Towards a Strong Black Economy

8/14/2019 Towards a Strong Black Economy

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TOWARDS A STRONG BLACK

ECONOMY


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TOWARDS A STRONG BLACK ECONOMY

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INTRODUCTION

This paper was written to expand the dialogue on Black wealth accumulation throughbusiness ownership. The associated problems, opportunities and solutions are also

discussed. Hopefully, concerned African Americans will be motivated by theseriousness of these issues and mobilize towards a stronger Black economy.

Our discussion is divided into seven areas:

1)History Of Black BusinessReviews Black business prosperity and what burst the bubble

2)Black Businesses Are SufferingDiscusses why African American businesses are suffering

3)Deferred Wealth EffectsDescribes what hinders Black wealth accumulation

4)The Time Is RightWhy now is the time for Black Entrepreneurship

5)Whats In It For Me?The personal benefits of business ownership

6)Role Of The Business CoachWhy Business Coaching is essential to Black business development

7)RecommendationsStrategies for Black business growth


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History Of Black Business

African Americans have historically beenprosperous business owners. Many cities havehad major Black business districts (i.e. Black

Wall Street, Tulsa, Oklahoma, Wiley Districtin Pittsburgh, Pennsylvania, Hayti District inDurham, North Carolina, etc.). However,according to Denise Meredith, chief executiveof Denise Meredith Consultants:

A combination of legal discrimination and white supremacist terrorism destroyedmost black businesses from the 1930s to 1950s. That was followed by integration,

buyouts, riots and recessions, which wiped out most of the rest.

Instead of being a tribute to Dr. Martin Luther King's pursuit of economic equality,"Martin Luther King Boulevards" throughout the country have become blighted

areas of boarded storefronts. The link to a tradition of black entrepreneurship was

broken. There are no established fathers or grandmothers to give young African-

Americans the jumpstart of legacy entries to business schools or down payments ontheir first storefronts or management jobs in family firms. [2]

Today, 42 years after civil rights ended legal segregation in homes, schools, busesand work, African American businesses are in a grave predicament.

Black Businesses Are Suffering

The assumption is that minority business as a homogeneous entity - has managedto increase its share of the U.S. economy. The fact that the number of Blackbusiness start-ups has increased seems to indicate that there has been progress inBlack business development. However, on closer examination, statistics indicatethat African American businesses still trail far behind other ethnic groups. Most ofthese "new" Black businesses are Mom and Pop operations, average no employees,

and have receipts that continue to place us on the bottom of the business revenuesladder.

USA Todaynewspaper reported that just 20 yearsago, Black owned businesses led all ethnic groups inrevenues. In 2002, Asian businesses led the pack with$336,000 in annual revenue, followed by Hispanicbusinesses with $155,000 and at the bottom of theheap were Black owned firms with a wimpy $83,000[3].


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Why this reversal in fortune? According to those who study minority businesses(i.e. The SBA, U.S. Census Bureau, Minority Business Development Agency (MBDA)and The Ewing Marion Kaufman Foundation) the causes are fourfold:

1. Restricted Access to Capital2. Insufficient Technology Usage3. Weak Business Networking4. Inadequate Business Education

Restricted Access to Capital

Venture Capital

Black businesses have generally not been the beneficiaries oflarge amounts of venture capital. Actually, its estimated thatbusinesses owned by people of color received less than 0.25 %of the $46.5 billion in private equity invested in 1999. [4]

On the other hand, Asian businesses, which qualify forventure capital financing, are primarily immigrants who have alarge presence in technology businesses within the UnitedStates. Venture capital firms such as Advent International, Walden Ventures and

Softbank say they are extremely comfortable with Asian and Asian-Americanentrepreneurs and evaluate them alongside the rest of the technology universe. [4]

Furthermore, entrepreneurially driven Hispanic businesses have recently receivedan increased flow of venture capital because of their potential to connect U.S. andLatin American markets and the growing economic strength of the Latin andHispanic American consumer. [4]

The following chart shows venture capital expenditures to minority businesses:


