Starting a business is toiling, strenuous, no-nonsense, old-fashioned, hard work. We smile at the idea of being our own boss, but can you be your own boss and be a hard-ass at the same time? When you are your own boss, no one is going to tell you to come to work everyday; no one is going to fire you for your indiscretions; but the burden lies on you, and you alone, to assume the roles of the judge, jury, and executioner.
Keeping up the business, maintaining meticulous standards for yourself and your employees becomes an even more difficult task. It is not surprising that in light of these exacting circumstances, many would-be business owners veer off that route to instead: dress up in a business suit, write a resume, scroll through job ads online, and canvass the marketplace for employment.
But budding African American entrepreneurs in the U.S. may not exit the job creation market for lack of trying.
African Americans are much less likely than whites to start a business. The 2002 census estimates that 11.8 percent of white workers are self-employed compared to 4.8 percent of black workers.
Black-owned business are also less successful on average than white- or Asian-owned businesses and have lower profits and higher rates of closure compared to white firms. But why the difference in these entrepreneurship outcomes?
A 2007 study conducted by Alicia Robb and Robert Fairlie, both of the University of California Santa Cruz, found great disparities between African American and white entrepreneurship in the U.S. According to the study, African Americans face greater difficulties in sustaining business entrepreneurship compared to their white counterparts for several reasons, not the least of which is due to their substantial differences in wealth.
Based on data from numerous sources, including the Characteristics of Business Owners Survey, Ms. Robb and Mr. Fairlie’s study showed that the racial difference in entrepreneurship is primarily due to differences in wealth. According to the study, African Americans have wealth levels that are only 1/11th of whites’ wealth levels.
This difference in financial capital at the onset of entrepreneurship makes blacks much less likely to start businesses, resulting in blacks having a substantially lower rate of business ownership.
Second, at the stage of starting a business, those blacks who do start businesses on average put up much less capital at start-up compared to white entrepreneurs. When seeking capital from outside sources, black entrepreneurs are less likely than whites to have loans approved and are also less likely to apply for loans, for fear of denial.
Finally, the difference in capital at onset of the business impacts the likelihood of the business to succeed and grow. The authors found that racial disparities in start-up capital contributed to numerous disadvantages for black entrepreneurs during business operation–including higher failure rates, lower sales and profits, less employment among black-owned businesses, and less survivability of the business.
As these findings demonstrate, the lack of wealth is a deterrent for blacks desiring to start businesses. Even blacks who become entrepreneurs still face difficulties due to their lack of substantial financial capital at the onset of the business start-up.
These findings are somewhat dismal-as are most investigations where members of a minority population attempt to gain employment or self-sufficiency in a country in which they are the underrepresented.
Yet, this research is not a call to halt black entrepreneurship, despite its obstacles.
Black business owners should, instead, be encouraged to embark on new business ventures and to patronize black businesses. Knowing the difficulties that black businesses face, increasing their consumer base is one way to overcome the seemingly insurmountable odds confronting businesses with low start-up capital.
In addition, black business owners should be advised to start small. Not taking out hefty loans that will be difficult to pay back and growing a consumer base from the ground up will help the business navigate an already slippery financial terrain.
Low wealth levels at onset of business and low success levels of black businesses should not be a deterrent to entrepreneurship; rather, they should serve as motivation for future progress in entrepreneurship. Being your own boss is worth the effort. Plus–when entrepreneurship rates are at a low, there’s nowhere to go but up.
