Perspectives on Black Entrepreneurship and Business Growth

Some of the commentaries excerpted here relate to the US Census Bureau’s report on the growth of black-owned businesses–for highlights of the report, visit this page on this website: The Growth of Black-Owned Businesses

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BET Founder Robert L. Johnson on Entrepreneurship and Wealth: Creating Opportunities and Access to Capital. June 18, 2012.

Excerpt:
…There is a racial component to the employment and wealth gap between African Americans and white Americans that has to be addressed. Unfortunately, this country is uncomfortable with addressing that racial component but until we have a real dialogue about it, that gap is going to grow wider.

To address this compelling national crisis, I suggest that if we are going to close the wealth gap, we must engage in a dialogue about race-recognition remedies at the highest levels of government, as well as between Black and white Americans. I recognize that public policy based on racial preferences is extremely provocative and controversial, but controversy should not prevent a reasonable dialogue about a societal dilemma that is real and economically devastating in its potential to millions of African Americans.

I wish the answers to close the growing wealth gap were as politically palatable and acceptable as proposals to make our public schools better for minorities, to retrain minority workers for the new jobs market, and aggressively enforce laws against racial and economic discrimination. Over the years, this Nation has been committed to all of these objectives, but these efforts have not and will not close the Black wealth gap. Therefore, to initiate a dialogue on how to enhance Black businesses and increase Black wealth, I propose the following policy proposals:

1. Allow black businesses to be eligible for government set aside contracts if they own 10 percent of a business rather than the existing 51 percent rule due to the 10-to-1 wealth gap; and significantly increase the dollar volume of set aside contracts for Black businesses across all government agencies.

2. Encourage majority-owned businesses to invest in black-owned companies by deferring the taxes on the economic gain similar to the FCC “tax certificate program” which motivated major media companies to sell to minorities.

3. Allow African American families earning less than $250,000 annually to defer federal income taxes, without interest, provided tax deferrals are placed into a 401(k) type savings account which can only be drawn out at retirement or upon death at which time the government would be reimbursed for the deferred taxes. The gain on the 401(k) investment would be available to the families at retirement or passed on to future generations.

4. Create a Treasury-backed fund to securitize short-term borrowing or emergency loans made by minority banks or other lending institutions to Black families provided these loans are marketed and made in a regulated and transparent manner. The securitized loans would encourage banks and lenders to make short-term or emergency borrowing available at reasonable rates and end
“payday” lending as we know it today.

5. Require large banks under the Community Reinvestment Act to fund a nationwide marketing campaign targeted to the Black community with a focus on financial literacy and savings.

Many of these proposals are incorporated in some form or another in current policy and are usually based on economic disparities — for example, the poor versus the rich but these policies do not acknowledge the racial nexus of wealth disparities between Blacks and whites.  With African Americans facing a wealth gap Tsunami, we must address these important issues.
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National Urban League – State of Urban Business 2011 Website
State of Urban Business 2011: US Cities that Lead the Way – Report. National Urban League

This reported is also excerpted in: The State of Black America 2012

From the Executive Summary: 

Findings:
1. The greatest weakness in African-American entrepreneurship is not in starting businesses, but rather in growing these businesses to a scale sufficient for sustained and significant revenue generation.
2. For young firms (5 years), the ability to expand the customer base beyond individuals and to conduct a larger share of business with other businesses and the government is critical to firm growth and survival.
3. While the most challenging problems facing all businesses since 2008 have been slow or lost sales and unpredictability of business conditions, an “inability to obtain credit” remains more of an obstacle for African-American business owners than for any other group.
4. Black-owned firms are most likely to receive business training, mentoring or technical assistance from lower cost providers like the SBA or a non-profit association for small businesses.

Based on these findings, NUL offers  the following recommendations for growing and strengthening black-owned as well as other minority-owned businesses:

1. Increase funding available for small business loans.
2. Raise the set-aside cap for government small business contracts.
3. Unbundle federal contracts and clearly define” small business” to  increase access to opportunities for small business.
4. Establish robust small or minority business set-aside or procurement goals at all levels of government (federal, state and local) and implement third party monitoring of these goals.
5. Encourage support for private sector supplier diversity programs.
6. Establish a permanent and focused minority and urban business technical assistance fund.
7. Permanently eliminate SBA loan guarantee fees.

