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Places Where Minority Entrepreneurs Are Succeeding

minority entrepreneurs

Minority entrepreneurs have a major presence in the U.S. business landscape, as there are about 8 million minority-owned businesses throughout the country. However, several factors impede the success of these companies, such as access to capital, which has long been a hurdle for minority-owned businesses.

Also, minority-owned businesses tend to have fewer employees than non-minority firms. And minority business owners are often underrepresented among federal grant recipients.

Location could be another determining factor in minority entrepreneurs succeeding in their ventures, according to new data from LendingTree. We looked at firms that minorities own either wholly or equally and the cities in which the strongest performers are located.

One of our main considerations was the percentage of self-employed minorities in each metro. We wanted to determine whether minorities are finding that entrepreneurship is a good option. Of course, a low self-employment rate could be indicative of thriving employment conditions in those cities. Overall, cities in California took the top spots, while Midwestern metros rounded out the bottom of our ranking.

Key findings

    • Four of the top 10 cities are dominated by California hot spots. No. 1 San Francisco has a high rate of self-employed minorities and a relatively high parity of business ownership, though San Jose has the highest parity of business ownership by minorities.
    • Last place St. Louis has struggled with revenues and longevity for its minority-owned businesses — only 18% have exceeded $500,000 in annual revenue while 27.6% survive past their first six years in business. Another Missouri metro follows on the heels of St. Louis: No. 49 Kansas City.
    • Midwestern cities have a generally poor showing, with Milwaukee and Cleveland rounding out the bottom 4.

What we considered in our study

Looking at the 50 largest U.S. metros, we analyzed four metrics:

  • The percentage of self-employed minorities in each metro. This gives us a sense of whether minorities are finding entrepreneurship a good option.
  • Minority businesses ownership parity index.  If a metro has an index of 100, it means its breakdown of businesses owned by minorities is the same as the breakdown of minorities in the area (e.g., 30% of the population are minorities and 30% of businesses with employees are owned by minorities). An index score of less than 100 means that minorities are underrepresented among business owners and a score over 100 means that they are overrepresented.
  • The percentage of minority-owned businesses that took in at least $500,000 in revenue.
  • The percentage of minority-owned businesses that have been in operation for at least six years.

These metrics were then scored according to where each metro fell in relation to the bottom (a score of zero) and the top (a score of 100).

Top metros for minority business owners

The top places in our study share a high percentage of minorities who are self-employed – around 4% in the top three metros. The two highest-ranking places are both in California, which leads all states in the number of minority-owned firms with employees.

1. San Francisco

Final score: 83.9

San Francisco ranked No. 1 in our study with a high rate of self-employed minorities and relatively high parity of business ownership. Most minority-owned businesses – 56.7% – have been in business for more than six years. And nearly half of minority-owned businesses – 42.6% – generate $500,000 or more in revenue.

Tech giants like Salesforce have hubs in San Francisco where the city-mandated minimum wage is $15 per hour. Despite the proliferation of big businesses in San Francisco, small businesses, including minority entrepreneurs, are still finding success. In the East Bay neighborhood of San Francisco, for example, a string of black-owned bakeries is flourishing, according to the San Francisco Chronicle.

2. San Jose, Calif.

Final score: 83.2

Nearby San Jose took the No. 2 spot though it has the highest parity index. San Jose and San Francisco have the same percentage of minority-owned businesses earning  $500,000 or more at 42.6%. They also have similar numbers of long-standing minority-owned businesses: 56.6% have been in business six years or more in San Jose with 56.7% in San Francisco.

Like San Francisco, San Jose houses innovative tech companies, as it’s one of the major cities within Silicon Valley. San Jose is the largest city in Northern California and lies within one of the most affluent counties in the state. The largest minority-owned business in Silicon Valley, tech company ASI Corp., reports revenue exceeding $1 billion.

3. Washington, D.C.

Final score: 78.8

The nation’s capital is the highest-ranking East coast metro at No. 3. Washington, D.C.’s minority business ownership parity is equal to that of San Francisco, and the percentage of minorities who are self-employed is about the same as the top city as well. Revenue is where Washington falls short of its California rivals — 39.9% of minority-owned businesses have revenues of $500,000 or more. It slightly lags in longevity, too, with 55.8% of minority-owned businesses in existence for six years or more.

Where minority entrepreneurs are struggling

The three bottom-ranking cities in our study are in Midwestern states, with the last two in Missouri, a state that has been a hotbed of racial tension both historically and in more recent years. Although minority business owners in Missouri run successful enterprises, many say they continue to face biases and must fight assumptions that minority-owned businesses are inadequate.

