An exploratory analysis of the largest black-owned U.S. companies.

AN EXPLORATORY ANALYSIS OF THE LARGEST BLACK-OWNED U.S. COMPANIES

In the past few decades, a number of black-owned business firms have become successful to the point of attaining a degree of national recognition. These firms and their owners have been written about in both black and

Any study of even the largest and most successful black-owned businesses, nevertheless, is a study of small business. In 1984, among the one hundred largest black-owned businesses in the United States, only two had sales of more than $100 million and all but eighteen had sales under $30 million. Similarly, only two had more than one thousand employees, and only seven had more than five hundred employees. By way of comparison, in 1984 the largest firm in the "Fortune 500" listing had $88 billion in sales and the 500th firm had sales of $418 million. By the standards of mainstream business, the largest black-owned firms may not be "mom-and-pop" operations, but almost all would be considered small.

During the last two decades, with the growth of public awareness of minority issues in general, black and minority small business has become a familiar object of public policy and the subject of many research studies. Almost all of the latter, however, have dealt with the typical minority firm, sized on the lower end of the small business spectrum. The emphasis of most of this research has been on assistance programs for such firms and on comparisons between minority and white entrepreneurs. The developing consensus is that most financial and management assistance programs are of value to minority clients, and that minority entrepreneurs tend to be quite similar to their mainstream counterparts in terms of ability and potential. Thus, while much more is known today than formerly about the very small, minority-owned company, there is a need to look more closely at the most successful (and often, therefore, the largest) minority firms, which have not been studied sufficiently to date. An examination of this second group of companies should allow the researcher to focus specifically on the nature of success in minority small business. The purpose of this article is to analyze a portion of the available data relating to the largest black-owned businesses in the United States, to reach conclusions as to the level of progress and the current status of these successful black-owned firms, and to develop conclusions with regard to social policy.

METHOD

Because the ownership of even the largest minority-owned firms is often closely held, public information concerning such companies is much more difficult to obtain than for large mainstream firms. The best long-term listing is "The Top 100 Black Businesses," compiled annually since 1973 by Black Enterprise magazine. This is a list of firms, at least 51 percent black-owned and in the fields of manufacturing and industrial or consumer services, which had the largest sales volume during the previous year. For the purposes of this study, the latest available ten-year BE data, covering the period 1975 through 1984, have been selected.

As suggested by this data base, the study is limited wholly to black-owned firms. While it would be useful to compare data for the largest black-owned firms with similar data for white-owned, or "mainstream," companies, such a comparison is not possible at present, due to the lack of any truly comparable mainstream listing. The mainstream companies appearing in the annual listings of various magazines are either a great deal larger than the BE100 firms, or have been chosen for some outstanding attribute other than sales volume (ROI, growth rate, etc.).

ANALYSIS

Current Status

The status of black-owned business in the United States today is best described as uncertain. According to a recent federal report on the state of small business, "minorities have made modest gains in business in recent years." Other sources, however, suggest that the strength of black business may actually have declined. For example, census data show a substantial decrease in the number of black-owned firms, from 561,395 in 1977 to 339,239 in 1982.

In 1975 the largest black-owned business in the U.S. was Motown Industries of Los Angeles, with three hundred employees and $43.5 million in sales. This entertainment company was then (and still is) the best-known black-owned firm in the country, largely because of the national reputations of many of its contracted entertainers. The fiftieth firm on the 1975 BE list was Cedar Lee Chrysler Plymouth of Cleveland Heights, Ohio, with 37 employees and sales of $4.5 million. Number one hundred on the list was Ault Inc., of Minneapolis, a manufacturer of magnetic components and power supplies, with one hundred employees and $2.3 million in sales volume. Like most BE firms, the last two companies are virtually unknown outside of their regional business areas.

In 1984, Johnson Publishing Company of Chicago headed the BE list, with 1,786 employees and sales of $139 million. This company is the publisher of several black-oriented magazines, including Ebony. Like Motown (number two in 1984), it has been at or near the top of the BE list every year (it was number two in 1975). Number fifty in 1984 was S.T.R. Corp. of Cleveland, a retail food company with 259 employees and $19.4 million in sales. The number one hundred firm was Yucca Valley Ford of Yucca Valley, California, with 60 employees and $11.3 million in sales.

Obviously, these firms are small in comparison with the largest mainstream firms, which have sales figures in the billions of dollars. Still, in comparison to the vast majority of black-owned firms, the BE100 companies are examples of significant success, and the ten-year sales growth for many of these firms has been very respectable by any standards (in the 300-500 percent range).