For more, see on this website: The National Urban League on Urban Business & Entrepreneurship
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New Poll Finds More Than Half of Millennials Want To Start Businesses. Access to Capital and Lack of Know-How Are Key Barriers. Young Invincibles Policy Brief. Kauffman Foundation. Nov 2011.

Young Americans, especially young people of color, would like to help get the country working again by starting their own businesses….With more than 50 percent of survey respondents who have not yet started a business stating that they would like to one day, it is safe to call this generation an entrepreneurial group. Indeed, the idea was equally as popular among 18- to 24-year-olds as it was among 25- to 34-year-olds, and, in fact, was even more popular among some demographics. Young Latinos and African Americans (64 percent and 63 percent, respectively) are even more motivated to start their own businesses.

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Beyond Self-Employment. Earl G. Graves, Sr. Black Enterprise. August 2011  

Earlier this year, much was made—by everyone from the Obama administration to minority business advocates across the country—of the amazing growth in the number of businesses owned by African Americans. Indeed, the numbers are impressive: Black-owned businesses grew faster by numbers (60.5%, to 1.9 million) and revenues (69%), and employed people at a higher rate (22%) than non-minority-owned businesses between 2002 and 2007, the most recent years for which U.S. Census figures are available.

However, black-owned businesses still make up only 7% of U.S. businesses, although African Americans constitute 12% of the population. Of the 1.9 million businesses owned by African Americans, in 2007 only 106,824 had paid employees. Average receipts for black-owned employer companies came to $925,427; for the remaining 1.8 million black-owned non-employer businesses, receipts came to $21,263—not enough to keep a family of four above the poverty line. And let’s not forget that these figures precede the Great Recession. With the resulting credit crunch, lack of access to financing, and decline in consumer spending, there’s little reason to believe that those numbers haven’t worsened over the past four years. Now, put those figures alongside these: While national unemployment stands at about 9.2%, black unemployment is 16.2%. It’s 17% for black men.

If it sounds as if I’m trying to provoke a sense of urgency, I am. It’s not enough to just create self-employed black entrepreneurs; we must build more black-owned employer businesses that create jobs.

Now, the government has a role to play in this, as well as the large multinational corporations that have shifted much of their job creation power to foreign markets, where, not coincidentally, they are achieving much of their revenue growth. Initiatives such as the Urban Entrepreneurship Summit held by the White House and the Startup America Partnership in Newark, New Jersey, in June, should be supported, expanded, and applauded. But before we look to others for solutions, we need to check our own mirrors and challenge ourselves to set our sights higher.

Only a few generations ago, when intrepid black entrepreneurs such as John H. Johnson, Madam C.J. Walker, Arthur G. Gaston, and others built business empires in the early to mid-20th century, they did not have access to higher education, senior management experience in corporate America, or training in the financial markets of Wall Street. They were locked out of doing business with city, county, state, and federal governments. They had no hope of landing a contract with the large corporations of their day. They were almost totally limited to selling to black consumers at a time when the income level of that market, hardly a generation removed from slavery, was paltry compared with African American income levels today.

And while they were largely barred from competing for the business of white consumers, white-owned industry could compete in and even dominate the black consumer market with impunity. There was no Minority Business Development Agency, no minority vending programs, or diversity initiatives. Instead, there was Jim Crow, and lynching and race riots were constant threats to black entrepreneurs and business communities (such as “Black Wall Street” in Tulsa, Oklahoma) that were deemed too successful. Yet Johnson, Walker, Gaston, and countless other black entrepreneurs built businesses that created jobs, and even helped to create other employer businesses.

Can we do no less in 2011? No matter what challenges we face today as entrepreneurs and aspiring business owners, we cannot. We must focus more attention on building scalable, black-owned businesses in industries that are most likely to create jobs for people who are disproportionately unemployed, such as African Americans, particularly in urban areas. Self-employment is not enough.
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Why Black Entrepreneurs Must Create the Next GoogleDerek T. Dingle. Black Enterprise. August 26, 2011. How to succeed in the “Innovation Economy”

Create or die. That’s how “digital content architect” Michelle Ferrier dubs her program that brings together journalists, business owners, educators, programmers and the like to conjure up new vehicles for consumers of media. Moreover, it’s a fitting message for entrepreneurs in today’s unmerciful business climate.