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$105,882,352

$1,602,150,538

$706,666,667

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

African American Asian Hispanic

Active Market Capitalization

Source: The Chapman Company, a Baltimore, Maryland investment bank and research

concern

Bank Loans

Minority businesses have traditionally been more dependent on debt financing thanmajority firms. This makes them more vulnerable to trends that occur in thefinancial services industry, including bank consolidations, decreasing numbers ofregional and community banks and the use of credit scoring [5]. The FederalReserve Boards National Survey of Small Business financing, released in 1995

indicated that only 41% of those minority businesses surveyed obtained bank loans,

compared with 51% of White businesses. [5]

Another lending program, the 7(a) loan program, provides loans to small businessesunable to secure financing on reasonable terms through normal lending channels.This program allows private sector lenders to provide loans guaranteed by the SBA.Although the number and dollar amounts of 7(a) loans have been increasing rathersteadily for all minority groups, not all minority groups have prospered equally. Onaverage (between 1990 and 2000), minority shares of the number and value of 7(a)loans were as follows:

Asian owned firms, 8.5 and 12.2 percent Hispanic, 6.5 and 5.1 percent African American, 4.2 and 2.8 percent [6]

The following chart reveals a closer look at the nominal dollar value of loans tomajor ethnic groups:


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Source: U.S. Small Business Administration, Office of Advocacy, based on data from SBAs

Office of Financial Assistance

Insufficient Technology Usage

Restricted Access to Capitalis tied closely toInsufficient Technology Usage. Withoutadequate capital, its difficult to afford the

technology needed to be successful. Inparticular, the following technology barrierstend to overwhelm Black businesses:

Lack of understanding of e-commercebenefits and e-business strategies

Unable to afford the expertise and time required using these businessstrategies

Lack of capital to afford state-of-the-art technology equipment [5]Unfortunately, not enough Black businesses have an Internet presence as part oftheir core business objectives. To compete we must keep pace with new innovativetechnology where the Internet is used for communications, marketing, purchasing,

supply strategies and efficient business operations.

Weak Business Networking

In addition to Insufficient Technology Usage, Weak Business NetworkinglimitsAfrican American business strength.


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Black technology and entrepreneurial networking groups have sprouted up on bothcoasts and in the Midwest (i.e. Network, Minority Internet and TechnologyProfessionals (MITP), Chicago Internetworking, Network of African AmericanTechnology Entrepreneurs List [NATELI] and Bay Area InterNetwork). Other thanonline sources likehttp://digitalblackpages.com/ ,www.izania.com,www.nbbta.com,andwww.inside-secrets-for-black-business-development.com ,relatively few people of color are involved in networking. [4]

In comparison, The Indus Entrepreneurs (TIE) and the Washington High TechCouncil have emerged as powerful networks of Asian entrepreneurs. Their ranksconsist of some extremely successful CEOs who have become angel investors in newAsian ventures. [4] In the Hispanic community, there is National InternetCommunity of Hispanic Entrepreneurs (NICHE-Net). However, some also feel thatmore Hispanics would be successful if they became involved in mainstream networksfor their industries. [4]

In many urban areas, the Asian and Hispanic Chambers of Commerce are intimatelynetworked with major contract providers, so once their clients are listed in theirdatabases, the network is used to get them contracts. In a similar manner, theChambers are networked with area banks to expedite loans and certificationagencies to facilitate minority certification.

Inadequate Business Education

Besides Weak Business Networking, another barrier to Black business growth isInadequate Business Education. Mainstream business education mechanisms(Business development organizations, MBA programs, etc.) overlook lessons aboutpitfalls unique to Black business. This can be fatal to African Americanentrepreneurs because the difference between business success and failure isavoiding small business pitfalls. Moreover, when grassroots Black peopleparticipate in traditional business learning, the knowledge transfer is oftenhindered by pedagogy and cultural contexts that they dont relate to.

