the ages of 25–34 years old
- Geographies were strongly in hispanic communities (38% Texas, 28% Florida, 13% New Jersey, 12% California)
- A total of 117.5k impressions
- A total of 2,091 clicks
- In Hispanic audience: $0.06 per click
- In white girl audience: $0.33 per click
Based on the early results of my short experiment, I agree with the data points that have been collected by various organizations in the past years: using ads to target the U.S. Hispanic community can be cheaper and yield higher conversation rates than targeting the same buyer most consumer start-ups target (white, Gen Z/Millennial females).
Disclaimer: This hypothesis is not meant to be a full study into ad behaviors of U.S. hispanics, but rather, incentivize others to look deeper into this under targeted audience.
The Hypercultural Latinx
While the mentioned above behaviors are generally true among all Hispanics, there are certain characteristics of second generation+ hispanics that make them an even better niche audience to capitalize on. The definition of second generation hispanics is often disputed, but here, we are referring to those among us that were born in the U.S. to parents born in spanish speaking countries. This generation often feels like they have one foot in the US and the other in the parents’ country of origin. While some may argue this group is fairly “whitewashed” with many similarities to their white counterparts, I think that just implies having taken a cursory look at the demographic. If you look beneath the surface, hidden in plain sight you’ll notice the rise of what I call the “Hypercultural Latinx” —
- She/he is a second generation hispanic and is drawn to content that reflects his/her culture
- Language remains important to her because language is intimately connected to identity and an important part of culture and tradition. With 72% of US hispanic households predominantly speaking Spanish, language literally hits close to home
- She is 100% Hispanic and 100% American. She has all the cultural richness and traditions of her heritage, while seeking all the opportunities that the new American life can give her.
- She excels at creating a pseudo culture based on a blend of his/her parents’ upbringing and her everyday experiences in the U.S.
- She knows the narrative of her/his life is frequently absent in the media.
- She is 87% more likely to use Whatsapp than her white cohort
A Whitespace for Startups
I hope by now I have convinced you that the US hispanic millennial is coveted and looking to put their dollar where their mouth is — in products and services that just get them.
So, how do you “get them”? While the answer to that question is as multifaceted as they are, I believe the brands doing it best don’t even exist yet. And there’s a reason legacy companies with heavy balance sheets aren’t leaders in the space — fear. Fear that you’ll do more harm than good. There’s risk associated with offending the same audience you are trying to captivate. Just look at the beauty industry and it’s often associated race problem. Even beyond beauty, companies keep getting it wrong. Given the nuanced differences that exist between Hispanics, it’s not incredibly hard to come off as tone deaf. However, it is going to take a lot more than just translating digital content from English to Spanish. And those best positioned to carve a share out of the Hispanic market? Start-ups.
Start-ups have the benefit of having no history of bad marketing or image problems (well at least most do). Instead, they can start from scratch and build a brand from the ground up dedicated to the Hispanic millennial. Start-ups that have a genuine reason to seek out the Hispanic youth (aka the hypercultural latinx) are more likely to succeed if the founder’s ethos aligns with its audiences’. I’m not saying the founder needs to be Hispanic; but, I do think we can’t undermine the importance for him/her having shared life experiences (struggles and celebrations alike) with its core audience. For example, Spiritu, a Latina subscription box, reaches over 125,000 Hypercultural Latinas by capturing relevant moments in a Latina’s life and using the founder’s knowledge of living the Hispanic life in Los Angeles. There is also venture-funded Mitu, a video-focused start-up, that strikes a huge chord with online Latino viewers by focusing on content like Tik Tok Queen Rosa, Latina Twitter trends, and the drop of Latinx emojis.
US Hispanic considerations in the face of COVID-19
It’s impossible to write anything nowadays without mentioning the white elephant in the room: COVID-19. The entire world is in survival mode right now. So, what does this mean for US Hispanics? How does this change their disposable income priorities? How is their day to day changing, and what habits are going to stick past pandemic? While most answers remain uncertain, it’s clear US Hispanics are already being affected by Coronavirus. Because, although the virus doesn’t discriminate, Latinos are being disproportionately hit by COVID-19.
