By: Christina Long and Ted Kriwiel | February 16, 2016
A Lacking Safety Net
Over at the Kauffman Foundation’s Growthology blog, Kauffman researcher Emily Fetsch recently wrote a blog post titled: "Does Racial Wealth Disparity Hinder Entrepreneurship?" We encourage you to read the post on their website, but we’ve provided a summary here.
Typically, entrepreneurs tend to be white, male and from upper-income families. Why is this? Throughout her post, Emily cites the wealth gap between minority families and white families, the differences in home ownership, and the lack of a financial “safety net” in minority communities as road blocks for creating diverse entrepreneurs.
Some of the key takeaways:
Wealth | For every dollar of wealth a white family has, a minority family will have just five cents, according to a 2011 Pew Research Center study. When entrepreneurs launch their businesses, they start with their savings account and then present funding requests to family and friends. Considering the wealth gap, the savings and funding pool of family and friends is much smaller for entrepreneurs of color. An excerpt from the blog post:
“For most entrepreneurs, funding is seen as a critical component to the success or failure of their startup. More than two-thirds of entrepreneurs use personal savings as a source of funding and more than one-in-five rely on family for funding. For Millennials, 22 percent say they used “a financial gift or loan from their family to fund their start up” and 10 percent used a “financial gift or loan from their family to run their business after the launch phase.” With the large racial gaps related to the ability of an aspiring entrepreneur to rely on their personal savings or their family to supplement startup funding, potential entrepreneurs of color are at a disadvantage in being able to fund their ventures.”
Safety Net | Due to the lack of wealth in communities of color, the safety net is dangerous. This is not merely an issue of wealth, but of culture, mindset and experience. In minority communities, there are too few examples of successful entrepreneurial models. In Kansas, for example, only 2.4 percent of businesses are Black-owned compared with 7 percent of businesses that are Black-owned, nationally, according to the US Census Bureau. There are also 2.4 percent of businesses owned by Hispanics in Kansas compared with 8 percent of businesses that are Hispanic-owned, nationally.
Without successful models, the trend tends to skew towards taking traditional career tracks. In Kansas’ largest public school district, USD 259, 20 of the 132 students participating in the Business Entrepreneurship and Management Career and Technical Education track were African-American which represents 15 percent of participants, according to the Kansas State Department of Education. While 15 percent sounds great, drill deeper. Only 20 African-American students out of a pool of 2,397 African-American 9th through 12th graders ―representing .8 percent ―took the track.
Combine a slow-to-fill pipeline, lacking resources and too few real-life models, it becomes easier to see why the entrepreneurial ecosystem looks as it does.
Emily ends the post with this:
“As we continue to encourage underrepresented groups, including people of color, to become entrepreneurs, it is important to better understand and mitigate the underlying economic factors that make it harder for them to enter and compete in the entrepreneurial landscape.”
We couldn’t agree more.
Photo Credit: https://flic.kr/p/BbWdkY
Analysis of Kansas-based statistics provided by Christina Long.