VOL. 133 | NO. 141 | Tuesday, July 17, 2018
Efforts To Grow Black Business Face Wealth Gap
By Bill Dries
The story of a business founded by maxing out personal credit cards or using home equity or both is usually told when that big financial risk works. You don’t hear a lot about when it doesn’t work.
In Memphis, a city where African-American entrepreneurs are at a disadvantage when it comes to wealth compared to white entrepreneurs, it can be a frequent path to capital.
Andre Fowlkes, president of Start Co., the Memphis group that works with startups, says the path highlights the local problem of access to capital for minority- and women-owned businesses.
He estimates it takes $15,000 to $25,000 to “really start thinking through your business and getting it to the starting line.”
“You immediately start burning through resources as soon as you start down that path meaning time and money,” Fowlkes said on the WKNO-TV program “Behind The Headlines.”
“It’s not as if they come out of the gate saying, ‘I’m going to use my credit cards to fund my business.’ Many of them are moonlighting,” he said. “They have day jobs and they are starting to build this business while they are moonlighting and they start using their personal credit cards to just pay for things – coffee meetings, proposals, etc. … So they are already leveraged quite a bit plus they are trying to start their business.”
Start Co., along with entrepreneurship hub Epicenter, and the city’s business diversity and compliance office are working with those businesses to get access to capital that will prompt those moonlighting to take a leap into the new venture including hiring employees.
The city, Start Co., Epicenter and Christian Brothers University recently announced the “800 Initiative” to develop some of the 800 minority- and women-owned businesses in the city that already have full-time employees. The 800 is out of nearly 40,000 minority- and women-owned businesses in the city, with the vast majority being the owner who works with part-time or contract workers.
Joann Massey, director of the city’s business diversity and compliance office, says the 800 Initiative is seeking about 50 businesses to start with “and hopefully those that have employees already taking them to the next level, increasing their revenue by $50 million over that three-year period.
“We’re looking at taking 200 of those and at least getting them to a state of having employees,” she said of businesses that fall in the much-larger category of no full-time employees.
The 800 Initiative is an expansion of the city’s other programs for increasing the amount of city contracts that go to minority- and women-owned businesses. In announcing the program, Memphis Mayor Jim Strickland said the city is working to increase business-to-business contracts outside of government’s boundaries that represent far larger dollar amounts than government contracts and can help a business establish its footing.
The work is different than what Start Co.’s chief mission was in 2008 when it started with a focus on technology.
“We felt that Memphis hadn’t been participating in the innovation economy as much as we had hoped,” Fowlkes said. “As a result of that a lot of our jobs that we were producing weren’t more advanced industry jobs. We’ve now expanded that scope and are meeting Memphians where they are here in this community and are looking at civic enterprises, nonprofits, small businesses, minority businesses through a variety of different programs.”
Leslie Lynn Smith, president and CEO of Epicenter, said her group’s work includes working with the capital sources and others on their approach to minority- and women-owned businesses.
“We are trying to change behaviors. We need to change the way we act and respond to those businesses,” she said. “We’ve gotten into throwing up barriers or making excuses around a lack of participation.”
Epicenter, Start Co. and the city have raised a $15 million small-business-loan fund with Pinnacle, First Tennessee and Regions banks participating and Pathway Lending distributing and overseeing the fund. Around 200 businesses have shown interest in the fund.
“It’s very frustrating to build a business into a potential phase of growth and then have that be met with a whole series of barriers that prevent that growth,” Smith said.
Fowlkes said the fund is a start toward a lot more capital – equity and debt financing – that is needed in a city where the average household wealth of an African-American is $11,000 compared to $170,000 for white Memphians.
That can translate to different ambitions as well.
“If you go back to a number of years ago – the 60s and 70s – it was ‘always get a trade, work a craft,’ when others were going for more professional services – accounting, lawyers etc,” he said. “Right now if you look at the African-American community, it’s the traditional jobs – lawyers, accountants – where you see others now in technology and innovation. So if you don’t see folks who are pursuing these career paths and understanding how to use entrepreneurship as a means to grow wealth and move forward, many times you resort to what you see in your own communities or the people that are around you.”
Fowlkes said the answer to that disparity is diversity in entrepreneurial efforts like those at Start Co. and Epicenter and City Hall.
“Even though we are focused on minority business here, we want to surround you with diverse networks of people that can support and grow your business so you can learn from them,” he said.
“Behind The Headlines,” hosted by Eric Barnes, publisher of The Daily News, can be seen on The Daily News Video page, video.memphisdailynews.com.