Part Two: The Rise of Minority Entrepreneurs

While many minorities have retreated from being members of the investor class, they are becoming business owners or self-employed. Kauffman Foundation recorded in their 2017 surveys that 24% of new entrepreneurs were Hispanic, 9% were blacks and 7.5% Asians and slightly over 40% of new business formation were started by minorities. Twenty years ago, only 22% of new businesses were formed by minorities, so we are witnessing an entrepreneurship revolution invisible to many Americans. Blacks, Hispanics and Asians are now becoming capitalists. While Hispanics and blacks have seen their overall wealth decline due to the housing crisis and reduction of the investor class, many blacks and Hispanics are taking fate into their own hands, much of it due to necessity. As the Kaufmann Foundation report on entrepreneur noted, “The Rate of New Entrepreneurs coming from individuals who are not unemployed and not looking for a job (i.e., “opportunity” entrepreneurship) was substantially higher than at the end of the Great Recession.” Throughout much of the Obama administration and following the Great Recession, necessity became the mother of entrepreneurship but as the recovery proceeded, business creation became less for the reason of necessity but opportunity. As Kaufmann Foundation observed, “The largest share of ‘opportunity’ entrepreneurship occurred at the height of the ‘Roaring Nineties,’ and the smallest share was in 2009 at the end of the Great Recession. The share of opportunity business creation also decreased in the recession of the early 2000s and increased in the following growth period in the mid-2000s. It is important to note, however, that, although the motivation for starting businesses when economic conditions are weak and unemployment rates are high may differ from the motivations behind those created in stronger economic conditions, many of these businesses eventually may be very successful.” For many minorities, it is necessity that is driving startups. (1)

In 2015, Hispanic owned businesses hit the 4 million mark nationally in 2015 which represents 23 percent over the last official census release and this represent a growth rate of 15 times the national average.

Since 2012, 750,000 new Hispanic businesses have been formed and this represents 661 billion dollars in revenues. This growth occurred in Midwestern states and Western states including Minnesota, Iowa, Missouri, Nebraska, North Dakota and South Dakota as result of Hispanics moving into the Midwest due to many factors including lower cost of living relative to other regions just as California. The West Coast still continues to have the largest number of Hispanic business with over 1 million but Hispanic growth in business startups are up over 20% across the country. (2)

Javier Palomarez, President and CEO of the U.S. Hispanic Chamber of Commerce observed, “Hispanic businesses are the future of our nation's entrepreneurial activity… The remarkable gains our Hispanic business community has made in the past year are both inspiring and encouraging — our members are proud to be the future builders of the American economy."

Cesar M Melgoza founder of Geoscape added, “The more you do the math, the more you realize that Hispanic businesses are not just part of the future, they're also a huge component of our present economy. Our leaders need to understand their importance in driving the American economy, and they will only grow in importance in the future.”(3)

While the majority of businesses are run by men, women owned businesses grew four times the rate of male owned business. Nearly 90% of women owned business were sole proprietors, the only employee was the owner and these businesses produced $1.6 trillion dollars and many of these increases came from black and Hispanic women. One reason was that many Hispanics and black women are the sole financial head of household compared to Asian and white women, necessity is a significant reason for this trend as black and Hispanic women start businesses just to have a job.

From 2002 to 2007, black businesses grew 60% but this slowed down to 35% due to the impact of the Great Recession. Black entrepreneurs still are growing and there are over 2.6 million black businesses and self-employed.

Census bureau data shows that black entrepreneurs are 75% more likely to be younger than the age of 35 than non-minorities. This is a trend across all minorities and minority firms are younger and more likely to have been in business for less than five years. 13% of black businesses have been operating for less than five years. As minority firms grow and mature, they provide wealth to the community. Minority firms that existed over 22 years earn ten times more than those less than five years old.

9% of black companies are family owned and firms with multiple or family owned outperform the single owner businesses in sales and employment. Firms with multiple owners have five times the employees and revenues than single owner firms. 25% of minorities don’t use financing and nearly 60% uses either family or personal savings, and minorities depend less on startup financing than non-minorities.

Nearly double of non-minority businesses use private business loans compared to minority but minority owners are more likely to seek additional financing for business expansion and much of this comes from family savings, their own assets and credit cards. Minorities were twice as likely to be unwilling to seek private financing and this does hamper business expansion since businesses that receive private loans have higher sales and employment.