US Hispanics are more likely to see COVID-19 as a threat to their health and finances. For one, nearly ⅔ of them work in jobs where healthcare insurance is not a given. Secondly, most are at risk of financial instability given their jobs are overwhelmingly in sectors that have been mandated to be closed by government authorities. These sectors include hospitality, food & agriculture, hazardous materials, and transportation and logistics.
Although US Hispanics are a conflation of people from different generations and countries, a large portion of those laid off or had pay cuts are younger, second generation Hispanics. This younger generation has expressed concern for their own financial well-being at higher rates than their white counterparts. These 25 to 35 year old Hispanics without full-fledged careers yet are susceptible to downhill economic situations.
Thus, with a large influx of layoffs affecting Hispanic millennial livelihoods, what will they do? Well, they will do what Hispanics do best: survive and then thrive. After all, we, as Hispanics, can lean on the fact that we are people of resiliency.
If there was ever a time to get your side hustle on, it is now.
The biggest 1st order trend affecting US Hispanics is the new world gig economy. With a surge in labor supply, the unemployed will be looking for conventional and unconventional ways to make money aka side hustles. Those companies that can are already looking at ways to tap into this unemployment pool. For example, Il Makiage is hiring part-time make-up artists that can give its customer base virtual makeup tutorials.
However, it’s not about rescuing the existing labor market, but innovating around it — giving rise to this new world gig economy.US Hispanics are particularly well-suited for exploring these jobs in the new world gig economy: jobs at the intersection of the gig economy and the passion economy. For hispanics, the key lies in elevating the conventional gig and transforming it into something more meaningful and lucrative. How? Well, in the same way Herbalife allowed our hispanic mothers and grandmothers to turn a gig, part-time job into a purposeful career. In today’s world, those hispanic mothers now translate what I’m calling the new, inspiring social guides (more on this later).
A Quick Lesson on Herbalife
TLDR: Herbalife grew its dietary supplement business to a valuation of over $5B by using a powerful ambassador-like program consisting of mostly Hispanic women selling into their local communities. In VC terms, Herbalife would be 5 times a unicorn!
Although Herbalife was started by a white businessman who first sold products out of his car trunk in the 1980s, the real customer quickly became the Hispanic matriarch. Nowadays, 80% of Herbalife’s sales come from the Hispanic audience and its robust distribution channel of Hispanic women. Herbalife is the best kept secret among Hispanics. Outside of the Hispanic community, no one talks about it. Yet, as a participant in the Hispanic community, Herbalife is all over. Herbalife is what I grew up with. It’s one of the few products that remained constant in my life when my family first moved from Mexico to Texas when I was 8 years old. It’s what I drank for breakfast every morning through middle and high school. It’s what became part of my pre-race ritual through all of my high school cross country races. In fact, it’s what still sits in my Bay Area apartment and the first thing I reach for every morning. Even though I am no longer living with my parents (who first introduced me to the products), every time I go home to Houston, I make sure to take a bottle of Herbalife from my family home. I can firsthand tell you, it’s impossible to walk into a Hispanic's home pantry and not recognize the large, bulky containers of Herbalife. Herbalife is to Hispanics what Starbucks coffee is to white girls.
If you are at least remotely acquainted with the venture industry, you probably read Marc Andreessen’s famous Call to Build. Well, I challenge those of you thinking about “building” to consider creating the next gen Herbalife. As an investor, I would love to see start-ups targeting U.S. Hispanics that are innovating on: 1) business models, 2) customer acquisition tactics, 3) ways to achieve product stickiness, or 4) repurposing proven models in other audience segments.
