There’s truth behind why the rate of new Black entrepreneurs has fallen more than others

According to the Kauffman Indicators of Entrepreneurship data, the rate of new entrepreneurs in 2021 decreased slightly from the year before. Seeing as how the rates in 2020 were the highest we’d seen in 26 years, it’s not exactly surprising that the numbers started to slip back to pre-pandemic levels.

However, the decline was not proportional across all races and ethnicities.

In 2021, the Kauffman Indicators of Early-Stage Entrepreneurship national report shows the total rate of new entrepreneurs dropped only 0.02% overall (from 0.38% to 0.36%) from the pandemic-accelerated bump of 2020. The change in rates for new entrepreneurs who identify as Latino, white, and Asian, reflect that. However, for Black entrepreneurs, that bump – driven primarily out of necessity rather than opportunity – dropped significantly from 0.38% in 2020 to 0.28% in 2021.

When looking at the data, we must ask: Why did the rate of new Black entrepreneurs decrease more than others?

I can tackle this question with six powerful words: The truth caught up to us. 

The truth lies in our economy’s racial disparity.

As the founder and CEO of Entrepreneur Business Basics (EBB) and a Kauffman FastTrac® facilitator, I work closely with entrepreneurs and witness directly the barriers Black entrepreneurs face to starting and running a business.

The truth of the matter is many historically marginalized entrepreneurs are “solopreneurs” — they don’t employ other people. Many Black entrepreneurs were solopreneurs when the pandemic struck.

Now, factor that in with the reality that we’re notably underrepresented in industries, like tech, that were better situated to survive an economic crisis like the pandemic. We didn’t have the opportunity, the resources, or the networks to pivot.

The racial disparity seen in access to support, knowledge, opportunity, and capital meant that when the pandemic hit, many Black entrepreneurs’ businesses couldn’t – and didn’t – survive.

During my time as a FastTrac facilitator, I’ve been able to see on the ground how much providing things like knowledge – FastTrac takes entrepreneurs through every step of creating their business – tech assistance, and mentorship makes a difference between success and failure.

For example, one of my former students from the FastTrac program, India Wells Carter, founder of Fresh Factory KC, credits mentorship as a key factor in her success this past year. She was connected with a business coach and mentor and met with him every week to address high-priority needs. Having someone to guide and support her strengthened her confidence in her business and in her journey as an early-stage entrepreneur.

For India, having someone who has walked the walk and talked the talk is important. She, like so many entrepreneurs, found that it’s easy to feel isolated with your worries; having someone who can pat you on the back as well as push you in your discomfort is something every entrepreneur, no matter how long they’ve been at it, needs.

Within the past year, she’s been able to work with her mentor to strategize and really think about the gaps in her business plan. She was introduced to folks who introduced her to free resources, helping her to learn more about her Google Business profile and Google Analytics – practical, technical tools that help take her brand and business to the next level.

When you intentionally gather people together on a regular basis, you’re going to be able to connect them with somebody else in the community. The opportunity to tap into the Black entrepreneurial ecosystem and network is essential to reduce barriers to entrepreneurship.

Yet, even with mentorship and support, a persistent barrier that continues to deter Black entrepreneurs from starting and growing businesses is a lack of access to capital. While at least 83% of new businesses don’t access either venture capital or bank loans, Black-owned businesses start with three times less in terms of overall capital as compared to new white-owned businesses.

Traditionally, in order to access the kind of capital necessary to start or grow a business, you must have collateral. Historic and systemic marginalization means our rate of home ownership and generational wealth is limited. Without ownership it’s hard to build credit, and without credit, it’s hard to get a loan. It’s a revolving cycle of, “Why can’t I start or grow a business?”

I see it firsthand as FastTrac students finish the program and it’s time to go to a lender. We’re ready, with a great business plan and financial projections, but – for many Black entrepreneurs – we don’t have money. Black people have great ideas but without access to capital, it’s difficult to even get a business off the ground, let alone in a position to scale it effectively.

When this is our starting place, we’re already losing when something like a pandemic hits, and we’re miles behind everyone else. This truth will keep catching up to us until we can, together, change how capital flows to Black entrepreneurs. Black people are resilient, and we will keep finding ways to win regardless of the systems in which we must operate.

It’s why I do the work I do: to make sure Black entrepreneurs can focus on the business, not the struggle.