On Starting and Growing Black Business

William Pickard discusses with Roland Martin growing business beyond the 1 employee plateau.

 

 

 

Where Have All the Black Businesses Gone? Depends on What You Define as a Business…

Not sure the author of this article has much of a grip on the dynamics of change in the black community in the past 50 years. First off is his limiting the scope of “Black Business” to the pre-Civil Rights, Jim Crow enforced black enclaves that formed the majority of the black communities in the US prior to 1965.

That world is, by and large…Gone. The simple fact is, everybody that could, financially…Done left the ghetto.

It also means that black owed businesses no longer had to limit themselves to selling product or services in very limited venues to solely black customers. And it meant that black owned businesses in black only neighborhoods was no longer protected from competition.

So where are the black owned businesses of today?

Indeed –

Black owned businesses in the United States increased 34.5% between 2007 and 2012 totaling 2.6 million Black firms. More than 95% of these businesses are mostly sole proprietorship or partnerships which have no paid employees. About 4 in 10 black-owned businesses (1.1 Million) in 2012 operated in the health care, social assistance; and other services such as repair, maintenance, personal and laundry services sectors.

Can black folks, and should they do better? You betcha. And there are a number of programs to educate prospective black entrepreneurs to better manage, promote, and finance their business ideas. I personally am very high on the ” Equity Crowdfunding” concept as a replacement for traditional Venture Capital for minority owned firms. The simple fact is, VC is a white boy’s club, which according to Forbes, invests less than .3% of their funds into black owned business despite the fact that black entrepreneurs in tech have higher success rates, and “exit event” (payout) rates calculated to provide returns 7 times more frequently than the typical VC investment in white boys out of college. Crowdfunding doesn’t appear so far to have such stereotype racism, and nearly 30% of the investments are going in to minority owned firms.

Now imagine that in 2020, the new leading source of startup capital is one in which there is a level playing field for minority-owned firms. Based on the experience of at least one equity crowdfunding platform, it’s quite possible that will be the case. In an internal sample of 5,000 companies using EquityNet, the world’s largest equity crowdfunding platform, 32 percent were minority-owned, including 9 percent owned by African-Americans. What’s more, minority-owned firms surveyed on EquityNet, which is based in Fayetteville, Arkansas, were achieving the same funding success rate (20 percent) and seeking similar amounts of capital on average (around $1 million) compared to non-minority-owned firms on EquityNet.

While Crowdfunding doesn’t solve the second or third stage money issues where typical investments can be from $3-20 million, it at least provides a platform whereby the start-up firm can either reach product production , or some level of revenue. With the success rate of equity crowdfunding, you can bet some enterprising financial folks are looking at setting up that second stage funding!

Lots of room for growth.

As to that article –

Where Have All the Black-Owned Businesses Gone?

They once served their communities when others wouldn’t, and over the past 30 years, they’ve practically vanished.

At the new National Museum of African American History and Culture in Washington, D.C., a hallway of glass display cases features more than a century’s worth of black entrepreneurial triumphs. In one is a World War II–era mini parachute manufactured by the black-owned Pacific Parachute Company, home to one of the nation’s first racially integrated production plants. Another displays a giant clock from the R. H. Boyd Publishing Company, among the earliest firms to print materials for black churches and schools. Although small, the exhibit recalls a now largely forgotten legacy: By serving their communities when others wouldn’t, black-owned independent businesses provided avenues of upward mobility for generations of black Americans and supplied critical leadership and financial support for the civil rights movement.

This tradition continues today. Last June, Black Enterprise magazine marked the 44th anniversary of the BE 100s, the magazine’s annual ranking of the nation’s top 100 black-owned businesses. At the top of the list stood World Wide Technology, which, since its founding in 1990, has grown into a global firm with more than $7 billion in revenue and 3,000 employees. Then came companies like Radio One, whose 55 radio stations fan out among 16 national markets. The combined revenues of the companies that made the BE 100s, which also includes Oprah Winfrey’s Harpo Productions, now totals more than $24 billion, a nine-fold increase since 1973, adjusting for inflation.

A closer look at the numbers, however, reveals that these pioneering companies are the exception to a far more alarming trend. The last 30 years also have brought the wholesale collapse of black-owned independent businesses and financial institutions that once anchored black communities across the country. In 1985, 60 black-owned banks were providing financial services to their communities; today, just 23 remain. In 11 states where black-owned banks had headquarters in 1994, not a single one is still in business. Of the 50 black-owned insurance companies that operated during the 1980s, today just two remain.

Over the same period, tens of thousands of black-owned retail establishments and local service companies also have disappeared, having gone out of business or been acquired by larger companies. Reflecting these developments, working-age black Americans have become far less likely to be their own boss than in the 1990s. The per-capita number of black employers, for example, declined by some 12 percent just between 1997 and 2014.

What’s behind these trends, and what’s the implication for American society as a whole? To be sure, at least some of this entrepreneurial decline reflects positive economic developments. A slowly rising share of white-collar salaried jobs are now held by black Americans, who have more options for employment beyond running their own businesses. The movement of millions of black families to integrated suburbs over the last 40 years also is a welcome trend, even if one effect has been to weaken the viability of the many black-owned independent businesses left behind in historically black neighborhoods.

But the decline in entrepreneurship and business ownership among black Americans also is cause for concern. One reason is that it largely reflects not the opening of new avenues of upward mobility, but rather the foreclosing of opportunity. Rates of business ownership and entrepreneurship are falling among black citizens for much the same reason they are declining among whites and Latinos. As large retailers and financial institutions comprise an ever-bigger slice of the national economy, the possibility of starting and maintaining an independent business has dropped. As the Washington Monthly has pointed out, market concentration has played a role in suppressing opportunity and in displacing local economies. Other studies, including a report published last year by President Obama’s Council of Economic Advisors, have substantiated these developments….Read the Rest Here…

 

Miller Lite – “Tap the Future”​ Competition – Daymon John, No Equity Angel Investment

Daymond gives some good advice here…

Miller Lite’s “Tap the Future” Contest is underway accepting applications through April 14th. The Contest participants (rules in link above) get $20,000 for being selected in the first round, and can get $100,000 if their idea is selected as an overall winner. As Daymon John points out above, the huge advantage in participation in the competition, is the money does not require giving up equity in the winning companies, giving the a massive leg up should their business move to the point of seeking secondary of tertiary investment. If you can get to the product prototype stage (or are already there) with $100,000, this is far better financially than pursuing “Angel” investors who will want 30-50% ownership. One of the most critical factors to success of a startup is keeping the investor/ownership group as small as possible. Winning this could mean the entrepreneur retaining majority ownership through at least the Venture Capital round.

Go for it!