Survival Rates

On the other hand, the "survival" rate for the BE100 firms has been less respectable. (Throughout this article, "survival" will refer to whether a firm remains on the BE100 annual listings, and not to whether the firm stays in business.) Of the one hundred firms on the BE list at the beginning of the decade, only twenty-eight can be found on the most recent listing. Not all firms that failed to "survive" dropped below the list cut-off point or went out of business. A few of the BE firms moved into the mainstream by being acquired by a mainstream company or by acquiring at least 51 percent white ownership. Still, the precariousness and volatility of even the largest black-owned companies is apparent from these data.

Nature of Firms

Extending the analysis more deeply provides additional clues to the nature of black business success. Of particular interest is the question of what types of companies were successful enough to reach these levels of sales volume, and what trends appear to have taken place since 1975.

The mix by type of firm in the Black Enterprise listings is complex, but with some clear trends emerging over the past decade. Unlike the largest mainstream companies, the majority of the firms on the BE list are neither national nor regional, nor are they generalist, multi-product companies. Rather, most of these firms are single-location operations, serving a particular local market with a specific product line or service. Also, the markets served by these companies are often predominantly black or minority markets. Interestingly, this profile has not changed in the past decade--about 10 percent of the BE firms in 1975 were national or regional rather than local, and the same percentage held true in 1984.

By business type, the BE firms can be grouped into the following categories:

* Automobile dealerships

* Construction/contracting

* Fuel oil/coal retailers/distributors

* Media (print & broadcasting)

* Cosmetics and hair-products manufacturers

* Entertainment

* Computer service/retailing

* Food/beverage wholesaling/retailing

* Miscellaneous manufacturing

* Miscellaneous service

In figure 1, the number of firms in each category is shown graphically for the BE "Top 100" list in each year from 1975 through 1984. The percentage of the total sales volume of the one hundred firms which was held by each category is shown in similar form in figure 2. The latter chart provides a fairly accurate picture of the relative strength of each business category, given the wide range in sales volume between the top and bottom of the list.

A number of conclusions can be drawn from these comparisons. One is that automobile dealerships constitute the strongest segment of black business. Since the rise of "Black Capitalism" as a social goal in the 1960s, the various American (and, more recently, foreign) automobile manufacturers have felt a need to assist black entrepreneurs in acquiring or starting car dealerships in the inner cities. Thus, it is now quite common for urban areas having major minority populations to have one or more local, minority-owned auto dealerships.

It can be seen in figures 1 and 2 that the automobile dealership segment of the BE listings is also the most volatile of the business groups. In fact, sales trends of this segment follow the national passenger car retail sales figures quite closely (see table 1).

Another obvious trend among the larger black-owned businesses is the rise of computer service/retailing. This coincides with the nationally increasing trends in both data processing services and computer sales over the last decade (see table 2).

A third trend that can be observed in these charts is the increase in sales of fuel oil and coal. This strong upward movement was the result of a combination of the rapidly rising price of crude oil during the period, plus the increase in government procurement actions, as discussed below.

While it may appear that other trends can be perceived from the charts, in fact most of the variations in other business categories were simply arithmetic effects of the changes in automobiles, computers, and fuel oil, rather than constituting meaningful trends in themselves. Because both charts have a finite limit (100 firms or 100 percent of total sales volume), an increase in one category must result in a decrease in another, even if sales in the second category are also rising, but at a slower rate.

A number of other business categories are well represented on the BE listings, and these have been relatively consistent in strength over the past decade. It is important to note that several categories, such as fuel oil and coal, and construction/contracting, owe a major portion of their sales volume to federal and local government procurement actions. The best-known program of this type, Section 8(a) of the Small Business Act, authorizes the Small Business Administration to subcontract federal awards for goods and services to businesses owned by minorities and other socially or economically disadvantaged persons. The total value of 8(a) contracts rose throughout the period from $556 million in 1977 to $2.7 billion in 1984.

Analysis by Industry Category

Probing more deeply into these data, one can consider the survival rates (again, "survival" on the BE100 listings) of the 1975 BE100 firms, when categorized by size (see table 3).

Not surprisingly, the larger firms in 1975 were more likely to survive through the decade. However, these 28 surviving companies moved considerably up and down within the rankings of the "Top 100." For example, only two of the five surviving firms from the 1975 first decile remained among the top ten firms in 1984.

The survival rates of selected industry categories can also be calculated (see table 4).

