Generational discrimination along sexual and racial lines – compounded by large
wealth disparities – makes it harder for minority entrepreneurs to access the financial
resources they need to build sustainable businesses. According to 2017 data from the
U.S. Federal Reserve, more than half of Black-owned companies had their loan
applications rejected – twice the rate of white-owned companies.
Nasdaq
April 28, 2021
Inclusive Entrepreneurship: A Roadmap for a More Equitable Future
Imagine an ecosystem where entrepreneurship is open and accessible to everyone.
Then picture a space founded on the belief that entrepreneurship can level the playing field by giving all entrepreneurs an equal opportunity to start and run a business – irrespective of gender, race, and so on.
Sexism, racism, and other forms of systemic inequality have long meant that conventional entrepreneurship was ill-equipped to unlock the full potential of women and people of color, who often lack access to critical resources for business growth. That is, until now.
Enter inclusive entrepreneurship.
What is inclusive entrepreneurship?
“Most business ownership doesn’t really look like America – in gender or ethnicity,” says Maura O’Neill, distinguished teaching fellow at the Haas School of Business, UC Berkeley.
“If it did, we would have 1.9 million more businesses, 19 million more jobs and add 20% to the U.S. economy.”
O’Neill points to Naomi Brown, a Black entrepreneur who against the odds founded STAR Enterprises, a successful temporary staffing and janitorial company servicing more than 55 hotels and government agencies.
She says Brown’s 11-year-old company is representative of “the small businesses that account for over 60 million jobs in the U.S. and almost half of the nation’s GDP.”
This is where inclusive entrepreneurship comes in.
It ‘democratizes’ entrepreneurship by overcoming the barriers to business creation that entrepreneurs from under-represented backgrounds typically face.
At Nasdaq, we recognize that inclusive entrepreneurship is instrumental in building an inclusive economy that advances growth and prosperity for all.
Through our Purpose Initiative and the world-class mentorship and resources available through the Nasdaq Entrepreneurial Center, we are helping provide entrepreneurs with the tools they need to succeed and flourish.
By offering these critical resources, entrepreneurs can create, launch, scale, and sustain their businesses – unlocking their full potential and uplifting their communities in the process.
Inclusive entrepreneurship improves access to the three pillars of entrepreneurial success – networks, capital and markets – and maps out a pathway today for a fairer, more equitable tomorrow for entrepreneurs of all backgrounds.
- Access to networks
Unequal access to high-quality mentorship, education, and early career opportunities makes it more difficult for minority entrepreneurs to develop relationships that facilitate the expansion of their business.
But inclusive entrepreneurship assists them in overcoming structural disadvantages by increasing technical assistance in the form of mentoring, personal coaching, and peer support.
It also strengthens network-building organizations, such as local chambers of commerce, sector-specific business associations, and non-profit organizations committed to providing minority entrepreneurs with opportunities to form valuable connections.
Relationships forged through these organizations can help minority entrepreneurs access exclusive information by, for instance, identifying and locating specialized consulting services, landing new clients, and securing growth capital.
- Access to capital
Generational discrimination along sexual and racial lines – compounded by large wealth disparities – makes it harder for minority entrepreneurs to access the financial resources they need to build sustainable businesses.
According to 2017 data from the U.S. Federal Reserve, more than half of Black-owned companies had their loan applications rejected – twice the rate of white-owned companies.
Consequently, it’s not uncommon for Black entrepreneurs to enter sectors with low capital requirements and run businesses in low barrier-to-entry sectors, which generally means slimmer profit margins and higher rates of business failure.
Fortunately, the marketplace has opened up a number of innovative, scalable solutions to this long-standing problem, which can increase the flow of growth capital to minority entrepreneurs.
Four alternative forms of startup funding stand out:
- Online lending. Last year, a Federal Reserve Bank of Cleveland study found that loan applications from minority business owners were less likely to be rejected by online lenders than traditional banks.
- Crowdfunding. In 2016, the Securities and Exchange Commission’s new rules on equity crowdfunding came into effect allowing ordinary Americans to directly invest in local businesses. So, equity crowdfunding is no longer the exclusive domain of the top 2% of the U.S. population who have a net worth of more than $1 million.By lowering the bar to investment, the SEC made it easier for investors to gain a stake in minority-owned businesses which could, in turn, help to close the racial wealth gap.Nowadays, crowdfunding sites like Kickstarter, Crowdfunder, and IFundWomen give minority entrepreneurs the opportunity to showcase their startups to potential investors and ‘crowdsource’ a range of capital.
- Startup accelerators and incubators. Accelerator programs provide mentorship, education, and resources to entrepreneurs from all industries in their formation and early stages of company development.As of 2019, there were almost 1,500 accelerator programs listed in the U.S. and over 7,000 worldwide. They range in focus, geography, demographics, and industries, but almost all aim to help connect emerging businesses with the tools and resources they need to accelerate their growth. Finding the right fit can be an adventure, but as with most entrepreneurial endeavors, the return on upfront time and diligence can yield the greatest long-term results. There is an especially inspiring new league of accelerators focusing on under-estimated talent, including NewME, Divinc and 1871.
- Community Development Financial Institutions (CDFIs).CDFIs offer flexible loans and technical assistance to startups.They generate a financial and social return on investment in the economic prosperity of financially under-served communities.Impact investment technology platforms, such as CNote, now make it easy for the average consumer to invest in CDFIs.
- Access to markets
Due to difficulties penetrating mainstream markets, many minority-owned startups only serve minority communities, which makes it more challenging for them to scale.
Two main strategies have emerged to position minority entrepreneurs to access new markets:
- Public procurement. Public procurement programs aim to grant minority-owned businesses access to government spending on a par with their non-minority-owned counterparts.
States are passing legislation mandating that large companies report on their contracting relationships with minority-owned businesses. Some states, like California, have gone a step further by legally requiring state-headquartered public companies to diversify their boards. - Aggregation. Infrastructure is being put in place to help consumers connect directly with minority-owned businesses. For example, SHOPPE BLACK is an online marketplace to “connect Black-owned businesses with the customers, partners and resources needed to succeed.”
The case for inclusive entrepreneurship
Inclusive entrepreneurship is a compelling microeconomic and macroeconomic proposition.
According to O’Neill, “breaking the financial and social capital (mentoring and networking) barriers for women, Black, Indigenous, Asian, LatinX and other under-represented Americans are key to getting these would-be founders and owners off the sidelines.
“It’s an economic imperative for all of us as it may be one of the only ways to stem the alarming decline in all new startups. Our continued innovation and global leadership likely depend on it.”
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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