In the United States, an astounding 17% of Black women are in the process of starting or running new businesses. That’s compared to just 10% of white women, and 15% of white men.
Yet despite this early lead, only 3% of Black women are running mature businesses. To understand why this steep drop off occurs, and how to combat it, we analyzed data from interviews with more than 12,000 people, nearly 1,700 of whom identified as entrepreneurs and nearly 1,200 of whom own established businesses.
The research was part of our work with the Global Entrepreneurship Monitor, an annual comprehensive survey of entrepreneurship rates and attributes, conducted in more than 120 economies since 1999. The large-scale survey is administered by academic research teams in each economy; we represent the U.S. team.
Our analysis offers several possible reasons Black women entrepreneurs struggle to sustain their businesses.
One explanation may be the types of businesses started: Our analysis shows that 61% of Black women entrepreneurs start businesses in either retail/wholesale or the health, education, government or social services sectors, compared to the 47% of white women and 32% of white men entrepreneurs. To the extent that these are small, informal businesses with low margins in crowded competitive contexts, they are more difficult to sustain over the long term.
Another possible explanation is access to capital, which could, in turn, influence what types of businesses Black women open. In previous research we found that 61% of Black women self-fund their total start-up capital. This is in spite of the fact that in our analysis of the GEM data only 29% of Black women entrepreneurs live in households with incomes over $75,000, compared to 52% of white men. This result, along with data showing that Black people take on a higher level of debt to go to college, and are less likely to own their own home, suggest that educated Black women are encumbered with debt, and have fewer personal resources and low collateral.
In addition, access to key resources needed for entrepreneurship are unevenly distributed in U.S. society, reinforcing the advantage of certain groups while impeding the entry and catching-up of disadvantaged groups. This only reinforces a cycle where resource limitations reduce one’s ability to generate financial gains from entrepreneurship.
Combating racial and gender disparities is a long-term proposition in the U.S., but there are immediate efforts that can help accelerate this change and provide near-term benefits. The finance community, for one, needs to look beyond aiding a disadvantaged group to recognizing both the biases they bring to investment assessment and the benefit of businesses run by educated Black women in sectors that can benefit from new ideas and social impact. This may require educating the finance sector, improving finance practices and setting guidelines to ensure equity in funding entrepreneurs. For example, financial institutions could examine whether the criteria and procedures to invest or loan money are the same for all groups, as recent research suggests that different demographic groups are asked different types of questions during the funding process.
Our research also showed that Black women starting businesses in the U.S. are highly educated. Although slightly more than one-fourth of Black women in the general population have a college degree or higher level of education, we found that more than three-fourths of Black women entrepreneurs have at least a college degree. Universities are uniquely positioned then to provide Black women with experiential education practices that enable them to learn and practice entrepreneurship and develop capabilities for overcoming constraints they may face, as well as offer peer support and collaboration, in addition to expert advising.
Black women are positioned to play an increasingly visible and important role in the United States’ political and economic future, particularly with the election of the first Black woman vice president and the widespread call for change embodied in the Movement for Black Lives. Never before have we seen such potential for Black women to elevate their voice and their careers, and to achieve social and economic equality. One means for realizing this dream lies in the opportunities offered through entrepreneurship. However, this dream will not be complete without targeted efforts that enable Black women entrepreneurs to grow and sustain their businesses. This will require conscious efforts by the government and private sector to uncover and address gaps and biases in entrepreneurial ecosystems in a way that provides inclusivity and support for the diversity of entrepreneurs that bring economic and social value to American society.