The Entrepreneurial Melting Pot

African Americans, Asians, and Latinos are launching new businesses at rates far above the national average

U.S. entrepreneurs are often described as one of the primary drivers of the nation's economy. For starters, small outfits create some 75% of all new jobs, represent 99.7% of all employers, and employ 50% of the private workforce, according to the Small Business Administration. However, today, the biggest driver within the small-business sector appears to be minority-owned businesses. And there is some fairly dramatic data to support this emerging trend.
According to a series of recent surveys released by the U.S. Census Bureau, between 1997 and 2002, the total number of U.S. businesses grew by 10%. However, during the same time period, Asian-owned firms increased by 24%, Hispanic-owned businesses by 31%, and African-American-owned firms spiked 45%.

According to the Census data, Asian-American-owned businesses grew at twice the national rate compared with all U.S. companies. The 1.1 million Asian-owned firms produced $326 billion in revenues in 2002, up 8% from 1997. The nearly 1.6 million Latino-owned businesses generated $222 billion in revenue in 2002, a 19% increase from 1997. Finally, the 1.2 million African-American-owned businesses earned $89 billion in 2002, a jump of 25%.

DO IT YOURSELF.  The sharp trajectory in minority-owned businesses is a reflection of overall changes in American business, industry, and society, and the successful inroads in the economy that minority entrepreneurs are making. As well, it illustrates the results of several initiatives launched over the past couple of decades, particularly those designed to encourage minority entrepreneurship.

"One of the reasons that I think is causing the increase," says Sanford Ehrlich, the director of the Entrepreneurial Management Center at San Diego State University, "is the availability of technical and business services. There are a lot more programs in existence, like micro-lending, and they are beginning to show results."

At the same time, the instability of corporate America and the economic downturn following the dot-com years has driven many people, minorities among them, to launch their own ventures.

BUSINESS DIVERSITY.  According to Thomas Boston, a professor of economics at Georgia Tech University and the owner of Atlanta-based economic consultancy Boston Research Group, minority entrepreneurs have found that they can create new and better opportunities by going into business for themselves. "The rate of entrepreneurship among Hispanics and Asians over the past 15 years has been high because migrating immigrants in general tend to have a higher rate of entrepreneurship," he says. However Boston also notes that more recently, he has found a strong latent desire among African-Americans to own their own businesses.

"I've done specific surveys of the Gazelle Index -- 350 CEOs of the fastest-growing African-American businesses," says Boston. "One question that I ask and rank is why do they want to start a business. The highest response is that they want control over their destiny, the second is the opportunity to put into practice the experience and education that they've gained, third is to secure their finances, and fourth is to contribute to the community.

"Another indicator of the strides that minority-owned businesses are making is the shift in the types of outfits they are launching. For instance, many are beginning to move out of the traditional areas of retail and service and into such businesses as high-tech, finance, management consulting, and construction. "As you see they are finding greater access to capital and nontraditional financing," says Boston, "you are seeing a growing diversification."

BANKING ON GROWTH.  To maintain this momentum, the next challenge is sustainability and growth. "That means creating businesses with more growth potential," says Michael L. Barrera, president and CEO of the U.S. Hispanic Chamber of Commerce. Those that have "a greater reach outside of the local community are continuing to move into nontraditional retail and service areas such as high-tech, and we are starting to see that now."

Indeed, recognizing the need to create tools and resources to fuel this growth, a group of Latino and non-Latino investors announced the launch of a new bank in California, created primarily to serve the swelling ranks of Hispanic entrepreneurs. With a capitalization of $20 million and set to launch in the fall, it will target Latino family businesses that generate $1 million to $10 million in annual revenue.

The Entrepreneurial Management Center's Ehrlich says: "In five years, I don't expect that minority entrepreneurs will experience [challenges] different than any other small-business owner. Their issues will be similar: how to grow."

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