The good news: More entrepreneurs are starting ventures in majority black areas, according to a study by the Alliance for Entrepreneurial Equity. The study found a marked surge in entrepreneurial activity in areas with a majority of black residents. New business applications in majority black areas increased by 103% from 2019 to 2021 compared to 54% nationally, and were about 3.5 times higher in 2005.
The study gives a number of reasons for this trend, including:
· More government financing
Greater necessity, even with pandemic relief
· More remote work potential, and
· Higher local and regional support
Is this good news? Some key questions include:
· Are these ventures being started out of need for more income during tough times or are they potential growth ventures?
· If they are started out of need and do not lead to growth, will they be abandoned when the entrepreneurs find better options?
· Can these ventures be the foundation for the development of growth ventures?
· If they can be the foundation for growth ventures, what can be done to help them grow stronger and faster
· And most importantly, can the long-term benefits of the growth accrue not only to the black entrepreneurs and their venture financiers but also to the majority black areas?
If the increased number of entrepreneurs leads to higher income levels, increased net worth, and acts as a stepping stone to more growth ventures and more unicorns in majority black areas, this could be one of the most important trends in recent economic development, and perhaps one of the positive aspects of the misery of the last two years. But will it? And can it?
Emil Ekiyor is one of the community developers who has grabbed this phenomenon and is working at developing ventures to accelerate economic productivity in black communities in Indiana. Ekiyor moved to the US from Nigeria and became an NFL player. In the last few years, he has started the Innopower project in Indianapolis where he has organized programs that have helped 150 entrepreneurs in the US and 350 in Nigeria. He has brought expertise, role models, and funding through a strategic alliance with the Minority Enterprise Institute led by current NFL athlete Jaylon Smith.. He has found that in black communities, entrepreneurs are starting out of necessity to feed their families both in the US and in Nigeria. It is not necessarily to build a unicorn and create wealth.
Now he is focused on developing more unicorn entrepreneurs with a goal to generate wealth in black communities – not just to get out of poverty. The goal is to create an environment to create high-growth, scalable ventures and import wealth into black communities in the US and in Sub-Saharan Africa by increasing the number of ventures that sell regionally, nationally, and globally. Here’s why.
There are three principal business strategies to create jobs in an area and impact wealth creation. But only one makes a community richer:
· Job Catalysts–Wealth Importers: These are mainly midsized to large businesses that sell to regional, national, and global markets, and import wealth into an area. But they often do not create many jobs because they need to be highly productive and labor-efficient if they are to be competitive on a global basis.
· Job Creators–Wealth Circulators: These are mainly small businesses, often retail or service, which cater to local consumers who circulate the wealth generated by the Job Catalysts. They need the wealth importers and are usually more labor-intensive than capital-intensive.
· Job Destroyers-Wealth Exporters: These are mainly product or service importers who may create jobs, but export area wealth generated by the Job Catalysts. These businesses need the Job Catalysts to generate wealth.
By developing more Wealth Importers, economic developers in majority black areas can build on this growth of entrepreneurial activity and make it into the foundation for the creation of unicorns. To do so, they need to:
Recognize that the first step to develop growth ventures is the growth of unicorn-entrepreneurs, not VC.
· To develop unicorn-entrepreneurs, areas need to teach local entrepreneurs the skills that were used by unicorn-entrepreneurs to start and launch unicorns
· To help launch unicorns, develop reverse-VC financing because VCs wait for Aha. Before Aha, VCs can point out the weaknesses and reasons why the venture may fail. After Aha, they show interest
· Welcome VC funds as they follow the unicorn-entrepreneurs into majority black areas. VCs follow unicorn-entrepreneurs and finance after Aha! – entrepreneurs build the venture from idea to Aha!
But the danger to attracting VC is this – if VC exits are via strategic sales of the ventures to larger corporations outside the majority black areas, these ventures may leave the area and future benefits accrue to the VCs and the entrepreneurs – but not to area residents. ?
VC needs to be brought in where the black entrepreneurs stay in control of the venture and hopefully keep the venture in the area. To do this, we may need a new kind of VC fund that helps the venture grow but keeps local control.
MY TAKE: The Alliance for Entrepreneurial Equity article notes that “it will be critical to address the structural inequities that hold people of color back from growing and scaling their ventures.” Absolutely. The mistake that people have made is to introduce VC without teaching skills. That would be a huge mistake. Hopefully, this time will be different.