Marked and measurable progress has been made in minority business development since the authors first examined the topic in depth for the U.S. Department of Commerce more than 25 years ago in the reports The New Strategy for Minority Businesses (1978) and Minority Business Enterprise Development in the 1980s (1980).The evolution from nascent to noteworthy however was just the first step in minority business development. Taking the next step, moving from presence to prominence, poses new challenges and therefore demands a “New Agenda,” with a focus on growing larger and self-sustaining minority businesses.
Once hobbled by a lack of capital, lack of access to government and private-sector market opportunities, and a lack of managerial talent, minority businesses face a vastly different reality today. Since the 1980s, with support from expanded government and corporate supplier diversity programs as well as other initiatives, minority firms as a whole have seen their revenue rise by about 10% annually, have created 23% more jobs, and have enjoyed an overall growth rate three times higher than that of traditional businesses.
Even though the number of minority businesses has reached unparalleled heights, their proportion does not yet fully reflect the growing size and importance of minority communities in the United States—soon to account for 40 percent of the population. Fueling the disparity is the fact that minority businesses are disproportionately represented in low-growth and no-growth sectors. They also tend to rely on personal debt and family financing over business loans, equity, and other tools that are otherwise commonly accepted in the capital markets. As a result, minority businesses often lack the size, scale, and capabilities of their majority counterparts.
A shift in mind set is required for:
Corporations—elevating minority business development to a higher level in terms of strategic importance and fostering increased collaboration between minority entrepreneurs, consumers and employees
Government—recognizing the critical importance of minority business in economic development and fostering the growth of not just small businesses, but those companies of size and scale that are positioned in growth industries
Minority Entrepreneurs—growing businesses of size is the major imperative, requiring the entrepreneur to use all aspects of corporate supplier diversity progress and assume broader leadership roles—in their communities and on major corporate boards.
to achieve greater size and scale and expand their capabilities, minority businesses “community” must proactively close the gap by:
Viewing minority business development as a key to U.S. economic development
Diversifying or expanding minority businesses to seize opportunities in growth industries
Building capacity and capabilities of minority businesses to provide more value added products and services
Growing these businesses beyond the “sole proprietorship” model of business ownership
Expanding the use of mergers, acquisitions, and strategic partnerships
Fully accessing and deploying the capabilities of the financial markets for minority business development
Aggressively responding to major trends in global supply chain management.
The good news is that minority entrepreneurs can indeed close the gap with their competitors in the broader business community if they operate innovatively; radically change the way they think about their business, their customers, and their competition — and move aggressively. The bad news is that those businesses that won’t or don’t make transformative changes to close the gap will ultimately fail.
The growth rate for these firms will begin to slow, and a limited number of jobs will be created within our society.
Closing the gap for minority businesses requires that all the major players in the field—large corporations, government officials, major universities, foundations and of course minority entrepreneurs themselves—shift their mindset and their focus to embrace a New Agenda. Past and current efforts—while successful in making broad gains—will prove inadequate in resolving the remaining disparity and in achieving future progress. Efforts must be consolidated and resources allocated with precision to home in on the most promising and powerful opportunity: building minority businesses of size.
The overarching conclusion is that only large minority-owned businesses can create the kind of explosive and transformative growth that is needed to invigorate minority communities, inner-city markets, minority entrepreneurs and business leaders, and both the local and national economies.
The Benefits—and the New Opportunities
The New Agenda will be challenging to pursue, but, if successful, its benefits will accrue not only to the entrepreneurs who succeed but also to corporations and society as a whole. Minority communities will enjoy both stronger economies as well as a new breed of leadership—one capable of effecting change in the community and society at large.
Prepared by The Boston Consulting Group (June 2005)