These figures show in more detail what is already indicated in figures 1 and 2. This is that sales in some business categories, such as automobile dealerships, have become more prominently represented among the largest black-owned enterprises. In others, such as food/beverage wholesaling/retailing and miscellaneous manufacturing, sales have decreased in comparative importance. Of the four largest categories (by number of firms) in 1975, relatively more auto dealerships and construction/contracting firms survived to 1984 than was true of food/beverage wholesalers/retailers or miscellaneous manufacturers. While the survival rates for fuel oil/coal retailes/distributors, and cosmetics/hair products manufacturers appeared high, these categories had too few firms in 1975 to draw conclusions that might be statistically significant.

DISCUSSION

The analysis in this study has shown that many of the largest and most successful black-owned firms have had impressive ten-year growth rates, with some recording gains of 300 to 400 percent and more. Yet the survival-on-the-listings rates, industry category patterns, and other data also show that even these largest black-owned firms are very vulnerable to fluctuations in the economy and to other environmental factors. This weakness can be explained in part by the fact that black-owned firms tend to carry heavier burdens of debt, in comparison to mainstream firms.

The data also show that certain industries or markets are more likely to be avenues to success for black entrepreneurs and business owners than are others. It is no coincidence that most of the firms on the BE listing fall into a small number of business categories. Government and major corporate efforts to promote Black Capitalism and the economic strength of urban minority markets have provided the opportunities for a majority of the BE firms.

Most large black-owned business firms are not really in the mainstream of U.S. business. Many may have a sizeable mainstream segment within their particular market or customer roster, but the basis for their niche in the economy is still that they are black, and that, for one reason or another, being black is desirable in this particular business situation. In most of the business situations occupied by BE firms, the decision by a larger, mainstream firm to combat the black firm for its business would result in a mainstream victory. This is currently happening in the black target market, hair-care products industry.

If federal, state and local procurement programs were to end, it is quite likely that many of the fuel oil, construction /contracting, and other BE firms would find it very difficult to survive, or at least to remain among the "Top 100" black firms. Similarly, if the retail automobile industry were not constrained by a system of manufacturers' geographic franchises, many of the BE automobile dealers would find themselves under great competitive pressure from white-owned dealerships currently limited by their franchises to other geographic markets.

CONCLUSIONS

Black-owned firms can be successful: excellent examples of such success can be found in the Black Enterprise "Top 100" listings. Yet these listings also illustrate the precarious position and vulnerability of the same firms. Companies among the top ten on the BE list in one year may be absent from the entire list in the next having done relatively poorly or even gone out of business in the preceding twelve months.

A number of different and separate conclusions can be drawn from the preceding analysis:

1. Business failure is part of the "real world," and such failures are a sign that our economic system is working. Intervention in this survival process would be counter-productive in the long-run, offering artificial support to firms that could not survive on their own merits and performance strength.

2. A significant black (and other minority) involvement in our capitalistic system is socially desirable, and it is necessary for both government and the established private sector to continue to provide various forms of assistance to black business owners and entrepreneurs, so that they may gain a safe foothold in our economy. Such assistance includes programs of government and corporate procurement, corporate franchising, and government and private sector debt and equity financing through Minority Enterprise Small Business Investment Corporations ("MESBIC") or other means.

3. Certain areas of business opportunity for blacks, such as automobile dealerships, are highly affected by external economic factors. Others, such as fuel oil/coal distribution and construction/contracting, are heavily dependent on government programs for minority procurement. Black entrepreneurs should be wary of these short-run business opportunities in which success is dependent upon external factors, and perhaps focus more on niches in the economy where success tends to be more self-determined.

4. It can also be argued that a black entrepreneur's best chances for business success are within the black sub-economy, dealing with black-oriented products or services and/or a predominately black target market segment. Such a strategy has been the key to success for many of the firms on the BE100 listing (best example: Johnson Publishing Company).

To develop a better understanding of the nature of success in black-owned business, a number of topics appear particularly desirable for future research. An in-depth comparison of "surviving" versus "non-surviving" firms (based, as before, on BE100 lists) might uncover significant differences betwen these two groups. It might also be possible to develop a valid comparison between the past decade's BE100 firms and comparable mainstream firms. As noted earlier, no existing mainstream listing is really comparable, but a large, carefully selected, matched-pair sample possibly could provide valid data of this type. Such future research might enable scholars and government officials to determine whether it is realistic to expect black and other minority-owned businesses to achieve eventual proportional parity with mainstream businesses in this country.