Black entrepreneurship: it has a past and it can have a future.

Lee, Myung-Soo ; Rogoff, Edward G. ; Puryear, Alvin N. 等

INTRODUCTION

By the time Thelma Lewis (not her real name) showed up at the Baruch College Small Business Lab, she had been in business for six months. Her gift shop with products aimed at the Black community was growing, but she was facing a cash crunch brought on by collection problems from vendors to whom she rented booth space in her store. She had begun to believe that the lease she had negotiated was onerous. She had not been able to advertise because the radio station she wanted charged $400 per commercial: ten times more than she expected. Thelma had never produced a budget, a cash flow projection, or dealt with real estate issues. At the Small Business Lab, she took classes in planning, computers, and business law, and she was coached through the process of creating a business plan and dealing with specific issues that were threatening her gift shop. Thelma was able to renegotiate her lease, make more financially secure arrangements with her vendors, and develop a marketing plan that fit her new budget. Today, Thelma's business is still growing and her confidence has returned.

On the other hand, Richard Lewis (not his real name), who was working part-time as a security guard, came to the Small Business Lab with a vision of building a real estate empire. He said he was inspired by Donald Trump and his life style and deduced that real estate was a good business. He also thought it would be good for the Black community to have a role model who was a successful entrepreneur in the real estate business. Richard wanted to know what he had to do to make that happen for him. When told that Trump's endeavors were the culmination of fifty years of real estate ventures begun by his father, and that Donald Trump had actually flirted with bankruptcy in the recent past, Richard's enthusiasm began to wane. After taking a few classes on accounting and finance, and having some counseling sessions with a professor to focus his efforts on aspects of real estate that was more realistic, Richard stopped showing up at the Lab.

As different as they are, the examples of Thelma and Richard reveal some of the issues faced by Black entrepreneurs. Lack of training, experience, and resources make the task of initiating a new venture a daunting one. Some react by becoming discouraged even before they begin; others, like Richard, are simply unrealistic.

It is widely accepted that entrepreneurship is the engine of economic growth. Between 1987 and 1992, 90% of new jobs were added by companies with fewer than 500 employees. Firms with fewer than 20 employees added more jobs during the period between 1985 and 1995 than did firms with more than 500 employees. Today there are 13 million sole proprietors in the U.S. and their ranks have been growing at 3% yearly for more than twenty years. This trend has largely bypassed Blacks. Light and Rosenstein studied rates of entrepreneurship as measured by self-employment in 167 metropolitan areas and concluded that Blacks are at the bottom of the scale. Neither the causes of this phenomenon nor its cures are obvious.

This study compares two groups: white business owners in mid-size cities and suburban areas and aspiring Black entrepreneurs from inner city neighborhoods in New York City. One group consists of established, well-off, mostly male, business owners with an average of 13 years experience in business ownership. The other is poor, over 40% unemployed, with little or no business experience. We wanted to know just how large the gap was between these two groups on their motivations and goals for starting or operating a business. Could differences in motivations be part of the reason that Blacks lagged so badly in entrepreneurial activity?

HISTORY OF BLACK ENTREPRENEURSHIP

Throughout history, Blacks have been subjected to factors unique among ethnic groups, including forced migration and a century of slavery. Despite these negative factors, there has been a long tradition of Black entrepreneurship. An evaluation of the current state of Black entrepreneurship begins by looking at this tradition. The history of Black entrepreneurship is a history of efforts to suppress it. Butler, in his detailed review of Black entrepreneurship published in 1991, shows how prevalent entrepreneurship was among the 10% of American Blacks that were free prior to emancipation. For example, an 1838 pamphlet, A Register of Trades of Colored People in the City of Philadelphia, listed 656 Blacks running businesses in 57 areas including banking, carpentry, blacksmithing, hairdressing, and sail making.

In his 1936 book, The Negro as Capitalist, Abram Harris detailed the development of mutual-aid societies throughout the 18th and 19th centuries that provided financing and insurance for Black entrepreneurs. Some of these grew to be quite large. By the 1930s, for example, the North Carolina Mutual Insurance Company had an annual revenue in excess of $25 million and was the largest Black-owned business in the world (Butler, p.189). In states that permitted slavery, free Blacks were also slaveholders. In 1830, there were 3,777 Black slaveholders running businesses from farms to manufacturing (Butler p.43).