Most MBA courses are geared towards large multi-million dollar companies. These

corporations have the resources to operate strategic, (long-term) programs. On theother hand, grassroots Black businesses, with minimal resources, must govern theiroperations by tactical (short-term), creative approaches. For example, bank-financing strategies for African Americans must be more creative than taught intraditional classes since, as noted previously, we infrequently get loans.
http://digitalblackpages.com/http://digitalblackpages.com/http://digitalblackpages.com/http://www.izania.com/http://www.izania.com/http://www.izania.com/http://www.nbbta.com/http://www.nbbta.com/http://www.nbbta.com/http://www.inside-secrets-for-black-business-development.com/http://www.inside-secrets-for-black-business-development.com/http://www.inside-secrets-for-black-business-development.com/http://www.inside-secrets-for-black-business-development.com/http://www.nbbta.com/http://www.izania.com/http://digitalblackpages.com/


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Deferred Wealth Effects

Black business suffering reflects the state of Black wealth. The median wealthlevel for African Americans is $4,300 versus $43,000 for Whites. [1] This is

important because wealth level determines an ethnic groups access tofunctional schools, number of competitive businesses, equal justice, essential

health care, personal comfort and the length and quality of their lives.

Why is there so little Black wealth? Lets take a closer look at how wealth is

accumulated. In spite of the talk about home-ownership, with the accompanying 30-year note, there are primarily two ways:

1) Inheritance2) Converting Income

Inheritance

Being the descendants of slaves, African Americans have inherited far less wealththan Whites have. White society owns or controls most U.S. wealth and powerresources and passes them on from one generation to the next. Wealth is frozenand stored inside their race in their families, culture, businesses, churches,communities, education systems and organizations in the form of stocks, bonds,land, insurance policies, trust accounts and foundations.

It is unrealistic to think that African Americans can cross-racial boundaries andsuccessfully displace these frozen forms of wealth. [7]

Converting Income

Wealth is created by converting active income (income from selling your labor) intopassive income (income from the ownership of property - businesses, churches,communities, education systems, bonds, land, insurance policies, trust accounts andfoundations.). Although Black active income is high, as evidenced by abundantconsumer dollars, issues of financial literacy and immediate gratification obstructits translation into passive dollars and therefore negate wealth creation.

According to noted economic experts: Claud Anderson, James Clingman, KenBridges, and Al Wellington (Co-founders of the MATAH Network) convertingdollars to business ownership in Black communities is the key to Black wealth. Noone can do this for African Americans, no document of agreement, expressing whatwe would like to see, we must do it for ourselves.


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The Time Is Right

Fortunately, timing offers an opportunity to offsetDeferred Wealth Effectsand other Black business

challenges. Just as in chess, timing can be used togain,position(organization, cooperatives,community-based programs) andpositioncan beused to exertpower(acquire material wealth).

Currently, unmet demand is significant whereAfrican Americans live in inner-city communities.Small, medium and large corporations are poorlyserving these places. According to estimates, atleast 30% of inner-city retail demand is unmet,

equaling approximately $25 billion nationwide. InHarlem, unmet demand is as high as 60%. Despitelower household incomes, these inner-city residentshave more buying-power in a square mile than many of the more affluent suburbs.[5]

Another timing opportunity comes from the markets, technologyand consumerismchange in the overall business community. [5]

These dynamics have transformed in such a way that it is again favorable for

entrepreneurial-minded Blacks to benefit.

Markets

Over the past ten years, most corporations have reengineered many of theirprocesses, including procurement. They continue to search for new ways todecrease administrative expenses and other costs, while increasing the efficiencyand effectiveness of their operations. Included are a greater use of e-businessstrategies, greater outsourcing of non-core competencies and exploration of newmarkets.

Technology

Black businesses must understand the trends in the increased use of technology.They must participate in the electronic streamlining of networking, marketing,purchasing, selling, and other processes.Furthermore, Black businesses must realize and act on the fact that business-to-business commerce is projected to be a major growth area in the Internet economy.


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Consumerism

According toSelig Center estimates and projections of buying power for 1990-

2007, African American buying power will increase from $316.5 billion in 1990 to$852.8 billion in 2007, up 170% in a seventeen-year range.

