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TOWARDS A STRONG BLACK

ECONOMY
TOWARDS A STRONG BLACK ECONOMY

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TOWARDS A STRONG BLACK ECONOMY

INTRODUCTION

This paper was written to expand the dialogue on Black wealth accumulation through
business ownership. The associated problems, opportunities and solutions are also
discussed. Hopefully, concerned African Americans will be motivated by the
seriousness of these issues and mobilize towards a stronger Black economy.

Our discussion is divided into seven areas:

1) History Of Black Business

Reviews Black business prosperity and what burst the bubble

2) Black Businesses Are Suffering

Discusses why African American businesses are suffering

3) Deferred Wealth Effects

Describes what hinders Black wealth accumulation

4) The Time Is Right

Why now is the time for Black Entrepreneurship

5) What’s In It For Me?

The personal benefits of business ownership

6) Role Of The Business Coach

Why Business Coaching is essential to Black business development

7) Recommendations

Strategies for Black business growth

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History Of Black Business

African Americans have historically been


prosperous business owners. Many cities have
had major Black business districts (i.e. Black
Wall Street, Tulsa, Oklahoma, Wiley District
in Pittsburgh, Pennsylvania, Hayti District in
Durham, North Carolina, etc.). However,
according to Denise Meredith, chief executive
of Denise Meredith Consultants:

A combination of legal discrimination and white supremacist terrorism destroyed


most black businesses from the 1930s to 1950s. That was followed by integration,
buyouts, riots and recessions, which wiped out most of the rest.

Instead of being a tribute to Dr. Martin Luther King's pursuit of economic equality,
"Martin Luther King Boulevards" throughout the country have become blighted
areas of boarded storefronts. The link to a tradition of black entrepreneurship was
broken. There are no established fathers or grandmothers to give young African-
Americans the jumpstart of legacy entries to business schools or down payments on
their first storefronts or management jobs in family firms. [2]

Today, 42 years after civil rights ended legal segregation in homes, schools, buses
and work, African American businesses are in a grave predicament.

Black Businesses Are Suffering

The assumption is that minority business – as a homogeneous entity - has managed


to increase its share of the U.S. economy. The fact that the number of Black
business start-ups has increased seems to indicate that there has been progress in
Black business development. However, on closer examination, statistics indicate
that African American businesses still trail far behind other ethnic groups. Most of
these "new" Black businesses are ―Mom and Pop‖ operations, average no employees,
and have receipts that continue to place us on the bottom of the business revenues
ladder.

USA Today newspaper reported that just 20 years


ago, Black owned businesses led all ethnic groups in
revenues. In 2002, Asian businesses led the pack with
$336,000 in annual revenue, followed by Hispanic
businesses with $155,000 and at the bottom of the
heap were Black owned firms with a wimpy $83,000
[3].
TOWARDS A STRONG BLACK ECONOMY

Why this reversal in fortune? According to those who study minority businesses
(i.e. The SBA, U.S. Census Bureau, Minority Business Development Agency (MBDA)
and The Ewing Marion Kaufman Foundation) the causes are fourfold:

1. Restricted Access to Capital


2. Insufficient Technology Usage
3. Weak Business Networking
4. Inadequate Business Education

Restricted Access to Capital

Venture Capital

Black businesses have generally not been the beneficiaries of


large amounts of venture capital. Actually, it’s estimated that
businesses owned by people of color received less than 0.25 %
of the $46.5 billion in private equity invested in 1999. [4]

On the other hand, Asian businesses, which qualify for


venture capital financing, are primarily immigrants who have a
large presence in technology businesses within the United
States. Venture capital firms such as Advent International, Walden Ventures and
Softbank say they are extremely comfortable with Asian and Asian-American
entrepreneurs and evaluate them alongside the rest of the technology universe. [4]

Furthermore, entrepreneurially driven Hispanic businesses have recently received


an increased flow of venture capital because of their potential to connect U.S. and
Latin American markets and the growing economic strength of the Latin and
Hispanic American consumer. [4]

The following chart shows venture capital expenditures to minority businesses:

