The Challenges and Opportunities in Diversity for Small Business

By Mark Taylor | Small Business

Today America can boast its first black president, a growing minority middle class and a rising number of Hispanic, Asian and African-American millionaires and billionaires.

But many minority-owned businesses still face significant challenges in competing in a marketplace where the odds were stacked against them for decades.

Even today, many minorities lack access to capital to launch their businesses or allow them to grow and expand to the next level. And many also find it difficult to gain entry to public and private sector contracts.

  • While unemployment has dropped in recent years, it remains significantly higher in minority communities. While unemployment among African-Americans was 11.4% in August of this year, white unemployment was less than half that figure, at 5.3%. And black unemployment among teens was nearly twice the rate of white teens, 32.8% compared to 17.4%, according to U.S. Labor Department statistics.
  • The median weekly pay for whites in America is $802 per week in 2013, topping the average for blacks ($649 per week) and Latinos ($583), but lagging behind Asians, who averaged $954.
  • Discrimination in lending practices has been well documented. In 2011 the Bank of America paid $355 million to settle allegations that its Countrywide Financial Corp. charged higher fees and interest to qualified black and Latino borrowers than to qualified whites.
  • And in 2013 black –owned businesses received 2.3% of the SBA’s 54,000 loans U.S. Small Business Administration (SBA) loans, down from 11% in 2008 according to a 2014 Wall Street Journal analysis, and only 1.7% of the $23 billion in total SBA loans.

While there are hurdles, many minority business owners are undaunted by the challenges, finding opportunities in unconventional financing arenas, forming strategic alliances with other minority businesses and turning to minority business associations and federal agencies to enter public and private supply chains.

The business climate for minorities has improved since John Robinson and a group of black businessmen founded the Minority Business Development Council in 1972, said Robinson, the MBDC’s president.

He said his group, which began by serving the needs of black business owners, has expanded to represent other minorities. He said 42 years ago minority-owned businesses had trouble obtaining capital to finance or expand their businesses, a vexing problem that he said persists today, albeit to a lesser extent. Robinson said contracting with large national corporations and government entities then was limited and relatively small.

“The government and the private sector weren’t really on board with minority-owned businesses,” he recalled.

He said today government agencies routinely contract with minority firms and spend considerably more money with them. He said the black company with the largest revenue 40 years ago posted $10 million to $15 million in gross annual revenue, while today David Steward’s World Wide Technology reports revenues in the billions of dollars.

“The landscape has completely changed,” he said. “The climate has improved. Is it a utopian environment? No. There’s plenty of room for improvement. We’d like to see more minority- owned companies globalizing and succeeding across a variety of industries. That’s the next frontier.”

The Minority Business Development Agency of the U.S. Department of Commerce does not focus on small businesses, which are represented by the U.S. Small Business Administration. It assists qualified minority-owned businesses that have reached a certain plateau (annual revenues exceeding $1 million) in expanding in size and scale to move up to the next level. The MBDA operates 44 centers throughout the country to find firms that have graduated from small businesses to connect them with federal procurement experts to find contracting opportunities. In fiscal 2013 the MBDA helped minority-owned businesses secure more than $4.8 billion in capital and contract awards, creating or retaining more than 25,000 jobs.

MDBA’s Chief of Business Development Joann Hill conceded that although opportunities have improved for minority-owned businesses, a level playing field remains elusive.

While we’re in a forward mode for minority business enterprises getting greater access and being better informed, it’s like starting from a negative and getting up to speed and playing catch up. We still hear firsthand challenges minorities face in gaining greater access to contracts. Sometimes they lack the scale or capacity. They have to spend time and money to build relationships to compete for public and private procurements and contracts.”

She said MDBA connects minority-owned businesses to federal contracts and sub-contracts, assisting their entry into the federal purchasing supply chain and developing strategic alliances with other businesses to serve as primary or sub-contractors.

InterChez Logistics Systems, based in Stow, Ohio, is an international logistics, translation, and consulting company that grew dramatically after the North American Free Trade Agreement (NAFTA) was fully implemented. The company, founded by Mark Chesnes, and later joined by his wife, Sharlene Ramos Chesnes, was launched in their basement. The technology-driven company employed proprietary software to do logistics and transportation and in 2002 added translations to its services. Employing 35, InterChez now offers translations into 150 languages and dialects, as well as interpreting services.

