Changing Environment for Minority-owned Businesses

Two decades ago, when minority firms started up or expanded, they tended to be heavily dependent upon opportunities created by local, state and federal minority business enterprise programs (MBE programs). Today, they must adapt to the rapidly changing globally competitive market.

MBE programs were critical in providing minority entrepreneurs market entry points and access to business opportunities in diverse and fast-growing industries.

 In fact, one can date the modern era of minority business development to the establishment of MBE programs. The opportunities they created provide pathways to minority entrepreneurs out of the “mom and pop” enterprises.

Those small scale retail and personal service establishments characterized their operations during the era of Jim Crow segregation and up to the civil rights movement.

MBE programs created market entry for minorities in industries that were previously not assessable because of discriminatory barriers and the good old boys network.

But while those programs greatly facilitated the startup and expansion stages of minority business development, program participants often hit a brick wall at about $3 million revenue for service firms and $30 million for construction and manufacturing firms. It has become very difficult for them to grow further.

Ironically, certain aspects of MBE programs made it difficult more for minority businesses to break through the brick wall and achieve real scale and capacity. Those policy imperfections, such as personal net worth ceilings, were further complicated by business strategies among minority entrepreneurs that lack diversity.

Too often the business model centered exclusively on government preferential procurement programs or supplier diversity programs. However, today such narrow strategies are problematic.

Global competitive pressures has made building business capacity a greater imperative today than ever before. International competition and weak product demand have forced corporations to reduce the number of firms in their supply-chain and demand greater capacity and product diversity of each supplier.

Likewise, firms that rely on government contracting are finding that public agencies are dealing with the budget crisis by bundling contracts and issuing design and build and construction management at risk solicitations. All of which require greater capacity.

To address these new challenges, companies must develop the capabilities to become high performing enterprises.

High performing minority-owned companies have several attributes in common that distinguish them from low performing companies. They develop and implement strategic growth plans, they set high-growth targets, they compete by providing unique products and services (not by cutting prices), and they have put in place policies, practices and procedures that make them professionally managed enterprises.

Contrary to popular myths, high performing companies are not successful because they have greater access to capital or take bigger risks. In fact, they tend to be moderate risk takers who focus constantly on product quality and delivery.

Note: The 17 page report entitled, Economic Outlook for Minorities, Women and Non-minority Businesses in 2012 is currently available. Copies are free of charge and available for download.