As with other minority markets, the Black target market will grow much fasterthan the White market, where buying power will increase by only 112%.

Whats In It For Me?

It is not difficult to see how the timing may be right forBlack business in general. However, on the personal side,there are some compelling reasons African Americans

should seriously consider owning their own business.

Wealth Creation (Legacy)

Many financially successful individuals have gained wealthfrom owning businesses. They have accumulated wealth byeffectively deploying their resources and winning at themarketplace. At the end of the day, a business andfinancial legacy can be passed on to future generations.

Self Satisfaction (Peace of Mind)

As opposed to the stress that is felt from a 9 to 5, there is a sense of self-satisfaction. People are motivated and enthusiastic when they are entrepreneurs.They see their dreams come true.

Job Security (Survivability)

The current off shoring of jobs and corporate downsizing has seen the downfall ofsome organizational icons (i.e. General Motors, Ford, and Enron). As a result, manygood, hard working people are without work, through no fault of their own,

especially if they are African American.Becoming a business owner allows one to take charge of their destiny. They arepermanently on the payroll. In addition, their employment is not a managementdecision, as it is when 20 staff members are let go to ensure one executives goldenparachute.


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Another point of special interest to African Americans is job creation. In this high-tech age of corporate off-shoring, Hispanics taking over lower-skilled jobs, Asiansand Indians taking over higher-skilled jobs and corporate icons letting workers go,where will our children work?

They say the future of the U.S. economy is small business. However, small businessis immigrant dominated and they hire their own. If the numbers and receipts ofBlack businesses are still on the bottom of the economic ladder, our future

employment is at stake!

Job creation through prosperous Black businesses is our way out of this dilemma.

Tax Advantages (More Money)

For a long time, wage earners have suffered heavy tax burdens, while businessowners have kept money in their pockets. Becoming a business owner will allow Blackpeople to legally manage their tax liability through depreciation, credits, andother tax incentives. A business owner can save substantial funds from taxation.

The Role Of The Business Coach

It takes more than overcoming the challenges andunique pitfalls to Black business described to makebusiness a success. A successful business requiresknow-how and perseverance.

Since grassroots Black entrepreneurs are businesseducation challenged, a business coach is a valuableingredient in closing the know-how gap. A Black business coach can be a minority-oriented business expert. In many cases he or she has corporate and self-employment work experience.

A Black business coach delivers competent business education to the Blackbusiness owner, manager or entrepreneurial aspirant. He is well versed on

mainstream business principles as well as those business concerns unique to AfricanAmericans. In a compassionate manner, she can help start, run or grow yourbusiness.

It is not relevant whether the business coach has direct experience in yourparticular business. In fact, it is often better if she does not. What he offers is:

Understanding of Black business pitfalls


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Unique knowledge and experience Trusted independent judgment Facilitation of action Temporary staff support Meeting deadlines on time Reorganization, downsizing and cost cutting

Insights from the business coach help establish realistic goals for success, and asystematic approach to getting there. From her stable of clients and businessresearch the Black business coach has vision to see those things thatentrepreneurs cannot such as:

Business to business relationships Business referral network Community and national competitive trends New technologies that can reduce business or increase it

With the downsizing trend, big businesses are becoming lean and mean by turning tooutside operational, administrative, computing, marketing and business coaches.What can a small Black business do to stay competitive? It can hire a Black

business coach who provides the same services as the big firm gets, only on anaffordable, as needed basis from someone who really cares.

Profits often rise after outsourcing to a Black business coach. Slowly at first thengradually accelerating to a delightful pace when the business owner has moreconfidence in the moves he makes. The business owner has more time to work onthe business instead of in it.

Recommendations

If wealth creation through business ownership is fundamental to a strong Black

economy, goals and strategies must be initiated that start, run and grow moreAfrican American businesses.