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TOWARDS A STRONG BLACK ECONOMY

Active Market Capitalization

$2,000,000,000 $1,602,150,538
$1,500,000,000
$1,000,000,000 $706,666,667

$500,000,000 $105,882,352
$0
African American Asian Hispanic

Source: The Chapman Company, a Baltimore, Maryland investment bank and research
concern

Bank Loans

Minority businesses have traditionally been more dependent on debt financing than
majority firms. This makes them more vulnerable to trends that occur in the
financial services industry, including bank consolidations, decreasing numbers of
regional and community banks and the use of credit scoring [5]. The Federal
Reserve Board’s National Survey of Small Business financing, released in 1995
indicated that only 41% of those minority businesses surveyed obtained bank loans,
compared with 51% of White businesses. [5]

Another lending program, the 7(a) loan program, provides loans to small businesses
unable to secure financing on reasonable terms through normal lending channels.
This program allows private sector lenders to provide loans guaranteed by the SBA.
Although the number and dollar amounts of 7(a) loans have been increasing rather
steadily for all minority groups, not all minority groups have prospered equally. On
average (between 1990 and 2000), minority shares of the number and value of 7(a)
loans were as follows:

 Asian owned firms, 8.5 and 12.2 percent


 Hispanic, 6.5 and 5.1 percent
 African American, 4.2 and 2.8 percent [6]

The following chart reveals a closer look at the nominal dollar value of loans to
major ethnic groups:

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TOWARDS A STRONG BLACK ECONOMY

Source: U.S. Small Business Administration, Office of Advocacy, based on data from SBA’s
Office of Financial Assistance

Insufficient Technology Usage

Restricted Access to Capital is tied closely to


Insufficient Technology Usage. Without
adequate capital, it’s difficult to afford the
technology needed to be successful. In
particular, the following technology barriers
tend to overwhelm Black businesses:

 Lack of understanding of e-commerce


benefits and e-business strategies
 Unable to afford the expertise and time required using these business
strategies
 Lack of capital to afford state-of-the-art technology equipment [5]

Unfortunately, not enough Black businesses have an Internet presence as part of


their core business objectives. To compete we must keep pace with new innovative
technology where the Internet is used for communications, marketing, purchasing,
supply strategies and efficient business operations.

Weak Business Networking

In addition to Insufficient Technology Usage, Weak Business Networking limits


African American business strength.

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TOWARDS A STRONG BLACK ECONOMY

Black technology and entrepreneurial networking groups have sprouted up on both


coasts and in the Midwest (i.e. Network, Minority Internet and Technology
Professionals (MITP), Chicago Internetworking, Network of African American
Technology Entrepreneurs List [NATELI] and Bay Area InterNetwork). Other than
online sources like http://digitalblackpages.com/ , www.izania.com , www.nbbta.com,
and www.inside-secrets-for-black-business-development.com ,
relatively few people of color are involved in networking. [4]

In comparison, The Indus Entrepreneurs (TIE) and the Washington High Tech
Council have emerged as powerful networks of Asian entrepreneurs. Their ranks
consist of some extremely successful CEO’s who have become angel investors in new
Asian ventures. [4] In the Hispanic community, there is National Internet
Community of Hispanic Entrepreneurs (NICHE-Net). However, some also feel that
more Hispanics would be successful if they became involved in mainstream networks
for their industries. [4]

In many urban areas, the Asian and Hispanic Chambers of Commerce are intimately
networked with major contract providers, so once their clients are listed in their
databases, the network is used to get them contracts. In a similar manner, the
Chambers are networked with area banks to expedite loans and certification
agencies to facilitate minority certification.

Inadequate Business Education

Besides Weak Business Networking, another barrier to Black business growth is


Inadequate Business Education. Mainstream business education mechanisms
(Business development organizations, MBA programs, etc.) overlook lessons about
pitfalls unique to Black business. This can be fatal to African American
entrepreneurs because the difference between business success and failure is
avoiding small business pitfalls. Moreover, when grassroots Black people
participate in traditional business learning, the knowledge transfer is often
hindered by pedagogy and cultural contexts that they don’t relate to.