But the barriers faced by Black entrepreneurs were quite unlike anything faced by any other group. In addition to slavery and segregation, Jim Crow laws existed in almost every slave state prohibiting Blacks from locating businesses outside the Black area and from doing business with whites. While other ethnic groups, such as the Irish, Asians, and Jews, certainly suffered discrimination, there were no laws explicitly limiting the markets in which they could operate their businesses.

One of the major responses to these barriers against Blacks was the reliance on self-help groups at all levels. The first and largest example of this is churches, many of which served various economic functions by organizing mutual aid groups, sponsoring insurance companies, and supporting schools. Du Bois (1967) detailed 107 schools that were supported financially by the Afro-American Baptist Church in 1907. The large parallel system of Black higher education that developed during the post Civil War period, including the founding of Tuskegee Institute, Grambling College, Hampton Institute, Fisk University, and Howard University, is a clear example of the Black community's self-help efforts.

PREVIOUS RESEARCH FINDINGS

Despite this history of entrepreneurship and self-help, rates of entrepreneurship in the Black community lag behind other groups. Research by Light and Rosenstein and others has recently begun to explain this issue and its origins.

Education and training. Light and Rosenstein have found that each additional year of formal education increases an individual's likelihood of becoming an entrepreneur by 0.8%. While this effect is somewhat lower for Blacks and Hispanics, it is nonetheless largely true. Other research, using different methodologies, has found approximately the same effect.

Discrimination. Blacks and other minorities have long focused their economic activities in certain areas. For example, Asian-owned businesses have tended to be concentrated in laundries, food stores, and restaurants. Historically, Black entrepreneurship has been oriented around food businesses and construction. But, even after accounting for all the factors that correlate with entrepreneurship among the entire population, such as education, age, and percentage of the population that is male, Black entrepreneurship is still lower than should be expected. This discrepancy is thought to be the result of discrimination and other cultural factors.

Ethnic and racial cultural factors. Cultural factors are often pointed to as an explanation for the high rates of entrepreneurship among Jews and Koreans, whose entrepreneurship rates are higher than their education levels alone would predict. So too, it is with Blacks, but in the opposite direction: the low rate of Black entrepreneurship is not fully explained by the overall low education level of Blacks.

This issue of culture, and the values that underlie it, is critical if Blacks are to join the mainstream economic community through the path of entrepreneurship. To examine this issue, this study compares a sample of aspiring Black entrepreneurs who have begun programs at the Small Business Lab, with a sample of business owners in four eastern and midwestern cities, none of whom are Black. The question we sought to answer is how, if at all, aspiring Black entrepreneurs are different from the mainstream, non-minority, business owners they seek to emulate. In fact, the samples were chosen because large differences were expected.

THEORY AND POLICY ISSUES

If members of minority groups have different goals than the entrepreneurial mainstream, then one can reasonably expect the outcomes of their entrepreneurial efforts to differ as well. For example, if minority entrepreneurs rate the goal of earning money lower than members of other groups, then they could be reasonably expected to operate their businesses in ways that do not maximize financial returns. Their ventures should attract less capital, produce fewer jobs, and contribute less to overall economic activity.

If members of a minority group see entrepreneurship as attractive primarily as a means of avoiding discrimination at their current jobs, then the traditional notions of entrepreneurs driven to bring the vision of a new product or service to market might not apply. Similarly, if members of one group did not see entrepreneurship and business ownership as attractive for the control that it gives the business owner, or the freedom it offers in his or her personal life, then the traditional notions of what motivates entrepreneurs would have to be changed.

From a public policy perspective, the goals of minority entrepreneurs are a critical link in the process of minority business development. If minority entrepreneurs hold different goals or find business ownership and entrepreneurship less attractive than the mainstream of non-minority entrepreneurs and small business owners, it might make scant difference how much training and education were offered or how many discrimination barriers were removed. The public policy of supporting minority entrepreneurs with training and education is useless unless the attractiveness of business ownership and the goals of minority entrepreneurs are similar enough to the non-minority business owner and entrepreneur.