However, in order to combat greed, racism, ego-tripping, divide and conquerfragmentation and other historical pathologies, as pointed out by Dr. ClaudAnderson, in his great book, Powernomics: The National Plan to Empower BlackAmerica, Black people must first embrace two concepts:


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Ethno Aggregation Vertical Integration

These concepts become guidelines, regarding racial matters, initiating new ways tosee, think, behave and bring African Americans together as a team. The followingare condensed definitions:

Ethno Aggregation

Ethno Aggregationis the voluntary concentration of people and resources aroundtheir ethnic commonalities for improving their economic and politicalcompetitiveness. It provides behavior modification psychology and conditions Blacks

to eliminate inappropriate behavior patterns. It kills the European-created Negro.As a result, we are encouraged to unify as a people instead of seeking to unite withothers. It also encourages Blacks to pool their resources. An aggregated group hasa competitive advantage over a group whose resources are scattered.

The purpose of Ethno-Aggregationis to convert dis-aggregated African Americansand groups into a team that concentrates resources. At the same time it serves toreverse past negative conditionings and is the antidote for Willie Lynchism (aslaveholder plan to divide and conquer Black slaves).

Vertical Integration

Vertical Integrationis the process that takes place after an ethnic group hasconcentrated their resources. The resources are moved up the chain of businessdistribution (i.e. retailer, to wholesaler, to distributor, to manufacturer, to rawmaterials extractor) and compete at each level with other ethnic, religious,language or gender groups.

The purpose of Vertical Integrationis to protect Black business by insulating thechain of business distribution from top to bottom. It empowers African Americans

to be territorial and vertically mobile in staving off competitive attacks.

The old civil rights model of horizontal integration of cultural diversity with cross-cultural dependencies has proven to be ineffective. Strategies implemented to helpstart, run and grow Black businesses must function under the new model guided bythe concepts of Ethno-Aggregationand Vertical Integration.


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Recommendations

We conclude with a mindset guided by the concepts just discussed. It prepares usto address the problem at hand, creating wealth through business ownership.Armed with this new way to see, think and behave, we can establish the followinggoals:

Move out of the box with creative financing tactics such as; bootstrapping,cooperative economics, and bartering

Implement Internet technologies to gain business process efficiency andupgrade business image

Implement Internet technologies to pull together, network and become morecompetitive

Use Black Business coaching to bridge business education gaps Encourage and support the concepts of Ethno-Aggregationand Vertical

Integration

The following strategies serve to transform the above goals into workable tasks:

Hire Black business coaches for business planning and performanceoptimization

Design, develop, and distribute bootstrapping best practices, implementcooperative economics systems for wealth generation resources (i.e. Susu),and develop human resource banks for bartering services

Research and apply technology implementations that have been successfulfor others and support e-commerce education for Black businesses

Join and buy from online marketing organizations, form serious, self-helpnetworking associations

Increase strategic alliances (Affiliations, partnerships, joint-ventures) Include African triangle (U.S. Caribbean, and Africa) in virtual (electronic)

chain of business distribution

Develop mentor/protg cooperatives for Black businesses competitiveness Advance do-for-self community perspective on economic development


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Footnotes

[1] Isabelle de Pommereau, Why Black Financial Progress Is Running into Speed

Bumps, Christian Science Monitor, 4 February 1998,

[2] Economic Opportunity for Minorities Is True Freedom, Denise Meredith, The

Business Journal-Phoenix, 2002

[3] Rebuilding the Black Entrepreneurial Spirit, James Clingman, The Final Call,

[4] Current Issues in Minority Entrepreneurship, Udayan Gupta, Peter Shatzkin,

Lorraine Leung, The Ewing Marion Kauffman Foundation, 7 February 2001

[5] The New Realities for Minority Business, Minority Business DevelopmentAgency (MBDA)

[6] Minorities In Business, 2001, U.S. Small Business Administration Office of

Advocacy, Table 23, Nominal Dollar Value of 7(a) Loans by Ethnicity, 1900-2000

[7] Powernomics: The National Plan to Empower Black America, Claud Anderson,

Ed.D, Powernomics Corporation of America, Inc., 2001

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Towards a Strong Black Economy

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