Obstacles To Starting A Minority Business Essay

, Research Paper

Running Head: Obstacles to Starting a Minority Business

Adult Development & Life Assessment Module # 1

Obstacles to Starting a Minority Business


Obstacles to Starting a Minority Business

The minority population will grow to nearly 50% over the next 50 years. They now represent 26% of the total United States population. By the year 2050, the population of the United States will have increased by 120 million with 90% of the growth occurring in the minority communities (Edwards, 1997). In the following paragraphs, I will discuss the obstacles minorities face in starting their own businesses. I will also apply the concepts used in Kolb?s model of analytical learning. Before I can discuss the obstacles, I must first give some background information on minority owned businesses.

Minority-owned businesses have grown explosively over the past 10 years. In fact, they are growing at double the rate of all firms in the United States economy, both in numbers of new firms and total sales. Recent estimates place the number of minority-owned firms at nearly 2 million with total sales of $205 billion. Nearly 25,000 firms have sales of more than $1 million. Skill intensive areas such as finance, insurance, real estate, and business services are the fastest growing minority enterprises (Edwards, 1997).

These communities are gaining new importance as both producers and consumers of products and services. In addition, many minority communities are located in key populated areas of the country, such as New York, Los Angeles, and Houston. This has resulted in concentrated areas with changing demographics and a rapidly growing minority business infrastructure. This has also presented a myriad of investment opportunities to the financial community and benefits to American consumers and businesses.

Minorities are still underrepresented in the ranks of the self-employed. Of the total self-employed, Asians (4.4%), Blacks (6%), and Hispanics (6%) are all underrepresented relative to no minority males. However, since 1960, a growing pool of educated and managerial-experienced minorities entered the labor force due an increase in college attendance. This pool of talent has reached an age cohort of 35-50 when entrepreneurial potential is at its peak (Edwards, 1997).

Why does the minority business market potential remain unrealized? There is a misconception that minority businesses are small, marginally profitable traditional business such as the ?mom and pop? retail stores and personal services. In reality, the fastest growing industries are in wholesale trade, professional services, finance, insurance and real estate.

The special nature of small business financing needs places emphasis on seed capital and equity participation rather than commercial lending alone. There is a small number of venture capital, buy out and special-situation investment funds that invest in minority businesses. The geographic focus of government programs inhibits minority business development by restricting entry into mainstream markets. Increased regulation, capital restrictions, and industry consolidation in the commercial lending market has contributed to a general shift of capital funds away from depository institutions.

In trying to establish my business, I found that the lack of credit information resulted in the misperceptions of minority businesses as small, unprofitable and unfavorably located. I also found that the Small Business Administration (SBA) financing rules had constrained equity financing in small minority business and made commercial banks the least profitable industry sectors and firm sizes.

A 1999 Small Business Administration report states that minority firms across the nation account for more than $495 billion in revenues and employ 4 million workers in the United States. Yet, approximately 38,264 minority firms in Georgia still face an uphill battle when it comes to assessing capital and maintaining adequate cash flow. Researchers Eric Bonaparte, Robert Andoh, and Jennifer Horton of the University of Georgia Business Outreach Services/SBDC have reviewed the results of three separate studies completed in the last few years, and they report that the issues of capital and cash flow continue to be the primary obstacles for Georgia?s minority firms.

The surveys which polled hundreds of minority businesses all over Georgia showed that minority businesses are getting loans, but not at the same relative rate as non-minority businesses. Respondents cite developing relationships with bankers and establishing credit as their top challenges. By comparison, non-minority companies didn?t identify either of these responses as their top challenges. Employee productivity and government regulations are the significant issues for these firms. In addition, minority start-ups overwhelmingly depend on non-bank financing, (81% personal savings, 22% family, and 19.3% credit cards or some combination). In stark contrast, non-minority companies cite bank loans as their number one source of funding for starting their companies (61%). Existing minority companies continue to depend on personal savings as their primary source for financing day-to-day operations while non-minority companies leverage bank-extended credit as their main source of capital for operational expenses.

Minority companies continue to identify cash flow as their number one challenge after they past the start-up phase. In one of the studies completed in 1995, 80% of the 138 owners cited a dramatic increase in revenue after receiving financial assistance from a traditional banking source. Research has proved the importance of access to capital in the survival of minority businesses. Strategies have been initiated to address financial issues within the minority business community. It was concluded that alternate sources of financing, business plan development, and better banking relationships are the key factors in reversing the trend of companies failing because of inadequate financial resources.

