SVP, National Diverse Segments Director, Wells Fargo
Areas of success, challenge and opportunity
Women of color are the fastest-growing group of entrepreneurs. Their success is essential to U.S. economic growth from GDP to job creation. Why are minority women-owned businesses rising so fast, what constraints do they face, and what can this diverse group of women entrepreneurs do to strengthen their business and personal financial success?
Minority women own more than 71% of the 6.2 million female-owned new businesses opened in the U.S. over the last two decades. Their ownership in firms has increased by 467% in that same period, more than quadruple the growth rate for non-minority women-owned enterprises. These numbers are even more astonishing considering an extraordinary 114% growth rate in women-owned firms compared to a 44% rate of growth for all businesses.1
Why the rise
Several factors are contributing to the rise of minority women entrepreneurs. Women are outpacing men in completing college degrees, and within racial categories are between 5 and 7 percent more likely to complete college than male counterparts.2
Yet despite entering the workforce more prepared than ever, women face a persistent pay gap and slower workplace advancement. As of January 2018, only 27 of Fortune 500 leaders, or 5.4%, are women, and only three, or 0.6%, are black (all males).3 In light of these challenges many are looking to entrepreneurship to forge their own leadership paths.
Success amid challenge
As a result, women of color are making strides in all areas from politics to social advocacy to business. As business owners they are amplifying their voices. A greater voice means more influence, including new women-based networks of support.
These networks are important for combatting structural issues that slow the success of minority women-owned enterprises. For example, less access to financing remains an obstacle to business growth. Minority women-owned businesses generate less revenue on average than other firms. If revenues matched that of women-owned firms (who also are disadvantaged in obtaining financing) it would translate into an additional $1.1 trillion in revenues and 3.8 million new jobs for the U.S. economy.4 Market awareness around access to capital is leading to increased focus on remedying inequities.
Areas of opportunity
Amid challenges three areas stand out for evaluation:
- Scaling the business. What’s the best way to scale a business and obtain liquidity? A large majority of minority segments, including African American, Hispanic and Asian, use personal money or savings to start their businesses.5 The trade-offs of seeking more traditional financing versus tying up personal liquidity should be a strong consideration.
- Managing wealth. As minority entrepreneurs come into more wealth than ever before, it’s important to have a roadmap for building personal wealth. Investment planning; family trusts; and succession, retirement and legacy planning should be on the radar.
- Building a strong network. Minority entrepreneurs should seek out opportunities to build and expand their professional network. This investment can lead to making connections that can help grow their business. Taking advantage of continuous learning opportunities targeted towards specific needs is also important. Beyond business content considerations should also been given to intersecting areas such as health and work/life balance.
Good for business, good for the economy
Through persistence and hard work, women of color are becoming entrepreneurs in greater numbers than ever before. Their success is vital to GDP, employment growth and U.S. economic well-being. That makes entrepreneurship not only a path to personal leadership, but to a leading role for women of color in sustaining and expanding American economic leadership. As minority women-owned businesses serve the U.S. economy, it’s important to address the business needs of these emerging leaders.
1 “The 2017 State of Women-Owned Businesses Report”, Commissioned by American Express, 2017, pages 3 and 6.
2 “Black women are earning more college degrees, but that alone won’t close race gaps,” by Richard V. Reeves and Katherine Guyot, December 4, 2017, brookings.edu.
3 “When a woman or person of color becomes CEO, white men have a strange reaction” by Jillian Berma, March 3, 2017, marketwatch.com.
4 “The 2017 State of Women-Owned Businesses Report”, Commissioned by American Express, 2017, page 6.
5 “2017 SMB Insights, “Minority-Owned Businesses: The Force Driving Small Business Growth,” The Business Journals, page 12.