More African-Americans Are Becoming Entrepreneurs, But Gap Remains

african american entrepreneurs

Recently released data from the 2012 Survey of Business Owners — the Census Bureau’s snapshot of American business — shows that the fraction of businesses owned by African-Americans rose considerably between 2007 and 2012. In 2007, 7.1 percent of U.S. companies were headed by an African-American. By 2012, that share had risen to 9.4 percent.

The share of businesses with employees headed by African-Americans also rose from 1.9 percent in 2007 to 2.0 percent in 2012. These changes indicate that entrepreneurship among African-Americans is rising faster than among all Americans.

However, other statistics show how far things have to go before African-American business ownership catches up to business ownership among other Americans.

The Census Bureau data indicate that the fraction of business receipts belonging to African-American owned businesses remains far lower than their share of businesses. In 2012, the sales of African-American-led companies accounted for 0.6 percent of sales of all American companies, and only 0.4 percent of sales of all American companies with paid employees. While these fractions were higher in 2012 than they were in 2007, they remain painfully low.

The sales of the average African-American-led business remain minuscule. The sales of an average American business was a little over $1.2 million in 2012, the Census numbers show. But for African-American led businesses, mean revenues were only a little more than $72,000. Moreover, the ratio of the average sales of businesses headed by White Americans to those led by African-Americans actually increased between 2007 and 2012 from 6.4 to 8.3. The gap in average sales didn’t shrink, it rose.

Employment at African-American-led businesses remains very small. While these companies increased their share of U.S. private sector employment between 2007 and 2012, the fraction rose only from a very tiny 0.8 percent to a very tiny 0.9 percent.

Employment at the average White-led business remains much larger than that at the average African-American headed one. In 2012, the average White American headed business had 6.4 times as many workers as African-American led ones.

The payroll numbers are little different. In 2007, African-American-led companies accounted for 0.5 percent of U.S. payroll. In 2012, they accounted for 0.6 percent. The average pay at an African-American-led business in 2012 was 75.9 percent of that at a White-American-led business.

A big rise in African-American-led non-employer businesses might account for these meager gains. Between 2007 and 2012, ownership of companies without employees by African-Americans jumped. In 2007, African-Americans owned 8.5 percent of U.S. companies without paid workers. In 2012, they owned 11.2 percent of them.

Unfortunately, growth in ownership of non-employers might not be a good thing. By definition, non-employers do not provide paid employment for others. Moreover, they are tiny companies, with very little economic impact. In 2012, the average non-employer generated $47,700 in annual sales.

Even then, the average non-employer business headed by a White American is 2.7 times larger than the average non-employer business headed by an African-American. In 2012, the average non-employer headed by a White American had sales of $50,900, while that of the average non-employer headed by an African-American had sales of $19,000.

The short message is this: the past five years have shown a slight closing of the gap in entrepreneurial activity between African-Americans and the rest of the U.S. population. But emphasis should be on the word “slight” rather than on the word “closing.”

African American Businesswoman Photo via Shutterstock

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.