A 2021 Harvard Business Review report revealed that Black women in the United States are starting businesses at a higher rate than white women and white men. The HBR report, produced in collaboration with the Global Entrepreneurship Monitor, found that 17 percent of Black women in the US are involved in founding or nurturing businesses. By comparison, only 15 percent of white men and 10 percent of white women are starting or running a business.
There’s one problem here, though: Despite their demographic being one most likely to start companies, only 3 percent of Black women end up operating fully fledged, mature businesses.
Analysts point to several factors contributing to such a substantial drop-off.
Less room to maneuver
Black female founders are over-represented in businesses dealing with wholesale or retail and those operating in the social service, government, healthcare, and educational sectors. Less than half of white female founders operate in these sectors, contrasted with more than 60 percent of Black women who are founders in these areas.
These business sectors so heavily chosen by Black women entrepreneurs tend to be already well-populated marketplaces, and hence offer stiffer competition and lower margins. Businesses in these sectors also tend to be smaller and more informal, accounting for a big part of the lack of traction.
Fewer resources to draw on
Black women in particular tend to encounter barriers to accessing business capital. Part of this is because, in the Black American community, there is far less generational wealth than among other ethnic groups.
Historically, majority groups in the US have enjoyed liberal and consistent access to capital, key relationships, and other societal resources necessary to successful entrepreneurship. This uneven situation simply continues to reinforce a cycle in which a lack of resources puts limits on the ability of Black entrepreneurs to build successful companies, which in turn hinders their access to resources.
In 2019 the average Black family in the US possessed only about one-tenth of the wealth of the average white family. Due to formalized and informal discrimination, segregation, and other forms of systemic racism, little has changed on that front in the more than 150 years since the Emancipation Proclamation. In 1863 Black Americans owned an estimated one-half of 1 percent of all the national wealth in the US; in 2019 that figure had risen only to slightly more than 1.5 percent, although Black Americans make up about 14 percent of the population.
All too many Black American women have faced obstacles specific to their demographic when they decide to start a business. And one common refrain is that this lack of generational wealth is one of the main hindrances in getting them started, and supporting them as they continue.
Running up against outdated thinking
One of the other factors standing in the way of Black female entrepreneurs is that venture funders and investors tend to be wary of extending funding to them. Despite recent gains in society’s understanding of the importance of diversity, along with the particular strengths of Black women, many funders still see a white male when they picture a founder to whom they would extend capital. That is beginning to change, though, as more opportunities and grants are becoming available to founders from non-white backgrounds.
In 2021 Black women founders raised $494 million in the first half of the year. This represents almost $200 million more than the total raised by Black women in all of the previous year. But these gains were still only a small part of the total funding dollars directed to female-led start-ups in 2021. To be precise, businesses with one or more Black female founders took in only 2.6 percent of the funding extended to all female founders in the first half of the year.
Because of the difficulty they can experience in accessing capital of any kind, about three-fifths of Black women founders provide 100 percent of the start-up capital for their entrepreneurial projects themselves. This is despite the fact that Black professionals are disproportionately struggling under debt. Black Americans are more likely to assume higher levels of debt to fund their college educations, and they are less likely to be homeowners, additional factors tracking as part of the lack of generational wealth and collateral.
First, lenders and funders need to immediately confront and challenge their own innate biases when it comes to non-white and non-male founders and entrepreneurs. They also need to ask themselves whether the questions, procedures, and requirements they present to all applicants are the same. If they’re not doing it already, these power players need to implement an education and training program that will create a more equitable and fair experience for all entrepreneurs.
University-based incubators and other institutional resources in higher education can also play a role by reaching out to Black female students and alumni with support for entrepreneurial ventures. Studies show that about 75 percent of Black female entrepreneurs have earned at least a four-year degree. Their schools are well-positioned to assist them with collaborative projects and resources for building entrepreneurial skills and accessing needed connections to capital.
When banks, venture capital funders, and educational institutions make connections with Black female founders, they also stand to gain from the entry of a greater diversity of viewpoints, experiences, and ideas into their ecosystems.