Mistrust, No Capital : Creation of Black Firms Gets Harder

Starting a company was the furthest thing from Yla Eason’s mind on that hot day on a Jamaica beach in 1985. A striking and articulate black woman with an MBA from Harvard and a wealth of knowledge about the business world, Eason was earning a comfortable $65,000 a year editing a weekly financial magazine--and not looking around for a new job.

But, during a vacation, a casual remark by her 4-year-old son got her thinking. “I want to be like He-Man,” he said, referring to a popular toy, a blond, blue-eyed action figure. “But I can’t, because he’s white.”

Eason was appalled that there were no black fantasy hero toys for black children--and her idea for a new business was born. By the end of 1988, Eason’s ethnic toy company, Olmec Corp., is expected to experience its first profitable year.

Novel Financing Methods

But the last three years have been anything but easy. Eason, forced to take steps not usually required of white entrepreneurs, found novel ways to raise capital--turning to personal friends, well-known black entertainers, even her family church in Brooklyn--and to crack a distribution system that was extremely reluctant to carry black toys.

“With my background, one would assume that I start out with as good a chance of making it as anyone else who’s out there, but it just isn’t so,” Eason said from the 10th-floor offices she shares with a group of architects in the heart of Manhattan’s toy district. “If you’re black and in business, you have to be much more creative if you’re going to exist.”

Experts say that Eason’s story is typical of the struggle still faced by black entrepreneurs in this country. Even with impeccable credentials such as hers, they say, blacks face much tougher crosscurrents than whites in breaking into the economic mainstream.

Good News and Bad News

“The situation is good news/bad news,” said Billy Tidwell, director of research for the National Urban League. “The good news is that there are more black businesses today than there were 25 years ago. In fact, between 1977 and 1982, black business ownership increased by 44%. The bad news is that black business ownership still represents a minuscule proportion of the total, about 1% or 2%, which is downright ludicrous.”

The obstacles are real enough. There is the always difficult process of raising enough money to get started. It is a problem experienced by virtually anyone creating a new business, but John Cole, visiting professor of finance at the Georgetown University School of Business, called it particularly “pernicious” for blacks.

“The black community is still in need of a sizable managerial class,” said Cole, who also heads an economic consulting firm in Washington. “If you don’t have a managerial class, people say: ‘How can I give you money if you can’t manage it?’ The answer, of course, is: ‘If you don’t give me money, how can I develop a managerial class?’ It’s a vicious cycle.”

Gavin Chen, an economist with the Commerce Department’s Minority Business Development Agency, said that studies have repeatedly shown discrimination in favor of white firms and against black ones.

“All things being equal, the white firm will get the loan and the black firm will not,” he said. “Equity investors shy away from investing in black firms because the perception is that they are riskier.”

And blacks encounter another set of roadblocks. They have to make and solidify contacts in a business network that is often dominated by white men and they must deal with pervasive stereotypes that suggest they are not as serious or as skilled in business as whites.

‘Perception Problem’

“There is the perception that blacks cannot pursue something independently,” Cole said. “One of the things that entrepreneurship is really about is somebody’s commitment to be independent. But independence has not been the history of being black in the Western world. It is a perception problem that is ingrained in a bunch of historical facts that we cannot escape.”

Eason, 38, who now pays herself $18,000 a year, grappled with all of this--and more.

She did not begin her toy company as a novice. As a former reporter, she had covered business and finance for the New York Times, and she had worked in merchandising and sales for several other firms.

She did her homework. First, she studied the market to see what was out there. The answer: not much.

Doll ‘Dipped in Chocolate’

“There was a dark-skinned action figure, but he was on the side of evil,” she said. “Another company had a black doll, but his features were white--we say ‘dipped in chocolate’--and he was basically playing Tonto to the main guy. I talked to other nursery school mothers and they were also having a He-Man problem.”

Using census data, she determined that there were 5 million black children under the age of 10, representing 16% of the child population. Including Asians and Latinos, minorities accounted for 36% of the population under 10, and this group was growing three times faster than white children.

“Blacks spend $1 billion a year on toys,” she said, but they earn substantially less than whites. “We had to make less expensive toys,” she concluded.

Using the telephone, she raised her first $60,000 from friends in one weekend. “We gave them a private offering with a minimum investment of $1,000,” she said. “We thought we’d only need about $100,000 to do it. But that was before we started checking into costs.”

She found that the expenses associated with starting a company--including such items as product liability insurance and advertising--were extraordinary. As one bank after another rejected her loan applications, she became more determined--and innovative.

Raised $700,000 More

Her husband, Milton Puryear, an investment adviser, became Olmec’s financial officer and encouraged his own clients to invest in the fledgling company. An additional $700,000 came from other black business executives such as Earl Graves, publisher of Black Enterprise magazine, and from prominent black entertainment and political figures.

Former Manhattan Borough President Percy Sutton, now chairman of the board of Inner City Broadcasting Corp., put up some capital, as did actress Ruby Dee and her actor husband, Ossie Davis. The Emmanuel Baptist Church in Brooklyn, where Eason and her family attend services, became Olmec’s only institutional investor.

