Despite starting businesses at a high rate, 3% of black women run mature businesses. In contrast, white women are more than twice as likely to be mature business owners (7%), even if they start at lower rates. This disparity between a high start-up and a low-established business activity among black women suggests potential problems with maintaining a business. Enabling access to entrepreneurship for all groups in society benefits us all by creating employment opportunities, increasing innovation, tackling income inequalities and bringing diversity of ideas to life.
In the United States, 17% of black women are starting or running new businesses. This is compared to just 10% of white women and 15% of white men.
Yet despite this early lead, only 3% of black women run mature businesses. To understand why this sharp decline is occurring and how to combat it, we analyzed data from interviews with over 12,000 people, including nearly 1,700 identified as entrepreneurs and nearly 1,200 established business owners.
Research was part of our work with the Global Entrepreneurship Monitor, a comprehensive annual survey of the rates and attributes of entrepreneurship, conducted in over 120 economies since 1999. The large-scale survey is administered by academic research teams in each economy; we represent the American team.
Our analysis suggests several possible reasons why black female entrepreneurs struggle to support their businesses.
One explanation may be the type of businesses created: our analysis shows that 61% of black female entrepreneurs start businesses in the retail / wholesale trade or in the health, education, government or service sectors. social, compared to 47% of white women and 32%. white entrepreneurs. As these are small, informal businesses with low margins in crowded competitive contexts, they are more difficult to sustain over the long term.
Another possible explanation is access to capital, which in turn could influence the types of businesses opened by black women. In previous research, we have found that 61% of black women are self-financing their total start-up capital. This despite the fact that in our analysis of the GEM data only 29% of black female entrepreneurs live in households with incomes over $ 75,000, compared to 52% of white men. This result, along with data showing that blacks have a better debt level go to college, and are less likely to own their own home, suggest that educated black women are burdened with debt, have fewer personal resources, and weak collateral.
In addition, access to key resources necessary for entrepreneurship is unevenly distributed in American society, reinforcing the advantage of certain groups while preventing the entry and catch-up of disadvantaged groups. This only reinforces a cycle where resource limitations reduce a person’s ability to generate financial gains through entrepreneurship.
Tackling racial and gender disparities is a long-term proposition in the United States, but immediate efforts can help accelerate this change and provide short-term benefits. The financial community, on the one hand, must look beyond helping a disadvantaged group to recognize both the biases they bring to the valuation of investments and the benefits of businesses run by educated black women. in sectors that can benefit from new ideas and social impact. This may require raising awareness in the financial sector, improving financial practices and defining guidelines to ensure equity in financing entrepreneurs. For example, financial institutions could consider whether the criteria and procedures for investing or lending money are the same for all groups, such as recent research suggests that different demographic groups are asked different types of questions during the fundraising process.
Our research has also shown that black women who start a business in the United States are highly educated. Although a little over a quarter of black women among the general population with a college degree or higher, we found that over three-quarters of black female entrepreneurs had at least a college degree. Universities are then in a unique position to provide black women with experiential education practices that enable them to learn and practice entrepreneurship and develop capacities to overcome the constraints they may face, as well as offer peer support and collaboration, in addition to expert advice.
Black women are able to play an increasingly visible and important role in the political and economic future of the United States, especially with the election of the first vice president of black women and the widespread call for change embodied in the Black Lives Movement. Never before have we seen such potential for black women to raise their voices and careers, and achieve social and economic equality. One of the ways to make this dream come true is through the opportunities offered by entrepreneurship. However, this dream will not be complete without focused efforts that empower black women entrepreneurs to grow and sustain their businesses. This will require conscious efforts on the part of government and the private sector to uncover and address the gaps and biases in entrepreneurial ecosystems in a way that ensures inclusion and support for the diversity of entrepreneurs who bring economic and social value to the business. American society.
Editor’s Note (5/11): The previous title of this article was misleading and has been updated to correct the error.