Overcoming Historic Barriers for Black-Owned Businesses

Black business owners face myriad challenges when launching a new enterprise. The Association for Enterprise Opportunity launched a research initiative, “The Tapestry of Black Business Owners in America,” to understand these challenges and identify better ways to support Black entrepreneurs.

The Challenge

The racial wealth gap is well-documented — Black households in the United States have, on average, just one-tenth the net worth of White households. There are myriad factors contributing to this disparity, including limited intergenerational wealth transfer among Black Americans, leading to limited asset-building activities like home ownership; geographic segregation and a lack of investment in majority-Black communities, which ultimately results in lower rates of accessing postsecondary education; and lower wages and higher unemployment rates, further contributing to a lack of wealth accumulation.

Entrepreneurship should be a tool in closing the racial wealth gap. According to the 2012 Survey of Business Owners, 2.58 million Black-owned businesses in the U.S. generated $150 billion in annual revenue and supported 3.56 million jobs. Businesses owned by Black entrepreneurs are one of the fastest-growing segments of the U.S. business community. Yet despite a strong entrepreneurial spirit among Black Americans, Black-owned businesses fall behind the national average in terms of size and revenue and are more likely to fail.

The Approach

The Association for Enterprise Opportunity (AEO) serves as the leading voice of innovation in microfinance and microbusiness in the United States, providing support and promoting inclusive entrepreneurship through the creation of economic opportunities for underserved entrepreneurs. To understand the unique challenges that Black entrepreneurs experience when starting and growing their businesses—and how institutions, programs and policy can best support their efforts—AEO invested in a research initiative entitled “The Tapestry of Black Business Owners in America,” supported by the W.K. Kellogg Foundation.

The research project employed multiple types of investigative methods to provide a robust and inclusive analysis:

To inform the development of the research project, AEO convened a group of experts in Washington, D.C. and held a moderated discussion on issues related to business formation among Black entrepreneurs, their challenges and successes in the U.S. (including historically), access to capital, and structural barriers to start-up and growth among Black entrepreneurs.
AEO mined data from a variety of existing sources including the U.S. Small business Administration (SBA) 7(a) loan datasets, publicly available national survey data from the American Community Survey, and longitudinal data on the wealth of business owners and non-business owners through the Panel Survey of Income Dynamics, engaging experts in the work including: Robert Fairlie, Khaing Zaw, Darrick Hamilton, and William Darity, Jr.
Informed by the initial convening, AEO also developed and fielded its own survey in partnership with Marketing & Research Resources, Inc., which assessed entrepreneurs’ experiences in the capital market. This survey was instrumental in helping AEO identify the trust gap among the Black entrepreneurial community. The survey included responses from 192 Black small business owners and 104 White small business owners.
As part of a larger research effort, AEO conducted interviews with Black entrepreneurs to better understand their experiences in the capital market. For the purposes of the report, these interviews were used to collect stories that helped bring the research to life and were another avenue through which AEO began to recognize the existence of the trust gap.

Outcomes

AEO compiled the findings from its research into its report, “The Tapestry of Black Business Owners in America.” Findings showed that more than half of Black business owners felt they were unfairly treated by financial institutions and nearly two-thirds felt that their negative experience was influenced by their skin color. The accumulated experiences of Black Americans with institutional and individual racism have resulted in a reluctance to seek the support and resources needed to start and grow their businesses, limiting their access to opportunities. Further, this trust gap—and its interaction with the credit and wealth gaps—creates a situation in which many potential Black entrepreneurs are never able to start businesses because they lack the resources that they need to even try.

AEO’s research identified key areas of opportunity to support the growth and success of the Black entrepreneurial community. As a result, “The Tapestry Project” was launched in June 2018 to provide resources and support to Black business owners and aspiring entrepreneurs. The project aims to increase visibility; foster a vibrant, innovative collection of high-quality collaborations; and to align AEO’s resources and partnerships in support of Black-owned businesses.

AEO also launched the "The Tapestry Project Innovation Registry," which connects organizations that support Black business development with opportunities for funding and partnership, and “Tapestry Project Action Lab,” which was established to address the wealth, credit and trust gaps through collaborative program development in six cities—Atlanta, Chicago, Detroit, Minneapolis, New York and Raleigh. Following completion of the Tapestry Project Action Lab, AEO plans to release an impact report detailing how each collaborative tackled the challenges facing their local entrepreneurial community, the outcomes for each collaborative in addressing those challenges, and lessons learned from the collaboration.

Impact

Decades of compounded limitations and continued racial tensions have held Black Americans back from reaching the same prosperity as White Americans. Entrepreneurship is a powerful wealth-building tool in the Black community — overall, “while White adults have 13 times the wealth that Black adults do, when we compare median wealth of Black and White business owners, the median wealth gap decreases to a multiplier of three.”

AEO’s research has demonstrated that by addressing the wealth, credit, and trust gaps, a more inclusive economy would emerge, supporting more entrepreneurs. Black entrepreneurs reach across many industries, providing critical services that fuel our economy. Further, these businesses also tend to hire from within their communities, creating economic opportunity for neighborhood residents. If we could help Black-owned businesses grow and reach the same level of employment as all privately held U.S. firms, we would add nearly 600,000 jobs and $55 billion to the economy.

AEO’s research has been paired with its advocacy work on behalf of microbusiness interests in Congress, including testimony in the U.S. Senate Committee on Small Business & Entrepreneurship, and references to “The Tapestry Report” by congressional leaders. According to AEO, corporations have also started using the research to inform programs supporting Black-owned businesses.

"The research informs our policy and our innovations.s… All of our work has to be high impact for the entrepreneur, it has to be scalable, and it has to be sustainable for nonprofit organization members to be able to implement it on a sustainable level." —-Connie Evans, CEO of AEO.

“Each of those barriers: wealth, credit, and trust are significant challenges. If you go back to the full title of the research report, the Tapestry of Black Business Ownership in America, it means there is untapped opportunity for success. That’s what our report is really trying to get to. There is untapped potential for businesses to go further.” —-Connie Evans, CEO of AEO.

References

Association for Enterprise Opportunity, “The Tapestry of Black Business Ownership in America: Untapped Opportunities for Success,” January 2020.

The Tapestry Project, Powered by AEO: https://aeoworks.org/our-work/cohorts/tapestry-project/