It wasn’t only movie stars, recording artists and high-profile elected leaders at the 2019 South by Southwest (SXSW) conference and festival in Austin, Texas. The conference also featured a March 9 panel moderated by Dell Gines, on funding racial equity in entrepreneurial ecosystems. Gines is a senior community development advisor for the Federal Reserve Bank of Kansas City.
The panel looked at different sources of funding and how capital can be deployed. Panelists included Ben Hecht, president and CEO of Living Cities; Todd Greene, executive director of the Atlanta University Center Consortium Inc.; and Catarina Schwab, co-founder and co-CEO of NPX Inc.
Opportunity HUB sponsored the panel. It was also the fourth time OHUB has raised funds to bring about 250 students from historically black colleges and universities to SXSW. Rodney Sampson co-founded OHUB in 2013.
Sampson and Gines have co-written an upcoming guidebook titled Inclusive Entrepreneurship Ecosystem Building in Communities of Color. The guidebook will provide an overview of ecosystem building to drive high-growth entrepreneurship in communities of color. (Visit our website to sign up to receive a copy.)
Gines sat down with Federal Reserve Bank of Kansas City publication Community Connections to share some background on this new approach and how it differs from traditional efforts to support minority entrepreneurs.
Community Connections: When I hear “ecosystem,” I have flashbacks to biology class. What does “ecosystem” mean in the context of entrepreneurship?
Dell Gines: It’s like the metaphor of “It takes a village to raise a child.” The ecosystem is everything that goes into raising that child. The house, the neighborhood, the culture, the influence of your neighbors and peer group, all support that child to become a flourishing adult. In the same way, it’s the environment that wraps around you to make you the best entrepreneur you can be.
Community Connections: Why should we support entrepreneurs?
Dell Gines: People should care because of the impact of entrepreneurship on economic development. Young-growth businesses are producing more than 60 percent of net new jobs. The other impact it has is on building community and alleviating poverty. That’s why entrepreneurship is important. Building an entrepreneurship ecosystem accelerates the process of starting and growing businesses in local communities.
Community Connections: Your work has a special focus on racial equity.
Dell Gines: We know there is a disparity in business start-up and business size. This contributes to the income gap and the wealth gap. It also affects the extent to which businesses can help communities that are identifiable by specific races, ethnicities and even classes optimize and grow. Andy Stoll at the Kauffman Foundation says 80 percent of ecosystem building is the same no matter where you do it, but the 20 percent makes a difference, in terms of culture and age and other elements.
Community Connections: How important was it to be invited to present at SXSW?
Dell Gines: Very important. It provided me the opportunity to share on a national platform what the Kansas City Fed and our partners are doing to address the racial wealth gap through building entrepreneurship ecosystems.
Community Connections: There were 25 different “tracks” at the conference. I was interested to see that your panel was in the “tech industry & enterprise” track rather than “entrepreneurship & startups.” Am I reading too much into it?
Dell Gines: There is local entrepreneurship support, and then there is this new, high-growth ecosystem building. We’re shifting from one way of supporting entrepreneurship, mostly through direct programming, to another way, which looks at supporting entrepreneurs holistically. Traditional entrepreneurship programs often support small businesses or micro-businesses. Ecosystem building looks at how all the pieces fit together, with a focus on firms that create the most economic and employment growth in the shortest time.
Community Connections: Are you saying this isn’t so much about selling a particular product?
Dell Gines: We’re conditioned to think that the idea is to build the business to sell the product, to sell the widget. The biggest difference is that in the ecosystem world, you build the business to sell the business, or in industry terms “exit.” The sales of a particular product increase the value of the company, which in turn makes it more valuable to sell. Venture capitalists and other investors get paid from the return on the investment when the founder sells the business.
Community Connections: Why technology? If the point is to flip the business, can’t a founder sell anything?
Dell Gines: The industry—people working on entrepreneurship ecosystem building—has moved toward technology as the fastest solution to creating high-growth businesses. You’re taking this technological innovation, working to scale the company and then exiting the company. Most communities that do start-ups well have figured out how to put effort into growing the tech companies. While this is not always the case, the ecosystem world as a whole still focuses heavily on supporting the creation and growth of tech companies.
Community Connections: Wouldn’t there be more barriers to getting into a high-tech field?
Dell Gines: Not necessarily. If you don’t have technical or business skills to begin with, which is not uncommon, you may as well try to start a high-growth business. The learning curve is huge whether you focus on building a high-growth or traditional small business. Also, there are credit and capital considerations. If you go to a venture capitalist, if it looks like you have market traction, they don’t ask your credit score, which is often a barrier in low-income communities. They look at company potential, and the ability to grow fast by capturing market share rapidly. If they fund it, they put people on the board to help support the owner and guide the process, which can be an additional benefit to the owner.
Community Connections: The guide you co-wrote with Rodney Sampson is framed in terms of inclusiveness. What does that mean here?
Dell Gines: Inclusivity isn’t just about having more minority entrepreneurs, it’s about the whole system. You’ll have more venture capitalists who are diverse and more policymakers who are diverse, people at every level who are more diverse. But of course you start with the entrepreneur. We look at how to create more black, brown, rural, women entrepreneurs. But what starts as an entry point—entrepreneurs—ends with more diversity in the whole system.
If you’re truly effective building entrepreneurship ecosystems in communities of color, it will lead to racial wealth equity. National leaders on the topic said this was the ultimate objective at a meeting last year at the Kansas City Fed. If you’re not seeing an increase in greater wealth equality, then you’re not doing something right. This is our “true North.” Until now, nobody has had a hard true North that defines the ultimate objective for building an entrepreneurship ecosystem that is inclusive.
Community Connections: And now you do.
Dell Gines: And now we do.
This article was originally published by Community Connections, a publication of The Federal Reserve Bank of Kansas City, one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., make up the U.S. central bank. Read the original.
