Investing in Grit: Overcoming The Systemic Challenges Faced By Minority Entrepreneurs
The persistence of structural barriers along racial lines has been receiving some much-needed attention lately. A bevy of research has effectively disproved the long-held notion of steady improvement in minority socioeconomic status since the civil rights era.
Despite gains in income over the last half-century, minority households are hardly better off than in the 1960’s, especially when compared to white households. A study by Prosperity Now and the Institute for Policy Studies has found that white middle-class households own eight times as much wealth as black earners and ten times as much wealth as Latino earners in the same income bracket. This gap is also widening, as Black and Latino households have seen their wealth decreasing substantially (while white households’ wealth has seen steady increases), with projections forecasting this trend to continue into the 2020’s.
Researchers at Harvard and Stanford have also found that black boys are likely to earn less than white peers of similar backgrounds. Effectively disproving the theory that institutional racism has given way to class strife, the study found that black boys raised at the top of the income bracket are in fact more likely to become poorer than to maintain their status. These trends, along with others such as persistent or worsening police violence, school segregation, and housing discrimination, indicate that the racist Jim Crow system long thought to have been vanquished in the middle of the 20th century is alive and well in the 21st.
One aspect of discrimination that has not received as much attention is the disparity in minority business ownership. Similar trends can be found here as well: only 29.3 percent of businesses were owned by minorities in 2012, despite accounting for 37.2 percent of the population (see graph for a detailed breakdown.) And while the number of minority-owned businesses is increasing, it has neither been a uniform rise nor is the gap between white and minority business ownership close to being filled.
The Business Side of Racism
Like most other forms of discrimination, the disparities in entrepreneurship are based on historically systemic discrimination, particularly against African-Americans. Jim Crow laws and redlining policies that restricted access to housing and other essential services also hampered black people’s ability to start and/or scale businesses of their own. This was coupled with many banks refusing to loan to black and brown entrepreneurs or levy higher interest rates when they did.
Even if minorities bucked these odds, they were at risk of being victims of their own success. Tulsa, Oklahoma- whose majority black Greenwood neighborhood was so prosperous in the early 1900s that it was known as Black Wall Street – serves as a particular example. In 1921, mobs of (mostly poorer) white men, armed with weapons provided by police officers, stormed Greenwood, murdering hundreds of black people and destroying numerous buildings after an unsubstantiated sexual assault on a white woman.
While outright massacres like the one in Tulsa no longer occur, the same system continues to this day. Numerous studies have detected systemic bias in the ability to access capital for minority business owners. When such business owners do secure loans, they are usually less favorable: the Federal Reserve estimates minority business owners are charged interest rates that are 32 percent higher than white business owners.
This system of inequality ensures that most of business ownership is still disproportionately dominated by whites, despite years of policies to benefit minority businesses. In 2012, over 81 percent of businesses were white-owned (who make up 61 percent of the population), and almost 63 percent were owned by white men (31 percent of the population.)
Pursuing Equity in Entrepreneurship
One organization looking to buck these trends is Street Entrepreneurs, an NGO based in Washington, DC that provides education workshops, mentorship, and access to capital to aspiring business owners.
Its founder, 23-year-old Juliana Cardona Mejia, founded the Street Entrepreneurs after being inspired by homeless youth while volunteering at a shelter. The teens she met there showed astounding talent and creativity but lacked the resources and know-how to foster it, and many remained impoverished.
Ms. Cardona decided to start teaching business classes at the shelter and began working with youth who wanted to set up their own micro-enterprises. Her first class had 5 teens, but popularity quickly grew, and she began hosting the classes in other shelters, in prisons, and in community centers. When adults began to show up, she saw an opportunity to expand her activities and create an inclusive and accessible platform for a wide range of entrepreneurs.
Ms. Cardona herself is no stranger to the obstacles faced by business-people of color. She comes from a family of entrepreneurs, who came over to the US from Colombia when she was young in part for an opportunity to start a business. Her mother was able to start a successful cleaning business in the Denver area with little initial funding and barely able to speak English.
Harnessing the Hustle
Ms. Cardona has put promoting diversity in the startup world as one of the pillars of Street Entrepreneurs’ work. She believes that one of the biggest obstacles minority business owners face is that white investors don’t want to invest in minority-owned businesses, attributing this to the fact that investors don’t see themselves, physically, in such entrepreneurs. She’s experienced this first-hand:
“Often times you ask [investors]: why they invested in that business? They answer: because I see myself in that guy.
