COLUMN ONE : Hard Road for Black Businesses : Entrepreneurship has made strides, but lack of access to capital and wider markets has been an obstacle. Growth of Latino and Asian-American firms is greater.
As a black businessman on Harlem’s West 125th Street, Malvin D. Locus often feels as if he were part of an endangered species.
Over the past decade, he has watched as a seemingly endless wave of immigrant entrepreneurs has inundated this historic commercial artery, leaving black-owned enterprises in a decidedly shrinking minority.
By the latest count, these foreign-born merchants--most of them Koreans--own almost 70 businesses along the street’s prime business zone. They range from grocery stores, fish markets and fast-food restaurants to apparel marts, electronics shops and nail salons. That is more than three times the number of comparable black-owned businesses.
“The void was there and they filled it,” said Locus, 55, whose Rainbow Music record shop is one of the few old-line black businesses left on the thoroughfare. “I’m a rarity, believe me, I’m a rarity.”
The scene on West 125th Street is one that is becoming commonplace in many traditionally black communities. “What you’re seeing in Harlem, you can see in any major city today,” said Earl Ofari Hutchinson, a Los Angeles-based publisher and author whose writings include “The Myth of Black Capitalism” and “The Mugging of Black America.”
The dramatic success of these foreign-born entrepreneurs is, no doubt, a testament to the vitality of American capitalism and to this country’s vaunted reputation as “the land of opportunity.” At the same time, however, it has raised many disturbing questions:
Are blacks losing their entrepreneurial spirit? If not, why do so many foreign-born entrepreneurs seem to be doing so well while blacks, even in many of their own neighborhoods, seem to be doing so poorly? Have blacks become too dependent on others to create economic opportunities for them?
Black enterprise has made remarkable strides in recent decades, to be sure. The number of black businesses has steadily risen, black business assets have grown and black entrepreneurs have made some encouraging breakthroughs into such areas as high technology, manufacturing and heavy construction.
But while blacks make up more than 12% of the nation’s population, they own only about 3% of its businesses--and those businesses account for just 1% of all sales, according to the latest Census Bureau figures.
What is more, although black businesses continue to grow in number, it is at a pace that is less than half that of either Latinos or Asian-Americans.
But if blacks are not a raging business success, it is not because they are less endowed with a risk-taking spirit or a willingness to make it on their own, black entrepreneurs and business leaders contend. Rather, countless personal experiences show and numerous studies confirm that black entrepreneurship continues to be hobbled by an array of interlocking problems, problems that persist in spite of the many economic opportunities that have opened up for blacks in recent decades.
These difficulties run the gamut from a relative lack of access to capital and wider markets to negative perceptions of black-owned firms to ineffective government programs.
“All you’re finding is that blacks are still one of the most disadvantaged groups in this country,” said David Swinton, dean of Jackson State University’s Business School. “It’s not a simple thing to own and promote a successful business. You have to have the capital, the resources, the knowledge and the opportunity.”
Given the comparative differences in wealth, income, education and the like that afflict black America, he added, “the rate of business ownership among blacks is actually higher than one might expect.”
By far the biggest obstacle to greater black entrepreneurship, blacks almost universally agree, is obtaining sufficient financing.
Locus, the Harlem record store owner, opened his business 31 years ago with $250 that he saved from his job at a hamburger restaurant in mid-town Manhattan. To start out again on that same scale, he says, he would need at least $25,000--and “you can’t save that kind of money working at McDonald’s.”
Commercial banks typically are tough sells for black entrepreneurs seeking help, blacks say.
Harold Martin, for example, was forced to use $125,000 from the sales of his family’s race-car design company to launch his athletic footwear manufacturing business in the Detroit suburb of Novi in 1989. He went to about 75 different bankers seeking a start-up loan, he said, but not one of them was willing to take the risk. The U.S. Small Business Administration, the so-called lender of last resort, also rejected his request.
Some of the bankers who had expressed interest in his concept over the phone lost their enthusiasm as soon as they met him in person, he said. Others told him that he lacked sufficient collateral or that times were bad for starting up new enterprises. Many said they were doubtful that he could be successful against such giants as Nike and Reebok.
“A lot of people just don’t believe a black man belongs in this field,” said Martin, 34.
