Capitalist DREAMS

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In 1978, Jerry Sheppard, a new business development manager, was on the verge of a career breakthrough. After nearly eight years with a tech firm in Michigan, his boss offered him the chance to open a new sales office in California. A Michigan native, Sheppard, then 31, was reluctant to leave his home state, but the offer raised a tantalizing prospect: “If my company president was so impressed with my abilities, why shouldn't I be?� he wondered. Weeks later, instead of moving to the Golden State, Sheppard decided to launch his own firm. On the strength of his savings — and the equity in his home — he moved into his brother-in-law's 600 square foot office space and became an entrepreneur. “Everyone — friends, family, my wife — said ‘are you crazy? What do you know about starting a company?’� he recalls.

Today, Sheppard's IT enterprise, Epitec, posts annual revenues in excess of $20 million and he has more than 250 employees spread across a 10,000 square foot office space. Just as Sheppard's fortunes have improved, so too have the opportunities for minorities with an inclination to start their own business. Epitec is one of more than 800,000 U.S. companies owned by African Americans. By the end of the 1990s, there were more than 3 million minority entrepreneurs running their own firms, according to the Census Bureau's most recent Survey of Minority Owned Business Enterprises, released in 2001. The number of African American, Hispanic, Asian and Native American firms grew at four times the rate of all corporations between 1992 and 1997 — a 30 percent increase, compared with the 7 percent increase among all firms. (Minority owned businesses are defined as companies where minorities own 51 percent or more of the enterprise.)

As the number of minorities increased, their wealth, education and political clout have also grown. Receipts of minority owned firms have risen by 60 percent throughout the 1990s to $591.3 billion, compared with a 40 percent increase for all firms. What's more, these trends are expected to continue in today's tougher economic climate, says Andrew L. Zacharakis, professor of entrepreneurship at Babson College, in Wellesley, Mass. In fact, minority business owners may be better poised than their non-minority counterparts to weather an economic downturn. This is due to a vast array of public and private sector programs, greater experience in dealing with tougher business conditions and a general cultural shift, according to Deirdre Coyle, senior vice president at the Boston-based The Initiative for a Competitive Inner City, a think tank that studies inner-city businesses. “There is a more receptive market and environment for minority entrepreneurship today,� she says. “Minority communities themselves understand the power of entrepreneurship and are supporting it in their communities.�

The expansion in the ranks of minority entrepreneurs reflects the overall rise in the number of people who identify as something other than “white alone.� The country has become more diverse over the past few decades, and so too has the number of minority entrepreneurs, says Donna Long, director of development at the National Minority Supplier Development Council in New York City. In 2000, nearly 70 million U.S. residents identified themselves as something other than white alone on their census forms, representing the highest share of minorities in the U.S. population in history.

Trends in entrepreneurship mirror larger demographic shifts: The two fastest growing minority groups in the nation are also the two largest segments of minority entrepreneurs. Hispanics make up the largest share of ethnic entrepreneurs: 40 percent. Asians represent 30 percent of all minority entrepreneurs, while blacks account for 27 percent and Native Americans for 6.5 percent. It's not surprising then, that ethnic entrepreneurship thriving in the states where minorities tend to live. “California and New York, along with the Southern Belt, will be the places where you'll see significant growth [among minority owned firms],� says Gregory Fairchild, professor at the Darden Graduate School of Business Administration at the University of Virginia at Charlottesville. In California and Texas, much of that growth will be fueled by Hispanics, while in Virginia and Maryland, growth will be dominated by black entrepreneurs, he says.

Why is minority entrepreneurship thriving? Recent upward trends in education and household income have made it possible for many to pursue the American Dream of working unfettered by a boss for the first time. For example, the share of blacks with at least a high school diploma increased to 78.5 percent in 2000 from 51 percent in 1980. The share of blacks age 25 and older with a college diploma soared to nearly 17 percent from 8 percent during the same period. The share of Hispanics with a college education increased as well: to 11 percent from 8 percent in 1980. (While data is not available for Asian educational attainment dating back to the 1980s, today, a whopping 44 percent of Asians have a bachelor's degree or higher, a figure that dwarfs the 28 percent of whites that do. Comparable data is not currently available for Native Americans but is expected this summer from Census 2000 results.)

The number of MBAs alone conferred on all minorities has more than quadrupled between the 1970s and the 1990s, according to a 2000 study of minority business conducted by the Milken Institute and the Minority Business Development Agency. These gains in education translate directly into increased household income, making it far easier to amass the wealth required to start a company. Between 1993 and 2000, non-Hispanic white median household income increased by 14 percent to $45,904, while Asians saw their median household income increase by 23 percent to $55, 521, according to Census Bureau statistics. And while the median household incomes for blacks and Hispanics are still below their non-Hispanic white counterparts, they are growing at a faster rate. Between 1993 and 2000, black households saw their median income increase by 33 percent, to $30,439, and Hispanics by 24 percent to $33,447. (Comparable data for Native Americans will be available this summer from Census 2000 findings.)

