Can about 100% more businesses in majority black areas lead to faster economic development?
The good news: According to a study by Alliance for Entrepreneurial Equity. The study found a marked increase in entrepreneurial activity in areas with majority black residents. New business apps in predominantly black areas grew 103% from 2019 to 2021, compared to 54% nationally, and were about 3.5 times higher in 2005.
The study gives a number of reasons for this trend, including:
More government funding
Greater need, even with pandemic relief
· More remote working potential, and
· Higher local and regional support
Is this good news? Some key questions include:
· Are these businesses started out of a need for more revenue during tough times or are they potential growth businesses?
· If started out of need and not leading to growth, will they be abandoned when entrepreneurs find better options?
· Can these companies serve as a basis for the development of growth companies?
· If they can be the basis of growth businesses, what can be done to help them become stronger and faster?
· And most importantly, can the long-term benefits of growth accrue not only to black entrepreneurs and their venture capitalists, but also to predominantly black areas?
If the increase in the number of entrepreneurs leads to higher income levels, increased net worth, and acts as a stepping stone to more growth businesses and more unicorns in majority black areas, this could be the one of the most important trends in recent economic development, and perhaps one of the positive aspects of the misery of the past two years. But will he? And can he?
Emil Ekiyor is one of the developers in the community who has grasped this phenomenon and is working to develop businesses for Accelerate Economic Productivity in Indiana’s Black Communities. Ekiyor moved from Nigeria to the United States and became an NFL player. In recent years, he started the Innopower project in Indianapolis where he organized programs that helped 150 entrepreneurs in the United States and 350 in Nigeria. It brought its expertise, models and funding through a strategic alliance with the minority-led Minority Enterprise Institute. Jaylon Smith, NFL athlete. He found that in black communities, entrepreneurs are going out of necessity to feed their families in the United States and Nigeria. It doesn’t have to be about building a unicorn and creating wealth.
Now, he’s focused on developing more unicorn entrepreneurs with the goal of generating wealth in black communities — not just getting out of poverty. The goal is to create an environment to build scalable, high-growth businesses and import wealth into Black communities in the United States and Sub-Saharan Africa by increasing the number of businesses that sell regionally, nationally, and globally. Here’s why.
There are three main business strategies to create jobs in a region and have an impact on wealth creation. But only one makes a community richer:
· Job catalysts–Wealth importers: These are mostly medium to large sized businesses that sell to regional, national and global markets and import wealth into a region. But often they don’t create many jobs because they have to be highly productive and efficient if they want to compete globally.
· Job creators–Wealth circulators: These are mostly small businesses, often retail or service, that cater to local consumers who circulate the wealth generated by job catalysts. They need wealth importers and are generally more labor intensive than capital intensive.
· Job Destroyers – Wealth Exporters: They are mainly importers of products or services likely to create jobs, but to export the territorial wealth generated by job catalysts. These companies need job catalysts to generate wealth.
By developing more wealth importers, economic developers in majority black areas can build on this growth in entrepreneurial activity and make it the basis for creating unicorns. To do this, they must:
Recognize that the first step to building growth businesses is the growth of unicorn entrepreneurs, not venture capital
To develop unicorn entrepreneurs, regions must teach local entrepreneurs the skills that have been used by unicorn entrepreneurs to start and launch unicorns
· To help launch unicorns, expand reverse VC funding as VCs await Aha. Before Aha, VCs can point out weaknesses and reasons why the business may fail. After Aha, they show interest
· Welcome venture capital funds as they follow unicorn entrepreneurs into predominantly black areas. VCs follow unicorn entrepreneurs and fund after Aha! – entrepreneurs build the business from idea to Aha!
But the danger of attracting VCs is this – if VC exits are through strategic company sales to larger companies outside majority black areas, these companies may leave the region and future benefits accrue to VCs and entrepreneurs – but not local residents?
Venture capital needs to be introduced where black entrepreneurs retain control of the business and hopefully keep the business in the area. To do this, we may need a new type of venture capital fund that helps the company grow while maintaining local control.
MY TAKE: The Alliance for Entrepreneurial Equity article notes that “it will be essential to address the structural inequalities that prevent people of color from growing and scaling their businesses.” Absolutely. The mistake people have made is to introduce VC without teaching skills. It would be a huge mistake. Hopefully this time will be different.