For this project, I am attempting to find out why minorities tend to start and own businesses at significantly lower rates than non-minorities. There have been numerous studies done by different groups and agencies that reveal that there are much fewer businesses owned by people considered to be minorities, and that the minorities who are business owners tend to be much less successful than their non-minority counterparts. My goal is to discover why this is, and what factors contribute to this trend.
I have compiled research done by various writers and researchers to help shape my argument for this project. I have collected articles written explaining what characteristics successful minority business owners possess, and some articles that try to come up with ways to fix many of the problems that they face. I also plan to utilize research done by agencies like the U.S. Census or the Minority Business Development Agency that has statistics regarding minority businesses. There are also private groups who do research on these types of subjects that I would like to utilize, like the Kaufmann Foundation.
Aplin Jr., John C., and Greg A. Leveto. “Factors That Influence The Business Success Of Minority Entrepreneurs.” American Journal Of Small Business 1.2 (1976): 30-36. Business Source Premier. Web. 27 Feb. 2016.
In the article “Factors That Influence The Business Success Of Minority Entrepreneurs”, written by John C. Aplin Jr. and Greg A. Leveto for the American Journal Of Small Business, the authors attempt to discover what aspects affect the success of minority owned businesses. They point out that “Numerous studies have attempted to isolate factors that correlate with eventual business performance. Unfortunately, the results of these studies have been inconclusive, contradictory, and frequently misleading” (Aplin and Leveto 30). They claim that their goal is to create some sort of framework that can be used across numerous industries to help predict whether a business and its owner will be successful. Aplin and Leveto then go on to cite statistics about how minority entrepreneurship is growing, but that research about minority entrepreneurs has not increased, and that “The absence of any major research in the area of minority enterprise has left a void, which if filled could provide a basis for solutions to problems that exist in the development of minority small business enterprise” (Aplin and Leveto 32). The authors then attempt to create a template for the framework they wrote about, utilizing not only a traditional psychological profile, but also taking into account their technical experience and the characteristics of the company itself. Aplin and Leveto assert that these factors are just as important in predicting success as evaluating individual character traits, even though they traditionally are not factored in when evaluating entrepreneurs. They finish the article by stating that more research is needed to continue improving the framework that they have created and improve its effectiveness in the future.
Efrat, Rafael. “Minority Entrepreneurs In Bankruptcy.” Georgetown Journal On Poverty Law & Policy 15.1 (2008): 95-128. Academic Search Premier. Web. 27 Feb. 2016
In the article “Minority Entrepreneurs In Bankruptcy”, written in the Georgetown Journal On Poverty Law & Policy, the author, Rafael Efrat, writes about an area of business he states is underrepresented in research: what happens once a business reaches bankruptcy, particularly for a minority. Efrat writes a lengthy introduction about minority entrepreneurship as a whole before bringing up the failures of minority businesses. He states that the reasons that minority businesses fail at a higher than average rate are inferior human capital (less education, less experience, etc.), less access to lines of credit, limited economic potential in their ethnic markets, their smaller size, and that there are far fewer minority businesses in high value industries. Efrat then states the methodology for his test. He distributed surveys to business owners filing for bankruptcy, and asked questions on the survey that were designed to learn information like ethnicity, education, cause of bankruptcy, and other information about their businesses. The results of the study showed that minorities as whole aren’t overrepresented in the total bankruptcy population, but the ones in bankruptcy are clearly disadvantaged compared to their non-minority counterparts. The study shows that minorities in bankruptcy received less government assistance, fewer had access to legal aid, and were in much worse financial conditions than non-minorities. Efrat states that “The household income of minority bankruptcy petitioners was almost a quarter less than their White counterparts in the bankruptcy sample. While minority petitioners had substantially lower household incomes, they also had significantly higher numbers of dependents to support. Similarly, minority petitioners reported significantly less ownership of capital. For example, the homeownership rate among minority petitioners was almost half the rate of that among White petitioners. Among the homeowners in the bankruptcy sample, White petitioners reported somewhat higher (but not statistically significant) home values than the minority petitioners” (Efrat 112). Efrat then goes on to conclude that even though the results of the study showed that minorities aren’t overrepresented in bankruptcy, they are significantly more financially vulnerable than the population as a whole.
Hisrich, Robert D., and Candida Brush. “Characteristics of the Minority Entrepreneur.” Journal of Small Business Management 24.4 (1986): 1. ProQuest. Web. 27 Feb. 2016.
