15 Important Takeaways From Dr. Sandy Darity’s And Derrick Hamilton’s Study On Black Entrepreneurship

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Written by Ann Brown
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Black business startups in the United States increased 34.5 percent between 2007 and 2012, according to Black Demographics. Photo: SADC News

Black businesses are opening at a faster rate each year. In fact, Black-owned businesses in the United States increased 34.5 percent between 2007 and 2012, according to Black Demographics. But the concept of Black entrepreneurship is very complex. M’Balou Camara, Khaing Zaw, Darrick Hamilton, and William Darity Jr. have published a groundbreaking study on Black entrepreneurship. It was completed with the cooperation of the Samuel DuBois Cook Center on Social Equity at Duke University, Duke University; the Institute on Assets and Social Policy, Brandeis University; and the Kirwan Institute for the Study of Race and Ethnicity, the Ohio State University.

The study looked at various aspects of entrepreneurship by Blacks, such as the rate of Black business startups, the scarcity of financial resources for entrepreneurs of color, and the difference between entrepreneurship among the races.

Here are 15 takeaways from the “Racial Disparities In The Pathways Into Business Ownership” study.

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More & Less

Blacks are nearly twice as likely to start a business than their white counterparts yet, it is harder for them to get financial assistance from banks. And, “Black-owned businesses persistently lag behind their white counterparts, appear disproportionately less in high-revenue-earning industries, and fail at higher rates. In fact, even when comparing the same industries, Black-owned businesses that do survive have fewer employees and smaller revenues than white-owned businesses,” according to the study.

No Loans

African Americans are less likely than whites to have their business loans approved “and the loans they do receive from financial institutions are much smaller than those flowing to white business borrowers,” found the study.

Guidance, What Guidance?

Unlike their white peers, Black entrepreneurs find it hard to get mentors to help them on their entrepreneurial journey. And, “without adequate mentorship, entrepreneurs of color lack guidance on how to overcome historically embedded barriers and how to navigate discriminatory environments pertinent to business ownership,” the study stated.

Family Help

The study points out the discrepancies between the ways white- vs. Black-owned business owners enter into entrepreneurship. One of the chief entry routes for whites was through inheritance and transfer of ownership of a business. This is not the case for most Black-owned businesses.

New Business

According to the study, African-American business owners are more likely to enter into business ownership by starting a new business. “This finding means that Black owners of employer businesses are 17.6 percent more likely than white owners to enter business ownership by founding or starting a new enterprise. Conversely, white owners of employer businesses are 60 percent more likely to enter business ownership via acquisition by purchase,” the study stated.

Failure Rates

Due to a number of factors caused by racial disparities, Black-owned businesses fail at a much higher rate than their white counterparts.

Money Making

On the whole, Black-owned businesses make less money than white-owned businesses. “For white-owned businesses, older firms tend to generate more revenue in sales than younger firms. This, however, does not hold true for Black-owned businesses…50 percent of sales from Black-owned employer businesses comes those that are 9 to 26 years old. Fifteen percent of sales from Black-owned employer businesses come from those 27 years or older, while the proportion of sales coming from for white-owned employer businesses that are 27 years or older is 51 percent. In other words, a majority of the total revenue from Black-owned firms are earned by firms that are relatively younger than white-owned firms,” found the study.

Non-Employer Vs. Employer

There is another major difference between businesses. A majority of Black-owned businesses are non-employer. “Across race, the dynamics distinguishing employer and nonemployer business ownership are much more pronounced. Roughly 79 percent of all white-owned businesses and 96 percent of Black-owned businesses are nonemployer, respectively. Nevertheless, while 7.7 percent of sales revenue of all white-owned businesses comes from those that are nonemployer, 31 percent of all sales revenue of Black-owned businesses are nonemployer-generated. In sum, nonemployer businesses (despite bringing in relatively less revenue) play a larger role amongst Black-owned businesses than they do amongst white-owned businesses.Understanding these trends is important for conceptualizing how the implications of the racial disparities may vary depending on the types of businesses we observe,” the researchers wrote.

Breaking Down The Business Numbers

“While white Americans represent nearly 72.9 percent of the U.S. population, 78 percent of all private U.S. businesses are white-owned, according to the 2012 Survey of Business Owners. On the other hand, African Americans represent approximately 13.3 percent of the U.S. population, but own just 9 percent of all the nation’s private businesses. Put simply, Black Americans across the country are disproportionately underrepresented as business owners while white Americans are disproportionately overrepresented. The portrait is even more unequal when comparing the average annual business revenues and average salaries of employees of Black-owned and white-owned employer businesses,” said the study.

Counting The Money

Let’s look at the bottom line — and you will see a great disparity cutting across racial lines. According to the paper, “Black-owned employer business generates $666,168 in annual revenue sales while the average white-owned employer business generates $2,037,372, more than three times as much. The average annual salary of an employee of a Black-owned business in North Carolina makes $23,544. For a white-owned business, the average annual salary is $33,690.

Racial Makeup Of States & Number Of Black Businesses

There are certain states where Black-owned businesses seem to thrive and other states where they are non-existent. Take Idaho where the African-American population is about 1 percent for the working-age Black population, versus 38 percent working-age black population in Mississippi. “The discrepancy between the racial composition of the entire U.S. population versus the racial composition of privately owned U.S. businesses illustrates one key aspect of racial disparities in business ownership. Across every single state, the rate of business ownership for Black Americans falls below that group’s representation in the overall population. In other words, in no single state are Black Americans as likely to own a business as the average resident of that state. On the other hand, white Americans are overrepresented in business ownership in every state except for California, where their true working-age proportion equally represents their business ownership composition,” cited the study.

How Race Affects Business Ownership

When it comes to starting a business, white entrepreneurs have various options. African-Americans have fewer. Business can be started by someone founding a new business, by purchasing the business, inheriting the business, or receiving a transfer of ownership of the business. Many startups are new enterprises. Due to the wealth gap, many African-American entrepreneurs don’t inherent existing businesses and can not afford to acquire one.

Acquired their Employer Businesses

As expected, it is even more common for owners of nonemployer businesses than owners of employer businesses to acquire a business by founding or starting it, regardless of the owner’s race. Nearly 91 percent of African-American owners and 88 percent of white owners of nonemployer businesses founded or started their businesses.

Longevity

There is also a racial gap in how long business last. White-owned employer businesses tend to be older than Black-owned employer businesses. According to the study, “43.6 percent of all existing white-owned firms are 16 years or older (established prior to the 2000s), while only 27.1 percent of Black-owned firms are 16 years or older. In contrast, 35.2 percent of Black-owned firms are 7 years or younger, whereas 21.6 percent of white-owned firms are 7 years or younger.”

Age Matters

When looking at every age category, the average salary per employee is more for employees of white-owned employer companies than for employees of Black-owned employer businesses. “In fact, the average employee from a Black-owned employer business that is older than 36 years earns ($31,000) just as much as the average employee of a white-owned employer business that is only two years old,” the study stated.