While in Philadelphia attending the recent National Association of Black Journalists conference, I had the opportunity to meet Ferrier and a score of dynamic entrepreneurs, financiers and journalists during a special lunch meeting at a local Italian eatery. As you would expect, informal chats and introductory conversations eventually turned to our most pressing issue: The devastating impact of an alarmingly high Black unemployment rate of 16%. Instead of sharing a series of doomsday scenarios though, each attendee focused on targeted, long-term solutions.

The universal answer in the room could be boiled down to job creation through entrepreneurship. To do so will require adopting a philosophy akin to the one that drives Ferrier’s program: “Innovate, incubate, initiate.”

According to Deputy SBA Administrator Marie Johns, self-employed individuals represent 95% of roughly 2 million black-owned businesses nationwide. So it will take  individual effort and partnership with government, corporations, foundations, HBCUs and other institutions to build Black enterprises of considerable size and scale.

Boldly participating in today’s “Innovation Economy,” Black entrepreneurs must create the next Google, Facebook, Apple and IBM.

The gathering and an NABJ session on start-up capital was organized by Mike Green, a journalist who lectures and writes a blog for the Huffington Post on innovation and business. Along with bio-life scientist Chad Womack, entrepreneur Johnathan Holifield and journalist/entrepreneur Sheila Brooks, he operates the Black Innovation and Competitiveness Initiative. Green says: “We are supported by three essential pillars of innovation — education, capital and entrepreneurship — and our strategy seeks to leverage existing assets within Black communities to create new opportunities and ensure competitiveness.” BICI is teaming up with Rutgers University and the White House to produce a major innovation forum for minority entrepreneurs on Nov. 17.

From developing digital-driven business models to advocating STEM — science, technology, engineering and math — education for minority youth, many have embraced the charge. For example, William Crowder, a managing director with DreamIt Ventures, an outfit that offers capital and coaching to start-ups, shared how Comcast Minority Entrepreneur Accelerator Program he now oversees will produce next-generation tech firms. Tim Reese, co-founder of  Minority Angel Investor Network, discussed investment in high-growth minority-owned companies. Hezekiah Griggs III, a managing partner of venture firm H360 Capital, spots “early-stage start-ups with market-disrupting ideas.” In fact, our August issue of BLACK ENTERPRISE reported on Silicon Valley-based NewMe Accelerator, an incubator  providing instruction, technical expertise and potential financial assistance to emerging digerati.

Organic growth from start-up to established firm tends to be a long-term proposition. Those with the right concept, backing and management team can grow to become employment machines and powerful game changers. The most successful of the lot will join the ranks of the BE 100s in coming years.
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Black Businesses: The Key to the Jobs Crisis? TheRoot.com. June 6, 2011

On Monday the Obama administration teamed up with Rutgers Business School in Newark, N.J., for the first ever Urban Entrepreneurship Summit. The all-day brainstorming event united entrepreneurs, government officials, and private capital resources to find new ways to support job growth in America’s cities. Expanding on President Obama’s oft-repeated claim that the nation’s economic problems cannot be solved by government alone, the summit focused on building new public-private partnerships to spark urban job creation.

Although the event had a catch-all “urban” branding, there was a clear emphasis on African-American entrepreneurship with speakers including hip-hop mogul Russell Simmons, Black Enterprise editor-at-large Alfred Edmond Jr., Carol’s Daughter CEO Lisa Price, financial literacy activist and Operation Hope founder John Hope Bryant, political commentator Jeff Johnson, and media entrepreneur Quincy Jones III. Breakout sessions included discussions on the barriers facing urban entrepreneurs (including existing federal regulations that may be a hindrance), creative funding solutions such as a possible “Urban Entrepreneurship Fund,” existing public-private partnerships available to entrepreneurs in underserved areas, and personal narratives from business owners who have successfully grown their companies from the ground up.

“We are in an interesting time because, for all of the challenges that are working against us, we also find ourselves in a time of profound opportunity and tremendous possibility,” said Newark Mayor Cory Booker in the summit’s self-determination-focused opening remarks. “It’s not just going to happen by government. It comes down to us in our communities, families, neighborhoods, and the decisions we make to go after them.”

…To reassure skeptics that the summit will be more than motivational lectures that nobody speaks of again after folks go home, the White House announced on Monday that Newark is taking a new step to boost urban entrepreneurship. The Institute for Entrepreneurial Leadership, a local non-profit that supports economic opportunities for inner city residents, says that the White House inspired them to negotiate a deal with a local building complex: they’ll be opening a small business center, offering low-cost office spaces and conference rooms, as well as training to aid business startup and accelerate growth.