Black and other minority firms are important aspect of the economy, At least 40% of businesses in the following states are minority owned: Hawaii, District of Columbia, Texas, Florida, New Mexico, California and Georgia.(5)

Babson Global Entrepreneurship Monitor research showed that blacks look to forming new businesses out of necessity due to lower education levels than their white peers along with limited access to employment opportunities and financial resources. (6)

38% of black businesses are in health care and social assistance, repair and maintenance, laundry services plus blacks are moving into advertising firms, auto dealership, barbershops and beauty salons.

World Wide Technology out of Saint Louis is the largest black owned company, worth more than 2 billion dollars, founded by David Stewart. Other black businesses generate millions in revenues including Oprah Winfrey’s Harper production, Bob Johnson’s RLJ Companies and advertising agency Global Hue. (7)

While black businesses lagged behind the growth of other groups, black businesses are growing. Economics professor Thomas Boston at Georgia Institute of Technology and black firm owner attributed this deficit to the fact that black entrepreneurs start out with less money and were hurt more by the recession. While growth slowed down from the 60% growth in the years leading up to recession, black growth was still 35% from 2007 to 2012.

Malcolm Crawford, founder of a minority business association in Chicago stated, “Entrepreneurship is just not pushed in our community. We teach our children to go to college so they can get a good job. We don’t have any place for them to come back and use what they learned at college inside the family business.” (8) The growth of black entrepreneurship has occurred when the economic prospect for many blacks have declined, and many blacks have left the investor class or suffered from the housing crisis. This growth can begin an economic renaissance within the black community and begin the process of recreating wealth among blacks, allowing them to rediscover capitalism.

Connie Evans, President and head of the Association for Enterprise Opportunity observed, “Business ownership is the greatest equalizer in wealth disparity. In our study, which took more than a year to complete, researchers found that the gap in average wealth between black and white adults decreases from a multiplier of 13 to 3 when you compare the wealth of business owners by race.”

Evans point is that black ownership will lead to wealth creation for blacks and she added, “Most black-owned businesses are small businesses, which often hire from the communities they serve…Assuming these firms hired mostly black people from those communities, it could reduce the rate of black unemployment to about 5 percent. That would give even more people the chance to provide financial stability for their families, positioning them for success in life, while strengthening areas that need an economic boost the most. Entrepreneurship mustn’t be stifled, but rather nurtured and supported. It’s the pathway to the kind of change that can transform entire communities.” If black owned firms matched other privately held firms, Ms. Evans stated this would create additional 600,000 new jobs and bring 55 billion dollars to the U.S. economy and as she paraphrased the famous John F Kennedy quote, ‘A rising tide lifts all boats.” Evans point is that what many leftists declare trickle-down economics is what the black community needs. Evans noted, “It’s the perfect time to remind people that entrepreneurism is a powerful vehicle for economic change, one that can and does make a difference for many communities— including the black community.” (9)

Evans mention that many black companies suffer from what she noted, “The Wealth Gap, Credit Gap and Trust Gap.” The Wealth Gap translate into less income and assets from friends and family to invest in business where Credit gap is decreased access to formal credit or high rejection rates from banks. You add Trust gap that many blacks do feel when approaching traditional financial institutions but many blacks are overcoming these obstacles as Evans discusses the case of Ardina Pierre who started her own herb shop and found help through a non-profit Access to Capital for Entrepreneurs when she obtained loans to help grow the business. (10)

Footnotes
1.2017 Kauffman Index Start Up Activity National Trends
2. https://www.purdue.edu/supplierdiversity/about/catalyst-spring2016/hispanic-owned-businesses.html
3. https://www.purdue.edu/supplierdiversity/about/catalyst-spring2016/hispanic-owned-businesses.html.
4. U.S. Sees Big Spike in Black and Hispanic women by Tanzina Vega Money August 20, 2015
5. Minority Business Ownership; Data of the 2012 Survey of Business Owners, Michael McManus Small Business Adminstration September 14, 2016.
6. Black Businesses Are on the Rise in The U.S.by Chauncy Alcorn September 1, 2016 Fortune
7. Black Business.org editorial.
8. Number of Black-Owned Businesses Grow but Still Lags Behind Growth of Other Groups by Tanasia Kenny Altanta Black Stars.
9. Black entrepreneurs are the key to reducing wealth by Connie Evans, Huffington Post May 4, 2017.
10. Black entrepreneurs are the key to reducing wealth by Connie Evans, Huffington Post May 4, 2017