There has been a lot of talk about diversity in entrepreneurship. I am all for it.
I am also reminded of Thomas Sowell’s brilliant observation. “The next time some academics tell you how important ‘diversity’ is, ask how many Republicans there are in their sociology department.” This could be rewritten as, “The next time some venture capitalist tells you how important ‘diversity’ is, ask how many Republicans there are in their venture capital firm.”
Tongue in cheek aside, this is a problem that we ought to actively tackle. We shouldn’t tackle it for any reason other than I believe that entrepreneurs are good for society and the things they create make it better for everyone. Societies that have a lot of freedom tend to have a lot of entrepreneurs.
However, not just for the sake of “diversity” based on skin color. I am all for it for different reasons. I read this article from the Kaufmann Foundation about inclusiveness. I urge you to click over and read the article because it defines a lot of key barriers that are stopping people from becoming entrepreneurs. They don’t fit with classic “social justice warrior” definitions, but they exist just the same.
I think first we have to define “entrepreneurship”.
There are different kinds of entrepreneurship. If you read TechCrunch, you read about scalable startup businesses. These are the businesses that get funded by venture capitalists and hopefully bought by another business or IPO. Scalable entrepreneurs are mostly White, Asian, or Indian. There are not a lot of Black or Hispanic entrepreneurs doing scalable startups.
The other kind of entrepreneurship is a “cash flow” or lifestyle business. This is an agency, a small business, or a consulting firm. These are not businesses that a venture capitalist would fund, but they are still good businesses. This sector has more diversity, but it’s not what it could be.
There is one statistic that continues to permeate entrepreneurship no matter what. The rate of people from any race starting a business is going down. That’s alarming because entrepreneurship is where a lot of outsize wealth is created. The article I linked to states:
While about one in ten American workers, or 13 million people, are self-employed, they hold 37 percent of all wealth in the United States. The underrepresentation of people of color in this wealthy group has implications for racial income inequality and wealth disparity.
America needs more entrepreneurs. They take risk. They create the outsize gains that propel the bulk of society forward.
The problems aren’t going to be solved overnight. They also aren’t going to be solved by a government program. They can be solved by the private market-and there are early signs that they are starting to be solved, but admittedly progress is slow.
Here are two problems I agree with that the article identifies.
- Access to capital
- No family history of entrepreneurship
These are huge. Access to capital encompasses a lot of things. 67% of entrepreneurs that start a business use their own savings, or some family money to get going. When you don’t have that, it’s hard to get going! No connections to venture money is another problem. When you don’t have the network, it’s hard to get access. 25% of all entrepreneurs worked in a family business prior to becoming an entrepreneur. When you didn’t grow up in a family business, it’s hard to have a role model that will help mentor you on the finer points of servicing customers and operating a business.
What can we change immediately that would start to help solve these problems?
Access to capital is a tough one. Public policy has limited a lot of access to capital. Dodd-Frank killed Community Banking. It also changed the risk analysis a bank has to do in order to provide a loan. Suppose you were a rehabber and wanted to buy some run down buildings and rehab them-then rent them out. There isn’t an institution around that would take the risk and lend you the money. You’d be forced to try and find private capital from a person. Finding a needle in a haystack might be easier.
I haven’t thought deeply about the solutions to access to capital. I really don’t have a good answer. In Chicago, our entire startup ecosystem is starved for capital and even with all the success it’s hard to get it. I don’t think this gets solved super quickly on a macro scale. But, solving it on a micro-scale would be a start. What’s the saying? “Anything to help, nothing to hinder.”
The second problem is easier to solve.
Public policy limits entrepreneurship. In my home town of Chicago, and my home state of Illinois, there are literally thousands of regulations on the books that limit competition and erect barriers to entry. They were put there by people and businesses that had access to a politicians ear. Taking them off the books would take down a significant hurdle. But, politicians are in no hurry to do that.
The other night I saw a program on our local television network. It was about how the Black community in Chicago worked around the racism it encountered during the great migration north. Blacks were clustered in a small community on the South side. Instead of relying on Whites who wouldn’t help them, they started their own entrepreneurial ecosystem. Kids grew up seeing adults operate businesses.
Changing public policy with an eye towards incentivizing all kinds of business would go a long way in helping solve this problem.
It also brings up the notion of minority focused accelerators. I don’t have anything against them at all. Clustering everyone who is the same in one place reminds me a bit of the small community on the South side. There is some value in that because of support networks. However, we need to open up access to all networks. If the minority focused accelerator crosses the chasm and opens up that network it’s doing a great job. If it only opens up to another closed network then what?
There is another point that I’d like to bring up that I haven’t seen any article or person bring up.
It’s about being free to have a choice. People should be free to choose to pursue a career that they want to pursue. Not everyone wants to be an entrepreneur. It’s risky as hell. Sure, there are benefits. But, let’s not force people to make that choice because society is putting peer pressure on them. No judgement if someone chooses a different path. When you are the first person in your family to have a chance at a brass ring, it should be very difficult for society to tell them not to take it. This goes for anyone, not just minorities.
The other thing to remember is that you can be a part of entrepreneurship without being the founder. You can be a joiner. Joiners can make a lot of money and do great things in startups too. If you are fresh out of ideas, but want to be a part of something just find meetups and go. Network until something comes across your plate that gets your juices flowing-and where you think you can add value. Then, make the leap.
There are no parachutes or safety nets. It’s scary.
That brings up this point that I don’t see anyone talking about. Suppose I was raised in a family that was middle class or below. Somehow, through school, work or on my own, I learned a skill that I could turn into a nice paying job. I became upper middle class, or even part of the 1%. I could work that mainstream job and earn a living. It gave me and my family a lot of security that I didn’t have growing up. Why should I abandon it and take the risk of becoming an entrepreneur?
It might be my children that take that risk.
When it comes to diversity in entrepreneurship, I think we need to play the long game. Everyone should have choice. Changing public policy can be done today and it will pay big dividends in the future. We do need to think about creating avenues to networks and figuring out ways to create access to capital. But, every idea isn’t fundable. Certainly every business that gets created won’t succeed.
Right now, I see a lot of the elite class and Ivy League class going to work in non-government policy organizations. They go to think tanks. Or, they go work in politics. In many cases, these are the people that can take the risk to enter or start entrepreneurial enterprises. Their families have a safety net for them. They don’t make that choice. Why aren’t they?
For me, I think America would be a much better place with a lot of entrepreneurs. Entrepreneurs get shit done. They also tend not to discriminate. All they want is to be around other people that can get shit done.