The State of African-American Entrepreneurs

How are African-American entrepreneurs doing? There are nearly 2.6 million African-American owned businesses in the United States, and they employ nearly 1 million Americans, according to statistics from the Commerce Department’s Minority Business Development Agency. The same study reports that minority-owned firms overall experienced significantly higher growth than the average business did between 2007-2012—especially impressive considering that this period of time included the Great Recession.

Here’s a closer look at how the average African-American entrepreneur is faring, according to a recent survey that Guidant Financial conducted of current and aspiring small business owners.

African-American small business owner profile

Gender

• 62% male
• 38% female

Age

• 18-29: 6%
• 40-49: 28%
• 50-59: 25%
• 30-39: 22%
• 60-plus: 19%

Education

African-American entrepreneurs have varying degrees of educational attainment. About one-third (32%) of them have a high school diploma or GED. Some 26% have a bachelor’s degree, 21% have an associate’s degree, and 22% have a master’s degree or higher.

Motivation

Why are most African-American entrepreneurs initially motivated to launch their businesses? These entrepreneurs are more likely than the average business owner to say they started a business because they were dissatisfied with working in corporate America (22%). However, the vast majority of African-American entrepreneurs (62%) say they wanted to “pursue their passion,” 53% say they were "ready to be my own boss," and 30% say that opportunity presented itself. Just 12% say that being laid off or having their job outsourced motivated their startup.

Location

The most popular states for African-American small business owners to set up shop are:

1. Texas
2. Georgia
3. California
4. Florida
5. North Carolina

Industry

The most common industries in which African-American small business owners start businesses are:

• Business services—13%
• Health/beauty/fitness—9%
• Food/restaurant—9%
• General retail—7%
• Other—28%

How are African-American entrepreneurs doing?

Despite the rapid growth of African-American-owned firms in general, there are still many challenges facing these entrepreneurs. For example, just 57% of African-American business owners that Guidant surveyed say their business is profitable. That's significantly lower than the average for all survey residents (68%).

African-American business owners also report being less likely than the average business owner to have employees. Nearly half (46%) are solo entrepreneurs, 41% have two to five employees; 7% have between six and 10 employees; and 6% have 11 or more workers.

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The achievement gap is particularly stark when it comes to revenues. The average annual receipts for African-American businesses is just $58,119. That’s compared to an average of $173,552 for minority-owned firms in general and $552,079 for non-minority firms.

What’s behind these issues? One problem is that many African-American business owners can't access the financial resources they need to grow their companies. In fact, a whopping 80% of African-American entrepreneurs in the Guidant poll say that lack of capital is their biggest business challenge. This is 10% higher than the average small business owner in the survey. The next biggest challenges, marketing and advertising (31%) and time management (23%), are mentioned far less often than access to capital.

If they did manage to obtain additional capital for their businesses, half of African-American entrepreneurs say they would use the money for expansion; 61% would use it for equipment, 54% would use it for marketing/advertising, 36% would use it for staff, and 30% say they would spend the windfall on technology.

The challenges that African-American business owners face are reflected in their relatively low confidence in the political climate for small business. Their confidence level is seven out of 10, compared to eight out of 10 for business owners as a whole.

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