I also found that advertising was an obstacle due to a lack of financing. This could also be attributed to the inability to borrow from the financial institution. The challenge for advertising in the new millennium is to forget new relationships with consumers that are not based so much on the messages that advertisers want to send as they are on marrying those messages with the information that individual consumers want to receive. In a society that is as demographically diverse, geographically dispersed, and dominated by commercial (popular) culture as the United States, advertising has played an important and sometimes-controversial role in promoting shared national experiences and forging strong cultural bonds. If you don?t get the attention, you don?t get the money. Advertisers in the traditional sense face increasing challenges of in seeking attention rather than based on money which is highly desirable. You must link yourself with clearly defined personalities (potential stars) in every aspect of design, production, distribution, marketing, finance and advertising to keep from falling by the wayside.

Another obstacle is the management of personal time. In observation of my own business, I had to consider two questions. What would happen if I spent company money with as few safeguards as I spent company time? When was the last time I scheduled a review of my time allocation? The absence of personal time management is characterized by last minute rushes to meet dead-lines, meetings which are double booked or achieve nothing. Days slip by unproductively and crisis loom unexpectedly from nowhere.

Poor time management is often a symptom of overconfidence. Techniques that worked with small projects and workloads are applied to large ones. As a manager, I have recognized the many facets of time management. One concept is to keep a well ordered diary and the related idea of planned activity. Beyond this, it is the tool for systematically ordering your personal influence on events. Included in this is the various sources of waste. The most common are social, i.e. telephone calls, friends dropping by, and conversations around the coffee machine. It would be foolish to eliminate all non-work related activity as we all need a break. It is however, a choice between chatting to my wife in the afternoon versus meeting the next pay-related deadline.

Finding the time to do all the daily functions is also an obstacle. To combat this, I approached a few other people in the carpet cleaning business with the teaming-up concept. This concept would ensure that no one would get the short end of the stick and we would still be able to keep up with the functions of daily operations. When teaming up works, each party brings something valuable to the table. Everyone involved seeks to win through their joint efforts while preventing the others from losing. Conflict and competition are not part of the dynamics of teaming-up relationships. Cooperation and mutual benefit reign supreme.

Today?s economy has changed radically from the corporate America of the past and the way we do business is changing along with it. Teaming up is one result. It?s happening at all levels of the business world among both small and large businesses. There are only 24 hours in a day and most of us want to work only 8 or 10 hours. To make mattes worse, not all of the hours a small business owner works is billable hours. I have to devote a certain amount of time to carrying out the tasks involved in the administrative aspects of the job and in preparation for work that cannot be justifiably billed to the client. Teaming up would allow for taking on more business and faster growth.

Complementary personalities can be particularly useful in negotiations. Two people take the opposite roles in a tough contract negotiation. One person takes the easy-going, affable, and cooperative approach, while the other one assumes an aggressive, no-nonsense demeanor. Actually, such a team effort can be quite effective in moving negotiations along to a win-win conclusion. If it becomes clear that you?re not a pushover and willing to cooperate and be reasonable.

The final obstacle to starting a minority business is discrimination. Discrimination is defined as acts based on prejudice when members of minority groups or women are discriminated against because of their race or gender. Discrimination has been the biggest obstacle in starting a business in Clarksville. However, like the rest of the obstacles I have introduced in my paper, it can be overcome. I have been in business for a number of years and it has taken a lot of will and determination to succeed.

Bee, Helen L., Bjorklund, Barbara R. (1998). Fourth Edition. ______________________. New Jersey: Prentice-Hall, Inc., Publishers.

Blair, Gerald M. (1995). Starting to Manage. Boston: Wadsworth Publishing Company.

Edwards, Paul, Edwards, Sarah (1997). Teaming Up. Chicago: Johnson Publishing Company.

Kolb, David A., Fry, R. (1975). Toward an Applied Theory of Experiential Learning.

Negropone, Nicholas (1995). Being Digital. New York: Allyn and Bacon Publishers.

Storandt, Martha (1998). Fourth Edition. Publication Manual. Washington: McGraw-Hill Companies.


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