23 January 2009
In 1996, the Ewing Marion Kauffman Foundation set out the change that, embarking on a major study on entrepreneurship. The study solicited views from 120 scholars, 33 universities, 64,622 households and 830 would-be entrepreneurs. The first report from the study, released at the end of September 2002, merely identifies nascent entrepreneurs — people who are in the process of trying to start a business. But it has already produced some surprising results.
The researchers found that about 6.2 percent of all adults are trying to start their own businesses, but that blacks are far more likely to do so than whites. Just 5.7 percent of white households included someone who was trying to start a company, vs. 9.5 percent of black ones. (The differences between Hispanics and other groups were not statistically significant).
Census data show blacks are far less likely to succeed: Blacks make up 12 percent of the population, but own just 4 percent of companies. By contrast, whites represent 75 percent of the population and own 85 percent of businesses. “Blacks are starting companies at greater rates, but there is something within the process that causes them to fall out at greater rates, too,” says Patricia Greene, a University of Missouri professor and co-author of the study, which raises two important questions: Why are blacks more likely to try to start a business, and why are they having such trouble succeeding?
Back to the future? There’s plenty of historical precedent for a thriving entrepreneurial culture among black Americans. The current high levels of black entrepreneurship could very well represent a resurgence rather than an unprecedented phenomenon. The 1910 census showed that blacks were more likely than whites to own companies, and nearly as likely as whites to be self-employed, according to Margaret Levenstein, an economics professor at the University of Michigan. But in 1910, over 90 percent of African American entrepreneurs worked in agriculture, where small businesses have long been in decline, vs. about two-thirds of whites. Even excluding agriculture, black men were still more likely to be entrepreneurs in 1910 than in 1990 — 6 percent vs. 4.4 percent.
John Butler, a professor at the University of Texas, shares the view that this isn’t the first time blacks have been more entrepreneurial than other groups. When he was growing up, he says, the most important person in the black community was “not only the teachers, but the teachers who had a business.” The business provided important security, says Butler. “You didn’t know when the hostility from the larger society was going to come up.” He suggests the current wave of entrepreneurs have been struck by the realization that “civil rights and voting is one thing, but economic opportunity is another ... I think magazines like Black Enterprise have brought the consciousness of having an enterprise back to black America.”
Zeal for self-employment doesn’t matter much if businesses can’t get off the ground and establish themselves. Potential explanations for the differences between different groups of entrepreneurs are mostly speculation: blacks may have less access to bank loans and other sources of funding, or may have less influential or less active personal networks.
Butler, for one, thinks money is the answer. “Household wealth is the most important thing” in determining if a new enterprise is successful, he says. But the average black household has just one-tenth the wealth of the average white household, enabling it to spend that much less money sustaining a startup.
Education’s Dividends. The study does hint at some reasons to be optimistic about the current crop of black entrepreneurs. Statistically, businesses started with substantial capital and run by an entrepreneur with a graduate degree are most likely to succeed. And the current wave of black entrepreneurs is heavily weighted toward the highly-educated and well-heeled.
Twenty-six percent of black men with some graduate school education are trying to start a business, vs. just 10 percent of white men. On the income front, 16 percent of black men making more than $76,000 a year are trying to start a business vs. 10 percent of whites. These characteristics may help them thrive where other black entrepreneurs have struggled. The next phase of the study, due out next year, should begin to provide some hard answers.