The company now has more than 300 shareholders, 95% of whom are black.

“We are funded bootstrap by blacks,” she said. “I wasn’t able to get any institutional money from banks or from any of those agencies set up to help minority businesses, and I went to almost all of them. Most just don’t have money to invest. A lot of black businesses operating today got started during the (Richard M.) Nixon Administration, when there was plenty of seed money, but it just isn’t there anymore.”

Unfavorable Climate Cited

The climate has not been favorable for black entrepreneurs since the start of the Reagan Administration, according to the Urban League’s Tidwell.

“Since 1980, there has simply been much less public interest in supporting the developing of viable, profitable black businesses,” he said. “Under the Nixon and (Jimmy) Carter administrations, black business enterprise and the need to foster it was an explicit part of the public agenda. Black business enterprise was in much better condition in years past than it has been since 1980.”

Georgetown University’s Cole said that the economic stagnation that began in the mid-1970s retarded blacks’ entry into business.

“The blacks who got in before then have moved into middle management and are visible in a number of areas,” he said. “But now it’s a mixed picture. Those who were in the right place at the right time have become institutionalized and have achieved some prominence. But, during the subsequent slow-growth period, opportunities for blacks have been relatively few.”

Firm Named for Indians

Olmec--the company is named for an ancient Indian people of southern Mexico--manufactures its toys in the Orient, where labor is cheap--30 cents an hour, compared to $4 an hour in the United States. Eason has been criticized for not establishing manufacturing jobs in minority communities, but the economic reality gives her no choice.

“Eventually, we would like to bring some assembly here,” she said. “But that’s in our long-term goals.”

The Olmec collection has 20 products, including Sun-Man, a black hero action figure; Naomi, a sleek Barbi-sized black high fashion doll; Baby Dumplin’, a baby doll in a high chair or stroller, and the Bronze Bombers, military figures based on the all-black Army, Air Force and Navy units of World Wars I and II. And Eason has numerous other ideas in the works.

Perhaps Eason’s toughest battle is getting distributors to place her products in stores.

“The distribution system is where many black businesses get stopped out,” she said, “especially when you’re distributing in an area that doesn’t already have a layer of black businesses. We’re not allowed in the normal way. Most toys are sold through manufacturers’ representatives, and we could not get a manufacturers’ representative to take our toys because ‘black toys don’t sell.’ ”

So Eason was forced to be creative.

“Major chain stores were already accustomed to buying black hair-care products, so we used black hair-care product distributors for entry,” she said. “They were able to convince the stores to open up some space for us, saying: ‘These people who buy hair-care products have children.’ ”

Not on a Crusade

In one city, she set up an account by using the mayor’s minority business development office as a liaison. “I was so shocked at what I was encountering that I just got more determined,” she said, shaking her head in disbelief. “I wasn’t going out on a civil rights crusade, I was just trying to get a business going.”

Tidwell, of the Urban League, said that lack of contacts is a chronic problem for blacks trying to make it in the business world. Most are hurt, he said, because they “are less plugged into the network of who you know, which is a big part of how you get ahead. Blacks are much less likely to know the ropes and know how to negotiate the system.”

In addition, Eason began to form alliances with whites. “I’ve found that black people want these toys,” she said, “but there’s basically no respect for the black dollar unless it is accompanied by a white face. I can make products blacks want--but to cross the distribution channel, I have to cross white territory.

White Allies Needed

“And sometimes there are skirmishes and battles that prevent you from getting across to the other side. You can’t succeed in the long term without aligning yourself with somebody white. It’s alignments and coalitions that help you build your business.”

Her toys can be found in several major chain stores, such as K mart and Toys R Us. But many other chains organize their individual outlets according to “plan-o-grams”--store layouts duplicated in every store in the chain--and stores in black neighborhoods cannot easily stock products unique to that community.

Eason finds it ironic--and infuriating--that she still cannot get her toys into local chain stores in Washington, with its largely black population, because the stores are stocked by plan-o-gram. At the same time, her toys can be found in the Washington K mart and Toys R Us stores, because she broke into those stores on a national level.

Spending Money ‘Verbally’

“Blacks could change this if we spent our money more verbally,” she said. “We could walk into a store and say: ‘I want to buy a black superhero for my son,’ just like you say, ‘I want a cashmere sweater in two colors.’ If they say they don’t have any, then we should say: ‘Here’s my name and address, call me when it’s in.’ Or we should call the president of the company and say: ‘Why isn’t it here? I spend $60 a month on toys, and I would spend $120 a month if there were black toys.’

“When our black economic consciousness catches up with our social consciousness, we will be an awesome economic force.”

Despite it all, Olmec has slowly found its way, Eason said, although the struggle continues.

“It’s taken us three years to get accepted into the marketplace,” she said. “The tragedy is that a lot of people can’t hang on for three years.”