2009 Entrepreneurship Boot Camp Agenda

Development of the Underdevelopment of Minority- and Women-owned Businesses; Overcoming of Constraining Barriers.

A “barriers” model of business underdevelopment will be used to trace development of the traditional black business community in the mid-20th century. Sometimes referred to as the “3 M” model, the barriers model focuses upon management, money, and markets. Successful ventures are most commonly built upon a base of appropriate management skills and experience (human capital), adequate capitalization (financial capital), and access to viable markets in which to sell their products. Putting together these three components of business viability has typically been more difficult for minority-and woman-owned businesses due to constraints commonly greater than those facing white men. They have simply faced higher barriers.

Analysis of how these barriers are overcome will rely, as well, on the 3M model: specifically, the development of emerging lines of black business is tracked over the past three decades.

Entrepreneurs are often not free to borrow as much as they would like to enter business or expand existing businesses, and therefore must at least partly self-finance. One’s own assets thus play a crucial role in determining who becomes an entrepreneur, the size and industry of the business activity, and the survival of the business after it experiences negative cash flows. Thus the study of wealth is important if we consider research on entrepreneurship. Among the questions to be investigated are:

• What is wealth?
• How is wealth distributed?
• What is the composition of wealth, how does it differ among families, and what is the impact of wealth composition on business entry?
• How does wealth empirically affect entry into entrepreneurship?
• How does entrepreneurship affect wealth?
• How do the answers to b – e differ by race and gender, and what are the implications?

Given these issues, I will approach research on wealth in the following framework:

• Framing the questions that should be asked
• Data needs
• Data availability on wealth and entrepreneurship
• Current research on this topic
• Journals that potentially publish on this topic
• My research
• Conclusions

Minority- and Woman-Owned Businesses: An Overview

Seldom do entrepreneurs possess enough internal capital (or wealth) to fund all their growth opportunities and positive NPV projects. Under such circumstances the ability to access external sources of capital, or credit markets, to supplement their internal sources of funds becomes crucial. Because of asymmetric information and agency problems, credit markets may not equilibrate in the same fashion as most product markets. And, as Stiglitz and Weiss point out in their seminal paper, this may lead to credit rationing. Thus, we begin this session with an overview of the credit rationing equilibrium model of Stiglitz and Weiss.

Next, we investigate whether credit rationing may lead to a more severe credit access (or bank loan availability) problem for minority-owned firms relative to majority-owned firms. This is done by considering the market-based responses to the agency problems associated with credit rationing. Several market-based solutions will be examined, such as (1) collateral, (2) credit scoring, and (3) relationship lending.

Lastly, we will examine recently published, high quality empirical studies to become familiar with the type of research questions that are currently being addressed in this area. Two of the three studies to be examined use the Survey of Small Business Finances (SSBF) databases. Any researcher interested in issues related to small business finance in general, or women- and minority-owned small business finance in particular, should become familiar with the SSBF datasets.

Racial inequality in education, income, and wealth are well known; less understood are the large and persistent racial disparities in business ownership and performance in the United States. The lack of attention is surprising, given the magnitude of these racial differences and the importance of business ownership as a way to make a living for many Americans. Roughly 1 in 10 workers owns a business, but these 13 million business owners hold an amazing 37.4 percent of total U.S. wealth. Yet only 5.1 percent of African-American workers and 7.5 percent of Latino workers own businesses. Although racial disparities in business ownership are troubling, perhaps a more important concern is that businesses owned by disadvantaged minorities tend to be smaller and less successful than non-minority-owned businesses. For most outcomes, these disparities are large. In contrast to these patterns, Asian-American owned firms have average outcomes that in most cases are better than those of white-owned firms. We investigate the reasons behind these large racial differences in business performance.

Along the gender dimension, there are also stark differences in business ownership and performance. Although female business ownership rates have risen in recent decades, the female business ownership rate is 6.6 percent, which is only 60 percent of the male rate. Using confidential microdata from the U.S. Census Bureau and the new Kauffman Firm Survey, we investigate the performance of female-owned businesses, making comparisons to male-owned businesses. We then explore the role that human capital, especially through prior work experience, and financial capital play in contributing to why female-owned businesses have lower survival rates, profits, employment and sales.

The lingering barriers of discrimination in private sector markets make public-sector procurement opportunities very attractive to minority entrepreneurs. Research indicates that the percentage of minority entrepreneurs that engage in government contracting greatly exceeds their representation in the overall business sector. Government procurement provided the first and most significant entrée into business markets outside of traditional industries. As minority businesses took advantage of these new market opportunities, their industry diversification and business capacity were greatly increased. Additionally, the experience and networks the accumulated in public-sector procurement were invaluable to their ability to create greater scale in private sector markets. In short, targeting public-sector procurement contracts to minority-owned businesses has been a particularly important policy tool for building capacity in such firms. Yet, preferential procurement continues to be an enormously controversial policy tool. There are those who argue that it creates reverse discrimination, inefficiencies and political manipulation.