These socioeconomic changes made it easier for minority entrepreneurs to pursue a greater variety of ventures. “Minority owned firms are not only growing in number, but they are increasingly becoming more sophisticated,� observes Fairchild. While to many, the traditional minority owned business is a grocery store or a beauty parlor, in fact, among the fastest growing industries for minority firms are finance, insurance, real estate, business services and wholesale trade, according to the Milken Institute report.

Trends in income and education, as well as cultural influences, have played out in varying ways among racial and ethnic groups — and that has resulted in differing rates of success among minority entrepreneurs by race. For example, with higher incomes and higher levels of education than any other group in the nation, Asian Americans are also the most successful at running their own companies, census data reveals. While Asians control just 3 out of every 10 minority owned enterprises, their sales and receipts accounted for more than half (51.9 percent) of the $591 billion generated by minority entrepreneurs in 1997, the latest year for which information is available.

Income, educational attainment and cultural influence also play a role in another factor critical to the success of minority entrepreneurs: the industry in which they launch their venture. For example, Hispanic entrepreneurs are more successful than their black counterparts today, mainly because they've opened businesses in more lucrative fields. Hispanic business owners are more likely to set up shop in the relatively more profitable wholesale trade industry — the sector that generates the most revenue for minority owned firms overall. More than 27 percent of Hispanic entrepreneurs are in wholesale trade, compared with just 1 percent of African Americans.

Like anyone starting a new business, however, minorities face challenges ranging from a lack of capital to a lack of clients to even institutional discrimination. But the success minority entrepreneurs have experienced over the past decades is likely to continue, says Zacharakis. In fact, it's never been easier to be a minority entrepreneur in the U.S., states Fairchild.

What's the reason for these rosy forecasts? Solid resources available exclusively to minority business owners. For example, the government's Small Business Administration (SBA) offers substantial assistance to minority entrepreneurs, by guaranteeing loans, providing mentoring and business advice, and also helping minorities to gain access to federal contracts through initiatives like its 8(a) Program. In fiscal 2000, $5.6 billion in contracts were awarded to program participants. And while the SBA doesn't lend money directly to entrepreneurs, it does guarantee loans for entrepreneurs through its micro-loan facilities. Minority participation in these programs has also been on the rise. In fiscal 1992, only 15 percent of some 26,000 loans went to minorities. By fiscal 1999, the latest full year for which data was available, that share reached 26 percent of more than 50,000 loans. In the first quarter of 2000, minority entrepreneurs who received the largest number of SBA-backed loans: Asians, who received 11.5 percent of the loans, followed by Hispanics (7 percent), African Americans (5 percent) and Native Americans (1.1 percent).

There's also been a snowball effect. As more minority entrepreneurs launch companies that succeed, they extend a helping hand to others, says John Peoples, managing partner at Global Lead Management Consulting in Baltimore. Andre Lynch, president and CEO of Ingenium Corp., based in Upper Marlboro, Md., experienced this firsthand. Lynch, an African American, launched his Internet and communications firm in 1992. His first line of credit was guaranteed by another minority owned business that had a very large line of credit with a local bank, he says. And it's not just financial assistance that makes the difference, he adds. “There's just a greater resource of people for a young entrepreneur to tap for insight,� says Lynch. “Many of our advisors in the early days were African Americans. Without a doubt, they were more willing to give back in terms of time, knowledge and, at times, their money. Today, there's a more active and intimate network than a decade ago.� The real difference, he believes, is that minorities have been able to generate their own wealth, and thus have been able to create financial networking opportunities. There's also been an increased level of attention from political candidates sensitive to the needs of minority entrepreneurs, he says.

And then there's the historical experience that minorities have with working through the tough times that will be useful when facing a recession, says Coyle at The Initiative for a Competitive Inner City: “Minority owned firms are used to existing in a more arduous environment,� she says. “They tend to have far more leaner organizations, and are able to react far more quickly to change.� In fact, the true entrepreneurial spirit rises to any challenge, including poor economic conditions, says Jerry Sheppard, reflecting on his company's 34-year history, “I didn't fail because I didn't give up,� he says. “It wasn't always easy, but I thrive on it because I'm a real entrepreneur. I'm going to make it work.�

Minority Entrepreneurs by Ethnic Group

Number of all minority firms = 3,039,033

Sales and receipts = 591.3 billion

PERCENT OF FIRMS PERCENT OF SALES AND RECEIPTS
Black 27.1% 12%
Hispanic 39.5% 31.5%
Native American 6.5% 5.8%
Asian and Pacific Islander 30% 51.9%
Note: Numbers may not sum to 100 because race categories are not exclusive.
Source: Survey of Minority Owned Business Enterprises, U.S. Census Bureau

HOW TO MARKET TO MINORITY ENTREPRENEURS

The first step is to build goodwill and develop credibility with these business owners.

Despite the healthy outlook for minority owned firms, many marketers that sell everything from computers to checking accounts overlook the growing success of the country's 3 million minority entrepreneurs. “Diversity is on the lips of every major corporation, but there hasn't been as much attention to minority business owners,� says Victor Ornelas, president and CEO of Ornelas and Associates, Inc., a Dallas-based advertising agency that specializes in minority consumers.

