Understand the Clear Challenges in Building a Black-Owned Business

As a Black woman owned business, I sometimes wonder if corporate companies, the government and just people in general, understand the challenges, obstacles, and rewards of being a Black owned business.  So, I thought I would post this blog to share my thoughts. 

Obstacles are common to Blacks, so it is not surprising that creating a successful Black owned business is quite challenging. We as entrepreneurs face many problems, like a lack of capital, high expectations, and few role models. Despite the many barriers, progress is being made, especially among female business owners. 

Now, let’s start with the negative.


A Lack of Success

The numbers tell the story: Black companies are not as successful as other groups. Together with Hispanic companies, they have the highest failure rates. So, the question is “Why?”


Acknowledge the Economic Gap

As we already know, the economic gap between Blacks and Whites is wide (Whites’ median income is 10 times higher than Blacks’) and the impact on Black businesses. Blacks are in a worse position to survive an unexpected downturn.  As the pandemic began, about 58% of Black-owned businesses were at risk of financial distress before the pandemic, compared with about 27% percent of White-owned businesses The pandemic contributed to tipping 41% of Black-owned US businesses into closure from February to April 2020.

Our firms often start off in a precarious position. Funding is the biggest challenge that any business faces. In the early stage of development, it typically takes up much of an entrepreneur’s time. Venture capitalists often limit their investments to individuals with Ivy league degrees. Banks are quite cautious and require some type of equity, like a person’s home, be included in the deal, should the business fail.  

Whites fare better in this area. While about 15% of White Americans hold some business equity, only 5% of Black Americans do. Blacks also had a more difficult time accessing credit when the COVID-19 crisis began: 36% compared with 29% of all respondents.

Faced with no other choices, many Black businesses resort to digging into their own pockets. In fact, Guidant Financial found that the most popular financing methods were cash and help from family and friends. Given their position in the social structure, Blacks do not have as much money to invest as Whites.


Unrealistic Expectations

Because Black businesses are less common than other establishments and they fail at higher rates, customers are often nervous about doing business with them. As a result, a Black business are monitored more closely and has a smaller margin for error. Clients and customers stop doing business if a mistake is made — and every company makes mistakes. I remember experiencing once making a minor mistake with a client and my company was let go while a White male consultant made similar, but much larger mistake, but the client just talked to the contractor and gave his company another chance. 

The irony is that Black business owners are often more qualified than their White counterparts to run an enterprise. In fact, 30% of Black owners of employer firms (businesses with at least one paid employee) hold an advanced degree, which is true of 22% of their White peers.


An Identity Crisis

Because of the negative stereotypes, many Black business owners choose to hide their identity and downplay their race.  Some of us believe that revealing who we are will hurt our chance at widespread acceptance. Many cultures only reveal their heritage when it helps the business, for instance, cosmetics and clothing manufactured specifically for African Americans.


We Need Mentors

Running a business requires a wide swathe of skills: budgeting, hiring, marketing strategies,  team building, selling, government contracting. Unexpected challenges, like changes in economic conditions or new competition adds to the stress. Having mentors, advocates, sponsors, and advisors who want to help Black-owned business scale can really help us in these areas.

Research reveals that mentoring  has a significant impact on small business success. Mentors, advocates, sponsors and advisors can help us expand our network. They can also share lessons from their experiences, which often are more helpful than the best business books.


Signs of Progress

Now, the good news!

Times are definitely a changing! Despite the many challenges we face as business owners, there is much to celebrate. There has been a significant increase in the number of Black entrepreneurs over the past few years In fact, the number of Black business owners grew 40% from pre-pandemic figures and reached 1.5 million by August 2021.

In particular, Black female entrepreneurs,  such as myself, have become so invested in starting their own businesses. We have surpassed the number of Black male entrepreneurs and represent the only ethnic group with more female business owners than their male counterparts. 

A good starting point for bringing about needed change. Yes!


How Can Larger Companies Help

The more you invest in and support Black business, the better it is for your bottom line. Black businesses bring the experience, expertise, and a unique point of view to your company’s challenges.

Continue to support and invest in Black woman-owned businesses. Become a mentor, an advocate, a sponsor, or even a champion for all minority-led businesses. If you are already doing this, add more to your supplier diversity roster.

Building a successful business is challenging for anyone and even more so for the Black business owner. Although we lack access to funding, staffing and guidance, things are improving. There are more and more resources available to those who are just getting started. But for us who ready scale and achieve that ‘American Dream’, progress is being made, especially among Black female entrepreneurs, but more work is needed.

Have a corporate culture change challenge? Let us help you transform your organization into a more thriving, collaborative, inclusive and collaborative work environment.  Contact True Synergy at [email protected].

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