Entrepreneurship is not only a key driver of overall economic growth, but also one of the many ways that Americans can create wealth. However, as 2020 has shown, opportunities to participate and succeed in the entrepreneurial economy are not evenly distributed according to race and ethnicity.
This year, a wave of protests across the country against racial justice and the economic impact of COVID-19 have drawn more attention to the struggles minority communities face in building and maintaining prosperity. According to a McKinsey analysis, two of the main challenges facing minority business owners are structural barriers to financial health and disproportionate representation in industries most vulnerable to economic shocks such as those portrayed by COVID-19.
The main structural obstacle facing potential minority entrepreneurs is access to capital. Minority households have fewer assets and savings to spend on new business, while banks and other creditors are less likely to approve loans for black or Hispanic small business owners than for white business owners. Without upfront capital to invest in a growing business, minority entrepreneurs struggle to run and scale their businesses.
As a result, minorities are underrepresented in the startup economy in relation to their share of the population. Non-Hispanic whites, who make up roughly 60% of the US population, own nearly 80% of the country’s startup companies. In contrast, Hispanics of any race make up 18% of the population and 7% of startup owners, while those numbers for Black Americans are 12% and 3%, respectively.
In the COVID-19 environment, another pressing issue has been the types of businesses minority entrepreneurs are likely to run. The industries with the highest concentration of minority business owners were also some of the industries most vulnerable to the economic shocks caused by restrictions to limit the spread of COVID-19.
A good example is the hotel and catering sector, in which almost a third of entrepreneurs are minority groups. Indoor bars and restaurants have been banned or severely restricted in many countries for long periods of 2020, while the demand for accommodation and accommodations with more people staying at home and restricting travel has increased sharply. Other industries with higher minority ownership such as retail, transportation, and storage have also been hit by downtime and home ordering, reduced consumer demand, and supply chain disruptions. These difficulties were exacerbated by the structural barriers mentioned above as minority business owners struggled to gain access to government-sponsored COVID-19 relief efforts such as the Payroll Protection Program.
Despite all of these challenges, there are nearly 170,000 minority startups in the United States today, employing more than 700,000 people and generating nearly $ 100 billion in annual sales. Due to demographic developments, these numbers are likely to increase as the population continues to diversify according to race and ethnicity. Unsurprisingly, states with larger minority populations – including the “majority minority” in California and Hawaii – also lead the percentage of minority-owned startups.
For small subways in the US, St. Joseph ranks 52nd, with 9.3% of companies being minority startups and 24 companies having annual sales of approximately $ 10 million.
One of the newer minority-owned companies is The Underkutter, an all-in-one on Frederick Ave. 1900, which includes a clothing store, barbershop and recording studio.
Co-owner Ronnie Grant said the urge to start his own business was not the result of increased minority representation in the area – it wanted to make better business for people in general.
“It means everything (to run this business) … it’s like you see a business and a man, they’re booming over there and there’s nothing to do (better than them),” he said.
Grant worked in his shop every day and said his children see his vision and work ethic.
“My kids are crazy about business and all that. Like I have my daughter. At the moment she makes key rings and the like. She always thinks about (business ideas), ”he said.
There is Grant hope that there will be a new wave of minority owned businesses for St. Joseph in the future.
“They help us sell (products), clean up, take care of the place and learn about the family business. We are ready to pass this on … All we do is family so this is beautiful, ”Grant said.
At the city level, the story is similar. While areas with a large minority population also tend to have a higher concentration of minority-owned start-ups, minorities are still underrepresented relative to their small business-owned population. To highlight this trend, Self Financial researchers used census data to calculate the percentage of start-ups – defined as companies younger than two years old – that are minority-owned and the percentage of minority population in each metropolitan area. The researchers also took into account the total number of minority-owned startups on each metro, as well as the number of employees and total annual revenue.
News-Press NOW reporter Andrew Gaug contributed to this story