And, I’m like, you just qualified your phrase with the word “guy” …Do you realize that bias?”
Ms. Cardona’s claim is far from anecdotal. The hereditary and network-heavy nature of business practices make the aforementioned wealth and business ownership disparities among whites and minorities self-perpetuating, compounding advantages of racial inequality and the wealth they create. White, often male-dominated business networks further ensure minorities are kept out of the capital loop and that wealth stays among people from the same backgrounds.
This is reflected in the astounding disparity in access to venture capital. In 2017, 87 percent of venture capital-backed start-up founders were white, and 92 percent were male. Meanwhile, just 1 percent of black founders were backed by VC, and only 0.2 percent were black women.
The continuing cycle of deprivation of business opportunity for minorities contributes not just to a widening wealth gap and a furthering of injustice, but to a huge lost opportunity. The Center for Global Policy Solutions estimates that as much as 1.1 million businesses, 9 million jobs, and $300 billion in national income are lost due to the system of discrimination holding minorities back.
Making Entrepreneurship Accessible
Ms. Cardona’s solution to the equity problem in the business world is to harness what she calls “community power.” To do this, she is building Street Entrepreneurs to address the barriers entrepreneurs face by ensuring that the program is localized, representative and accessible.
To address the first goal, Cardona made it a point to recruit clients, mentors, and volunteers all from the DC area. She has headquartered and partnered with the Inclusive Innovation Incubator – a start-up community space next to Howard University’s campus focused on providing “under-resourced members” the services they need to grow their businesses. Cardona also imparts the need to localize onto her clients, pushing them to make their products or ideas “user-centric” by testing them constantly, change their business plans accordingly, and identify needs in their communities they can address.
Ms. Cardona often talks about investing in the “grit” of her clients, providing them with the networks, social capital, and know-how to aid them with the hard work and determination needed to make their vision a sustainable venture.
“When someone comes in, I don’t care about their business plan,” she says, “I care about their idea, and I care about their drive. Everything else we can work on.”
To Cardona, balancing regular life struggles with the time and energy needed to pursue one’s vision is a testament of the grit she seeks to foster at Street Entrepreneurs. She does so by making the program as accessible to clients as possible. She makes classes and workshops flexible, in order to fit the schedules of people who may have a day job and/or a family. The pricing structure also fits this goal: workshops are free for low-income entrepreneurs, $5 for lower-middle income, $15 for middle income, $20 for upper-middle income and $50 for high income.
The curriculum is focused on experiential topics applicable to entrepreneurs. Topics include subjects such as marketing and business planning, as well as specialized modules for entrepreneurs in specific fields such as food service or tech, or for product-based entrepreneurs. The network that the workshops create allows entrepreneurs to collaborate and share best practices.
So far, Street Entrepreneurs has hosted 35 classes to over 300 individuals. The current cohort looks almost the opposite of traditional business circles. Almost 78 percent are non-white (50 percent black), 55 percent are 30 years old or younger, and 45 percent are female. The businesses culminating at the SE program are as diverse as their owners, from one individual working on more efficient ways to send remittances to Haiti, to another helping kids with autism communicate using artificial intelligence.
After entrepreneurs attend their fourth workshop, they get access to SE’s talent exchange. This is a platform wherein fellow entrepreneurs in the SE program can barter their skills and expertise for other services they may need. For example, a lawyer aspiring to open their own firm may trade a few hours of legal advice for a time credit they can exchange for bookkeeping or graphic design services. The entire system is tracked in-house by the organization, with the help of volunteers from local business schools (an app is forthcoming.)
Community Power at Work
Though still in its early phase, Street Entrepreneurs provides an alternative model to correct systemic discrimination in the business world. The talent exchange, in particular, has the potential to be a novel solution to overcoming traditional capital constraints by harnessing the power of social capital.
Ms. Cardona is currently working to ensure this model remains sustainable, creating an online platform to expand accessibility and scale SE effectively. She is also fundraising to grow the nonprofit and provide further services. She hopes that one day the most successful SE alumni will be able to pay it forward in the form of start-up funding or other opportunities for those who come after them.
When considering a massive problem like systemic discrimination, it may seem improbable that one organization at a start-up incubator may have the means to address it. But if the personal computer was created in a garage, and a social media platform in a dorm room, is it really that crazy?