At SeedIM we believe it is important to understand what success has looked like for those that came before us. In 1899 W.E.B. DuBois oversaw a report titled "The Negro in Business". A link can be found here. The report found that despite the socio-economic challenges facing recently emancipated slaves many were actively engaged in successful business ventures. The report was uncovered some recurring themes among the successful black owned firms.
We are going to discuss some of the common traits among the successful black firms in 1899 and how this can help you think about strategy for your company.
1) Black businesses are most successful when located around black people.
One of the first big takeaways from the DuBois report is that black businesses are more likely to be successful when they embed themselves in areas with large black populations. The DuBois report states "It is clear that it is density of Negro in the main that gives the Negro business-man his best chance". This observation holds for most minority populations.
This trend continues today. BlackDemographics.com black businesses continue to be concentrated in urban areas with large black populations. 34.8% of all black businesses are located in Washington, D.C. followed by Mississippi and Georgia. New York & Atlanta are the cities with the greatest number of black businesses.
African-American entrepreneurs have several practical reasons to locate their business in black communities. Entrepreneurs can quickly rally a contingent of champions for their product, identify minority suppliers, and find mentors who can help your business win.
2) Black business has and continues to be driven by physical B2C products. (Grocer table). Services small and short lived.
Product based businesses have always been a pathway to success for black entrepreneurs. From Madam CJ Walker's hair products to Ebony and Jet to Bevel consumer products have unique traits that mitigate the challenges of minority entrepreneurs.
Finding product market and definite the need for for consumer products tends to be easier. Additionally, simply modifying an existing product to account for the needs of a minority population can be enough to differentiate a product in the market.
Product companies are also easier to finance. It is easier to obtain SBA loans for physical products and the capital equipment (equipment you will use for more than a year) and inventory needed can be used as collateral for the loan. Minorities have far less success obtaining venture capital to conduct product research and hire talent.
Product based businesses also tend to have a longer lasting positive effect on the community. Product companies tend to hire more employees, invest in community infrastructure and develop local supply chains. All of these factors improve the community and make the company less inclined to move out of the community where they were founded.
3) The under capitalization of black businesses is not new.
Black entrepreneurs continue to face challenges obtaining capital and training to launch successful businesses. Venture capital, funding in exchange for equity, is often required to launch high growth startups yet black women have only received .002% of venture capital funding. Only 11 startups by black women have received over 1 million dollars in venture capital funding.
The situation is somewhat better for obtaining access to debt financing. The Minority Business Development Agency published the Disparities in Capital Access Report (here) that found that only 17% of minority owned firms obtained debt financing compared to 23% of non-minority firms. Additionally minority firms on average receive a loan amount of about HALF ($149,000) of what is obtained my non-minority firms (310K).
4) Black businesses have found success tapping into the "advantage of the disadvantaged".
In his study W.E.B DuBois observes the "advantage of the disadvantaged", where hardships endured by black entrepreneurs have served as the inspiration for their business ideas and made them intimately familiar with the black consumer. W.E.B. DuBois' observations are still relevant today. Malcolm Gladwell also talks about some of the advantages of disadvantages with a specific focus on fighting giants. (Video can be seen here).
Gladwell reframes the story of David and Goliath to explain how David, using a ranged weapon, was never really at a disadvantage. Often times black and other under resourced entrepreneurs don't realize that life conditions that may typically be viewed as disadvantages become advantages as an entrepreneur. Consider the following two examples:
- Living in an under resourced neighborhood puts you closer to your customer (FUBU, Johnson Publishing).
- Experiencing difficulty confirming to non-minority standards helps you realize customer pain points (Bevel).
Regardless of your situation try to find how you can reframe your disadvantage into an advantage.
5) You can start a successful venture regardless of your situation.
We always want to leave you with key takeaways. If you are an African-American or a member of another under resourced population starting or operating a business remember the following:
- Regardless of your circumstances you have an advantage you can leverage to be successful.
- The challenges you experience may be the pain point your next business solves.
- You can mitigate many of the challenges encountered by minority entrepreneurs by focusing on consumer facing and product centered businesses.
- Look to those in your community or "tribe" to find the first champions of your product or business.
We hope this is helpful. Share your thoughts and comments and keep coming back to learn more!