The State of Black Entrepreneurship, 2005

Bruce P. Corrie, PhD

Concordia University-St. Paul, MN

Recent national reports document interesting trends in African American entrepreneurship.

1. The Global Entrepreneurship Monitor, 2003 found that Black Entrepreneurship is the highest among all groups in the USA. Total entrepreneurial activity for Blacks was 16.5 % compared to 10.8 % for Whites. Blacks had the highest rates for both opportunity based as well as necessity based entrepreneurship. Black entrepreneurs tend to be in age group 25-34 years.
2. According to another report, The Panel Study of Entrepreneurial Dynamics, a longitudinal study of 64,622 U.S. households:

• Black men and Black women are about 50 percent more likely to engage in start-up activities than Whites.
• Education significantly predicts nascent entrepreneurship for blacks: approximately 26 of every 100 black men with graduate education experience efforts to start a new business comparing to 10 of every 100 white men.
• Blacks in urban areas show a greater tendency to start businesses.
• Black women in the middle age groups, 25-54, have a much higher rate of entrepreneurship than other groups.
• Black men and women with higher income levels are more likely to start a business. They had the highest nascent entrepreneurship rates than all groups in the income range $76 K and up.
• Blacks working in full time jobs had the highest nascent entrepreneurship rates than blacks working part time or not working.

3. According to recent studies by Small Business Administration, Office of Advocacy, during the period 1997-2001:

• The number of Black owned firms increased from 308,260 in 1982 to 780,770 in 1997.
• Total receipts of Black owned firms in 1997 was $71 billion dollars
• Black share of business ownership increased from 2.56 percent in 1982 to 4.2% in 1997. Black-owned firms made up 15 % of minority employer firms.
• Black-owned business survival rate increased with the size of the business, reaching 75 % with receipts between $500,000 and 999,999. Survival rates were the lowest in the $10-25,000 range for receipts.
• Black-owned business expansion rates were the highest in the less than $5000 range for receipts.
• The contraction rates were the lowest in the firms with low receipts.
• The receipt range of $10,000 to $50,000 appears to be a critical stage for the survival and expansion of Black-owned businesses.
• The sectors with the highest survival rates for Black-owned businesses were Finance, Insurance and Real Estate, Agriculture, Forestry and Fishing, Services, Wholesale and Manufacturing.
• Top sectors for Black owned firms were Services (53%), Retail (10 %), Transportation (8%) and Construction (7%).
• During the period 1990-2000 Blacks received 4.15 % of SBA 7 (a) loans and 1.59 % of the 504 loans.
• During the period 1997-2001, in Minnesota Black-owned businesses were the only minority group showing net gain in jobs created.
• During the period 1997-2001, in Minnesota Black-owned businesses had a survival rate of 71 % compared to the state average of 74 %.
• During the period 1997-2001, in Minnesota Black-owned businesses had an expansion rate of 33 % equal to the state average.
• During the period 1997-2001, in Minnesota Black-owned businesses had a contraction rate of 14 % lower than the state average of 23 %.
• States with the highest survival rates for Black-owned businesses were Wyoming (93.5%), Utah, D.C., North Dakota and Rhode Island (72 %).

4. According to the 2002 Economic Census:

• Blacks firms make up 1.6 % of all employer firms in the country
• 31 % of Black employer business owners have some college education
• 25 % of Black employer business owners had a post-graduate degree, the second largest group in the country after Asians.

5. A survey of clients of top non profits in Minnesota revealed that Blacks make up the largest percentage of their clients: MEDA (46 %), NDC (40 %), WomenVenture (21%). For the clients using the state’s Urban Initiative Funds, 46 % were Black.

Bruce P. Corrie, PhD Emerging Markets Series

651 641 8226 corrie@csp.edu

The Color of Entrepreneurs Quiz

Which population groups have a higher percentage of employer business owners relative to their share of the population?

Answer: White, Asian

Which population groups have the highest percentage of employer business owners with a post graduate degree?

Answer: Asian, Black or African American

Which population group has the highest percentage of employer business owners with an educational background of high school or less?

Answer: Hispanic

Which population group has the highest percentage of employer business owners with some college education?

Answer: American Indian and Native Alaskan

Which population group has the highest percentage of employer business owners spending more than 60 hours a week on their business?

Answer: Black or African American

Which population group has the highest percentage of employer business owners who state that their business is the primary source of their income?

Answer: Hispanic

Which population group has the highest percentage of employer business owners who state that their business is not the primary source of their income?

Answer: Black or African American

Source: Survey of Business Owners, 2002

Bruce P. Corrie, PhD

Minnesota Needs to Leverage its Dollars Spent on Construction, Professional and Other Services to Grow Small and Minority Businesses

Minnesota has an important but underutilized tool in its economic development toolkit: Statute 16c.16, states, “The commissioner shall for each fiscal year ensure that small businesses receive at least 25 percent of the value of anticipated total state procurement of goods and services, including printing and construction.”

However, in all the billions that are currently being debated in the Minnesota House and Senate, such as the recently approved construction bonding bill valued at almost a billion dollars, there is hardly a whisper how such massive state spending can help build our economic base in Minnesota by implementing state statute 16c.16.

There is tremendous potential to grow our own small businesses in Minnesota. This is particularly true for minority and new immigrant businesses. Minority businesses are one of the fastest growing segments of the local and national economies. For example, according to the Economic Census 1997 data, Hispanic firms grew 350 percent during the time period 1987-97.

If you were a venture capital investor – would you invest in minority and immigrant businesses ? Ask the nationally know Kaufman foundation: In a recent report, MINORITIES AND VENTURE CAPITAL: A New Wave in American Business, “Taken together, 117 investments tracked by Bates and Bradford from the 24 MBE-targeted venture capital funds surpassed a 20 percent rate of return. During that same time period, according to industry analysts, the S&P 500 Index had a 17 percent return. Furthermore, Venture Economics (VE) and the National Venture Capital Association derive a Private Equity Performance index. VE tracks the performance of over 1,400 US venture capital and buyout funds on a quarterly basis. As of early 2001, the ten-year trailing average annual return for the Private Equity Performance Index was 20.2 percent.”

If private capital can do it why cannot public funded projects take the cue?

Some of the major benefits that come with the growth of minority businesses enterprises are revitalization of both the low income neighborhoods as well as the high tech corridors. There is documented evidence to show that minority firms hire minority and other local people, buy supplies from local businesses, pay rent and local taxes, invest in their communities and serve as positive role models. In many instances, owning a business is an effective way for new immigrants to achieve the American dream.

The minority economic base is an estimated 11 billion dollars in consumer power according to the Selig Center. Census estimates minority paying 85 million dollars in real estate taxes and 57 million dollars in rent. Minority communities pay an estimated billion dollars in state and local taxes. Minorities and immigrants make up both a critical proportion of essential workers (roofers, food processing and hospitality industry, agricultural workers) as well as a critical proportion of high tech workers (physical scientists, nuclear engineers, physicians, computer professionals and economists). Minorities with their global links can help Minnesota tap into global markets. Some of Minnesota’s fastest growing markets in Venezuela, Mexico, Argentina, Korea, Japan, Indonesia, Colombia and South Africa can and have benefited from these local connections.

If our policy leaders rise up to the challenge we will have a strong and diverse economy in Minnesota.

Bruce P. Corrie, PhD