For more on the Urban Entrepreneurship Summit, visit: Entrepreneurship Initiatives 
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The Growth of Black-Owned Businesses: Entrepreneurship by Necessity.  Marc H. Morial, President/CEO, National Urban League. February 23, 2011

“I had to make my own living and my own opportunity!  But I made it!  Don’t sit down and wait for the opportunities to come. Get up and make them!”  Madam C.J. Walker, trailblazing African American businesswoman.

There is a silver lining in the dark cloud of the great recession.  A new Census Bureau report reveals that from 2002 to 2007 the number of Black-owned businesses in the United States increased by 60.5 percent to 1.9 million – more than triple the national rate.  According to Census Bureau Deputy Director, Thomas Mesenbourg, “Black-owned businesses continued to be one of the fastest growing segments of our economy, showing rapid growth in both the number of businesses and total sales during this time period.”

The reasons for this are many, beginning with the long history of African American entrepreneurship in response to poverty, high unemployment and discrimination.   Consider the case of Madam C.J. Walker, the daughter of slaves who, in the early 1900s, turned her dream of financial independence into a hair care and cosmetics business that revolutionized the beauty products industry, created good paying jobs, and made her a wealthy woman and philanthropist.

Like Madam C.J. Walker, many African Americans may have turned to entrepreneurship in the years covered by the Census Bureau study because of high unemployment in our communities.  The fact is, Black unemployment never got back down to where it was before the recession in 2001.  So in effect, what we are seeing is a bit of entrepreneurship by necessity.  There’s also an economic independent streak, particularly among emerging generations in the Black community.  Building a business gives great satisfaction and cushions them from the shock of losing jobs because of economic down cycles….

…I recently called on federal, state and local governments to develop a “hyper-focus” on black- and minority-owned businesses.  Every city, county, and state needs to have a plan that focuses on small and minority business.  There is a spirit of entrepreneurship out there that needs to be nurtured and energized.

While the Census Bureau report is generally good news, we know that Black businesses still make up only 7 percent of all companies and they tend to be smaller and have lower gross receipts than other businesses.  Black-owned businesses are also often hampered in their revenue growth by a lack of capital, connections and contracts.

What I hope this report says loudly and clearly to the investment community is that you are missing an emerging market in the United States.  If minority businesses are growing at a faster clip than overall businesses, imagine what the growth rate would be if those barriers were eliminated or lowered.  We need the investor community to look at this report and recognize that they are missing an incredible opportunity.
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US Black Chamber Says More Is Needed to Fuel Black Business Growth. U.S. Black Chamber. February 14, 2011.  

Census survey reveals more black businesses but capacity and growth are limited.

In reaction to findings recently released by the Census Bureau revealing an increase in the number of black-owned businesses, Ron Busby, president and CEO of the U.S. Black Chamber, commented that despite increased numbers, the growth of black-owned businesses is stymied by limited access to capital and a lack of large scale business opportunities.

“The fact that black-owned businesses have grown in numbers is encouraging, but that’s not the complete picture,” said Busby.  “A closer look at Census data reveals that these businesses are small and immature in terms of company size, annual receipts, and other key factors.”

According to the U.S. Census Bureau’s 2007 Survey of Business Owners (SBO) blacks owned 1.9 million businesses in the United States, accounting for 7.1 percent of all nonfarm businesses.  Although there was a significant jump in the number of black-owned businesses—up 60.5 percent from 2002—94.4 percent of these firms had no paid employees.  Only 106,824 were employer firms, employing 921,032 persons with a total payroll of $23.9 billion.  These firms reportedly generated $98.9 billion in receipts.

“This study proves that although Black businesses are growing in number, we are not growing in size, capacity and revenue,” said Aubry Stone, president of the California Black Chamber of Commerce.  “Our business community is dominated by home-based businesses and mom and pop shops.  These are great displays of entrepreneurial spirit, but not the vehicle we need to spark real economic empowerment in the black community.”

Both Busby and Stone believe that the increase in black businesses has been sparked, in part, by an increase in unemployment.  Although the national unemployment rate stands at 9.4 percent, unemployment in the African American community is closer to 16 percent.  As corporations and government agencies continue to cut jobs and slow hiring, to survive, African Americans have been moved to start their own business.

