Part of the America’s Entrepreneurs Special Report
Dell Gines, the author of an intriguing new report from the Federal Reserve Bank of Kansas City, Black Women Business StartUps, loves this quote attributed to Reid Hoffman, co-founder of LinkedIn: “An entrepreneur is someone who will jump off a cliff and assemble an airplane on the way down.” But for Black women entrepreneurs, Gines quickly adds, “they do it with only a toothpick and a napkin.” What he means is that Black women entrepreneurs typically lack the resources and capital to launch, yet take-off they do — in droves.
According to The 2018 State of Women-Owned Business Report commissioned by American Express, while the number of women-owned businesses grew an impressive 58 percent from 2007 to 2018, the number of firms owned by Black women grew by a stunning 164 percent, nearly three times that rate. There are 2.4 million African American women-owned businesses in 2018, most owned by women 35 to 54. Black women are the only racial or ethnic group with more business ownership than their male peers, according to the Federal Reserve.
Black Women Entrepreneurs: The Revenue Lag
But not everything about black women entrepreneurs is so rosy.
American Express found that the gap is widening between the average revenue for businesses owned by women of color and those owned by non-minority women. For women of color, average revenue dropped from $84,000 in 2007 to $66,400 in 2018, while for non-minority businesses, revenue rose from $181,000 to $212,300. And the gap between African American women-owned businesses’ average revenue and all women-owned businesses, Amex found, is the greatest.
What’s more, a catalyst for making the leap into entrepreneurship, the Federal Reserve Bank of Kansas City report said, “often was poor treatment and the perception of being undervalued in the workplace.” The Amex report echoed this, noting that “higher unemployment rates, long-term unemployment and a much greater gender and racial pay gap have led women of color to start businesses at a higher rate out of necessity and the need to survive.”
“It’s pretty evident that one of the primary reasons for Black women to start businesses is frustrations on the job,” Gines told me. “They feel they can’t get anywhere. We have been to seven cities doing the outreach and talked to a lot of Black women. There’s a feeling of being passed over for promotions, a sense of workplace fatigue, of being asked to train people to be their boss.”
What’s also evident, according to Gines: “The businesses tend to stay very small, and you don’t see a lot of scalability.”
On average, annual sales at businesses owned by Black women are two times smaller than the next-lowest demographic group, Hispanic women, and close to five times smaller than for all women-owned businesses, according to the Federal Reserve. The average annual sales for businesses owned by black women was $27,752 in 2012 (the most recent figures available), compared to $143,731 for all women and $170,587 for white women.
Gines said those figures are unlikely to have shifted dramatically since 2012. “The gap persists at about the same level,” he said.
Why So Many of the Businesses Are Micro
One reason so many of the businesses are micro is that many black women have difficulty accessing credit and face capital constraints, according to the Federal Reserve. That makes it hard to get the necessary funding to grow. And when Black women try to borrow with lower income and lower wealth, “these factors make going for a loan that much more difficult,” Gines said.
As a result, Black women entrepreneurs tend to tap personal savings, and, all too frequently, retirement accounts, according to BC Clark, director of business development at the Nebraska Enterprise Fund, a nonprofit based in Omaha that works with many black women business owners.
“We definitely do not want them to do that because it took years to build and they might not get that money back,” Clark told me. That’s why the Nebraska Enterprise Fund puts on workshops to teach things like borrowing basics, how to write a business plan, creating a mission statement and managing risk.
Starting As Side Businesses
For many Black women business owners, the tiny size of their firms is intentional, regardless of the dearth of capital available from lenders. That’s partly because they’re often launched as side businesses out of financial necessity. Most Black women entrepreneurs work part-time in their businesses, less than 39 hours a week, according to the Federal Reserve report.
“Many Black women founders may be single parents and need to have this dual income to support the household needs,” said Gines.
Using a startup as a second income stream initially can lead to positive results over the long haul. “It can mitigate the risk,” Gines said. “Because the women are taking care of their families, they need to have a level of confidence before they can make that jump completely. Woman who are responsible for the household tend to keep the size of businesses artificially low because they’re risk averse, need health insurance from a primary employer and want to make sure everything is absolutely appropriate before taking the jump.”
A Lack of Resources and Mentors
Another factor that slows growth: a lack of educational resources and mentors to help Black women entrepreneurs ramp up their business knowledge.
While there are SCORE programs (retired business professionals offering free advice to startup founders) in every major city, many Black women cite a lack of mentors who understand their businesses and business models or feel they can’t connect culturally with the ones they meet, Gines said.
Two dominant entrepreneurial characteristics expressed by many Black women business owners who participated in the 2017 focus groups conducted by the Federal Reserve of Kansas City were determination and self-learning. “Self-learning was a key characteristic that allowed many to start and grow a company in an environment with limited access to formal business knowledge and training,” according to Gines.
Frequently, Black women “don’t know who to go to, where to go and what organizations are out there that can support them,” Gines said. This is one reason, he added, that “you see a lot of clustering in very few industries with a low barrier to entry — service businesses such as hair salons, catering, child day care centers and consulting.”
The Optimistic Outlook
But Gines anticipates promising change coming.
“You are going to see a rise in Black women doing business in professional services with the rapid increase in education levels for Black women and their increased participation in the labor market, in fields such as accounting and engineering,” he said.
Where to Get Advice
Both Gines and Clark advise Black women entrepreneurs to look for know-how through a local chamber of commerce, the Small Business Association’s Women Business Centers and women’s business owner associations. Also, they say, take courses on entrepreneurship at a local community college.
It might make sense, too, to get certified as minority-owned and as a women’s business on the federal, state and city level, Clark said.
One parting thought: Faith and religious belief have also been important characteristics of many of the Black women business owners who spoke with Gines. “They used their faith as both as a source of motivation and a tool to support resiliency during difficult times,” he said.
Amen to that.
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