November 26, 2014

How Are Black and Women-Owned Businesses Doing?

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The Census Bureau recently trumpeted news about growth in Black and women-owned businesses. With the press release bearing the headline of “Census Bureau Reports Minority Business Ownership Increasing at More Than Twice the National Rate,” the Census’s Press Office gave the impression that the 2007 Survey of Business Owners unearthed a boom in minority entrepreneurship.

The press release explained that the number of “black-owned businesses in 2007 [was] up 60.5 percent from 2002….The number of white-owned businesses increased by 13.6 percent…. The number of women-owned businesses … [was] up 20.1 percent from 2002. By comparison, men-owned businesses … [were] up 5.5 percent from 2002.” By comparing White and Black entrepreneurs and male and female ones, the Census Bureau gave the impression that Black and female entrepreneurs did better than White, male ones between 2002 and 2007.

However, a more careful look at Census’s own data tells a different story.

BLACK-OWNED BUSINESSES
The release is right about some things. The number of Black-owned companies jumped 60.5 percent between 2002 and 2007. And revenues and employment at Black-owned employer firms grew faster than similar numbers at White-owned companies.

But several dimensions not discussed in the release tell a different story. The first is that few Black-owned businesses are employer firms, and Black-owned employer firms grew much less (13.6 percent) than Black-owned non-employer-firms (64.6 percent). This skewed Black business ownership even more toward non-employer businesses than in the past. Blacks experienced more than twice the drop of Whites in the share of businesses that have employees. As a result, in 2007, while one-in-five White-owned businesses employed at least one person, only one-in-eighteen Black-owned companies had any workers.

Because the average revenue of an employer firm was just shy of $4 million in 2007, as compared to $45,000 for non-employers, adding relatively few employer firms makes a huge difference in terms of economic impact. Despite the growth in the number of businesses from 2002 to 2007, Black-owned companies only increased from 0.4 percent to 0.5 percent of revenues of all U.S. businesses. For employer firms, the revenue share remained at 0.3 percent and the share of payroll at 0.5 percent.

Black-owned businesses also didn’t do well on the revenue front. Although average revenues of all U.S. businesses declined a slight 1.6 percent in real terms between 2002 and 2007, for Black-owned businesses, the decline was a much steeper 16 percent.

Black-owned businesses could ill afford this drop in revenues. In 2007, the average Black-owned firm had revenues of $62,200 (in 2002 dollars). By comparison, the average White-owned business had revenues (in 2002 dollars) of $395,130.

The numbers reveal a widening gap between White and Black-owned businesses. In 2007, White-owned businesses generated 6.4 times the revenue of Black-owned businesses, a jump from 5.6 times only 5 years earlier.

It’s also not clear how much we should cheer the 64.6 percent increase in the number of Black-owned non-employer firms. Average revenues at these firms dropped 10.7 percent in real terms between 2002 and 2007. Perhaps more importantly, in 2007 the average revenue at a Black-owned non-employer firm was only $18,500 (in 2002 dollars).

Finally, wages did not hold up well at Black-owned companies. Black-owned firms dropped average wages by 3 percent in real terms to $22,584 (in 2002 dollars), while White-owned firms increased them by 2.1 percent to $30,298 (in 2002 dollars).

WOMEN-OWNED BUSINESSES
For women, the Census Bureau also got part, but not all, of the story right. From 2002 to 2007, the number of women-owned businesses increased much faster than the number of male-owned businesses. Moreover, among job-creating employer firms, the number of women-owned businesses managed to stay almost flat (-0.6 percent), a big achievement considering that the number of male-owned employer businesses dropped 8.2 percent. Furthermore, women-owned businesses upped employment by 6.2 percent, while men-owned businesses reduced workers by 2 percent.

But these numbers, again, doesn’t tell the whole story. Over the five year period, sales lagged at women-owned firms, dropping 8.1 percent in real terms, as compared to staying almost flat (-0.6 percent) for men-owned businesses. As a result, in 2007, the average revenue of a male-owned business in 2007 was 3.5 times what it was in female-owned businesses.