Consequently, Busby urges that a more determined effort by government, Corporate America and national business organizations is needed to help Black businesses build the capacity to grow.  He argues that a coordinated and concerted effort is needed to ensure that black business owners are aware of, and have access to, government programs like the Small Business Administration’s Small Loan Advantage Program and the Community Advantage Loan Program.  Both programs are great vehicles to helping businesses owners access needed capital to expand their operation.

“This is the time for all hands on deck,” Busby added.  “We need to pool our resources, leverage our strengths and develop a national strategy to drive real black business growth.”
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Fast Growth for Black-Owned Firms. Catherine Clifford. CNNMoney. February 10, 2011

Black-owned firms grew faster — both in number and sales — than U.S. firms did as a whole over a five-year period, according to the latest data available from the Census Bureau….

…The Great Recession’s impact

Of course, the economy has changed a lot since the latest survey was conducted in 2007. In the wake of the Great Recession, many small firms have seen demand sink and sales drop, in some cases forcing the business to close. At the same time, layoffs have inspired many African-Americans to leave the corporate world to start businesses, said Alan Hughes, editorial director of business at Black Enterprise magazine.

Because of these competing trends, “it is tough to say at this point whether you see a net gain, loss or a wash,” in black-owned businesses since 2007, said Hughes. Also during the recession, credit dried up, hitting black-owned businesses particularly hard, said Lucy Reuben, a professor at Duke University’s Fuqua School of Business. ”There is no lack of ideas and talent,” said Reuben. But she said, “lack of capital continues to be a very, very difficult challenge for black business growth.”
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Before the Recession, Black-Owned Businesses Boomed
Jia Lynn Yang and Hamil Harris. The Washington Post. February 8, 2011.
 
The number of black-owned businesses grew much faster than the national rate during the five years before the recession began, according to data released Tuesday by the U.S. Census Bureau.

The ranks of black firms shot up more than 60 percent from 2002 to 2007, compared with the overall national increase of 4 percent. By the end of the boom, Prince George’s County had the highest share of black-owned businesses – 55 percent – among all large counties in the nation.

Less clear is how those firms fared after the recession hit. The Census Bureau did not offer any information on how minority-owned businesses did after late 2007, when the economic downturn began.

Richard Clinch, a University of Baltimore economist, said that although the number of black-owned firms in the Washington region probably declined over the past couple years, the damage was likely limited because a high volume of government contracts kept business flowing to these companies.

Clinch said the government also maintains a program that tries to send more contracts to minority-owned small businesses, an effort that should have acted as a buffer during the downturn.

“The numbers are almost certainly lower in PG County, but they would not have fallen off precipitously because federal contracting hasn’t fallen off,” he said.

Other experts said that as people lost their jobs during the recession, many started their own businesses. “In the recession there are many people who have retreated to entrepreneurship, trying to find ways to survive if they’ve been laid off,” said Marc H. Morial, president and chief executive of the National Urban League.

At an office park on Arena Drive in Largo, black-owned businesses touted their ability to weather hard economic times. Louvenia Williams, chief executive of Corporate Title, said the key to survival during the recession was an old principle of being frugal during good times. “When the market was good and I had discretionary income, I held on to it. I just didn’t spend the money,” said Williams, 57, who runs a commercial real estate company.

Wayne Thornton, chief executive of the Corvus Group, said his firm, which handles corporate real estate, actually thrived during the downturn. Last year Corvus handled 170 loans from two major projects that were worth more than $5 billion, according to Kevin Washington, the firm’s vice president.

“Prince George’s County is a nest for minority professionals because you can actually see examples of success,” Thornton said.
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Black Businesses Grew at 3 Times the National Rate. Frank McCoy. theroot.com. February 8, 2011. 

A lack of capital and connections still hampers success for African-American entrepreneurs.

The report on the growth of black-owned businesses] is a great snapshot provided by the U.S. Census Bureau, but there are shadows. Every five years, the Survey of Business Owners takes the entrepreneurial pulse of black-owned businesses. The hitch is that the data were collected in 2007, before the Great Recession hit millions of U.S. businesses, workers and consumers, and doesn’t reflect reality for many of those groups today…

Steady Growth for 20 Years

The results of the 2007 survey are no anomaly, however. Since 1987 the number of black-owned businesses and the total revenue they receive has been soaring. To paraphrase Esther Phillips, who sang about positive changes, what a difference 20 years makes. In 1987 there were 424,165 black-owned businesses that took in revenue of $19.8 billion, according to the Census Bureau. During the next 20 years, the number of black businesses grew 353 percent to 1,921,881, and their revenue soared 594 percent from $19.8 billion to $137.5 billion.