As with the diffusion of any value or behavior, it is important for a vanguard group to adopt an attitude, be rewarded for that attitude through reinforcement, such as recognition or financial benefit, and then spread that value to others within the specified population. This paper sets out to test whether the vanguard group of minority entrepreneurs holds similar attitudes towards entrepreneurship as non-minority entrepreneurs. The importance of this rests within the diffusion model: if the vanguard group does not embrace the same values, then the chances of their being spread to the rest of the minority population is greatly reduced.

DESCRIPTION OF THE SAMPLES

Table 1 shows the characteristics of the samples. The differences between the samples are mostly what one would expect. The Black sample is more heavily female, 51.9%, compared to only 27% female for the sample of non-minority business owners. While the mean ages of the Black and non-minority samples are within one year of each other, at approximately 35 years old, the median age of the Black sample is 32 and the median age of the non-minority sample is 40.

Income, as presented in Table 1, shows a large difference between the samples. Whereas the non-minority sample has a long tail going to the higher income cells, with 9.5% of the sample earning over $170,000 per year, none of the Black sample earns over $50,000 annually. The mean income for the non-minority sample is $72,000 per year and $31,100 for the Black sample. Given the fact that 41.4% of the Black sample reported that they are currently unemployed, it is surprising that the differences are not greater.

On the measure of education level completed, the samples match quite closely. Of the non-minority sample, 45% completed college, compared to 44% of the Black sample.

ANALYSIS AND FINDINGS

All participants in the study were asked to rate twelve goals on a seven-point scale. The list of goals was developed from interviews and focus groups with business owners. In general, the aspiring Black entrepreneurs tended to have a stronger response to the goals. This is probably due to the fact that the aspiring Black entrepreneurs are at that exciting stage of bringing their dream into reality. But when the goals are ranked, and the rankings compared, a very close similarity is seen between the business owners and the aspiring Black entrepreneurs. The list of goals and the relevant scores are presented in Table 2.

Seven of the goals were ranked equally or very closely by both groups. "Utilizing my skills and abilities" was ranked first by both groups. "Gaining maximum control over my life" was ranked third in importance by both. Owning a business as a means of "Living how and where I like" was ranked 4th by the Black sample and 5th by the non-minority business owners. "Earning lots of money" was ranked 6th by the business owners and 7th by Black sample, showing that, overall, money was not their main motivation for entrepreneurship. "Gaining respect and recognition" was ranked 8th by both groups. Starting a business as a means of "Replacing my current job" was ranked 10th by the non-minority sample and 11th by the Black sample. "Fulfilling others' expectations" was ranked 11th by the non-minority sample and 12th, or last, by the Black sample. Similarly, beginning a business because it was the best alternative available was ranked near the bottom by both groups. The Black sample rated it 10th and the non-minority sample ranked it 12th.

Four goals showed significant differences between the groups. "Creating a new venture" was ranked 2nd by the aspiring Black entrepreneurs, but only 7th by the non-minority business owners. There are several possible reasons for this. The aspiring entrepreneurs are caught up in the excitement of trying to create something new, a feeling that is, on average, thirteen years in the past for the non-minority business owners. Also, about 25% of the business-owners sample have, in fact, inherited their businesses and never experienced this as a goal.

There was relatively great divergence between the samples on the goals of "Supporting my family" and the similar, but longer term goal of "Building something for my family." The non-minority business owners scored the former 5.53 and ranked it 2nd, while scoring the latter 5.25 and ranking it 4th. The sample of aspiring Black entrepreneurs scored "Supporting my family" 4.96 and ranked it 9th, and scored "Building something for my family" 5.89 and ranked it 5th.

There are some important differences between the samples relative to family status. The non-minority sample is 73% men, while the Black sample is 48% men. The median age of the non-minority sample is 40, while it is 32 for the Black sample. Also 60% of the non-minority sample is married, compared to 28% of the Black sample. In general, Blacks have lower marriage rates than whites, although many unmarried Blacks live in otherwise traditional family units.