InterChez Vice President of Corporate and Governmental Affairs Carlos Fuentes said in its move to expand beyond a small business, the company faced several hurdles.

“Minority businesses often have a more difficult time gaining access to capital. We wanted a traditional line of credit rather than going to investors and surrendering control,” Fuentes said.

InterChez sought advice from the MDBA.

“We said we were seeking a $1 million line of credit and they helped us to find the right bank,” he said. “We submitted an RFP (request for proposal) and it was a very seamless process. We got our loan at a prime rate, much less than what we thought. And that helped us to expand our sales and continue our accelerated growth.”

He said because MDBA works closely with other minority companies, it knows the value of networking. “Otherwise we might never have met.”

InterChez CEO Sharlene Chesnes said MDBA, which offers educational and training seminars around the country, served as a sounding board for the company. “Through their counseling and guidance, they helped us to find the right direction to grow our company.”

William Burgess III of New York City’s The Burgess Group, an executive search firm, said minorities today face the same challenges as any entrepreneur starting or expanding their businesses.

“Sometimes those challenges derive from their race or gender,” he conceded. “But the idea of getting into business is the best thing about this country: the ability to define your own destiny. But anyone going into business has to face some rough challenges that require discipline, skill and hard work. You have to be strong enough to say: I’m going to conquer all these things that hold me back, including race and gender.”

Joset Wright-Lacy is president of the National Minority Supplier Development Council (NMSDC), a not-for-profit organization that represents 13,000 minority suppliers providing education, training and access to large corporations and government entities. Wright-Lacy said America has not completely moved beyond racism.

“It’s a part of what minority business enterprises face and remains an issue that has to be regularly addressed,” Wright-Lacy said.

She witnessed how difficult it is for minorities to obtain capital funding and when they are able, the terms are often more onerous and costly.

“It is and continues to be a challenge that requires a systematic approach,” she said. “In the 1960s it was real estate red lining and the courts had to step in. Dodd-Frank (the federal banking reform law) addresses how banks make loans available, but does not mandate fair and equal credit terms. It’s like climbing up a sand hill. We need to figure out how to build resources in communities of color.”

She said most procurement is about risk management.

“There is a notion that taking on minority business partners might be risky and some companies are not willing to take on those they don’t know. No supplier wants to introduce risk into their supply chain. It’s not always because the firm is black or female owned, but because they don’t know them. Stereotypes are just a shortcut to getting to know someone. So when you’re confronted by someone who counters those stereotypes, you find that you rethink that process.”

Maurice Brewster, CEO of Redwood City, Calif.-based Mosaic Global Transportation,a limousine and ground transportation firm, said his greatest challenge as a minority firm was gaining access to major companies to win their business. Brewster launched Mosaic in 2002. The $7 million firm now employs nearly 50 with headquarters outside of San Francisco and operations in Los Angeles, Washington, D.C., and New York City.

“No one was willing to take a chance on a relative unknown like me,” he said. “Access to opportunity was scarce. So was financing, especially in the limousine industry. Banks were not interested then and even today traditional banks still are not interested in doing business with us, despite annual revenues in the millions of dollars. A lot of that has to do with us being a minority business. We’ve been forced to use secondary financing opportunities, such as community funding sources. That’s allowed us to borrow money and grow our business.”

Brewster said his company greatly benefited by joining the NMSDC.

“They’ve been instrumental in our success,” Brewster said.” I can attribute 70 to 80% of our growth to that organization, primarily for their role in giving minor companies like mine access to major corporations. If I could do things differently, I would have sought certification as a minority business in 2002 instead of in 2008. Our growth since then has been exponential.”

Albert Chen, a native of Taiwan, launched his Carmel, Ind.-based Telamon Corporation in 1984 after working in the telecommunications business.

It was only when his firm began contracting with Pacific Bell in 1991 that Chen realized that his firm qualified as a minority company. He said California had then passed a law requiring utilities to allocate a percentage of their purchases from minority-owned firms.

“That opened a big door of opportunity for my company,” he said.

That business relationship has continued for more than 20 years and is now worth $150 million in annual business. Today his firm employs 1,300 in 10 states, China and Mexico in the automobile, healthcare, technology and energy industries and in 2013 logged revenue of $782 million.


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