Changes in black business over those two decades are not just reflected at the mass level. In 1987 America’s first black corporate billionaire, the late Reginald F. Lewis, stood atop the Black Enterprise 100 Industrial/Service list. That year his TLC Beatrice International Holdings, an international food company, had revenue of $1.8 billion.

It was the only black billion-dollar company on that list. The next-largest company was Chicago’s Johnson Publishing, with revenue of $202 million. The remaining top 10 were hair care companies, a soft drink bottler, a construction company, fabled Motown, a transportation firm and two computer-systems-integration companies. The smallest firm on that year’s BE 100 list was a custodial company that brought in $3.1 million.

Currently, the largest U.S. black-owned firm is World Wide Technology. Its $3.2 billion in revenue should keep the Maryland Heights, Mo., technology-products and consulting-services giant atop the BE 100 when the magazine unveils the list this June. Ironically, the No. 22 company on last year’s BE 100, with $200 million in revenue, was Johnson Publishing, publishers of Ebony and Jet.

In 2011 the sectors in which the 10 largest black-owned companies operate reflect changes in how African Americans do business. The firms are led or were founded by men and women with a deep knowledge of their industries, but also by those with an MBA, holders of other advanced degrees and corporate executives with an itch to run their own businesses.

Their ranks include an international oil business, two tier-one suppliers of automotive parts, two staffing-human resources companies, a national passenger-transportation company, a diverse conglomerate, a holding company owned by a serial entrepreneur, a food company run by a former NBA player and the nation’s only black-owned casino company. His company reported revenue of $380 million in 2010.

Despite the wounds caused by the recession, Harry C. Alford, president and CEO of the National Black Chamber of Commerce, is optimistic. ”The amount of new entrepreneurs with remarkable skill sets will overcome any losses incurred by business failure or downturn,” he says. “Capitalism is catching on like wildfire in the African-American community.”
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Ending Poverty by Creating Black Wealth in 2011. Benjamin F. Chavis, Jr. May 24, 2011

…A self-destructive component of a “slave mentality” is to believe that wealth acquisition and economic power is ordained and limited only for the sons and daughters of former slave masters who are entitled to wealth based on their historical inheritance of privilege and power over the flow of money. Too many people in our communities do not believe that they can achieve financial success and wealth. That is a sad and inaccurate understanding of the opportunities at hand today. 2011- 2012 ought to be the year of focus on building and expanding Black-owned businesses and constructing a more secure economic foundation and sustainability for the expansion of wealth-building in the African American community….

…We just need to focus more on establishing stronger economic and revenue-generating strategies and businesses during this period of time. Yet, we can do more and should do more today to increase the economic income and investment into our communities and families. Neither poverty nor wealth is a permanent condition for the Black community. The point here is that as we build more successful businesses that serve the economic interests of Black people, we will be stronger to remove poverty from both out mindset and our socioeconomic condition. For those who are doing better today financially and for those who will do better in the future, please do not forget about reaching back to provide more economic development opportunities for more of our sisters and brothers who really want a better quality of life. The more we acquire or have, the more we should give back and lend a helping hand.
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Black-owned firms find more challenges: Entrepreneurs struggle to secure funds, connections to succeed, grow. Ann Meyer. Chicago Tribune. 08 Feb 2010.

…Nelson is among more than 64,000 African-American business owners in the greater Chicago area. Yet many, like Nelson, continue to face barriers to success, despite robust interest in entrepreneurship, experts said. “The desire and interest in owning a business is huge among African-Americans,” said Ivonne Cunarro, chief knowledge officer at the Minority Business Development Agency at the U.S. Department of Commerce.

They represent an opportunity for economic development in any community, she said, but the challenge is finding the financing to grow their businesses and employ more workers. In the Chicago area, the number of African-American businesses grew by 67 percent from 1997 to 2002, the latest year for which census data is available, while revenue growth lagged at 17 percent.