Even now, with his firm MVP Products having chalked up $400,000 in sales last year and expecting to do almost double that amount this year, Martin says that it is tough getting a loan. “The more I’ve learned about loan officers, the more I realize that they have to like you as an individual to bring your business plan through,” he said. “That’s where a lot of individuals, especially blacks, can be really disadvantaged.”
Lillian Loyce’s experiences are similar. When she moved to San Diego from Wisconsin a few years ago, she could not get a bank to advance her start-up capital for a restaurant in a new shopping mall, even though she had a solid business background, real estate that could serve as collateral and savings of $40,000, she said.
Loyce, 42, said she eventually gave up trying. She is now the employment and training director at the San Diego Urban League.
Bankers contend that they treat all applicants the same, regardless of race, and that their chief criterion is whether a business plan is properly structured and economically viable. Too often, unsuccessful loan applicants immediately assume that the problem is with the bank and not with their ideas, the bankers say.
“Banks are in the business of making sound loans,” said Tara Little, spokeswoman for the Washington-based American Bankers Assn. “When a person comes in to get a loan, the bank must consider whether the project or business is going to be a quality asset.”
But a study published in the spring, 1988, issue of the Review of Black Political Economy found that white, Latino and Asian-American owners of established businesses enjoyed a 90% success rate in obtaining loans from commercial banks, while blacks with identical business credentials were successful only 66% of the time.
Low-income black neighborhoods are routinely written off by banks as high-risk areas. Just ask Arlene and Jack Lester, who decided to start a dental practice on Atlanta’s East Side after graduating from Meharry Medical College five years ago.
Three different bankers looked at their business plan, she said, but not one was willing to grant them a loan, although they each praised the proposal and commended the couple for their desire to practice in a medically underserved neighborhood.
One of the bankers, she recalled, took less than 15 minutes to deliver his verdict and never even closed his office door for privacy after the Lesters had entered. “I guess it was his way of saying, ‘Well, I’m going to listen, but not too hard,’ ” she said.
They did manage to get a $27,000 loan through a city agency that fosters economic development in deteriorated neighborhoods. That was enough to help them renovate a small office building, lease equipment and launch their careers.
Since then, they have served more than 4,000 patients and now are only one payment away from retiring their loan, she added proudly.
“So many of our white colleagues, when they come out of school and go into practice, they get the money to do it easily,” she said. “But you could survey black dental professionals and six out of 10 will tell you they couldn’t borrow money the conventional way.”
Such difficulties often contrast sharply with the experiences of many other minority entrepreneurs, especially Korean-American business owners, to whom blacks so frequently are compared.
Ivan Light, a sociologist at UCLA and author of “Immigrant Entrepreneurs,” said that more than half of the Korean immigrant entrepreneurs arrive with assets ranging anywhere from about $60,000 to $250,000.
Their willingness to set up shop in black ghetto neighborhoods--where very few upwardly mobile blacks care to invest--is a measure of their hunger to succeed, he added.
What is more, unlike blacks, Korean entrepreneurs also benefit immensely from informal networks of financial assistance, such as the so-called rotating credit associations within their communities that are frequently used to supply money for business investment and credit, he said.
Similar informal financial mechanisms also are common among other ethnic and racial groups, including black West Indians. Many economists and sociologists cite the absence of such mechanisms in the native-born black American community as a key factor in their comparatively lower rates of business ownership.
According to William O’Hare, director of population and policy research at the University of Louisville in Kentucky, only about 1.5% of blacks own businesses, compared with 2% of Latinos and 6% of Asian-Americans.
But even for blacks with sufficient capital, there are other hurdles to clear. One of the most common is gaining access to larger and more lucrative markets.
Gavin M. Chen, senior program manager for capital development programs at the U.S. Minority Business Development Agency, said studies show that the overwhelming number of black-owned firms are confined to black neighborhoods and that 80% to 90% of all sales by black businesses are to black patrons.
Negative perceptions of black-owned businesses can work against those firms if they try to expand outside black neighborhoods.
Frederick L. Blackmon knows the problem firsthand. He left his sales and marketing post with Trans World Airlines and opened Classic Travel Consultants in mid-town Manhattan in 1980. In one of his earliest efforts to solicit corporate trade, he sent out promotional literature that featured pictures of travelers and sales agents who were black. But, he says, the response was next to zero. Only when he redesigned the literature to spotlight white faces did invitations to bid for business start coming in.
Similarly, to bag the really big corporate accounts, he discovered his best bet was to hire white salespeople to make the contacts and negotiate the deals.