To see if these demographic differences might explain the discrepancies between the two samples regarding the goal of "Supporting my family," Tables 3 breaks out responses to this goal based on marital status. Table 3 shows that by comparing only single respondents, that the non-minority sample scored "Supporting my family" 4.57 and single members of the Black sample scored it 4.90, which represents a rank of 8 for the non-minority sample and 9 for the Black sample. The more long term goal of "Building something for my family," showed less difference among the full samples, but also showed much greater similarity when marital status was controlled.

Married members of the non-minority business owners sample scored "Supporting my family" a 5.76 and ranked it 2nd overall, while married members of the aspiring Black entrepreneur sample scored it 5.00 and ranked it 8th. Married members of the non-minority sample scored "Building something for my family" a 5.52 and ranked it 3rd, compared to a score of 5.86 and a ranking of 4th for the Black sample.

The analysis of these two goals by marital status shows a much reduced level of difference between the samples. In fact, the married respondents only indicated a great difference on the rankings in response to the goal of "Supporting my family." This might be explained by at least two possible phenomena. First, it could be due to the number of wage earners in the families of aspiring Black entrepreneurs compared to the number of wage earners in the families of non-minority business owners. As pointed out above, the mean income of the samples differs by more than a factor of two. The non-minority sample's mean income is $72,000 per year, while the Black sample's mean income is $31,100 per year. Perhaps the Black sample's households have more second or even third breadwinners, making family support a relatively lower priority goal for the respondents. Second, there might be a difference in household size, which was not measured during this study. The non-minority business owners, being older, may have more children and thus might be weighing family support as a more important personal goal.

The goal of "Contributing to society" was scored 4.45 or 9th by the non-minority sample and 5.89 or 5th by the Black sample. The differences here remain even when controlling for age, sex, and marital status. In fact, in every stage of the research process, including focus group interviews and the survey, this factor showed up very strongly among the Black sample, and very weakly among the non-minority respondents. It is clear that the aspiring Black entrepreneur sees several important societal roles for their entrepreneurship. First, they see themselves as role models for their communities, fulfilling that role as members of the vanguard group in the diffusion model outlined above. Second, they see themselves as providing goods and services within their communities that are currently not offered, or not offered in sufficient quantity. As such, minority communities often represent strong potential markets. Third, the aspiring Black entrepreneurs see their anticipated success as a way to keep economic gains within their communities. These roles mirror the political protests that have accompanied non-minority and Asian business ownership within Black and Hispanic communities. This finding substantiates Butler's (1991) work outlining the close relationship that has existed since the 19th century between Black entrepreneurship and self-help.

Several alternative explanations were also examined and rejected. The variables of income and gender were investigated to see if there were significant differences within the two samples caused by these variables. Neither was found to make a significant difference on any goal's rankings. Thus, there is much less difference on the ranking of the twelve goals than even first appears. Controlling for marital status, to a large degree, brings the two samples nearly into perfect agreement on both family support goals. Indeed, taking both family support goals out of the ranking presented in Table 2, and removing the "Contributing to society" goal, on which there is a broad difference, produces a ranking of nine goals that have nearly perfect agreement. Therefore, with the exception of "Contributing to society," which is ranked much higher by the sample of aspiring Black entrepreneurs, the hypothesis is confirmed that there is no difference in goals and motivation for entering business ownership between the two samples.

CONCLUSION

The thread of Black entrepreneurship, frayed by slavery, economic restrictions, and discrimination, remains. There is a group of Blacks who want to join the economic mainstream with the same goals and motivations as those members of other groups who have preceded them. Like Thelma Lewis and Richard Jones, many Blacks lack the skills and experience to make the transition easily. But research and experience have shown that Blacks, like all other groups, significantly increase their rate of entrepreneurship with more education and training. In this era of shrinking social programs, it is important that those programs which add this missing ingredient to the entrepreneurial ambitions of Blacks be retained, if not enhanced. Ultimately, for Blacks, as well as for other ethnic and racial groups, entrepreneurship will be a major path to reaping the rewards of American society.

REFERENCES

Butler, J.S. (1991). Entrepreneurship and Self-Help Among Black Americans. Albany: State University of New York Press.

