How America is failing Black, Hispanic and Women Entrepreneurs

Using the broadest of all categories, there are two types of businesses in the United States: those that have employees (“employer firms”) and those that don’t have employees (“non-employer firms”).

The difference between an employer firm that creates jobs within a community and a non-employer firm where an individual is creating a job for themselves is HUGE yet the distinction between the two is often blurred when discussing the impact the small business sector has on the overall U.S. economy.

Politicians, public policy “experts”, government agencies, economic development entities and sundry others seem oblivious to the difference.

Employer firms help the economy grow.

Non-employer firms don’t.

On December 16 2021, the U.S. Census Bureau released the 2018 Nonemployer Statistics by Demographics (NES-D), a data dump estimating the number and gross receipts of employer and non-employer business owners by race, ethnicity, sex, and veteran status. NES-D was partially funded by the Office of Advocacy, an independent office within the U.S. Small Business Administration.

This Census data set illustrates the interplay of different demographic groups within the business world and how unevenly entrepreneurship opportunities exist.

While much has obviously changed for the worse since 2018, this data nevertheless draws an important line in the sand which will allow economists to track the uneven impact the COVID-19 pandemic has had on different business demographics.

It also demonstrates the abject failure of small business programs funded at federal, state and local levels intended to encourage more women, Black and Hispanic entrepreneurs to start and grow small businesses.?

Government agencies provide millions upon millions of dollars each year to help nonprofit lenders and small business resource centers provide “technical assistance” to underserved small business owners.

Technical assistance is generally considered an effective method for building the capacity and future success of a business because it involves communication over an extended period of time between a specialist consultant (whose services are paid for through government funds) and the small business owner (who pays nothing).

The 2018 NES-D dataset shows that the vast majority of technical assistance provided to the small businesses most in need of it, at least up until 2018, has been a major waste of money.

Putting the numbers into perspective, in 2018 there were 32,212,142 businesses generating sales worth $39.698 trillion in the U.S.

Of this total, 5,733,762 (17.8%) were employer firms, accounting for $38.388 trillion (96.7%) of gross sales, and 26,478,380 (82.2%) were non-employer firms generating gross sales of $1.310 trillion (3.3%).

The vast majority of employer firms, 97.7%, had fewer than one hundred employees and more than half have less than five employees.

For every employer firm, there are 4.6 non-employer firms.

For every $1 in sales an employer firm generates, a non-employer firm generates 3.4 cents in sales.

From a wealth-creating, society-strengthening and community-building perspective, the United States needs to create more businesses capable of creating local jobs.

Purely based on the sheer number of non-employer firms, which come and go with great frequency, most of the technical assistance currently offered by nonprofit lenders and small business resource partners is unfortunately focused on individual business owners.

Although women-owned businesses have made strides in recent years, only 24.6% of all employer firms and 43.2% of all non-employer firms were female-owned in 2018. Women are almost 10 times more likely to own/operate a non-employer firm than one with employees.

The situation is even worse for Black-owned and Hispanic-owned firms.

Black / African Americans comprised 14.6% of the nation’s population in 2018 yet only 123,103 (2.15%) of employer firms and 3,116,448 (11.77%) non-employer firms were Black / African American owned. Black / African American entrepreneurs were 25 times more likely to own/operate a non-employer firm than one with employees.

Hispanics constituted 18.3% of the nation's population in 2018 yet Hispanic entrepreneurs owned and operated 329,833 (5.75%) employer firms and 3,898,792 (14.72%) non-employer firms. Hispanic business owners are almost 12 times more likely to own/operate a non-employer firm than one with employees.

The fact that so few women, Hispanic and Black or African American business owners have employees, is sad on so many levels. The lack of entrepreneurial role models for each of these demographics is one dimension.

The fact that the so many dollars directed at technical assistance over the years to help women, Hispanic and Black or African American entrepreneurs haven’t created many sustainable employer firms, is simply tragic.

For the U.S. economy to rebuild in a post-COVID world, technical assistance MUST be focused on helping women, Hispanic and Black / African American entrepreneurs build businesses that create jobs within their communities. This HAS to be the priority.

This necessitates a systemic change in how technical support services are offered by nonprofit lenders and other entities whose mission it is to foster the creation and growth of small business, but unless the change happens, the federal, state and local agencies bankrolling most of the technical assistance occurring now are wasting taxpayer funds.

There is no value in spending limited resource to help someone create a job for themselves as a non-employer firm when there are eleven million open job vacancies in the United States today.

Wake up America!