Diversity, Inc - minority-owned businesses grow seven percent from 1990 to 2000 - Brief Article - Statistical Data Included

American Demographics, Oct 1, 2001

For an increasing number of the nation's 70 million minorities today, getting up to go to work in the morning means heading off to their own businesses.

Today, more than 4 out of every 100 minority Americans in the U.S. own a business, says Richard N. Stevens, chief of market access at the Minority Business Development Administration (MBDA), a division of the Department of Commerce.

Stevens bases this statistic on the Census Bureau's recently released Survey of Minority Owned Business Enterprises (SMOBE). The report, released in July, is based on the 1997 Economic Census and represents the latest figures available. As the minority population shot up during the 1990s, entrepreneurial activity escalated at an even more dizzying rate, the report reveals. During the decade, the number of minority owned firms grew four times faster than all U.S. firms, to more than 3 million companies. While U.S. firms grew by 7 percent during that time period, the number of firms owned by African Americans increased by 26 percent, Hispanic and Asian firms increased by 30 percent and Native American firms soared by a staggering 84 percent. Although the number of firms owned by minorities is still small compared with those owned by non-Hispanic whites, this growth rate means that minority entrepreneurs are closing ground fast.

What has accounted for this remarkable growth? It wasn't just the late, great economy, says Gregory Fairchild, business professor at the Darden Graduate School of Business Administration at the University of Virginia, in Charlottesville, Va. While the strong economy helped entrepreneurs of every race, a potent brew of other factors turbo-boosted minority business growth. Among the factors: a rise in immigrant entrepreneurs; unprecedented access to capital by minorities and improved levels of educational attainment.

So as the '90s drew to a close, minority owned businesses accounted for $591 billion in gross receipts. Athough data collection methods have changed over the past decade, the SMOBE estimates that minority receipts have increased 60 percent from the start of the decade. (Minority owned businesses are defined as companies where minorities own 51 percent or more of the enterprise.) This growth has created a fast-growing and increasingly lucrative market for companies offering a wide array of products and services. From paper clips and ink toner to accounting and legal services, minority entrepreneurs represent a lucrative market. And yet, as a consumer group, minority magnates are just beginning to appear on marketing radar screens, says Victor F. Ornelas, president and CEO of Ornelas and Associates, an advertising firm in Dallas. "Marketers assume that business owners are all very well educated white folks," he says.

That assumption is increasingly outmoded, as SMOBE data reveals. Fifteen percent of the 20.8 million "nonfarm" businesses are minority owned. The largest segment is Hispanics, who head 40 percent of all minority firms. Asians account for the next largest group of minority entrepreneurs, but Asian outfits are also bringing in more cash than other minority businesses. While Asian firms make up 30 percent of all minority companies, they account for 52 percent of all receipts from minority businesses.

With more money than ever to spend, minority entrepreneurs are also easy for businesses to find. Minority owned firms are concentrated geographically - even more so than the minority population as a whole, says the MBDA's Stevens. Seventy-two percent of minority owned firms can be found in 10 states, with four states (California, Texas, New York and Florida) accounting for more than half of the companies.

These entrepreneurs may be condensed geographically, but they are setting up shop in a variety of industries. SMOBE data shows that minority business owners are moving out of less lucrative fields that have been their province in the past. Forty-four percent of minority entrepreneurs are in the service industry, with nearly half providing business or personal services. Just 15 percent of minority business owners are in retail trade. While many minority entrepreneurs preside over microbusinesses with tiny revenues, a 60 percent majority have annual receipts of more than $10,000, SMOBE found. Three percent have annual receipts over $1 million, compared with 5 percent of total U.S. firms.

How can marketers break into these ever-deepening coffers? Alonzo Byrd, vice president at Detroit-based marketing communications firm Fleishman Hillard Inc., advises establishing connections within the minority business organizations by hiring minority employees and using minority suppliers. Ad agency head Ornelas agrees. For this market segment, "purchasing decisions are not just based on price and quality of product," he says. Minority entrepreneurs also evaluate how active a company is in their community before handing over their business.

Aware of this mindset, several major marketers have built goodwill to establish their brand. For instance, Chicago-based Bank One Corporation has formed an alliance with the U.S. Hispanic Chamber of Commerce, offering a co-branded credit card, among other services. It's clear that increasing diversity hasn't changed one truth about the United States: the business of the American people is still business.