Money Mondays: The Business of Black Business

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Tom: Today you’re giving us an update on the state of Black entrepreneurship.

Mellody: I decided that a good way to close out Black History Month would be to look at the future, and what better way to do that than highlighting those in our community that are striking out on their own to start new, innovative products and services? And it isn’t just the future of our community, Tom.

As the country becomes increasingly Black and Brown, minority entrepreneurs and businesses are becoming a larger, more important share of the economy as well. However, a recent survey tells us there are some obstacles to growth which need to be addressed so that Black business can achieve its full entrepreneurial potential.

Tom: What role do Black entrepreneurs and business currently play?

Mellody: We have talked a bit about this before. Right now, the growth in the number of minority owned businesses – those started by people of color and those started by African-Americans alike – has far surpassed the national rate of business starts. In the wake of the great recession, people of color have played an outsized role in new business creation.

The economic impact of MBES is substantial, with $400 billion in output each year — or over $1 billion per day — 2.2 million jobs, $138 billion in salaries and $49 billion in tax revenue. Black entrepreneurs have been on the forefront of the urban revitalization that we have seen take place from Brooklyn to Oakland. And all of these new businesses are responsible for a significant amount of hiring in these cities as well. Put simply, Black-owned businesses are growing and are poised to continue to play a key role in future economic growth in the us.

Tom: So what are the challenges that these business owners face that are highlighted in this survey?

Mellody: The national survey – released by the National Minority Supplier Development Council, an organization that promotes business opportunities for minority-owned businesses and connects them to corporations – reveals that minority business enterprises frequently encounter issues in securing access to capital. Of the minority-owned businesses surveyed, 70% are seeking to grow legacy or lifestyle businesses. But because private equity and venture capital are forms of institutional capital structured towards high growth, and usually require an exit event, there can be a misalignment of goals.

So, despite the progress made by Black entrepreneurs over the past 20 years in particular, access to the predominantly white private equity, angel investor and venture capital communities that have driven investment in the innovative new companies and industries currently fueling our economy, continues to be a challenge. On top of that, education and perception remain problematic. More than 50% of survey respondents have little or no knowledge about these areas of finance, and 25% of minority owned businesses surveyed have a negative or extremely negative perception of venture capital, the highest across all categories identified.

And because of this lack of capital, Black-owned businesses face challenges achieving scale. It’s relatively easy to start a business, especially given the popularity of entrepreneurship as a viable and legitimate career objective among younger americans, and young Black Americans in particular. The challenge today for Black-owned businesses is achieving the scale necessary to compete, whether for government contracts or to do business with large multinational corporations.

Tom: Are there any efforts underway to change this?

Mellody: That is the good news, Tom. We have started to see initiatives to confront the capital problem gain traction. Last fall, a number of players from the predominantly white and male venture capitalist sector met with President Obama to advance opportunities for people of color and women in the entrepreneurial ecosystem. According to the White House, over 40 leading venture-capital firms managing more than $100 billion made commitments to such efforts, and institutional investors pledged over $11 billion to create a more inclusive environment for minority-owned business enterprises to identify and obtain capital funding.

Beyond capital, we have seen access to education and mentoring for people of color expand. Around the country, we are seeing greater focus on diversity and inclusion in business schools. And as the number of minority entrepreneurs has grown, the number of organizations, associations, and other groups that have formed to provide assistance and information to minority-owned businesses has increased as well.

Tom: It sounds like there is a lot of Black history ready to be made in the business world!

Mellody: Absolutely. The importance of minority-owned businesses to our communities, and the broader economy cannot be overstated, and we need to continue to advocate for resources and programs that level the playing field and provide the support structures to help Black entrepreneurship flourish.

Tom: Agreed! Thanks for joining us, Mellody!

Mellody: Have a great week, Tom.

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