50. St. Louis

Final score: 33.2

Even though St. Louis has the second-highest parity index in our study, its rate of long-term success for minority-owned businesses is dismal. Just 27.3% survive past six years in business, nearly half the rate of the second-worst city, Kansas City, Mo.

The history of St. Louis includes decades of unregulated suburban development and discriminatory housing practices, the effects of which are still felt in segregated metropolitan areas. However, the business community is working to reach equity. Earlier this year, the St. Louis County Council passed legislation mandating that minority and women-owned firms be awarded a certain percentage of contracts for construction, engineering and architecture projects.

49. Kansas City, Mo.

Final score: 39.1

Kansas City is another Missouri city where minority entrepreneurs have struggled to succeed, with just 30.7% of minority-owned businesses generating $500,000 or more, though that’s far better than No. 50 St. Louis. The number of minorities who are self-employed sits at 2.4%, slightly below St. Louis. Less than half of minority businesses in Kansas City – 42.6% – have been in operation longer than six years.

Like St. Louis, community members in Kansas City are making efforts to aid minority-owned businesses. City council members have passed legislation that would award more construction contracts to minority and women-owned firms. Some local banks have also launched initiatives to provide financing to minority business owners who may have trouble securing funding.

48. Cleveland

Final score: 41.6

Cleveland ranked near the bottom of our list with the lowest minority business ownership parity index, 33. Cleveland has a similar percentage of self-employed minorities as the other bottom two cities at 2.6%. Just 33.3% of minority-owned businesses in Cleveland earn more than $500,000 in revenue. However, 54.6% minority-owned businesses have been open for six years or more.

Despite its low ranking, the city does provide resources to support minority entrepreneurs. The Urban League of Greater Cleveland offers business counseling and assistance through its Entrepreneurship Center. The Capital Access Fund of Greater Cleveland also provides loans and financial guidance to minority business owners.

Resources for minority business owners

No matter the city, minority entrepreneurs are often at a disadvantage, especially when first starting out. For instance, studies have shown that minority-owned small businesses are denied financing from traditional banks at higher rates than white-owned businesses.

To level the playing field, many organizations across the country offer assistance to minority business owners, from financing to mentorship and support. Here are a few resources for minority entrepreneurs:

The Minority Business Development Agency

MBDA Business Centers are open in several cities to help entrepreneurs with a variety of tasks, including accessing capital or expanding into new markets. Find your local MBDA Business Center here. The organization also promotes public and private sector programs, policy and research. The MBDA is part of the U.S. Department of Commerce.

U.S. Small Business Administration

The SBA provides grants and small business loans to new and established business owners, including minority entrepreneurs. The SBA microloan program offers funding to minority business owners, as well as women, low-income and veteran business owners, who may have difficulty qualifying for traditional bank financing.

Minority Chamber of Commerce

The U.S. Minority Chamber of Commerce helps business owners broaden their network and make valuable connections. Members have access to resources such as a business center hotline, training opportunities and thousands of new business contacts. The organization also hosts training opportunities on different business topics, such as management and finance. The organization has offices in Washington, Atlanta, Miami, New York and San Juan, Puerto Rico.

Minority business owners can find resources and assistance no matter where they live. Many state offices have programs designed to aid minority entrepreneurs, so they can better compete on a local, state or national level. Find your local resources here.

Methodology:

Analysts scored each of the 50 largest metropolitan statistical areas (MSAs) in the U.S. based on four criteria:

  • Percentage of minorities in each MSA who identify as self-employed. This data was calculated using 2017 American Community Survey microdata hosted on IPUMS.
  • In the parity index, 100 equals perfect population and business ownership parity. The index is based on population data from the 2016 American Community Survey. The minority population is defined as the percentage of the population who do not identify as “Not Hispanic or Latino – White alone.” Minority-owned business data is from the U.S. Census Bureau’s 2016 Annual Survey of Entrepreneurs and is limited to firms with paid employees and those that are designated minority or equally minority/non-minority owned.
  • The percentage of minority-owned businesses with revenues of at least $500,000 is calculated from the 2016 Annual Survey of Entrepreneurs, and is limited to firms with paid employees and those that are designated minority or equally minority/non-minority owned.
  • The percentage of minority-owned businesses that have been in operation for six or more years is calculated from the 2016 Annual Survey of Entrepreneurs, and is limited to firms with paid employees and those that are designated minority or equally minority/non-minority owned.
 

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