For women, revenue numbers were not as good as for men at either non-employer or employer firms. At the more economically important employer firms, average revenues at male-owned businesses increased 14.6 percent in real terms from 2002 to 2007, as opposed to 10.1 percent for women-owned businesses.

We also saw a shift of women toward ownership of non-employer businesses. The share of employer firms shrank more among women-owned businesses than men-owned companies, falling 17.2 percent versus 13 percent. As a result, in 2007 only one-in-eight women-owned businesses had employees.

CONCLUSION
In short, as the Census Bureau explained, women and minorities increased their ownership of businesses between 2002 and 2007. However, not told in the Census tale was what else happened to women and Black-owned companies. Both Blacks and women lost ground in their relative share of employer businesses – the kind of small businesses with large economic impact. Moreover, both groups saw poor performance of their businesses on the revenue side.

The Census press office might evaluate whether revenues and the share of employer businesses matter more in assessing entrepreneurial performance than growth in the number of businesses. The latter figure is dominated by the number of non-employer businesses – companies with no workers and an average of $45,000 in annual sales. Growth in non-employer businesses might measure little more than the shedding of employees by corporations seeking to get out of paying for employment taxes and employee health insurance.

When reports like this one are released, how the results are framed affects the response people have to them. By presenting the results as indicating that Black and women-owned businesses grew faster than White and men-owned ones, the Census Bureau gave the impression that these businesses are doing well and no problems that require policy makers’ attention. By contrast, my look at the same numbers suggests that we still need to understand and fix lagging performance at Black and women-owned businesses.

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Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

9 Reactions

  1. What about those business owners who are both African-American and female, where are they in this data?

  2. Thank you Scott for this wealth of information and your analysis. Such information has helped me with a very important mandate. Please know you will be justly credited and keep making my studies easier!

  3. Regarding women business owners employing others: Early results of Wobwire.com’s current survey (it’s still going on)show 40.4% of women-owned businesses report having between 2 and 5 employees. The majority go it alone. The survey didn’t ask for race. We’d love for you to share the link to the survey with others, so we can continue to gather input: http://www.surveymonkey.com/s/ZPSRVNB

  4. What’s missing is specifics on black women. But I’m not sure how easy it would be to separate that out, especially since the businesses are so small. $45,000 a year is a great start, but it’s not enough to reinvest into a business, much less pay the owner and leave room for payroll. Perhaps the government is putting a positive spin as a way to encourage people, as opposed to discourage them from even starting a business?

    I am a black woman. I have owned a profitable business for 10 years and I am expanding it. We have two employees, three if you count me, and I’m hoping to hire more next year.

    I think what black women need is a bigger vision, an increased focus on profitability, and a reality check.

    What are they selling? Is it priced right? Who are they selling it to? What is the long-term game plan? What are the milestones? What is the P&L? Where is the branding?

    Is this even a good time to be in the line of business you are in? The reality may be that it’s not.

    I speak to women a lot, and I see a lot of talk. Talk about what I “wanna do.” What I don’t see is people putting pen to paper, setting specific goals, doing specific things to achieve those goals, and also doing specific things to re-group if the first plan doesn’t work out. That will get you nowhere in a good economy. Where does it get you in a bad one? Nowhere plus.

    I see a lot of us doing what we love, what we have a passion for. But if that doesn’t make a profit, it’s a hobby, not a business. As Seth Godin says, it’s a cul-de-sac — a dead end — at least as far as business is concerned. It’s time to do something else if that’s the case.

    Black women need to understand and apply what all entrepreneurs need to understand and apply. There must be a demand for what you sell, you have to price it to make money, you have to have a plan and execute it, and you have to sell your product until you can’t breathe anymore.

    It takes more than dream and an “I wanna.” It takes sacrifice, blood, sweat, tears, and more of yourself than is given to just about anything else. Not many people are willing to exchange all of that for a profitable business and the responsibility that comes a long with hiring people and being responsible for their livelihoods.

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