Du Bois, W.E.B. (1967). The Philadelphia Negro. New York: Schocken.

Harris, A.L. (1936). The Negro as Capitalist. College Park, Maryland: McGrath Publishing Company.

Light, I. & Rosenstein, C. (1995). Race, Ethnicity, and Entrepreneurship in Urban America. New York: Aldine De Gruyther.

Myung-Soo Lee, Baruch College, City University of New York

Edward G. Rogoff, Baruch College, City University of New York

Alvin N. Puryear, Baruch College, City University of New York

Table 1: Demographic Comparison of the Two Samples

Characteristic Non-Minority Non-Minority
 Business Percent of
 Owners Total
 (n=222)

Gender: Male 162 73.0
 Female 59 27.0

Age: Under 20 2 0.9
 21-30 22 9.9
 31-40 87 39.2
 41-50 72 32.4
 51-60 27 12.2
 61 and over 12 5.4

Income: Under $30,000 18 8.1
 $30,001-$50,000 44 19.8
 $50,001-$70,000 42 18.9
 $70,001-$90,000 36 16.2
 $90,001-$110,000 29 13.1
 $110,001-$130,000 13 5.9
 $130,001-$150,000 8 3.6
 $150,001-$170,000 5 2.3
 $170,001 and over 22 9.5

Education:
1-8th Grade 3 1.4
Some High School 5 2.3
High School Graduate 47 21.2
Some College 67 30.2
College Graduate 77 34.7
Graduate Degree 23 10.4

Characteristic Aspiring Black Aspiring Black
 Entrepreneurs Entrepreneurs
 (n=82) Percent of
 Total

Gender: Male 39 48.1
 Female 42 51.9

Age: Under 20 1 1.2
 21-30 7 8.6
 31-40 30 37.0
 41-50 25 30.9
 51-60 17 21.0
 61 and over 1 1.2

Income: Under $30,000 60 77.9
 $30,001-$50,000 17 22.1
 $50,001-$70,000 -- --
 $70,001-$90,000 -- --
 $90,001-$110,000 -- --
 $110,001-$130,000 -- --
 $130,001-$150,000 -- --
 $150,001-$170,000 -- --
 $170,001 and over -- --

Education:
1-8th Grade 1 1.2
Some High School 4 4.9
High School Graduate 11 13.4
Some College 30 36.6
College Graduate 23 28.0
Graduate Degree 13 15.9

Table 2
Goals of Non-Minority Business Owners Compared to Goals of Aspiring
Black Entrepreneurs on a Seven-Point Scale and by Rank

 Goal Non-Minority Non-Minority
 Business Business
 Owners Mean Owners Goal
 (Sample=222) Rank

Utilizing my skills and abilities 5.86 1
Supporting my family 5.53 2
Gaining maximum control over
 my life 5.30 3
Building something for my
 family 5.25 4
Living how and where I like 5.18 5
Earning lots of money 5.17 6
Creating a new venture 5.05 7
Gaining respect and recognition 4.61 8
Contributing to society 4.45 9
Replacing my current job 3.98 10
Fulfilling others' expectations 3.52 11
Accepting the best alternative
 available 3.43 12

 Goal Aspiring Black Aspiring Black
 Entrepreneurs Entrepreneurs
 Mean Goal Rank
 (Sample=82)

Utilizing my skills and abilities 6.51 1
Supporting my family 4.96 9
Gaining maximum control over
 my life 6.07 3
Building something for my
 family 5.62 6
Living how and where I like 6.00 4
Earning lots of money 5.61 7
Creating a new venture 6.09 2
Gaining respect and recognition 4.99 8
Contributing to society 5.89 5
Replacing my current job 3.05 11
Fulfilling others' expectations 2.95 12
Accepting the best alternative
 available 4.60 10

Table 3
Rating and Ranking of Goal "Supporting my Family" Based on Marital
Status

Group Rank Among Mean Response
 12 Goals

Single Non-Minority Business Owners 8 4.57
Single Aspiring Black Entrepreneurs 9 4.90
Married Non-Minority Business Owners 2 5.74
Married Aspiring Black Entrepreneurs 8 5.00