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State of Minority Business Ownership

State of Minority Business Ownership

State of Minority Business Ownership

When we began working on Equitable Business Development, we started by asking questions about small business ownership, overall, in Minneapolis. When it comes to small business, are there gaps in who owns businesses and how those businesses are doing, and can we define those gaps along lines of race? Our initial quantitative research shows that there are definite racial disparities in business ownership in Minneapolis, as there are across our state and nation. The rest of this post unpacks some of the data points we used to define these disparities. The Survey of Business Owners (SBO) provides the only comprehensive, regularly collected source of information on selected economic and demographic characteristics for businesses and business owners by gender, ethnicity, race, and veteran status. Included in thed data we analyzed are all nonfarm businesses filing IRS tax forms as individual proprietorships, partnerships, or any type of corporation, and with receipts of $1,000 or more. The Small Business Administration defines “small business” as independent businesses with less than 500 employees, comprising 99.7 percent of all independent businesses in the United States.

Number of Businesses
Probably the most basic way to see where disparities exist in business ownership is simply to count the number of businesses owned by different groups. The chart below illustrates that, in the City of Minneapolis, white people own by far the most businesses.

number-of-businesses

Wait a minute – aren’t there more white people than other groups in Minneapolis? So doesn’t it make sense that they would own more businesses? It is true that white Minneapolitans make up a larger proportion of the city’s population than other groups. However, the gaps in total business ownership remain even when you look at the percentage of members of each group who own businesses. In our metro area, the gaps are even larger than they are nationally.

 

rate-of-business-ownership

Parity Measures
Another way to look at the data and account for the different sizes of different populations is to talk about parity. Parity is a calculation that tries to imagine what different measures of business success would look like if communities of color shared in them at the same rate as their representation in the population. If people of color owned businesses at the same rate as their representation in the overall population, and if those businesses had a proportionate amount of the total sales and employees, what would be different?

parity-graph

As the parity charts above show, the differences would be significant. There would be 15,313 more businesses in the metro area, a 534% increase in gross receipts, and 87,000 more people employed. This would make a big impact on our overall regional economy.

Future business growth
Speaking of our overall regional economy, the Twin Cities ranks highly overall in terms of the strength of our small businesses. However, last year we ranked 37th out of 40 metro areas in terms of new business startups. To maintain the strength of our regional small businesses into the future, we need people to be starting new businesses now. Statewide in 2012, whereas there was a 3.4% decrease in business ownership among white people, there was a 52.2% increase in minority-owned businesses. Communities of color are the entrepreneurial force for our region’s economic future.

changes-in-business-ownership

The myriad benefits of equitable business development
This broader economic point brings me to my conclusion: that equitable business development is good for all Minneapolitans. Closing gaps in business ownership that have developed over centuries of racial exclusion is the right thing to do, and that is reason enough to do it. At the same time, there are many compounding benefits of investing in minority- and immigrant-owned businesses.

Research has found investment in minority- and immigrant-owned business to increase asset and wealth development, improve social and economic mobility, create new jobs, improve community vitality, increase public safety, create better access to amenities, and spur overall economic growth. Some data sources we looked at include the Kauffman Foundation, Minority Business Development Agency, Association for Enterprise Opportunity, PolicyLink, and MN2020 along with academic articles.

For more of our background quantitative data, take a look at our “Background Research” report. Quantitative data is just one way we are looking at the challenges facing business owners of color in Minneapolis; for more on our qualitative research approaches, see this blog post. Also, check out this cool National Equity Atlas for further exploration of data related to racial equity.