Why Entrepreneurs Of Color Struggle And How To Succeed

May 28, 2018  |  

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Although the rate of businesses founded by Americans has been dropping over the last 40 years, businesses owned by Black women are on the rise at an increase of 322 percent since 1997, according to Fortune Magazine. This makes us the fastest growing group of entrepreneurs in the U.S.

But while African-American female-owned businesses may be strong in numbers, they, like other business owners of color are struggling.

Living Cities, a nonprofit group in D.C., recently mapped the unique obstacles that people of color and lower-income and lower-wealth Americans face in launching and scaling new businesses. The organization also came up with solutions to overcome some of these challenges.

What Living cities found was that a healthy local entrepreneurial ecosystem helps these new businesses survive and thrive. “Those are the policies, programs, organizations, products, and services in a bounded geography that together shape the environment in which local business owners start, operate and grow. In the best cases, these factors interact to make a city a welcoming and easy-to-navigate place for aspiring entrepreneurs of all races and socio-economic backgrounds,” CityLab reported.

These ecosystems can be created by cites creating new fund structures similar to “friends and family” investments, especially for lower-income and lower-wealth entrepreneurs. “But the enormous racial wealth gap, coupled with the almost complete unavailability of venture and loan funding, means that capital is harder to come by for entrepreneurs of color,” CityLab reported. The article points to one African-American business owner who had been denied a loan from three different banks even while having a FICO credit score of 720. Meanwhile, a white colleague with a much lower score had walked away with a million-dollar line of credit.

New Orleans is attempting to counter these discrepancies with a new pilot fund that was launched by the Network for Economic Opportunity that “bridges this gap for small businesses bidding for public construction and infrastructure projects, providing much-needed capital to grow their capacity and take on larger city contracts with more stable revenue streams.”

The Living Cities report also found that cities need to establish “formal mechanisms that connect prominent entrepreneurs of color with emerging entrepreneurs of color and engage them as mentors.” Having mentors can be key to becoming a successful entrepreneur.

New business owners also need business models to inspire them that will help them grow and scale up their ventures. “In every location, we saw entrepreneurs who simply didn’t have the expertise to recognize their own potential to be high-growth enterprises and then take the steps to grow. When they’re able to leverage opportunities to widen their customer base or shift into a new sector, entrepreneurs can transform their business from sustainable to thriving,” the CityLab report noted.

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