Most MBA courses are geared towards large multi-million dollar companies. These
corporations have the resources to operate strategic, (long-term) programs. On the
other hand, grassroots Black businesses, with minimal resources, must govern their
operations by tactical (short-term), creative approaches. For example, bank-
financing strategies for African Americans must be more creative than taught in
traditional classes since, as noted previously, we infrequently get loans.

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TOWARDS A STRONG BLACK ECONOMY

Deferred Wealth Effects

Black business suffering reflects the state of Black wealth. The median wealth
level for African Americans is $4,300 versus $43,000 for Whites. [1] This is
important because wealth level determines an ethnic group’s access to
functional schools, number of competitive businesses, equal justice, essential
health care, personal comfort and the length and quality of their lives.

Why is there so little Black wealth? Let’s take a closer look at how wealth is
accumulated. In spite of the talk about home-ownership, with the accompanying 30-
year note, there are primarily two ways:

1) Inheritance
2) Converting Income

Inheritance

Being the descendants of slaves, African Americans have inherited far less wealth
than Whites have. White society owns or controls most U.S. wealth and power
resources and passes them on from one generation to the next. Wealth is frozen
and stored inside their race – in their families, culture, businesses, churches,
communities, education systems and organizations in the form of stocks, bonds,
land, insurance policies, trust accounts and foundations.

It is unrealistic to think that African Americans can cross-racial boundaries and


successfully displace these frozen forms of wealth. [7]

Converting Income

Wealth is created by converting active income (income from selling your labor) into
passive income (income from the ownership of property - businesses, churches,
communities, education systems, bonds, land, insurance policies, trust accounts and
foundations.). Although Black active income is high, as evidenced by abundant
consumer dollars, issues of financial literacy and immediate gratification obstruct
its translation into passive dollars – and therefore negate wealth creation.

According to noted economic experts: Claud Anderson, James Clingman, Ken


Bridges, and Al Wellington (Co-founders of the MATAH Network) converting
dollars to business ownership in Black communities is the key to Black wealth. No
one can do this for African Americans, no document of agreement, expressing what
we would like to see, we must do it for ourselves.

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The Time Is Right

Fortunately, timing offers an opportunity to offset


Deferred Wealth Effects and other Black business
challenges. Just as in chess, timing can be used to
gain, position (organization, cooperatives,
community-based programs) and position can be
used to exert power (acquire material wealth).

Currently, unmet demand is significant where


African Americans live – in inner-city communities.
Small, medium and large corporations are poorly
serving these places. According to estimates, at
least 30% of inner-city retail demand is unmet,
equaling approximately $25 billion nationwide. In
Harlem, unmet demand is as high as 60%. Despite
lower household incomes, these inner-city residents
have more buying-power in a square mile than many of the more affluent suburbs.
[5]

Another timing opportunity comes from the markets, technology and consumerism
change in the overall business community. [5]

These dynamics have transformed in such a way that it is again favorable for
entrepreneurial-minded Blacks to benefit.

Markets

Over the past ten years, most corporations have reengineered many of their
processes, including procurement. They continue to search for new ways to
decrease administrative expenses and other costs, while increasing the efficiency
and effectiveness of their operations. Included are a greater use of e-business
strategies, greater outsourcing of non-core competencies and exploration of new
markets.

Technology

Black businesses must understand the trends in the increased use of technology.
They must participate in the electronic streamlining of networking, marketing,
purchasing, selling, and other processes.
Furthermore, Black businesses must realize and act on the fact that business-to-
business commerce is projected to be a major growth area in the Internet economy.

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Consumerism

According to Selig Center estimates and projections of buying power for 1990-
2007, African American buying power will increase from $316.5 billion in 1990 to
$852.8 billion in 2007, up 170% in a seventeen-year range.

As with other minority markets, the Black target market will grow much faster
than the White market, where buying power will increase by only 112%.

What’s In It For Me?

