White men are now the minority of business owners in the United States, a change driven by the rapid growth of women-owned businesses and LatinX, and which has profound implications for the country’s financial and innovation infrastructure. .
The 12.5 million white male business owners make up about 41% of the 30.5 million small business owners in America. There are an estimated 11.6 million women-owned businesses (around 65% of these are owned by white women) and 6.5 million businesses are owned by men of color, according to a recent analysis by a venture capitalist. Seth Levine and I conducted with the help of researchers at Stanford University using two datasets from the 2017 US Census Bureau, those of companies with and without employers.
âThis is a really powerful opportunity for the country to prosper in the future,â said Jerry Porras, Lane Professor of Organizational Behavior and Change, Emeritus and Stanford Graduate School of Business and Co-Director of the Latino Entrepreneurship Program. The new founding groups are enterprising and determined, he said. But “the ecosystem is not conducive to supporting their success.”
Researcher Inara S. Tareque, who worked with Porras, provided data for our analysis. An analyst from the Census Bureau said by email that the bureau may conduct a similar review of the data in the future.
The number of women-owned businesses has been growing rapidly for decades as more women have entered the workforce. In 2018-2019, women started more than 1,800 businesses per day. In the last five years, women-owned businesses have grown twice as fast as the overall population, and women of color have started businesses at 4.5 times the rate of the general population, according to American Express State of Women-Owned Business.
LatinX-owned businesses have grown two to four times the overall population growth since 2015, when Porras’ organization began interviewing them. He estimates that there are 1 million new LatinX-owned companies created every five years.
âA key part of Latino culture is owning a business. People are enterprising. They make do with what they have. If that means starting a business, they start a business, âPorras said. âI think another factor is, if you are asking yourself the question, how do you generate wealth in this society, the classic answer is that you go to college, you go up the corporate ladder. It doesn’t work for Latinos. “
A neglected change
The demographic shift in the makeup of the entrepreneurial class in the United States has been largely overlooked, as the US Census Bureau’s analysis focuses on employer businesses, where white males make up a declining proportion of owners. , but still represent around 60% of all businesses. the owners. Stories about business owners also tend to focus on a tiny minority of companies, fast growing technology companies.
But non-employer businesses – businesses that employ only one founder but are subject to federal tax – are growing in number and importance, due to the rise of technology that makes it easier to run a business. small business without hiring staff. And, to some extent, experts say, women and people of color are by definition excluded from the opportunity to develop businesses. Defining their businesses in a separate category helps them stay small, as people working in finance and other business services direct their offerings to larger businesses, which are more male-owned.
Makisha Boothe, founder and CEO of Colorado-based Sistahbiz, says putting businesses run by people of color in an by definition tiny category helps them stay there. Sistahbiz operates programs that meet the unique needs of the people who want to start a business, even as the regulatory burden on small businesses grows and the competitive landscape becomes more difficult. For example, Sistahbiz holds Black Girl Therapy rallies and spends a lot of time preparing women of color to apply for bank loans (research shows people of color have a harder time getting bank loans and other forms of funding).
âOur women are put in the solopreneur zone. It’s related to access to capital. They just don’t have the budget for the bureaucracy and they don’t have the seed money to go from solopreneur to boutique agency, âshe said.n recent group chat with Senator John Hickenlooper, Democrat of Colorado and US Representative Joe Neguse, a Democrat who represents Boulder and surrounding areas. âIt’s financial capital, social capital and human capital.â
There is a growing awareness of the need to nurture smaller businesses no matter who runs them. Indeed, you can argue that venture capital has been successful as an asset class by recognizing and developing the potential of a particular type of start-up business, software and technology startup. A recent World Bank study found that it is almost impossible to predict which companies will end up becoming “gazelles” – their term for companies that grow rapidly. The same research revealed that gazelles exist in all sectors.
Failure to recognize demographic change in the vast landscape that includes the smallest and youngest businesses prevents systems from adapting to help them grow – and prevents the economy of the United States and other countries from reaping the rewards. this growth and this innovation.
âSome business, academics and government leaders only see traditional payroll companies as ‘real’ businesses, adopting a ‘go big or come home’ mindset. They tend to believe that only companies that fit into a specific framework deserve significant attention and resources, âsaid Elaine Pofeldt, author of Single Person Million-Dollar Business. âUnemployed businesses give many people greater control over their economic destiny. (And) if we were to support these owners moreâ¦ they could invest even more in their businesses and grow them exponentially.
In our new book, New builders, venture capitalist Seth Levine and I argue that America’s systems for financing startups and small businesses have not kept up with the changing demographics of the founders.
âThe systemic racism, sexism and ageism that permeate our culture means that today’s entrepreneurs often don’t get enough support,â we wrote in the book published two weeks ago. âOur capital systems and networks are dominated by white males.â
A handful of executives are starting to wonder what kinds of support new builders need, which might seem different from existing systems, such as Boothe and Allison Long Pettine.
Allison Long Pettine founded Ad Astra Ventures in San Diego in 2018 with Silvia Mah and Vidya Dinamani after realizing she was supporting too few female founders in her other investment firms. Ad Astra runs boot camps and accelerators for women entrepreneurs, aimed at helping women become aware of their own biases so that they can approach their business growth in a relentless and straightforward manner. Ad Astra also invests in founders led by early career women.
At the same time, says Long, the system must adapt to support women entrepreneurs. For example, a fundamental difference, generally, between male and female founders is that they have a different attitude towards risk, so men tend to define only along financial lines, where women will consider risk in more dimensions, including for the missions of their companies. Being forced to adjust to patriarchal financial worlds that emphasize the ability to sell and the ability to project confidence means women may hesitate when talking to venture capitalists. âThey may not appear to be genuine in locations,â she said. “Venture capitalists are ready to take on this challenge.”
The same mismatch can occur in banks, or even when women are offering their friends and family start-up capital, or even when they are selling their products. New builders, we present a successful baker from the Dominican Republic, Danaris Mazara, who was able to find support and funding through an organization called Entrepreneurship for All. She now employs over a dozen women at Sweet Grace Heavenly Cakes in Lawrence, Massachusetts. Mazara reflected on the power of owning a small business as we interviewed her for New builders:
She found herself reverting to a favorite Bible quote from 2 Timothy 1: 7: For God has not given us the spirit of fear; but of power, love and a sound mind. If you have mastery over yourself and love, you can be a powerful person, she told us.
The pandemic has brought realities home
One of the reasons small businesses suffered, especially during the early months of the pandemic, was that federal aid programs were designed for small businesses that had relationships with banks. But most of today’s founders – over 80% – receive no outside funding. The exclusion of founders from established funding systems is linked to historical patterns of business creation and systemic racism.
âThe pandemic has demonstrated the main realities. 28% of white-owned businesses have obtained PPP loans. 18% of Latin American businesses have secured them, âPorras said. Other demographic groups, including black founders and female founders, were also at a disadvantage.
The question is how much potential is lost when entrepreneurs who don’t fit the mold face complex economic barriers that cannot be overcome. It is impossible to know exactly what innovations and what jobs do not exist today because our systems have not adapted – or on an even more basic level, how many families have lost a chance to create wealth and the resulting sense of economic security.