The State of Black-Owned Businesses
As we commemorate Black History Month, it’s a good time to take a look at the state of Black-owned small businesses in America.
In a difficult retail environment for most small businesses, eMarketer reports that Black-owned retail businesses experience more challenges than other companies. According to the US. Census Bureau’s Annual Business Survey, in 2019 (the most current numbers available), only 1.4% of all retail businesses (633,160) were owned by Black business owners. The business owners themselves say “they lack the social capital and networks needed to invest in technology, research and development, and innovation.”
Indeed, a report from McKinsey is eye-opening. It shows that Black founders only received 1% of venture capital investment funding. And that “while Black Americans are more likely to start businesses than any other ethnic group, they are up against tougher challenges from the get-go.” Their average startup capital totals about $35,000, compared with $107,000 for white entrepreneurs.
McKinsey says, “too often, these and other barriers lead to shortfalls—just 4% of Black-owned businesses are still in operation after three and a half years, compared with an average of 55.5% for all businesses.” Some other challenges Black-owned retail businesses face reported by McKinsey include:
- 47% of Black business owners’ requests for loans were approved, compared with 75% for white business owners
- 42% of Black-owned businesses were considered healthy and stable—before the outbreak of the COVID-19 pandemic, compared to 73% of white-owned businesses
- 4% of businesses owned by Black entrepreneurs are still in business after 3.5 years, compared with the national average of 55.5%
There is some good news for Black retailers. McKinsey calls it the “age of the inclusive consumer” and reports that 45% of American consumers “agree that companies should pledge to support Black-owned brands, suppliers, and vendors.” Both Gen Z consumers (who influence $800 billion in retail spending annually and Black households (with similar consumer spending power) “believe companies should address racial equality. Gen Zers are 1.4 times more likely to say that inclusivity is one of the most important factors shaping their buying decisions. And 68% of all consumers say their social values guide their shopping choices.”
QuickBooks recently held a roundtable featuring Tracee Ellis Ross, the star of TV’s Black-ish, award-winning journalist Soledad O’Brien, and Black entrepreneurs. View the video or read about it on the QuickBooks blog. Some of what was discussed focused on a recently released Black Business Health report from QuickBooks, which revealed that among the Black business owners:
- 54% say the pandemic made them prioritize their personal well-being, but
- 32% are not prioritizing self-care as much as they want to
- 19% of Black respondents used their stimulus checks to start a business
The survey also revealed that their companies weren’t exactly healthy, with 27% of the Black business owners saying the current financial health of their businesses was “poor” or “terrible,” compared to 11% of other business owners.
Black small business owners struggle more than other business owners with healthcare issues:
- 41% say their personal finances got worse during the pandemic.
- 41% are currently in financial debt due to health care costs
- 24% have no health insurance, compared to 13% of other entrepreneurs
But, despite all these challenges, the Black business owners are feeling upbeat and optimistic about their futures—54% expect their finances to improve this year, and
Despite the challenges, the majority are upbeat about the future. For example, more than one in two Black respondents (54%) predict their finances will improve in 2022. And for most, their top priority for 2022 is to achieve their financial goals.
That should be a top priority for all business owners. If you need help doing that, your SCORE mentor can help. You can find one here. And if you need immediate encouragement, Tracee Ellis Ross, who is also an entrepreneur and the founder of Pattern Beauty—a line of hair care products, says, “Remind yourself, no one else can be like you—you are the ace in your deck.” And every so often, treat yourself. Her choice? Eating Funyons.