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According to the Harvard Business Review, Black women in the U.S. start new businesses more than any other demographics in America. The review states that 17% of Black women are either starting up or running new startup businesses to put numbers to the words. White men follow them at 15%, and White females come in at 10%.
Woohoo to that Black Girl Magic! Or is it?
While black women might be starting up more businesses than any other demographics in America, just 3% of those businesses withstand the test of time and make it to maturity. That is to say, a lot of them don’t go further than a couple of years before the entire business comes tumbling down.
With that tumble, you find numerous black women with debts and, perhaps more concerning, bruised egos that could easily scare them from ever making another try.
Why don’t Black Women Businesses Mature?
It is quite an unfortunate thing to invest your time and capital into a business, only for it to die just a few years (sometimes months) later. It can be pretty disheartening. So why do 97% of businesses started by black women never reach maturity? Well, the two points below are the leading cause of failure:
1. Lack of Capital
In an interview with Forbes, Ashley Rouse – Founder and CEO of Trade Street Jam Co. – said the main reason Black female-founded businesses collapse is lack of capital. Their businesses often lack the financial backbone to withstand the storms that develop shortly after a company begins.
Rouse further notes that unlike White and other non-Black entrepreneurs, Black entrepreneurs, in general, don’t have a lot of that generational wealth as a backup. They are often bootstrapping and working with shoe-string budgets, which usually cannot accommodate the slightest business mistakes, mishaps, and delays. If anything goes wrong, sometimes even the little things, one can easily find themselves out of business.
“A lot of my white or non-Black counterparts have started their businesses with capital from generations of wealth in their families. You just don’t see that in the Black community! Not yet, anyways.” – said Rouse.
Angel investors and venture capitalists are also said to have still the mentality of a White man running a profitable business. So they are skeptical than usual when a Black female entrepreneur pitches their idea looking for funding or partnership. In other words, Black women-run businesses don’t attract that many investors compared to White men-run businesses. Naturally, this fact limits the sources of capital that could boost their businesses to reach maturity.
“When I first started my nonprofit, I was questioned and belittled,” said Nikki Porcher, Founder of Buy From A Black Woman, during an interview with Forbes. She was sharing her experience when she reached out to a fellow woman, though white. The woman responded to Porcher, “What makes you think you can do this?”
According to Porcher, Black women entrepreneurs have to overcome an additional mental hurdle in their quest to establish a new business.
2. Entering a Crowded Marketplace with low-profit margins
The Harvard report further elaborates that 61% of Black women entrepreneurs went into businesses in low-margin industries such as retail/wholesale, education, health, social services, and government services. Compared to 47% of White women entrepreneurs and 32% of White men entrepreneurs.
In a nutshell, while Black women entrepreneurs might be starting many businesses across the U.S., these are often low capital and low margin businesses. Additionally, they are businesses found in already crowded marketplaces. From a business point of view, these are often quite hard to sustain in the long run.
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Wrapping up
As Ashely Rouse mentions above, the black community needs to have generational wealth. Perhaps one way that can happen is if Black entrepreneurs start investing in high-margin industries. That can only happen if they secure enough capital to set up those businesses in the first place. Afterward, that needs to be followed up by a culture of savings and training the forthcoming generation on intelligent business decisions.