America is becoming a more diverse country with each passing year, and we’re happy to report that this diversity is being reflected in the growth of minority-owned businesses too.
According to data from the U.S. Census and the Minority Business Development Agency’s 2012 Survey of Business Owners (cited by the Small Business Administration), 37 percent of the U.S. population now identifies as being part of one or more minority groups. Five states — including California and Texas, the two largest states in the U.S. — now have populations made up of over 50 percent minority groups, and many other states and cities are approaching this same “minority-white” threshold.
As the minority population of America becomes the majority, there are going to be big implications for the business world. Anyone who is interested in starting a business should pay attention to the latest trends, especially if you are a minority entrepreneur. Here are a few key points about minority-owned businesses to consider:
More Businesses are Minority-Owned
Minority-owned business growth is on the rise, along with the growing diversity of America’s overall population. According to the same SBA report mentioned above, in 2012 there were 8 million minority-owned businesses in America, creating 7.2 million jobs and generating $1.38 trillion in revenue.
From 2007-2012, the minority-owned business sector saw a net increase of 2 million new businesses created, while non-minority-owned businesses saw a net decrease of 1 million businesses. This means that during the five years surrounding the Great Recession (the most recent period with updated statistics available), minority-owned business growth was a significant source of energy in the U.S. economy. The total share of minority-owned businesses increased from 22 percent to 29 percent during those five years.
Big Growth Among Millennials, Immigrants, and Latino Entrepreneurs
A 2016 report from the Kauffman Foundation cited by CNBC found that the number of Latino entrepreneurs has doubled since 1996 to 20.8 percent of all new entrepreneurs as of 2016. Immigrants are also much more likely to start new businesses; the Kauffman Foundation report found that as of 2016, immigrants were twice as likely as native-born Americans to start a business. This is a major driver of the rise of minority-owned businesses as well.
Younger entrepreneurs are also starting more businesses: the Kauffman Foundation saw an increase in new businesses owned by people age 20-34. The Millennial generation of young adults just now entering the workforce and starting their own businesses is the most diverse generation in U.S. history. As more young entrepreneurs start businesses, the percentage of minority-owned businesses will also likely increase.
What are the Best Cities for Minority-Owned Business?
America is a massive and diverse country, but some cities are especially diverse and are already providing a fertile ground for minority-owned business to thrive. According to 2016 research from online lending marketplace Biz2Credit cited by CNBC, the top five metro areas with the most diversity among business owners are:
- Sacramento, CA
- Washington, D.C.
- Philadelphia, PA
- San Jose, CA
- Houston, TX
What makes these cities so hospitable to minority-owned business? According to Minority Business Development Agency experts quoted by CNBC, these cities tend to have strong local leadership that promotes entrepreneurship at the local level, as well as a richness of local diversity that rallies to support the minority-owned business community.
Challenges and Successes for Minority-Owned Business
A 2016 survey of more than 1,500 minority business owners conducted by Biz2Credit and cited by CNBC found that 50 percent of the companies had been in business for two years or less, and two-thirds of the business owners were running a sole proprietorship or LLC. When asked to share the biggest challenge they faced, 36.3 percent of business owners said that a lack of adequate funding was their biggest concern.
Minority business owners have historically faced extra obstacles in obtaining access to business loans and startup capital. For example, Biz2Credit’s 2016 survey of minority business owners also found that Latino business owners tend to score lower than non-Latino business owners on key metrics that are used to apply for business credit, such as revenues, the number of years in business, and business credit scores. Also, as described by this article in Quartz, although minority-owned business growth has been strong, the vast majority of total businesses with the largest number of employees and biggest revenue are still white-owned.
However, despite the challenges, many minority business owners expressed a strong sense of optimism in the 2016 Biz2Credit survey: 57.5 percent said they were “very confident” about their business’s prospects in the year ahead, and 19.3 percent said that they were “somewhat confident.”
As America’s population becomes more diverse, there is likely to be continued growth in minority-owned businesses. Aspiring minority entrepreneurs should be feeling a heightened sense of confidence, and anyone who wants to work with (or market to) business owners needs to be aware that the face of American entrepreneurship is changing. With minority-owned businesses on the rise, all business owners should be developing some cultural fluency as they prepare to work with people from diverse backgrounds.
Are you a minority (or non-minority!) entrepreneur who is ready to start a business? Or are you already doing business as a sole proprietor, but want to create a legal business entity to make your business “official?” Protect yourself by setting up an LLC! Incfile can help you start your company for as little as $49 plus state fees.
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