Minorities Start Fewer Businesses, Study Says

Black and Hispanic budding entrepreneurs face greater odds in opening a business than their non-minority counterparts, according to a new small business study.

"The Effect of Wealth and Race on Start-up Rates" (pdf) found that a minority has about a 55 percent lower chance of opening a business than a non-minority. The study, conducted by New York University doctoral student Maritza Salazar, defines minorities as blacks and Hispanics.

Salazar cites previous research that shows blacks and Hispanics express the desire to start their own businesses at far greater rates than non-minorities, but a larger proportion of whites actually own their businesses.

"That statistic was one of our motivators in doing the study," said Salazar, who worked on the project through a contract with the Small Business Administration. "One reason why we're seeing differences in performance might be a history of what wealth means in those two communities." She worked in conjunction with BCT Partners in New Jersey to conduct the study.

She posits that families that haven't had their own wealth for multiple generations are more cautious with the amount of risk they'll likely take when they do accumulate some wealth. She noted that this theory wasn't thoroughly tested in her study, but said it could explain why fewer minorities take the startup plunge.

Salazar also found that net wealth directly correlates with the likelihood that a nascent entrepreneur will start a new company if that person is in the top 25 percent of the nation's wealth distribution. The study found that a want-to-be entrepreneur likely will draw from sources of net wealth, rather than monies used for a daily household budget, to start a business.

Black-owned businesses are the fastest growing sector of new businesses, according to the latest data from SCORE, a provider of small business advice to entrepreneurs and a resource partner of the Small Business Administration. About 38 percent of black-owned businesses were owned by women. SCORE data also shows that there were 1.6 million Hispanic-owned businesses in the United States in 2002, a 31 percent increase from 1997.

"Women of color are starting businesses at five times the rate of all businesses and are embracing entrepreneurship as a path to economic independence," said Sharon Hadary, executive director of the Center for Women's Business Research. "However, we're seeing that these businesses are not achieving the same average revenues and employment as all businesses, which suggests that there are barriers to business growth that very well may be related to wealth and ethnicity."

The center is in the process of conducting a two-year study on black women and entrepreneurship, which it expects will be released in spring 2008.

Other highlights from Salazar's study show: female entrepreneurs were less likely to start a business than their male counterparts; having a parent who has a start-up background does not have an influence on their children opening a firm; and those individuals who sought funding for a startup were more likely to operate their business successfully than those who did not seek financial assistance.

By Sharon McLoone |  July 26, 2007; 10:00 AM ET Data Points
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Comments

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mmm, a big duh on this one. if you were to research why people with less money are less likely to start a business, what do you think you would find out?

Posted by: jj | July 26, 2007 10:40 AM

Small business is easy to control and non-easy to lose a lot money.Small companies can compete with larger corporations on some intangibles that may be particularly attractive to younger workers.
Try to begin a small business in China on AmeriChinaB2B( http://www.acb2b.com/ ),one of the professional B2B trade marketplaces to facilitate online trades between exporters and importers from America and China.

Posted by: Moonzie | July 26, 2007 11:27 AM

In response to comment 1, the relationship between wealth and the likelihood of starting a business has actually been contested by economists for a very long time now. Our results show that the effect of wealth on minorities and non-minorities is not the same. If you have not read the paper, you will find differences between minorities and non-minorities in their start-up success when they do have wealth. The same is true for when they do not. This result implies that the minority or non-minority status of an entrepreneur interacts with wealth differently. We see this research as going beyond answering the question of whether wealth is good or bad for start-up success to begin to uncover the effects of wealth on the start-up outcomes of different populations of entrepreneurs.

Posted by: Maritza Salazar | July 30, 2007 3:46 PM

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