The good news: More entrepreneurs are starting businesses in most black areas, according to a study by the Enterprise Wealth Alliance. The study found a marked increase in entrepreneurial activity in areas with a majority of black residents. New business applications in most black areas increased by 103% between 2019 and 2021, compared to 54% nationally, and were about 3.5 times higher in 2005.
The study gives a number of reasons for this trend, including:
· More government funding
Greater need even with pandemic aid
· More remote working options, and
Higher local and regional support
Is this good news? Some important questions are:
· Are these companies started out of a need for more income in difficult times or are they potential growth companies?
· If they were started out of necessity and do not lead to growth, will they be abandoned when the entrepreneurs find better options?
· Can these companies form the basis for the development of growth companies?
· If they can be the foundation for growth businesses, what can be done to make them grow stronger and faster?
And most importantly, could the long-term benefits of growth not only benefit black entrepreneurs and their risk financiers, but also the majority of black areas?
If the increased number of entrepreneurs leads to higher income levels, greater wealth and is a stepping stone to more growth companies and more unicorns in most black areas, this could be one of the most important trends in recent economic development, and perhaps one of the positive sides of the misery of the past two years. But will it? And is it possible?
Emil Ekiyor is one of the community developers who has grasped this phenomenon and is working to develop enterprises to Accelerate Economic Productivity in Black Communities in Indiana. Ekiyor moved to the US from Nigeria and became an NFL player. In recent years, he has started the Innopower project in Indianapolis, where he has organized programs that have helped 150 entrepreneurs in the US and 350 in Nigeria. He has brought expertise, role models and funding through a strategic alliance with the Minority Enterprise Institute led by current NFL Athlete Jaylon Smith. He has found that in black communities, entrepreneurs are starting out of necessity to feed their families, both in the US and Nigeria. It is not necessary to build a unicorn and create wealth.
Now he focuses on developing more unicorn entrepreneurs with the goal of generating wealth in black communities — not just getting out of poverty. The goal is to create an environment to create high-growth, scalable enterprises and import wealth into black communities in the US and in Sub-Saharan Africa by increasing the number of companies selling regionally, nationally and globally. This is why.
There are three main business strategies to create jobs in an area and influence wealth creation. But only one makes a community richer:
· Task Catalysts–Wealth Importers: These are mainly medium to large companies that sell to regional, national and global markets and import wealth into an area. But they often don’t create many jobs, as they need to be highly productive and labor efficient to be globally competitive.
· Job Creators–Wealth Circulators: These are primarily small businesses, often retail or service businesses, that target local consumers who spread the wealth generated by the Job Catalysts. They need wealth importers and are usually more labor intensive than capital intensive.
· Job Destroyers-Wealth Exporters: These are primarily importers of products or services that may create jobs but export the area wealth generated by the Job Catalysts. These companies need the Job Catalysts to generate wealth.
By developing more Wealth Importers, economic developers in most black areas can build on this growth of entrepreneurial activity and provide the foundation for creating unicorns. To do this, they must:
Recognize that the first step to developing growth businesses is the growth of unicorn entrepreneurs, not VC
To develop unicorn entrepreneurs, areas need to teach local entrepreneurs the skills used by unicorn entrepreneurs to start and launch unicorns
· To help launch unicorns, you need to develop reverse VC financing because VCs are waiting for Aha. Before Aha, VCs can point out the weaknesses and reasons why the business may fail. After Aha they show interest
· Welcome VC funds that follow the unicorn entrepreneurs to most black areas. VCs follow unicorn entrepreneurs and finance after Aha! – entrepreneurs build the company from idea to Aha!
But the danger to VC attraction is this: If VC exits are made through strategic sales of the ventures to larger companies outside most black areas, these ventures could leave the area and future benefits accrue to the VCs and the entrepreneurs – but not to the inhabitants of the area ?
VC should be brought in where the black entrepreneurs maintain control of the business and hopefully keep the business in the area. To do this, we may need a new kind of venture capital fund that helps the business grow, but maintains local control.
MY TAKE: The Alliance for Entrepreneurial Equity article notes that “It will be critical to address the structural inequalities that keep people of color from growing and scaling their businesses.” Absolute. The mistake people have made is to introduce VC without learning any skills. That would be a big mistake. Hopefully it will be different this time.