How local networks can help Black-owned businesses grow

Local leadership can help Black-owned businesses overcome the systemic hurdles in their way Image: Christina@wocintechchat.com on Unsplash

Daniel Isenberg
President of Entrepreneurship Policy Advisors and Adjunct Professor at Columbia Business School, and Babson College
Elmer Moore, Jr
Executive Director, Scale Up Milwaukee
Vincent Onyemah
Associate Professor of Sales and Marketing, Babson College
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  • Systemic challenges are holding Black-owned businesses back and stymying their growth.
  • Local networks, mentoring and support can help businesses move past these blockages.
  • Here are six factors to consider in building these much-needed ecosystems.

Black-owned businesses in the US are systemically prevented from accelerating their growth by a toxic brew of limited personal assets, limited access to bank finance, and restricted access to markets. The result is that although Black-Americans, blocked from labour markets, are over-represented in the ranks of the self-employed, their businesses are disproportionately low-growth. The vicious circle of being shut out from markets and finance, and staying small, results in unequal access to opportunity and prosperity. Clearly, a dynamic of new growth in Black-owned businesses should be a social priority. Local networks, programmes, leadership support, engagement in markets – what we call a scale-up ecosystem – can be helpful.

How can talented, highly motivated, well-resourced local leaders of civil society play a role in building an ecosystem that fosters growth for Black-owned businesses?

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1. Explicitly acknowledge that the system is to blame for the low-growth, not Black business owners themselves. Working persistently and smartly to earn the trust of Black business owners is at the heart of breaking the vicious circle of stagnant growth, and implicit blame will prevent this trust from developing. Language is important here – even the best-intentioned “we will teach you how to grow” can be perceived as “white-splaining” and may turn Black business owners away.

2. Words need to be relevant as well as sincere. One of us attended a presentation given to a predominantly Black audience by a very successful white entrepreneur, who “white-splained” that because his entrepreneurial success had lifted him out of a poverty-stricken childhood, he understood the challenges of Black business owners – unintentionally offending his disappointed audience.

Ultimately, actions are the best proclamation of intent. Earning trust will depend on what you do to fix systemic bias in your own organizations.

3. Improve access to bank finance. The current focus on Black entrepreneurs’ access to venture capital is a diversion and ignores the elephant in the room of poor access to credit and loans. Obtaining venture capital is intrinsically an extremely long shot, a side show for that rarified group of one out of a hundred or so pitches. The main act is bank finance, which is the real driver for getting from small to medium, and medium to big. However, as Ike Samson-Akpan, CEO and founder of Ohio-based general contractor SAF put it: “Every interaction with our bankers to get additional bank financing has taken longer than expected. It appears as if we are being scrutinized more in-depth than others with the same or similar corporate backgrounds.”

Improving access to bank finance requires a multi-pronged strategy. Bankers themselves have a lot of heavy lifting to do when it comes to identifying direct and indirect bias within their operations – in particular, identifying how their lending criteria may, directly or indirectly, block access to finance for Black-owned businesses. Not only is it a moral imperative, it is a business development opportunity to become transparent and to establish trust and dialogue with the Black business community. The ones who successfully do this may see their loan books grow and develop a comparative advantage.

Some facts about Black-owned businesses in the US today
Some facts about Black-owned businesses in the US today Image: The authors

Bank executives can be instrumental in facilitating Black entrepreneurs’ understanding of the essentiality of personal assets, the need for documentation and due diligence, and the overriding concern that interest and principal are paid on time. Providing financial literacy training in Black communities is a longer-term need: a good example is the Rising Tide programme run by Scale Up Milwaukee, an organization dedicated to helping local entrepreneurs grow their businesses, which helps Black business owners build personal assets to meet the requirements of bank financing.

4. Earmark some programmes exclusively for Black business owners. There is a delicate balance here. Black business owners have told us repeatedly that they benefit from the ability to speak openly – which they often do not do in the presence of non-Blacks – and to learn how other Black business owners have overcome the obstacles that they are facing. We repeatedly heard the same phrase: “We have to work twice as hard to get half as far.” This can be done sensitively. At the same time, access to non-ethnically defined programmes, such as Scale Up Milwaukee’s growth accelerator, also has unique advantages in broadening networks.

5. Make supplier diversity programmes work. Ugo Nwagbaraocha, CEO of Diamond Discs International, a construction tool manufacturer in Milwaukee, benefited so much from effective supplier diversity programmes (SDPs) that he began to sponsor them. Nwagbaraocha points out several practices that characterize those SDPs of major corporations that stand out as most effective: “One is that the CEOs have diversity-related key performance indicators (KPI) written into their own objectives and performance evaluations,” he says. “A second is that supplier diversity managers have access to those who actually manage the corporate supply chain.”

Third, according to Nwagbaraocha, there should be a heavy emphasis on supplier diversity in specific industry verticals (such as healthcare or IT, for example) that can provide diverse businesses with more focused access to procurement information and relationships within the corporation.

Image: US Census Bureau

6. Cultivate and communicate local role models. As Milwaukee business owner Annette Tipton puts it: “Yes, it is inspiring to see Oprah make it big time, but what does that have to do with me?” There are tremendously inspiring role models among the ranks of Black entrepreneurs who have made it big, but what really has an impact on aspiration levels and helpful mentoring are the ‘ordinary’ local examples. The challenge is not that these local role models don’t exist; rather, the challenge lies in identifying them and getting the entrepreneurs themselves to identify themselves, as many keep an intentionally low profile.

One of the criticisms we hear can best be described as tokenism. If Black role models are communicated in the media, in events, or in supplier diversity programmes, the same names keep cropping up, feeding cynicism that if you are not one of the favoured few, the roads to growth remain barricaded and the system remains unchanged. Cultivate not just one role model, but many.

7. Make Black business owners ecosystem partners. There are many ways Black business owners uniquely contribute to strengthening the ecosystem of growth for all. For example, whereas most Black business owners see access to capital and customers as the major obstacles to growth, non-minority business owners see talent as the major obstacle. Interestingly, many Black-owned businesses have greater access to talent by virtue of the fact that they productively employ Black staff who tend to be seen as unemployable by white business owners, and this knowhow can help non-Black local businesses grow faster as well.

Given the striking disparities between Black-owned businesses and other segments, we believe that creating local ecosystems in which more Black-owned businesses can grow and achieve scale is a moral, social, and economic imperative.

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