Helping Entrepreneurs of Color Grow Their Business

Simultaneously addressing the multiple structural challenges facing entrepreneurs of color—management education, access to money, and access to markets—should be more productive than addressing each in isolation. Ascend 2020, a new initiative supported by JPMorgan Chase, adopts the “three M” framework to help entrepreneurs of color, including those in the inner city, scale their business. This comprehensive approach, tied to a collaborative structure of existing organizations at the local level, differentiates it from other programs focused on entrepreneurs of color.

Developed by the University of Washington Foster School of Business Consulting and Business Development Center and launched in 2017, Ascend 2020 addresses critical ecosystem gaps in six metro areas (Atlanta, Chicago, Los Angeles, the San Francisco Bay Area, Seattle, and Washington, D.C.) and will be expanding to other areas in the future. JPMorgan Chase is supporting this initiative as part of its investment in connecting underserved small businesses to experts and critical resources that help them grow faster, create jobs and strengthen local economies.

Entrepreneurship is a proven wealth building strategy and pathway out of poverty, especially in urban areas that need it most. Yet, the share of minority-owned businesses is not keeping pace with the growth of the minority population and minority-owned businesses are not performing at the same level as nonminority-owned businesses. The “three Ms”—management education, access to money and access to markets—are important for all entrepreneurs, but entrepreneurs of color face more significant challenges acquiring these fundamentals than their white counterparts because of structural biases. This report identifies the strategies needed to help entrepreneurs of color, including those in highgrowth sectors and in inner cities, overcome these challenges.

1. The Ascend 2020 approach of building urban ecosystems to simultaneously address the systemic challenges that minority-owned businesses face in a “three M” framework offers a promising model for growing larger, minority-owned businesses that maximize job creation and wealth building in the urban areas that need it most. It offers an alternative to most programs focused on supporting entrepreneurs of color, which target small business creation and create a self-perpetuating cycle that limits wealth building and may be exacerbating greater wealth inequities.

2. Capital access, especially to growth capital, may be the most critical issue facing entrepreneurs of color, especially in inner cities, where capital is even more limited. Because of capital access challenges, entrepreneurs of color are more likely to enter industries with low capital requirements and high failure rates—not high-growth sectors. More start-up and growth capital needs to be available to entrepreneurs of color and they need support accessing a broad range of equity sources, including from corporations and impact investors.

Most incubators and accelerators focused on serving entrepreneurs of color do not provide capital, although many offer connections to capital providers. Those that do provide capital generally provide smaller grants and few offer the type of growth capital that is associated with high-tech incubators and accelerators (over $100,000 per company).

The SBA remains an important source of funding for entrepreneurs of color and its Community Advantage pilot loan program, which guarantees loans for lenders maintaining at least 60 percent of their loan portfolio in underserved markets, should be expanded and made a permanent part of the SBA's loan programs. In addition, the 8(a) Business Development program, which helps economically and socially disadvantaged businesses compete for federal government contracts, should also be expanded and the 8(a) Mentor-Protégé program should be tailored to focus on minority-owned businesses. Likewise, the Community Reinvestment Act needs to focus on closing the racial disparities in small business lending.

3. Expanding anchor and government contracting opportunities are critical for entrepreneurs of color, especially those in high-growth sectors. While progress has been made with government contracting, especially in some cities like D.C. and Chicago, expanding anchor contracts has proven more challenging.

NMSDC operates a network of 23 regional affiliates across the country, which have a core function of processing MBE certification for minority-owned businesses. The regional MSDCs offer some executive education and mentorship, facilitate introductions between member corporations and MBEs, and provide networking among MBEs. However, certification is usually required to participate in the services and resources offered by the MSDCs. Becoming certified as an MBE can be a time consuming process and some early-stage businesses may not feel the benefits outweigh the costs. Their members are typically large corporations and their contracts may be too large for smaller businesses. As an alternative, local Chambers of Commerce could be engaged to access smaller companies that may have more opportunities for smaller minority-owned businesses. 22 ICIC | UW Foster School of Business | JPMorgan Chase & Co.

New models of dedicated intermediary organizations, such as CASE, that are focused on matching qualified local businesses to contracting opportunities at anchors are promising, but they are rare and focus on large anchors. More needs to be done to explore contracting opportunities with smaller organizations that may have more flexible procurement processes and may be a better fit for smaller minority-owned businesses.

While incubators and accelerators are providing some support helping entrepreneurs of color gain access to new customers, this is another significant ecosystem gap in most cities. Other organizations like supplier development councils or Procurement Technical Assistance Centers also address this issue, but the work is fragmented and there is no single point of contact for entrepreneurs looking to access new customers and contracts.

The contracting issue also requires more programs like Ascend 2020 to help create more minority-owned businesses with sufficient capacity to fill government and anchor contracts. Many publicly-funded capacity building programs, such as the SBA’s network of Small Business Development Centers, do not focus on serving minority-owned and inner city businesses. Some of the resources should be redirected to business schools and entrepreneur centers that provide these services.

4. Industry-specific incubators and accelerators need to make intentional efforts to be more inclusive of entrepreneurs of color and more of those focused on entrepreneurs of color should consider targeting a single industry. Entrepreneurs of color need to have equitable access to all ESOs—particularly those connected to high-growth sectors. Less than half (39 percent) of the incubators and accelerators that we identified in the six Ascend 2020 metro areas that focus on entrepreneurs of color are industry-specific (e.g., focused on cleantech or food processing), which limits their effectiveness at supporting growth-stage businesses. Industry-specific organizations provide businesses access to tailored, powerful networks and help them access targeted capital. Therefore, while demographic-focused ESOs are important, they should focus on a specific industry to maximize the growth of the businesses they support.