Going for it: African-American entrepreneurs seize opportunities
After 17 years of fits and starts, LeNardo Nelson Sr. of Chicago is ready to take his triple-sided windshield wiper to market.
A commercial lender at Harris Bank by day, Nelson has long dreamed of being an inventor like his father, who devised a sled with convertible wheels in the mid-1960s. But getting his wipers off the ground has taken far longer than Nelson ever imagined.
“I know I need finance and a mentor I can trust to move the business forward,” said Nelson, who sold 20,000 of the patented wipers through infomercials in 2001, before the economy turned after Sept. 11, squashing further TV sales. The $20 TriTrak wipers have a three-side bladed that can be switched to extend the product’s life three-fold, saving consumers time and money, Nelson said. “We call it the wiper with the built-in spare,” he said.
Nelson is one of more than 64,000 African-American business owners in the greater Chicago area, yet many continue to face special barriers to success, despite robust interest in entrepreneurship, experts said. “The desire and interest in owning a business is huge among African Americans,” said Ivonne Cunarro, chief knowledge officer at the Minority Business Development Agency at the U.S. Department of Commerce. They represent an opportunity for economic development, she said, if they can find the financing to grow their businesses and employ more workers.
In the Chicago area, the number of African-American businesses grew by 67 percent from 1997 to 2002, the latest year for which Census data is available, while revenue growth lagged at 17 percent. “There is a glut of new entrepreneurs out there all vying for the same opportunities and what little financing is available,” said Dave Thomas, executive director of the Chicago Minority Business Opportunity Center.
Research suggests blacks are 50 percent more likely to try to start a business than whites, yet face an uphill battle in finding the capital and connections to make their companies successful, said Daryl Williams, director of research and policy for minority entrepreneurship at the Kauffman Foundation in Kansas City, Mo.
As a result, African-American businesses tend to stay small. Nationwide, the average African-American business with employees had eight workers. And throughout the U.S., among 99,000 firms employing 100 or more workers in 2002, just 970 were black-owned businesses.
With fewer employees, revenues are constrained and survival rates are low. The average annual gross receipts of African-American firms totaled $74,000 in 2002, compared to $296,000 for Asian firms and $438,000 for non-minority firms, the Minority Business Development Agency reported.
With less of a financial cushion, African-American firms have the lowest survival rate of any race or ethnic group. Just 61 percent of businesses survive four years, compared with 73 percent for non-minority firms, according to a study by the U.S. Small Business Administration based on Census data.
While credit has been tight for most businesses since the recession began, it has been a perennial problem for African-American owners, who often start with less personal wealth. As a result, they are less qualified to obtain capital from traditional lenders, and less than 6 percent of black business owners obtain bank loans compared to 12 percent of non-minority firms, forcing them to use credit cards and more expensive financing, or rely on their own savings, Cunarro said.
Capital from angel investors also can be hard to find or too expensive to be attractive, Nelson said. “Everyone who sees the product goes crazy for it, but they want to take the business from me,” he said. One investor offered Nelson $100,000 for 95 percent of the company’s equity. “I’ve already put $200,000 and sweat equity in this business,” he said, so he turned down the offer.
With many financing avenues cut off, black-owned firms often incur a higher cost of capital than non-minority firms, experts said. Chicago business owner Donna Smith Bellinger and her co-founder used credit card and mortgage debt to launch PCG Technology Services in 2004.
The IT consulting firm now has about $200,000 to $250,000 in annual revenue and hopes to double that this year, she said. But the company has struggled to find the strategic relationships that will lead to new contracts. “This being Chicago, everything is relationship-based,” Smith Bellinger said.
Smith Bellinger belongs to several organizations designed to introduce small businesses to corporate buyers. “You just have to keep making yourself known and visible” by attending networking events, with hopes that eventually the time and energy will pay off, she said. “But it’s expensive to do that type of business development. It’s easy to never really grow because you’re trying to keep up with all of these relationships.”
While Smith Bellinger has a business partner, many African-American businesses get started without one. Just one in four black-owned small businesses have multiple owners, compared to one-third of non-minority businesses, MBDA reports. Research suggests businesses with multiple owners are more likely to survive and grow.
From his experience as a lending officer, Nelson knows that many successful business owners have partners or mentors, but finding them for his own business has been tough. So far, he has tapped attorney-agent Steve Mandell as an investor adviser and Bob Oshefsky, president of Global Supply Chain Services, to vet manufacturers, develop the process technology and get the product out.
Oshefsky said he was attracted to Nelson Technologies because he saw great promise in the product. “I feel disappointed that I didn’t run into him several years ago,” he said. “I would have the product in the market now.”