It is not difficult to see how the timing may be right for


Black business in general. However, on the personal side,
there are some compelling reasons African Americans
should seriously consider owning their own business.

Wealth Creation (Legacy)

Many financially successful individuals have gained wealth


from owning businesses. They have accumulated wealth by
effectively deploying their resources and winning at the
marketplace. At the end of the day, a business and
financial legacy can be passed on to future generations.

Self Satisfaction (Peace of Mind)

As opposed to the stress that is felt from a 9 to 5, there is a sense of self-


satisfaction. People are motivated and enthusiastic when they are entrepreneurs.
They see their dreams come true.

Job Security (Survivability)

The current off shoring of jobs and corporate downsizing has seen the downfall of
some organizational icons (i.e. General Motors, Ford, and Enron). As a result, many
good, hard working people are without work, through no fault of their own,
especially if they are African American.
Becoming a business owner allows one to take charge of their destiny. They are
permanently on the payroll. In addition, their employment is not a management
decision, as it is when 20 staff members are let go to ensure one executive’s golden
parachute.

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Another point of special interest to African Americans is job creation. In this high-
tech age of corporate off-shoring, Hispanics taking over lower-skilled jobs, Asians
and Indians taking over higher-skilled jobs and corporate icons letting workers go,
where will our children work?

They say the future of the U.S. economy is small business. However, small business
is immigrant dominated and they hire their own. If the numbers and receipts of
Black businesses are still on the bottom of the economic ladder, our future
employment is at stake!

Job creation through prosperous Black businesses is our way out of this dilemma.

Tax Advantages (More Money)

For a long time, wage earners have suffered heavy tax burdens, while business
owners have kept money in their pockets. Becoming a business owner will allow Black
people to legally manage their tax liability – through depreciation, credits, and
other tax incentives. A business owner can save substantial funds from taxation.

The Role Of The Business Coach

It takes more than overcoming the challenges and


unique pitfalls to Black business described to make
business a success. A successful business requires
know-how and perseverance.

Since grassroots Black entrepreneurs are business


education challenged, a business coach is a valuable
ingredient in closing the know-how gap. A Black business coach can be a minority-
oriented business expert. In many cases he or she has corporate and self-
employment work experience.

A Black business coach delivers competent business education to the Black


business owner, manager or entrepreneurial aspirant. He is well versed on
mainstream business principles as well as those business concerns unique to African
Americans. In a compassionate manner, she can help start, run or grow your
business.

It is not relevant whether the business coach has direct experience in your
particular business. In fact, it is often better if she does not. What he offers is:

 Understanding of Black business pitfalls

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 Unique knowledge and experience


 Trusted independent judgment
 Facilitation of action
 Temporary staff support
 Meeting deadlines on time
 Reorganization, downsizing and cost cutting

Insights from the business coach help establish realistic goals for success, and a
systematic approach to getting there. From her stable of clients and business
research the Black business coach has vision to see those things that
entrepreneurs cannot — such as:

 Business to business relationships


 Business referral network
 Community and national competitive trends
 New technologies that can reduce business or increase it

With the downsizing trend, big businesses are becoming lean and mean by turning to
outside operational, administrative, computing, marketing and business coaches.
What can a small Black business do to stay competitive? It can hire a Black
business coach who provides the same services as the big firm gets, only on an
affordable, ―as needed‖ basis from someone who really cares.

Profits often rise after outsourcing to a Black business coach. Slowly at first then
gradually accelerating to a delightful pace when the business owner has more
confidence in the moves he makes. The business owner has more time to work on
the business instead of in it.

Recommendations

If wealth creation through business ownership is fundamental to a strong Black


economy, goals and strategies must be initiated that start, run and grow more
African American businesses.