“There is a glut of new entrepreneurs out there all vying for the same opportunities and what little financing is available,” said Dave Thomas, executive director of the Chicago Minority Business Opportunity Center. Research suggests blacks are 50 percent more likely to try to start a business than whites, yet they face an uphill battle in finding the capital and connections to make their companies successful, said Daryl Williams, director of research and policy for minority entrepreneurship at the Kauffman Foundation in Kansas City, Mo.

As a result, African-American businesses tend to remain small. Nationwide, the average African-American business with employees had eight workers. Among the 99,000 firms employing 100 or more workers in 2002, 970 were black-owned businesses, according to the Census Bureau. With fewer employees, revenues are constrained and survival rates are low. The average annual gross receipts of African-American firms totaled $74,000 in 2002, compared with $296,000 for Asian firms and $438,000 for non-minority firms, the Minority Business Development Agency reported.

With less of a financial cushion, African-American firms have the lowest survival rate of any race or ethnic group. Just 61 percent of businesses survive four years, compared with 73 percent for non-minority firms, according to a study by the U.S. Small Business Administration based on census data. While credit has been tight for most businesses since the recession began in December 2007, it has been a perennial problem for African-American owners, who often start with less personal wealth.

As a result, many don’t easily qualify for loans from traditional lenders. Less than 6 percent of black business owners obtain bank loans, compared with 12 percent of non-minority firms, forcing them to use credit cards and more expensive financing or rely on their savings, Cunarro said. Nelson said capital from angel investors also can be hard to find. ”Everyone who sees the product goes crazy for it, but they want to take the business from me,” he said. One investor offered Nelson $100,000 for 95 percent of the company’s equity. “I’ve already put $200,000 and sweat equity in this business,” he said, so he turned down the offer.

With many financing avenues cut off, black-owned firms often incur a higher cost of capital than non-minority firms because they have to turn to alternative lending sources, experts said.
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Young Blacks Try Entrepreneurship. Daniel Altman. New York Times. 06 May 2003.

There is little official evidence to go by, but the anecdotes are pouring in: across the country, more young black professionals are stepping off the corporate ladder to become entrepreneurs. Joining a big company used to be perceived as the surest route to material success by many black professionals, but lately, owning a business has become as attractive, or more so….

…In the past, the decision Ms. Hill made would have been more difficult, said Barbara B. Lang, the chief executive of the District of Columbia Chamber of Commerce. The new entrepreneurs are ”willing to take risks that 10 years ago, 20 years ago, African-Americans were not willing to take,” she said. ”It’s an absolute change in attitude, and not having to feel that the corporate structure is the only way — or the safe way.”

One factor supporting that change is increasing education. Starting a business is ”just a natural extension of the career trajectory from getting a degree — a law degree, an M.B.A., whatever,” said Timothy Bates, a professor of urban and labor studies and economics at Wayne State University in Detroit, who has studied black entrepreneurship for more than three decades.

Education has also improved access to capital, long an obstacle for black entrepreneurs. Traditionally, they obtained financing from family, friends and local banks on the strength of their reputations, said Steven S. Rogers, a professor of entrepreneurship at Northwestern University in Evanston, Ill. But not anymore.

”What we’re starting to see are more and more African-American entrepreneurs who have M.B.A.’s,” Professor Rogers said. ”Now, you’re seeing a new generation of African-American entrepreneurs who are looking to access capital from all the available resources.”

…Nevertheless, the weak economy has made the road to small-business success more difficult for the new cohort of black entrepreneurs.

….Despite the economic constraints, Mr. Hines views entrepreneurship among young black professionals as a robust trend. ”Most young African-American men I know are entrepreneurs,” he said. ”Some are doing significantly well, but we all seem to be doing at least as well as our counterparts in corporate America, even now, even here.”

Ms. Lang said she still believed, however, that black entrepreneurs faced special obstacles: ”While access to capital is better than it used to be, there are still issues. The playing field has not been completely leveled. It’s better than it was 10 years ago, but it’s not where it needs to be.”
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See also:

Madame C. J. Walker: breaking new ground: this daughter of slaves built a haircare empire and created a model for financial empowerment. Derek T. Dingle. Black Enterprise. Feb 2005

10 African-American Entrepreneurs In The Black Hair Care Business. R. Asmerom. atlantapost.com. August 20, 2010.

The Wine Industry’s Best Black-Owned Businesses. theroot.com. The award-winning vino made by these entrepreneurs, some of whom belong to the Association of African American Vintners, should be on your table.