Minority business ownership has surged in the United States over the last several decades. According to the Small Business Administration, minority business startups increased 46 percent between 2002 and 2007 alone. Today, 21 percent of small businesses are owned by minorities, and while those figures are hardly representative of the nation’s racial makeup, the stats are evidence that the country is making real strides, right? Well, not exactly.
As our friends at Shark Tank incessantly remind us, being in business is about making money. And when it comes to making money, minority-owned firms lag woefully behind their counterparts. According to a report by the Pew Research Center, less than 10 percent of business revenues were generated by minority-owned firms in 2012. The number was even lower for black firms, which generated just 1 percent of revenues. To put this in perspective, black firms represent 9 percent of the study sample and black Americans comprise 13 percent of the U.S. population.
Often times within the black community, becoming a small business owner is about getting up from under the thumb of corporate America, monetizing something you do really well and generating enough income to sustain yourself and your family. These lifestyle businesses, as they are called, have been the standard route for generations of African-American business owners, and have effectively helped create the black middle class. Unfortunately, this approach, despite its virtues, is not likely to help African Americans close the revenue gap.
When it comes to small business, the trend has shifted to high-growth industries and high-growth firms. These are industries which have demonstrated a strong propensity for pumping out scalable, profitable companies, or firms that regardless of industry have adopted a business model that enables them to grow quickly. These companies are so ubiquitous that entire support communities or entrepreneurial ecosystems have sprouted up in cities across the country to incubate and nurture them. And why the focus on high-growth firms? It’s simple. They create jobs. According to a 2010 Kauffman Foundation report, fast-growing young firms, comprise less than 1 percent of all companies, yet generate roughly 10 percent of new jobs in any given year.
Unfortunately, blacks are largely absent from this phenomenon. According to a recent study by the Center for Venture Research, only 7 percent of tech firms that presented to venture capitalists in 2013 were minority-owned and only 2 percent of funded ventures were minority-owned. Today, it is nearly impossible to scale a company quickly without the sort of generous, flexible capital that comes from venture firms and angel investors. If minorities are not going after those resources, chances are they are not scaling, and if minority companies are not growing on pace with majority firms, the revenue gap will continue to widen.
So, what’s the answer?
Well, first we need to do away with the myth that all small businesses are created equal. They are not. They vary in risk, scalability, job creation capacity and wealth generation potential. When we as minorities understand the implications associated with the business choices we make, we can make better choices for ourselves, our families and our communities.
Second, there needs to be greater support for minority firms that have decided to take the accelerated path. While there are a few programs out there committed to tackling this issue, such as PowerMoves and the Intel Capital Diversity Fund, they don’t begin to address the need. If the playing field is to be leveled in our lifetime, there needs to be greater investment and dedicated effort in this area.
Lastly, we need to expand the conversation. We know very little about the barriers and constraints that perpetuate disparities within the high growth space. With additional research, information and data, those who care about this issue can take more pointed steps towards helping to close the gap.
Kelly Burton PhD is an accomplished entrepreneur with over a decade’s experience launching and scaling start-up companies. She is the founder of Bodyology, a tech-based clothing line and nexusresearchonline.com, a social research firm.
Follow Kelly Burton on Twitter@iamkellyburton