However, in order to combat greed, racism, ego-tripping, divide and conquer


fragmentation and other historical pathologies, as pointed out by Dr. Claud
Anderson, in his great book, Powernomics: The National Plan to Empower Black
America, Black people must first embrace two concepts:

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 Ethno Aggregation
 Vertical Integration

These concepts become guidelines, regarding racial matters, initiating new ways to
see, think, behave and bring African Americans together as a team. The following
are condensed definitions:

Ethno Aggregation

Ethno Aggregation is the voluntary concentration of people and resources around


their ethnic commonalities for improving their economic and political
competitiveness. It provides behavior modification psychology and conditions Blacks
to eliminate inappropriate behavior patterns. It kills the European-created Negro.
As a result, we are encouraged to unify as a people instead of seeking to unite with
others. It also encourages Blacks to pool their resources. An aggregated group has
a competitive advantage over a group whose resources are scattered.

The purpose of Ethno-Aggregation is to convert dis-aggregated African Americans


and groups into a team that concentrates resources. At the same time it serves to
reverse past negative conditionings and is the antidote for Willie Lynchism (a
slaveholder plan to divide and conquer Black slaves).

Vertical Integration

Vertical Integration is the process that takes place after an ethnic group has
concentrated their resources. The resources are moved up the chain of business
distribution (i.e. retailer, to wholesaler, to distributor, to manufacturer, to raw
materials extractor) and compete at each level with other ethnic, religious,
language or gender groups.

The purpose of Vertical Integration is to protect Black business by insulating the


chain of business distribution from top to bottom. It empowers African Americans
to be territorial and vertically mobile in staving off competitive attacks.

The old civil rights model of horizontal integration of cultural diversity with cross-
cultural dependencies has proven to be ineffective. Strategies implemented to help
start, run and grow Black businesses must function under the new model guided by
the concepts of Ethno-Aggregation and Vertical Integration.

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Recommendations

We conclude with a mindset guided by the concepts just discussed. It prepares us


to address the problem at hand, creating wealth through business ownership.
Armed with this new way to see, think and behave, we can establish the following
goals:

 Move out of the box with creative financing tactics such as; bootstrapping,
cooperative economics, and bartering
 Implement Internet technologies to gain business process efficiency and
upgrade business image
 Implement Internet technologies to pull together, network and become more
competitive
 Use Black Business coaching to bridge business education gaps
 Encourage and support the concepts of Ethno-Aggregation and Vertical
Integration

The following strategies serve to transform the above goals into workable tasks:

 Hire Black business coaches for business planning and performance


optimization
 Design, develop, and distribute bootstrapping best practices, implement
cooperative economics systems for wealth generation resources (i.e. Susu),
and develop human resource banks for bartering services
 Research and apply technology implementations that have been successful
for others and support e-commerce education for Black businesses
 Join and buy from online marketing organizations, form serious, self-help
networking associations
 Increase strategic alliances (Affiliations, partnerships, joint-ventures)
 Include African triangle (U.S. Caribbean, and Africa) in ―virtual‖ (electronic)
chain of business distribution
 Develop mentor/protégé cooperatives for Black businesses competitiveness
 Advance do-for-self community perspective on economic development

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Footnotes

[1] Isabelle de Pommereau, ―Why Black Financial Progress Is Running into Speed
Bumps‖, Christian Science Monitor, 4 February 1998,
<http://search.csmonitor.com/durable/1998/02/04/us/us.2.html>

[2] ―Economic Opportunity for Minorities Is True Freedom‖, Denise Meredith, The
Business Journal-Phoenix, 2002

[3] ―Rebuilding the Black Entrepreneurial Spirit‖, James Clingman, The Final Call,
<http://www.finalcall.com/perspectives/entrepreneur04-30-2002.htm>

[4] ―Current Issues in Minority Entrepreneurship‖, Udayan Gupta, Peter Shatzkin,


Lorraine Leung, The Ewing Marion Kauffman Foundation, 7 February 2001

[5] ―The New Realities for Minority Business‖, Minority Business Development
Agency (MBDA)

[6] ―Minorities In Business, 2001‖, U.S. Small Business Administration Office of


Advocacy, Table 23, Nominal Dollar Value of 7(a) Loans by Ethnicity, 1900-2000

[7] ―Powernomics: The National Plan to Empower Black America‖, Claud Anderson,
Ed.D, Powernomics Corporation of America, Inc., 2001

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