Disclaimer: Although Herbalife gets a negative rap in the media because of its pyramid scheme ways, I believe elements of Herbalife’s go-to-market are very powerful and worth implementing by new start-ups. Afterall, name a product more ingrained in Hispanic culture than Herbalife? I’ll wait…
Becoming a Venture-Backable Start-up in this Space
However, not all start-ups merit venture capital. VC is a power tool and in order to merit venture capital, you need to want to become a player in the billion dollar+ game (read: venture returns). Check out this 30 second clip from the TV Show, Billions. The female clearly hadn’t thought about the overall business plan and its components (go-to market, business model, customer segments, etc). As a venture investor, I want to see more than just cookie cutter answers. Frankly, I’m jaded by those. So, when it comes to building a venture-backable start-up targeting the hypercultural latinx, I want to see a hypothesis around ability to scale. So, how does a start-up in this space show opportunity for scale? Two things: A platform approach and an army of social guides.
A platform approach is a somewhat newer business model start-ups have been testing to varying degrees. The approach entails creating an organization of brands that later spew out new brands horizontally or vertically. This approach diversifies risk and enables a start-up to share infrastructure and supply chain across the different brands. An example of this is the company behind my favorite over-priced lemon drink, Iris Nova or Glossier-team spin-off, Arfa. For the Hispanic market, that means a family of brands targeting a segment of the Hispanic market. Miami-based Carson Life uses a celebrity heavy go-to-market to attempt to become a modern-day nutrition brand. I spoke with the founder, Sonia, and she mentioned aligning celebrities with specific product launches has been key. She also noted creating a family of brands as opposed to just a standalone brand is what gives her confidence that she will be able to scale when the time is right.
An “army of social guides” approach is my way of explaining using Herbalife-like tactics (without the pyramid schemes) to scale a start-up. In today’s coronavirus world, it’s a way for unemployed Hispanic millennials to legitimize their side hustle. It’s using an affiliate and a referral program on steroids where the key contact is the ‘social guide’. This social guide is inspiring and looked up to by the hypercultural latinx population. Look, in the same way my Gen X mother and her friends get their nutritional supplements from Herbalife and their hair products from Monat; and my father and his friends get their health products from Immunotec, I know my generation, the hypercultural latinx, are looking for our own aspiring brands and products to become loyal to. After all, it’s innate to Hispanic culture to be social, so buying socially and through each other makes perfect sense.
At the end of the day, startups should also bear in mind the needs of their customer base and create overlooked opportunities. For example, one of our investments, Habit Skin, noted hypercultural latinx are obsessed with their skin appearance, yet have difficulty re-applying sunscreen. Thus, Habit, created a product around the reapplying sunscreen use case and is actively testing with this customer segment. This mist SPF product works well with Hispanics given their naturally oily skin tones. Similarly, Lelu noted a large amount of second generation Hispanics were marrying non-Spanish speaking spouses. Thus, it was particularly hard to keep Spanish as a language spoken in the household (especially as children were born). Thus, Ana the founder created a family-oriented solution around helping these types of family dynamics retain and teach Spanish to the non-Spanish speaking spouse and children.
I suspect the new darling of the VC world will be solving problems for the hypercultural latinx.
Montanez might not have had a high school diploma, but he did have a P.h.D. — not the kind you’re thinking though. He was Poor, Hungry, and Determined. And with that, he went from janitor to the backbone of the Frito-Lay empire.
It has now been 40ish years since Montanez presented to a group of Frito-Lay executives. Lucky for us, thanks to innovation in technology, you don’t need to wait another 40+ years to successfully target U.S. Hispanics again. Actually, you don’t even need the backing of a massive snack conglomerate. Just look around you, more and more start-ups are being started on shoestring budgets — RxBar started with a $10k budget, Mailchimp bootstrapped its way to $700MM in revenue, and Shopify ran independently for 6 years before taking VC funding.
If you remember one thing from this article, let it be this: the hypercultural latinx is more than just a cute phenomenon. She is where tons of unspent dollars lie. However, you have to know where she hangs out, what content she consumes, and who inspires her. Chances are, she is hidden in plain sight.
For founders that truly care about the U.S. Hispanic market: define your space, leverage your edge, and run with it. Have that and you’ll likely attract the right venture investors.
Winning over the multi-faceted Hypercultural Latinx is not easy, but startups that successfully do so attract my attention and my investment dollars.
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