With the rise of black owned businesses contributing to economic growth and enhancing the narrative of diversity, equity, and inclusion in the business world, Belfort Group’s Drew Vaughan poses the following questions:
How has the landscape of Black-owned businesses in the U.S. evolved in recent years?[1]
There was a surge in entrepreneurship – and specifically new business registrations – during the pandemic – that was centered in higher-income Black neighborhoods. New startups in these neighborhoods were a significant contributor to an increase in business dynamism in the United States.
Through our work on the Startup Cartography Project, my coauthors, Jorge Guzman and Scott Stern, and I saw startup formation plunge immediately following lockdowns. The magnitude and persistence of this drop worried us: It was steeper and longer than trends observed following September 11, 2001, and Hurricane Katrina. At the time, policymakers were focused – and rightly so – on throwing a lifeline to existing businesses through the Payroll Protection Act. But business dynamism, a key driver in economic growth, turns on net new business creation. For our economy to recover, new businesses needed a rescue too.
What happened next surprised us, and many other scholars as well. Not only did the rate of new business formation return to pre-pandemic levels, it surged beyond them. This increase proved to be persistent. Along with Yupeng Liu, Guzman, Stern and I looked to see whether new business formation varied by neighborhood. We found that this surge in the rate of startup formation was led by Black neighborhoods. Relative to other areas, higher-income Black neighborhoods experienced a higher rate of new business formation even after the pandemic subsided.
What factors contribute to the launching and growth of Black-owned businesses, particularly those led by women, and how do these businesses impact the broader economy?
Many factors contribute to the launching and growth of new businesses, including access to capital, market access, business background, reliable resources, customer and affordable workspaces, and networking. Black-owned businesses led by women are no exception. Important policy initiatives like BE NYC (Black Entrepreneurs NYC) aim to increase Black entrepreneurship by making these resources more readily available to Black-owned firms.
Black-owned startups that enter the market and grow contribute to business dynamism and higher rates of productivity growth. The U.S. economy would benefit if the new startups registered in Black neighborhoods survive and thrive. Put differently, the higher rate of startup formation in Black neighborhoods that was catalyzed during the pandemic and has persisted since represents potential. Policy efforts should continue to strive to convert this potential into economy-wide productivity growth.
Can you highlight some success stories of Black women entrepreneurs who have made significant contributions to their respective industries and communities?
I was particularly impressed with Karen Jordan of ABC 7 in Chicago’s reporting in 2022. She reached out after seeing our working paper at the National Bureau of Economic Research on How COVID is changing the geography of entrepreneurship and cited evidence from the Startup Cartography Project regarding the rise in startup formation in Black neighborhoods. Her reporting then added to our research findings by highlighting a number of Black-owned businesses in Chicago led by women, including Brown Sugar Bakery, a southern-style bakeshop specializing in traditional sweet treats and custom cakes, founded by Stephanie Hart, The Aux, a commercial hub dedicated to healing, wellness, and racial equity, co-developed by entrepreneurs Jacqui White and Tosha Wilson (who are also co-owners of The Laundry Café), Tiffani Holmes, and Lori Laser, and Boyce Enterprises, a beauty supply store, owned by Vetress Boyce.
The value of entrepreneurship in economic development falls disproportionately on communities and locations where startup growth occurs (Moretti, 2012; Decker et al, 2016). These women entrepreneurs are not only creating jobs and opportunities, they are contributing to the vibrancy of communities and, in examples like the Aux, empowering communities to turn disinvestment into community assets.
In what ways do initiatives and support systems play a role in fostering the formation of Black-owned businesses?
I believe that initiatives and support systems can make a big difference. They can help to provide would-be entrepreneurs and fledgling businesses with access to critical inputs, including both social and financial capital. The trends we observed following COVID lockdowns were correlated with two distinct areas of possible support for minority-owned businesses that had not previously existed. First, the Black Lives Matter movement, inspired financial institutions, banks, consumers, and companies to emphasize their commitment to support Black entrepreneurs and Black-owned businesses. Second, federal relief payments were made independent of eligibility criteria (and historical barriers that minority-owned business enterprises face in securing access to capital). These mechanisms and potentially others may have served to temper the persistent racial inequities in entrepreneurship. They point to the power that supports systems and initiatives can play in fostering the formation and growth of Black owned firms.
How do challenges such as access to capital, market competition, and systemic barriers affect Black women entrepreneurs in establishing and sustaining their businesses?
As we pointed out in our 2021 working paper, the promise of entrepreneurship as an engine of local economic development and social progress amplifies the impact of barriers to entrepreneurship, particularly for individuals from historically disadvantaged groups. Relative to the challenges of establishing and growing a business that a white male entrepreneur with financial and social capital typically faces, there is evidence that significant additional structural and systemic barriers obstruct both the founding and the growing of new businesses by people of color and those from disadvantaged backgrounds. As summarized with careful detail and in a comprehensive literature review by Bates (2011), minority-led businesses confront barriers to growth well beyond those faced by their white counterparts. Most notably, potential Black entrepreneurs face less access to bank finance (Bostic and Lampani, 1999; Fairlie and Robb, 2007; Bates, 2011, 2018; Fairlie et al, 2020), and so found businesses with less initial capital, with more personal debt, and at a scale that limits their potential for growth and profitability.
These troubling disparities are particularly salient for Black women founders. Recent research by Andre Perry, Mannan Donoghoe and Hannah Stephens at Brookings found that, “due to decades of racial discrimination and sexist loaning practices, Black women face more structural barriers in accessing capital, with about 61% of Black women self-funding their business and an higher-than-average level of debt.” Despite these challenges, Black women founders represent an increasing share of Black-owned businesses. “from 2017 to 2020, the number of employer businesses owned by Black women rose to 52,374—encompassing 37.2% of all Black-owned businesses.”
Since entrepreneurship is a channel for economic opportunity, and Black women are starting an increasing share of Black-owned firms, discrimination against them has the consequence of preventing communities with large minority populations from benefitting from the potential promise of entrepreneur-led economic development. Put another way, because discrimination against minority entrepreneurship lowers the returns to minority entrepreneurship, the impact of that discrimination includes not only the private loss to the entrepreneur but also the loss of social return to the community in which that entrepreneur lives.
How does the rise of Black women-owned businesses contribute to the narrative of diversity, equity, and inclusion in the business world?
To me, the rise of Black women-owned businesses is so much more than a narrative, it’s a source of economic growth. I am encouraged to see the significant steps taken by the Biden administration to unleash this potential and invest in Black Entrepreneurship and Opportunity. Ongoing federal investments in community lenders that expand access to financial capital, and programs like the Small Business Community Navigators Pilot Program that expand access to networks, markets, and social capital will help to bring critical entrepreneurial inputs to Black women-owned businesses. City, state, and community support will amplify progress. When Black-women-owned businesses are founded, survive, and thrive, the economy benefits.
[1] My responses to these questions draw from work by my coauthors and I in the Startup Cartography Project and incorporate language and analysis (omitting quotation marks) from an NBER working paper (w28787) I coauthored along with Jorge Guzman, Yupeng Liu, and Scott Stern, entitled How is COVID Changing the Geography of Entrepreneurship? Evidence from the Startup Cartography Project. Please see that paper for additional references.
