Challenges Facing Black Entrepreneurs

Why MLK's Dream Remains Elusive

Challenges Facing Black Entrepreneurs
January 19, 2015

Martin Luther King's famous "I Have a Dream" speech envisioned a color-blind world, free of the "manacles of segregation" and the "chains of discrimination". While segregation has been dismantled for the most part, remnants of the chains of discrimination still exist.

Are these remnants among the challenges facing black entrepreneurs? One can make the case that it is – not through overt discrimination, but through subtle differences in access to vital resources.

A survey from July 2014 gave some insight into these challenges, at least in the state of Texas. The University of Texas at Austin joined forces with the Texas Association of African-American Chambers of Commerce to poll 914 black-owned businesses regarding the nature of their businesses and the hurdles that they face.

Challenges to Equality

Black-owned ventures tend not to be retail businesses. Many are formed by professionals (architects, engineers, accountants, etc.) as sole proprietorships with no other paid employees. According to the survey results, attempts at larger ventures are hindered by poor access to contracts, cash, information and training/mentoring.

Despite anti-discrimination policies, black business owners cited reduced access to decision-makers in both the government and private sectors, affecting their ability to secure large enough contracts to expand and hire employees.

Meanwhile, the top challenge listed most often in the survey was basic cash flow and financing – yet 50% of respondents had not even applied for a business loan.

The survey does not address the reasons why – is it because too many black entrepreneurs assume that they would not qualify for a loan, lack the financial background to see the importance of capitalization, or consciously open up businesses where loans are unnecessary? Accounting/Financial training was listed as the greatest training need, so all three explanations are plausible.

More or Less Equal?

The survey results mostly match up with the conclusions of economists Robert Fairlie and Alicia Robb in Race and Entrepreneurial Success, their book from 2008. They contrasted the relative success of Asian-American entrepreneurs with the lower success rates of both white and black-owned ventures.

Fairlie and Robb concluded that increased startup capital, educational level, and training/experience accounted for Asian-American success while a lack of all three factors harmed black-owned enterprises. Learning and mentoring within a family business was a strong positive, but fewer black-owned businesses had that advantage.

Black-owned businesses are on the rise, with an increase of over 60% just between the years 2002 and 2007. Yet these businesses seem to have a "cap" that keeps them from expanding and establishing more jobs, which would lead to economic growth. Access to resources appears to be a key to breaking that cap.

There are exceptions, such as Magic Johnson's MJE group that targets urban growth. However, Magic started from a position of wealth and connections from his basketball career. It is much harder with no name recognition and insufficient capital.

This all indicates a basic lack of opportunity, which was the emphasis of Dr. King's message. While the lack of opportunity is on a completely different level than it was during the civil rights movement, it is still tangible.

Making the MLK Dream Come True

An attack on all sides of the issue will be required to break the self-fulfilling cycle. Barriers to contracts and capital must be continually dissolved, and suitable funding alternatives must be explored (such as lending programs specifically targeted to black-owned ventures, or equity crowdfunding as proposed in the 2012 JOBS Act, if the SEC ever gets around to approving it).

Black entrepreneurs need the positive messages and realistic expectations that they can succeed in business beyond operating sole proprietorships. Suitable financial and management training must be readily available and affordable to those willing to learn. Mentoring programs, especially within black-owned enterprises, are necessary to provide knowledge and useful business connections.

When this occurs, Dr. King's vision will have come to pass in the business world, and the only color that will matter to black entrepreneurs, their employees, and their customers will be green.

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