Boom In Black-Owned Firms Having Limited Effect On Black Unemployment

African-American entrepreneurship is on the rise at rates greater than the general population, according to data from the Census Bureau. The newly-released figures, reflecting the period between 2002 and 2007, show that the number of businesses owned by African Americans rose nearly 61 percent in those five years. By comparison, during the same period the overall number of U.S. businesses increased by just 18 percent.

These figures are encouraging, but they are not surprising. Inner cities -- where 82 percent of the residents are minorities -- experienced job losses throughout the first decade of this century, despite growing job markets in suburbs and outer regions of cities from 2000 through 2008. Many African Americans -- like other Americans -- have turned to entrepreneurship out of necessity where job growth has slowed or disappeared. This trend is likely to continue for all Americans as we continue to shift to a new, globally competitive economy.

The data also reflect the types of companies primarily being created. In 2007, nearly four in ten of these African American startups operated in the healthcare and social-assistance sectors, as well as repair, maintenance, personal and laundry services. Consistent with the type of businesses being started, the majority of the African-American businesses employed between one and four people.

Fast forward to 2011, and we now need more than 15 million jobs nationally to get back to 2007 employment levels. For all of the encouraging trends regarding the growth of African-American entrepreneurship reflected in this data, a shift is necessary to start growing the types of companies that can create a much more significant number of jobs. When it comes to job creation, this happens via a very specific type of entrepreneurial company, as opposed to entrepreneurship more generally. According to the Kauffman Foundation:

  • All net new job growth in the United States in the last 30 years has been the result of companies less than five years old. The companies creating the most significant net new job growth are young.
  • The top 1 percent of companies are creating roughly 40 percent of new jobs. The most significant job growth comes from the fastest-growing companies.
  • These companies are using transformative technologies, often accessing that technology from a university or research lab. The companies have a unique product or service.
  • These companies have access to capital. They are able to actually grow because they are able to access funds.

And the Census data reflect that most African-American entrepreneurs are not creating these types of businesses. There are numerous reasons for this, including a lack of access to these types of technologies and resources, awareness of how to secure risk-based investor capital, and knowledge of how to move a company from an idea into a job-creating entity.

It is equally critical that high-growth entrepreneurship is encouraged and developed among entrepreneurs located in inner city locations, because these entrepreneurs can have a disproportionately positive impact on inner city job creation. The Initiative for a Competitive Inner City (ICIC), a research and strategy non-profit and national expert on inner-city economics, identified that high-growth inner city firms accounted for virtually all of the new inner city jobs created in the ten years prior to 2007. Perhaps more importantly, they created new jobs for inner city residents at twice the rate of other companies located in "city limits," and seven times the rate of companies located in the suburbs. And job creation in inner cities -- jobs that, in turn, provide living wages and household income to inner city residents -- is the first step in addressing many of the other challenges faced by inner cities communities, such as affordable housing, crime reduction and poverty.

Glen Johnson and Pete Durette's story is both an inspiration and an example of this type of high-growth entrepreneurship. Together, the duo had more than 40 years of IT experience, selling and delivering technology solutions to Fortune 100 companies. Glen and Pete wanted to capitalize on the Internet's impact on the music industry and decided to apply their corporate IT experience to a new digital business model that lets millions of artists share their music with fans around the world on free social networking sites.

Dubbed Melody Management, the company's web-based platform lets artists upload their music, distribute it across dozens of social networking sites, and get paid directly. The unique payment piece is one of Melody Management's competitive advantages; artists use the software to set song prices, receive 85 cents for every dollar sold, and get paid weekly.

Melody Management founders Glen and Pete worked with Ohio-based venture development firm JumpStart to craft their message of differentiation and refine their business plan before going for investment consideration. And ultimately, the two raised $250,000 for their Software as-a-Service (SaaS) company. Although they are not a big company yet, they certainly have big market potential.

So, how can we encourage more high-growth entrepreneurship among minority entrepreneurs, including those entrepreneurs located in inner cities?

1) A new dialogue is the first step. A rise in minority entrepreneurship is worth a celebration, but it's not enough. All entrepreneurs need to be aware of, and consider, the opportunity to use a transformative technology or idea, apply it to a global market, raise funding to support it, and generate thousands of jobs and personal wealth as a result. Minority entrepreneurship must move rapidly into these higher growth markets and larger scale opportunities.

2) Engagement and outreach are the second steps. While there are many programs and initiatives across the country focused on emerging industries and technologies, the participation rate of minority entrepreneurs in these programs is disproportionately low. It takes a consistent, longer-term, and focused effort to engage and reach out to these culturally diverse citizens in order to truly develop a vibrant and inclusive entrepreneurial ecosystem.

3) Intensive preparation and facilitating key connections are the third steps. This isn't different than what any high-growth entrepreneur needs to ensure the articulation of an idea most successfully, and the right audience of investors or customers to hear that articulation. But these specific services and key industry relationships must be expanded beyond their historical networks to ensure that all entrepreneurs have equitable access to higher growth opportunities.

So, while we absolutely celebrate the positive trends in entrepreneurship for African American and other culturally diverse citizens, the country must now work to ensure that future Census reports reflect a much greater number of larger scale, diverse firms that employ by the hundreds versus staff with one to four employees.