One problem is that many marketing companies are just starting to understand the small-business segment, says Carey Earle, CEO of Harvest Consulting, a New York City-based marketing firm that counts companies such as JP Morgan, Chase, Citigroup and American Express among its clients. “I don't think there's any real muscle behind minority marketing in the small-business area yet,� says Earle.

Companies looking to tap into the lucrative market of minority small-business owners will need to do more than send out inclusion-oriented magazine ad campaigns, says John Peoples, managing partner at Global Lead Management Consulting, Inc., a Baltimore firm that works on diversity issues for clients such as SC Johnson, Procter & Gamble and T. Rowe Price. To reach minority entrepreneurs, a company must first develop trust and credibility, Peoples says. For some firms, this means establishing connections within minority businesses by hiring minority employees and using minority suppliers. For others, it means increasing community involvement: Ethnic entrepreneurs sometimes evaluate how active a marketer is in their community before giving them their business.

Compaq, the Houston-based computer giant, has taken the route of partnering with organizations that already have the trust of minority owned firms. For example, last year Compaq launched partnerships with the National Black Chamber of Commerce and the Latin Business Association, says Daniel Busse, director of North America marketing for small and medium-sized businesses. Compaq provides the members of these organizations with advanced notice of weekly promotions targeted to small firms.

For San Francisco-based banking giant Wells Fargo, building goodwill among minority entrepreneurs has meant making highly publicized commitments to loan money to specific ethnic groups, says Tim Rios, vice president of the Wells Fargo Community Development Group. The bank has already committed to lending $3 billion to Latino entrepreneurs over the next 10 years, and $1 billion in loans to African Americans over 12 years. The bank has also publicly committed nearly $1 million in grants to nonprofit companies that specialize in educating minority entrepreneurs, Rios says.

As the number of minorities continues to grow, Wells Fargo hopes to attract personal banking business from minorities who have entrusted their business transactions to the bank. “We're looking for a relationship, not for the transaction,� he says. “This approach used to be looked at as building goodwill. Now it's just looked at as very good business.�

— ASW

Top 5 Metros for Minority Entrepreneurs

Leading the pack of metros with the largest number of minority owned firms is Los Angeles-Long Beach in California.

METRO AREA NUMBER OF FIRMS
Los Angeles-Long Beach, CA 289,293
New York, NY 236,809
Miami, FL 138,848
Washington, DC 99,393
Chicago, IL 95,685
Source: Survey of Minority Owned Business Enterprises, U.S. Census Bureau

Industry Indicator

The fastest growing industries for minority firms include services, retail trade and construction, according to the Census Bureau.

INDUSTRY DIVISION NUMBER OF MINORITY

OWNED FIRMS
PERCENT OF TOTAL

MINORITY

OWNED FIRMS
Services 1,339,486 44%
Retail trade 439,450 14%
Industries not classified 419,522 14%
Construction 255,251 8%
Transportation, communications and utilities 190,564 6%
Finance, insurance and real estate 164,043 5%
Wholesale trade 92,727 3%
Agricultural services, forestry and fishing 71,921 2%
Manufacturing 63,640 2%
Mining 3,578 0%
Source: Survey of Minority Owned Business Enterprises, U.S. Census Bureau

FOR THESE ENTREPRENEURS, IT'S A MAN'S WORLD

Men not only run most minority firms, but they're more successful than their female counterparts.

Who are the enterprising minority business owners who have stepped out on their own and established thriving firms? According to the latest Census Bureau data, men not only run the majority of all minority owned firms, but Hispanic businesses are the most likely to have a male head (55.6 percent of all Hispanic companies are owned by a man), a share only slightly larger than Asians (54.5 percent) and Native Americans (54.2 percent). The only exception? Black owned firms: 38 percent of all firms owned by blacks are run by a woman, the highest share among all minority groups.

Male minority entrepreneurs are also more successful than their female counterparts. In every racial group, companies owned by men account for the vast majority of sales and receipts. For example, African American owned companies run by men account for 54 percent of all black firms and a whopping 72 percent of all sales and receipts — and a similar pattern exists for Hispanics and Asians. Native American entrepreneurial women fare slightly better: Male owned firms account for 54.2 percent of all companies and 60 percent of all sales and receipts. One reason these male minority business owners may be racking up more sales receipts is that they are more likely than minority women to be in the lucrative wholesale trade business. And even though many female business owners are in the services sector, minority women are more likely to be in personal services (which generated only $3 million in sales and receipts in 1997, the most recent data available). Minority men, however, are more likely to be in engineering and management services (which generated $17.5 million in sales receipts in 1997), according to Census Bureau stats.

That doesn't mean that marketers can afford to ignore women when they target the minority entrepreneur segment. A smaller, but still significant share of minority owned firms are run by both a man and a woman, according to Census Bureau figures. These partnerships are most common among Asian and Native American entrepreneurs. About 18 percent of firms owned by members of these groups are owned jointly by a man and a woman, compared with 16 percent of Hispanic firms, and 8 percent of black firms. Which goes to show that although some men and women can't live together, others do manage to work together.

— ASW

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