In the article “Characteristics of the Minority Entrepreneur”, written in Journal of Small Business Management, the authors, Robert D. Hisrich and Candida Brush, write about what key characteristics and attributes most minority entrepreneurs have. The authors assert that most people in this category become entrepreneurs for very similar reasons, many consider themselves to have the same skill sets, and that they all generally run into the same problems in operating their businesses. The first claim that Hisrich and Brush make is that “Achievement, opportunity, and job satisfaction were the motivations listed most often” (Hisrich & Brush 4) as to why these minorities decided to become entrepreneurs. They also assert that the desire for things like power or status was the least prevalent reason given for starting a business, because the desire for “more intrinsic rewards (e.g., self-fulfillment and accomplishment) are bigger motivators than material rewards” (Hisrich & Brush 4). The next major claim that the authors make is about how minority entrepreneurs tend to have the same skill sets. Hisrich and Brush state that people in this category “considered themselves most adept at idea generation, product innovation, and dealing with people; average in marketing and business operations; and weak in finance” (Hisrich & Brush 5). They assert that the reason for this is because many people have previous experience in their field, and are thus more skilled in areas relating to the field, and not related to business operations or finance, as they tend to have little experience or training in these areas. The final major claim that the authors make is that most minority entrepreneurs face the same problems in starting their companies. Hisrich and Brush argue that “The biggest problems during start-up were lack of business training and obtaining lines of credit” (Hisrich & Brush 5). They claim that this is due the fact that most of these people don’t have business backgrounds, and therefore have had no previous interest in business training, and that it is difficult to obtain credit due to discriminatory reasons because they are minorities.
Lopez, Adriana. “The Solution That Could Help More Minority Entrepreneurs Get Funding.” Forbes. Forbes, 26 June 2014. Web. 27 Feb. 2016.
In “The Solution That Could Help More Minority Entrepreneurs Get Funding”, Adriana Lopez writes for Forbes about how minority entrepreneurs have trouble gaining access to funding for their ventures, and she also presents a possible solution to solve this problem and increase minority access to different types of funding. Lopez begins by telling a story from the TV show Silicon Valley that shows that minorities are as a whole underrepresented in entrepreneurship. She then gives a statistic about how “minority groups are both underrepresented and underserved when it comes to tech startups in the United States. An even smaller number of those succeed at actually getting any angel funding. Seven percent of those pitching for angel funding in 2013 were minority-led businesses, with only about 13% of those actually receiving funding” (Lopez 1). Lopez then cites statistics from the University of New Hampshire that show that the 13% of minorities who turn their pitches into angel funding is significantly less than the 21.6% of businesses as a whole who are able to do the same. This sets up the problem she is trying to fix, and then Lopez gives reasons why minorities receive such a lower amount of funding. She states that generally, minorities come from communities with lower wealth than non-minorities and are therefore far less likely to receive the funding they need to get their businesses off the ground in the early stages. Lopez also states that minorities tend to have fewer connections in business. Having high level business contacts with resources of their own and additional contacts is crucial to being able to get angel funding for a business, and minorities don’t have the access to these types of people. Lopez then introduces an initiative designed to change this pattern called PowerMoves.NOLA. Lopez writes about how PowerMoves.NOLA plans to change minority entrepreneurship by selecting some of the top minority business owners in the country and bringing them together for a weekend filled with business training, a pitch competition, and access to some of the top minority businessmen in the nation. Lopez shows that ideas like PowerMoves.NOLA are innovative ways to help those who would normally have trouble getting their venture off the ground.
Russell, Cheryl. “The Minority Entrepreneur.” American Demographics 3.6 (1981): 18. ProQuest. Web. 27 Feb. 2016.
The article “The Minority Entrepreneur”, written by Cheryl Russell for American Demographics, is about some of the problems that minority entrepreneurs face in operating and growing their businesses. Russell writes about how the lack of financing is the biggest problem that minority business owners face, and that this problem limits the potential for success that they have. She also states that the majority of minority owned businesses are the types of businesses that have low start-up costs, but also how very little growth potential. Russell also asserts that many minority businesses are confined into neighborhoods filled mainly with other minorities, and because studies show that minorities as a whole tend to have lower incomes, the businesses in these neighborhoods are not able to have the kind of success that other businesses have the opportunity to achieve. Russell also writes about how the government has implemented programs to help both small businesses and minority owned businesses. The two main organizations designed to help these businesses are the Small Business Administration and the Minority Business Development Agency, and these agencies help the businesses they are responsible for by giving grants and promoting programs designed to stimulate their business. Russell also writes about how California and Texas have the largest share of minority businesses, which could be due to the fact that they are both historically places that Hispanics tend to flock to, skewing their demographics compared to the rest of the country. Russell finishes by stating that minority businesses as a whole face many more difficulties than non-minority businesses.