Do Business Ecosystems See Color?

Do Business Ecosystems See Color?

Henry Clay McKoy Jr. (North Carolina Central University, Durham, USA) and James H. Johnson Jr. (University of North Carolina at Chapel Hill, Chapel Hill, USA)
DOI: 10.4018/IJSESD.2018070106
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This article describes an American community survey and a survey of business owners of which the data are merged to assess the experiences of minority- versus white-owned small businesses between 2007 and 2012. This is highlighted due to it being a period encompassing the worst economic downturn since The Great Depression. White firms declined while minority firms grew rapidly. Despite recent efforts to create inclusive entrepreneurial and business ecosystems, however, minority business owners made little progress toward achieving equity or parity with white business owners. Policy prescriptions and implications for future research are discussed.
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The popular press is replete with stories that highlight the personal characteristics of successful entrepreneurs. By contrast, scholarly research, while acknowledging the role of personal traits, has devoted considerable attention to the role social stratification plays in facilitating or constraining entrepreneurial success (see, for examples, Bates, Jackson, & Johnson, 2007). Social stratification results from institutional processes that partition society into advantaged and disadvantaged groups (Davis & Moore, 1945; Hatt, 1950; Tumin, 1953; Buckley, 1958; Spilerman, 2000). The accumulation of power and resources by the advantaged group over time reinforces these processes.

Research reveals that social stratification and entrepreneurship interact in at least three ways (Robinson et al., 2007). First, entrepreneurship can be a means of social mobility for individuals and families. Second, entrepreneurship can address the challenges of a fractured society and offer opportunities for innovative approaches to solve problems. Third, the status of an individual or group within a socially stratified society has significant influence on the entrepreneurial process undertaken by the individual or group.

Historically, advantaged and disadvantaged groups alike have developed group-focused entrepreneurial ecosystems, with an eye toward either maintaining competitive advantage or combatting or circumnavigating institutional barriers to entrepreneurial success. During periods of both de jure and de facto racial segregation, these ecosystems were made up of trusted, mutually reinforcing, multi-sectoral, group-specific relationships, which were designed to facilitate, support, and advance entrepreneurship as an economic development strategy. More recently, as immigration has driven population growth and increased diversity in America (Johnson, 2010), concerted efforts have been undertaken to develop more inclusive entrepreneurial ecosystems rooted in the principles of social justice and equity (National Venture Capital Association, 2016).

The goal of this paper is to answer the following research question: Have these more inclusive entrepreneurial ecosystems created equitable business outcomes for traditionally under-represented minority groups? That is, have minority entrepreneurs achieved parity with their shares of the national population in terms of business formation, growth and expansion? To answer these questions, this research draws upon two U.S. Census Bureau databases: the American Community Survey (ACS), which monitors demographic trends on an annual basis, and the Survey of Business Owners (SBO), which surveys U.S. small business activity every five years.

The most recent SBO was administered in 2012, which means the previous survey was conducted in 2007. Data from these two surveys allow for the creation of a snapshot of changes in small business activity during and in the immediate aftermath of the Great Recession for a broad range of race/ethnic groups (Johnson, 2013). Dubbed the worst economic downturn since the Great Depression, the Great Recession idled 8.4 million workers driving the unemployment rate to 10% in 2009, up from 4% in 2007 (Johnson, 2015). However, a Kauffman Foundation report on entrepreneurial activity during the Great Recession argued that, “Rather than making history for its deep recession and record unemployment, 2009 might be remembered as the year business start-ups reached their highest levels in 14 years—even exceeding the number of start-ups during the peak 1999-2000 tech boom” (Kauffman News Release, 2010).

Other studies refute this research finding (see Shane, 2011), but the authors believe the SBO is more reliable than the databases used in these earlier studies for assessing changes in business activity during this tumultuous period. Moreover, the issue of equity (or the lack thereof), which has become the soup du jour when describing desired outcomes for racial minorities, is the primary focus in this study. To determine if minority entrepreneurs have achieved demographic parity, and by extension if inclusive entrepreneurial ecosystems are achieving desired business outcomes, ACS data on 2007-2012 population change by race/ethnicity are juxtaposed with 2007-2012 SBO data on changes in business activity by race/ethnicity.

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