Today his business is ringing up $12 million a year in sales. But Blackmon contends that if he were white, his business would be much larger. A white colleague who left TWA when he did to start a similar business is “five times as big as we are,” he said.
Perhaps not surprisingly, black consumers themselves are not immune from racist practices. Daniel Guy, a Youngstown, Ohio, psychologist, says that several of his white partner’s black clients have told her that they prefer a white counselor because they believe they will get better care.
“You’ll always find black folks who think the white man’s water is wetter and his ice is colder,” Guy said.
According to O’Hare of the University of Louisville, the average sales per firm for blacks was $46,592 in 1987, the most recent year for which figures are available. That compares with $58,554 for Latinos and $93,221 for Asian-Americans.
Government programs to boost minority entrepreneurship have been a mixed blessing, many blacks say. While the rates of black business ownership might be even more distressing without them, the programs also have contributed to some of the most notable failures in the black business community.
Rick Singletary, 40, a Volvo salesman in Columbus, Ohio, says he is a classic example.
Ten years ago, when he was a manager with a large white grocery chain, federal and local economic development officials came to him with the idea of operating a 40,000-square-foot “super store” that they wanted to see built as a cornerstone for economic redevelopment efforts in Columbus’ traditional black business district.
It was an offer he couldn’t refuse. For $50,000 of his own money, he said, they would provide whatever was needed in the way of government grants and loan guarantees to get the enterprise rolling.
Three years later, Singletary’s Plaza Mart opened, a dazzling $4-million project that employed more than 130 people and boasted a wide variety of specialty departments, including a bakery, a fresh seafood market, a delicatessen, a cosmetics salon and a nutrition center.
But political interference had led to cost overruns that found Singletary down to his last $10,000 in working capital by that time, with no more private sources to tap and government officials saying they had given all they were going to give, he said.
That meant the plaza had to be self-sustaining even in its embryonic period, a goal that proved too formidable. Sales were disappointing, inventories dwindled, suppliers shut off his credit and patronage ratcheted down again. The Columbus City Council approved a $560,000 bailout plan, he said, but it was vetoed by the mayor.
Fifteen months after opening, he was forced to declare bankruptcy.
“I feel like I was set up to fail,” he said.
Clarence L. Townes Jr., a Richmond, Va., economic development specialist and deputy director of Richmond Renaissance, says the American urban landscape is littered with the wrecks of similar failed showcase projects, including his own tour bus company. “You get just enough to hang yourself,” he said. And unfortunately, he added, the failures add to the unfair stereotype of blacks as incompetent businesspeople and bad financial risks.
In recent years, black business leaders say, black enterprise also has been hurt by the failure of federal agencies to live up to minority procurement plans, retrenchment in government set-aside programs and cumbersome and costly minority business certification requirements.
The question of what it will take to lift black enterprise out of its doldrums has ignited an intense national debate. Black neoconservative thinkers and activists--a small but increasingly vocal minority--contend that what is needed is a healthy dose of old-fashioned self-help and self-reliance.
They say blacks must wean themselves from what they describe as an overreliance on government programs and do more to support their own business sector.
“If the black middle class adopts quotas and set-asides as their means of surviving, then the best trained blacks we have will not compete with whites and they will not transfer their social and human capital to poor blacks,” said Tony Brown, a popular black public television talk show host who is a leading exponent of black economic self-help.
But other blacks argue that blacks, as a minority with a median family income that is 56% that of whites and also well below that of either Latinos or Asian-Americans, are extremely limited in their ability to raise resources within their own community.
The combined total assets of all 36 of the nation’s black-owned banks, for example, are only $2.1 billion--less than the $2.4 billion in combined total assets of the two biggest Latino-owned banks in Miami, Republican National and Capital.
In its recent interim report, the U.S. Commission on Minority Business Development urged adoption of a national strategy for providing access to capital and credit and top-level support by government to improve minority entrepreneurship.
“It is critical for the Administration and Congress to continue to emphasize special growth incentives for small and historically underutilized businesses,” said Joshua I. Smith, the commission head and chairman of the Maryland-based Maxima Corp., one of the nation’s largest black-owned businesses.
Researchers Edith Stanley in Atlanta, Tracy Shryer in Chicago, Audrey Britton in New York and Anna Virtue in Miami contributed to this story.