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Black businesses – success or failure?

By James Clingman
On September 1, 2016

James Clingman

(TriceEdneyWire.com) – In 2001, I spoke at the National Black Expo, in Chicago. The theme was centered on one of most troubling factors related to the economic survival of Black people in the United States: The Low Success Rate of African American Businesses.  But as Jazzman, Les McCann, so pertinently asked thirty years ago, “Compared to what?”  Other questions are, “Compared to whom?” and “Compared to when?”  “Compared to how?”  Compared to why?”

We need only to look at the history of this country, vis-à-vis Black entrepreneurship initiatives, to see the resistance Black people faced from White society while doing business or when attempting to open a business. There were laws of the land that prevented Black people from participating in the economy on an equal footing with all groups, what John Sibley Butler calls, an Economic Detour. (Butler, 1991, Page 143)

Paradoxically, history also gives us glowing accounts of African-American ingenuity that led to business ownership from the 1600s through the mid-1960s, despite meager resources, the threat of bodily harm, Jim Crow laws, and the usurping or utter destruction of Black-owned businesses by Whites.

During the 1960s we saw yet another phenomenon: a virtual boycott of successful Black-owned businesses by Black consumers who interpreted civil “rights” to mean civil “privileges.” It was (and still is) a right to shop, eat, and spend our money where we wanted, but it certainly should not have been considered a privilege to do so. Because some of us deemed it a privilege, many Black people walked away from Black businesses and beat a path to White-owned businesses. Thus, from that point we see a decline in the number of successful Black-owned businesses in this country.

“Successful” in this context means businesses that have grown and are able to hire more employees than the 110,786 they employ as of the last economic census. Of the 2.6 million Black-owned firms, 95.5 percent of them are sole proprietorships and have no employees. That’s not necessarily a negative reflection on those businesses; much of it has to do with lack of relative support from Black consumers as well as all other consumers.

The reason most often given for the failure of Black-owned businesses is lack of access to capital. While that is certainly true, there are several other reasons, including the absence of social networks, (mentors and primary investors) lack of management expertise, lack of the commitment necessary to be a successful entrepreneur, lack of support by consumers, business owners’ reluctance to put earnings back into the business, and the instant gratification syndrome that causes some business owners to go on a shopping spree the first time they get that first big check.

More important than failure, however, is the fact that Black people have already done exactly what many of us are trying to do today. Our ancestors, grandparents, and parents started and operated highly successful businesses against inconceivable odds. The blueprints of their success were left for us to follow. We need to learn from our past and build upon what our forebears did, by emulating their tenacity, their willingness to sacrifice, their resolve to assist one another, work together, support one another, and their commitment to the entrepreneurial spirit that has burned within African people for thousands of years.

In Thomas Boston’s book, “Affirmative Action and Black Entrepreneurship,” he suggests that instead of failure (low success rates) of Black businesses, we should also look at Black business start-ups. Boston cites a study that points out the difference between access to capital for Whites and Blacks which states, “ … non-minority men borrow 16 percent of their initial capital from commercial banks while Black business owners get 9.5 [percent] of their initial capital through such channels.”  He goes on to say, “The differences in the rate of entrepreneurship between Blacks and other ethnic groups have been found to be attributable mainly to the lower business start-up rate for Blacks, and not to a higher failure rate.”  The low start-up rate can thus be attributed to the inequities faced by Blacks when it comes to access to capital.

To keep things on a positive note, consider Juliet E.K. Walker’s advice in her seminal work, “The History of Black Business In America.” She writes, “What Black Americans need now, after almost four centuries of existence in this nation, are theoretical constructs that factor in the strength and success that have distinguished [Black businesses] in their attempts to survive racism in America; what they do not need are theories that emphasize failure.”

Anecdotally and relatively, Black business has seen much more success than failure considering our history of being discriminated against in the credit markets. It is vital that we build on that legacy by creating, once again, a solid economic foundation upon which our children can stand.

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