Out of the 22 million businesses in the United States, only 4.3% of business owners are Black, according to a 2020 Brookings Institute report. The COVID-19 pandemic may lower that number even further: Only 20% of Paycheck Protection Program loans went to areas with a concentration of Black-owned businesses. Those data points and others show how Black entrepreneurs historically have a more difficult time than their white peers, say Carolina faculty. But that reality might be changing.
Entrepreneurship is the mechanism by which new products, services and organizational processes are identified, refined and ultimately realized as a sustainable part of the society. In its simplest form, entrepreneurship is someone using their vehicle to drive for Uber. At the other end of the spectrum is Uber itself, launched with millions of dollars of venture capital funding. In between are mom-and-pop shops, restaurants, software companies and other businesses.
Although entrepreneurship spans all levels of economic impact, the field is severely lacking in ethnic diversity. “Less than 1% of companies are run by Black or Brown entrepreneurs,” says James Johnson Jr., the William R. Kenan Jr. Distinguished Professor of Strategy and Entrepreneurship in the UNC Kenan-Flagler Business School. Structural racism contributes to the homogeneity. The issues range from economic inequality to a lack of experienced minority mentors. But the recent societal disruption sparked by the COVID-19 pandemic and Black Lives Matter movement may create an opportunity for systemic change and more opportunities for minority entrepreneurs.
Identifying the challenges
“When you look at the working poor, many of them are very well-educated but they have no choice but to remain in the first step of entrepreneurship due to limited resources or capital,” said Johnson. “These days, we refer to it as a side hustle or moonlighting.”
In a society marked by growing inequality, even jobs with minimal education requirements have restrictions on who is allowed to work in that field.
“Any job that requires a license or registration with the state bars someone with any kind of criminal record,” said Johnson. “For example, anyone with a criminal conviction cannot become a barber because that requires a state license. So that’s one field of work and business ownership that is completely unavailable to someone who has been convicted of a crime, no matter how long ago it was and if they paid their dues.”
Other fields that require licensure in some states are contractors, electricians, plumbers, travel agents, auctioneers and funeral attendants. These could be considered discriminatory policies, because minorities are jailed at a disproportionately higher rate than their white counterparts.
And for minority entrepreneurs who do launch ventures, the odds are stacked against them. Only 1% of Black business owners obtain loans in their founding year, compared to 7% of white business owners, according to a Stanford Institute for Economic Policy Research paper. And Black-owned businesses start with around one-third less capital than their white counterparts.
Why? One reason is the homogeneity of those holding the investment capital. Close to 90% of venture capitalists are white men between the ages of 55 to 65, and the majority of those remaining percentages are white women between the ages of 65 to 75. Ed Boyd, entrepreneur in residence in the College of Arts & Sciences’ Shuford Program in Entrepreneurship, found in his experience that people tend to invest in people who look like them and remind them of what they were like when they first started out.
“The data reflects that only 2% of venture capital money goes to women, and only 3% goes to Black and Latino communities,” said Chi Nwogu, entrepreneur in residence in the Kenan-Flagler Business School Entrepreneurship Center.
While starting businesses can be challenging for Black entrepreneurs, keeping a business going from one generation to the next can also be difficult. “Only about 20% of retiring business owners execute a successful sale to another small business owner or transition to the next generation,” said Johnson. “When we lose those businesses, we’re not only losing revenue and tax dollars; we’re losing fixtures in the community.”
Many business owners who were on the brink of retirement before the pandemic bowed out early, but those small businesses often are replaced by chain stores, which draws an economic source out of a community, especially in small towns or areas with a concentration of minority groups.
Johnson believes succession planning is one of the most important skills business schools can teach to maintain minority-owned businesses for future generations. In UNC Kenan-Flagler’s MBA program he teaches the course “New Urbanism, Smart Growth & Sustainable Community Development,” which focuses on aging as an engine of innovation, business development and job creation.
Hope amid unrest
Wealth inequality and lack of venture capital for Blacks and other minorities are not new. But, says Nwogu, “there has been a growing awareness around these shocking numbers in the past few years, and I think especially in response to the Black Lives Matter movement everyone is having conversations on how to create better equity across the board.”
Current societal disruption, including adapting to the pandemic, is opening doors of opportunity. In 2018 Nwogu started a company called GameFlo, which is now filling a pandemic-created need — developing sports-themed computer games that teach middle school aged children math and coding skills in an engaging way. In an era of unexpected homeschooling, Nwogu says that GameFlo has pivoted to create virtual workshops and will be working with Durham Public Schools this fall as part of their Wellness Wednesday’s initiative.
Nwogu points out that anyone who can create a product that is both needed and engaging during this time can be successful. It’s just a matter of finding support and funding to launch the idea.
Space for Black entrepreneurs
In response to the Black Lives Matter movement, Kenan-Flagler Business School’s Entrepreneurship Center created an ongoing series called “Creating a Space for Black Entrepreneurs” that amplifies the voices of Black entrepreneurs in the community. Check the Center’s calendar for future events.
Boyd agrees that mentorship and support are key when launching a venture. But he says that given the reality of Black entrepreneurship, there are significantly fewer mentors and less experience to go around.
“Lack of access is the biggest hurdle to entrepreneurship — access to capital, access to mentors or access to a strong professional network,” says Boyd.
Boyd is trying to solve the problem of access to mentors by creating a coworking and problem-solving space for minority entrepreneurs. Together with Shuford Program Executive Director Bernard Bell, Boyd co-founded iNvictus, a hub for minority entrepreneurship in Durham. Launched in 2015, iNvictus is the only coworking space in the country that is majority owned by African-American males.
“I think we need to be in the business of helping people formulate and maintain their businesses and, to a further extent, their families,” said Boyd.
Entrepreneurship, after all, depends on consumers. And consumers everywhere seem to be gaining new awareness of systemic racism. The time seems right for more consumer support.
Creating a new reality for Black entrepreneurs
One way to support minority entrepreneurs is by supporting their ventures and joining their support system, says Boyd. “Any time there is a crisis, there is opportunity. Look at who’s making money or innovating and join them.”
Nwogu says the first and easiest step toward supporting minority entrepreneurs is avoiding nationwide retailers and shopping local.
“Put in the work and find your local specialty store, because many of them now have an online platform to order or a system set up for no-contact pickup,” said Nwogu. “Especially if it’s a family or minority-owned venture — we want them to make it through the pandemic.”