An important application of case law has emerged in relationship to preferential procurement programs. Starting with the US Supreme Court decision in the case of the City of Richmond v. Croson (1989) and extending through the US Supreme Court decision in Adarand, (as well as a number of important legal decisions in various circuit courts) the constitutionality of preferential procurement programs has been tested and in most cases legal decisions have invalidated their use. Furthermore, the implications of those legal decisions have been extended to the application of affirmative action in education and employment. Researchers have addressed these issues (that have had a significant effect on minority business development) by merging the theory of business development with that of the microeconomics of discrimination as applied to the legal principle of "strict scrutiny".

This section will focus on the importance of public-sector procurement to minority business development, the business development implications of case law that affects the application of affirmative action in the arena of preferential government procurement programs, the practical and theoretical research issues that that require a merger of business research with case law, and the implications of research for public policy. Critical concepts to be discussed include the following: minority businesses in public-sector procurement; the role of public-sector procurement on minority business growth, viability and diversification; empirical measures of minority business involvement in government procurement including measures of availability, utilization, disparity, and capacity; legal concept of strict scrutiny and narrowly tailoring and application to government procurement; implications of the personal net worth ceilings in government procurement programs for minority business capacity building; legal decisions in the case of Croson, Adarand, Rothe and other important US Circuit Court opinions; and the future challenges for minority-owned businesses in preferential procurement programs.

After more than four decades of research on entrepreneurship, much of it spent studying minority entrepreneurship, I have five pieces of advice to offer beginning scholars. First, I will discuss the importance of learning the organizational landscape. By this I mean having a strong intuitive sense of the basic facts about entrepreneurship. Second, I will argue that you should put your work into cross national and historical perspective. Third, I will suggest that you focus on questions that are theoretically and substantively important to your home discipline. Maintaining ties to the core questions in your discipline grounds your work in ways that journal reviewers will appreciate. Fourth, I strongly urge you to avoid methodological monolinguism. By this I mean that you should develop an expertise in more than one kind of research design and more than one analytic method. Fifth, I will argue that you should avoid cottage-industry style research and instead focus on building collaborative relationships with other scholars, leading to team-based projects. If you follow this advice, I think you'll have a long and productive career.

This session provides an overview of the history and evolution of research about women entrepreneurs. We consider the phenomenon of women’s entrepreneurship and the apparent disconnect between the size of the phenomenon and the comparatively small number of articles in academic journals. We explore the evolution of published scholarly work on female entrepreneurship since 1976, which shows research on women emerged with a focus on gender as a variable, but more recent incorporates feminist theory and gender as a lens. We summarize trends over the past four decades and in particular, the following topics:

• How has research on women’s entrepreneurship evolved?
• What have we learned?
• What are the challenges and opportunities for future research?

Research about women’s entrepreneurship is needed to inform both academic and practitioners and their approaches to research and education. Worldwide policy makers are increasingly interested in learning more about how to encourage and promote women’s entrepreneurship as a means of advancing wealth creation, innovation, and general economic development. The demand for the knowledge is readily acknowledged but the pace of the research still needs to be advanced.

My presentation will pertain to two interrelated components of ethnic entrepreneurship, social capital and ethnic enclaves. In terms of social capital, the literature employs such diverse definitions of social capital that the concept has been diluted. The different operationalizations of social capital within the entrepreneurship literature will be distinguished, noting the difficulty of testing the efficacy of social capital given the data limitations. I will address how social capital impacts entrance into and success in self-employment and entrepreneurship. Although social capital is an important component of self-employment and entrepreneurship, there is much to contribute to the literature as a result of the fuzziness of the term and the limitations of the data used to operationalize social capital.

Since social capital has been said to benefit ethnic entrepreneurs and coethnic workers employed within ethnic enclaves, a discussion of ethnic enclaves is necessary. Ethnic enclaves have long been viewed as playing a central role in immigrant adaptation. However, ethnic enclaves have been defined in quite distinct ways, so it is critical that ethnic enclaves are clearly defined. A debate exists within the ethnic enclave literature about the value of ethnic enclaves. This debate will be outlined, detailing the evidence indicating both the positive and the negative aspects of ethnic enclaves with regards to immigrant adaptation. I will outline the mechanisms operating within ethnic enclaves which have been associated with higher earnings for small business owners. This positive version of social capital will be questioned as I will detail the literature on “the negative side of social capital.” Finally, I will outline a research agenda for researchers interested in self-employment and entrepreneurship in ethnic enclaves.

The U.S. Bureau has established a network of Research Data Centers at universities around the country. These RDCs give researchers access to uniquely valuable datasets for studying female and minority entrepreneurship. These datasets include large surveys of firms and firm owners linked to administrative data on firm sales, location, industry, and employment as well as surveys of households with data on self-employment. Because of the confidential nature of these data, they can only be accessed in the secure computing facilities provided by the RDCs. I will give an overview of the research that has been done in the past on female and minority entrepreneurship using Census data, a description of the data resources currently available, and guidance in navigating the process for obtaining access to these data.

Panel Discussion: Analysis of Public-Sector Policies Designed to Assist Minority- and Women-owned Businesses