The Black Business Explosion
Here’s an interesting fact: nationwide, the number of businesses owned by African- Americans has gone through the roof in the last few years. According to the U.S. Census Bureau, black-owned companies increased a whopping 46% in the five years between 1987 and 1992, from 424,000 firms to 621,000. This is nearly twice the rate of increase for non-black businesses. From what I can see, this is a good news/bad news situation.
The good news is that the basic message of community self-reliance appears to be taking hold in the African-American community. More than ever, people seem to be getting the message that wealth and stability come from owning a piece of the economy. You can’t get laid off if you’re the boss, and you can’t be underpaid by a company if you own it.
The other part of the good news is that 44% of the new black firms report that they do most of their business with people of color. So almost half of these black businesses are probably serving our community.
The not-so-good news is that black firms are still only a tiny part of the economy. Most African-American firms bring in less than $10,000 in a year’s time, which isn’t enough to live on. Out of more than 600,000 black companies, only a tiny handful–3,000–had sales of more than $1 million in 1992. From the numbers, it would seem that a new wave of entrepreneurs are starting small businesses–including home-based network marketing operations–to supplement their regular jobs.
And here’s a real shocker: the highest concentration of black companies isn’t in Atlanta, Chicago or New York. It turns out the highest concentration is in Washington D.C., followed by Maryland and Mississippi. These three areas combined are home to half of all black businesses. Washington and Maryland make sense as a place to set up companies that do business with the federal government (especially in light of the cutbacks in federal workers during the 1980s). What’s going in Mississippi is anybody’s guess.
The census data comes from the Survey of Minority-Owned Business Enterprises and can be found at http://www.census.gov
The proposed merger between Citibank and Traveler’s Insurance has, predictably, triggered an outcry among community activists. Many of us have been nudging Citibank for years to increase the bank’s level of lending in inner-city communities.
But in many cases, seeking more bank lending misses the point. While some companies could benefit from a bank loan, the vast majority don’t need one more monthly bill to pay. Loans can help, but what’s really needed are equity investments–long-term infusions of capital that get repaid only if the business succeeds.
In other words, what we need is venture capital.
The good news here is that the amount of venture capital out there is reaching all-time highs. Nationwide, venture capitalists invested over $12 billion in 1997, a 20% increase from the year before. But nearly half of those investments went to high-tech companies in the fields of software, electronics and communications. So venture money is bypassing the neighborhood- level mom-and-pop stores, and seeking big returns from companies on the cutting edge of technology. That doesn’t mean ordinary retail and service businesses can’t succeed. But it appears, for the moment, we will have to convince Citibank and other financial sources that neighborhood-level commerce has as bright a long-term future as any software company.