Imani Ray knew from her first job. Working at a grocery store would not cut it. She had an entrepreneurial spirit and ideas too ambitious to be stocking shelves or filling bags.
“It took a lot of learning and growing to understand exactly what I wanted to do,” said Ray, who quit her grocery store gig and founded her own business. “It started as just a T-shirt company. I was selling T-shirts, talking about natural hair, just self-love and understanding your natural beauty.”
Ray is the owner of Natural “E” Beautiful, a clothing brand empowering women to find their natural beauty and improve self-awareness. She started the brand in high school and now packages and ships the shirts from her dorm room at Alverno College, where her business continues to grow, expanding from T-shirts, sweatshirts and hats to online communities and weekly Facebook live discussions. But getting Natural “E” Beautiful to this point came with challenges, Ray said, and expanding it further will bring even more.
People of color, women and LGBTQ founders continually bump against the norms of entrepreneurship, which has long skewed male and white. Despite recent progress, a representation and opportunity gap persists, with underrepresented business owners and startup founders struggling to gain access to credit, investors and mentor networks and the capital and assistance they can provide. These obstacles don’t just punish potential company creators; they also cost the U.S. economy dollars and jobs.
And not all cities rank equally when it comes to support for underrepresented founders. A 2017 report from American Express ranks Milwaukee, which Imani Ray calls home, as one of the worst cities for the growth of women-owned firms.
Access—to both startup capital and professional networks—is the major driver of lower rates of entrepreneurship among Americans of color.
“I’m not in the financial position to be approved for things like a line of credit,” Ray said. “Every creditor that I talked to, every bank that I talked to pretty much said they wouldn’t be able to approve it because of either credit score or not enough credit history.”
Ray started her business using a few hundred dollars from her family to set up a website, buy business cards and make her first shirts. She’s taken orders from California and Australia, however, Ray doesn’t have the capital to buy in bulk and maintain an inventory, so she’s essentially filling orders on-demand, a process that can cause shipping delays if the print studio she works with is closed.
Nationwide, black entrepreneurs face challenges getting startup capital. According to a 2017 report from the Association for Enterprise Opportunity, on average, black households have lower incomes and less collateral than white households, that wealth gap compounding into a credit gap for black entrepreneurs, who are more likely to be denied loans or receive less than the desired loan amount. Black business owners are three times more likely to say a lack of credit is their biggest challenge, according to the report.
Closing these funding gaps is a social and economic opportunity. According to the AEO report, raising employment levels of black-owned businesses to those of other businesses would create 600,000 new jobs and $55 billion for the economy. Supporting companies and brands that speak directly to their target market makes sense for investors, too, given that black Americans hold $1.2 trillion in buying power every year.
Natural “E” Beautiful is a brand with a message—empowering black women—but at times, Ray feels as though she has to compromise her brand to get people to support her, since investors are overwhelmingly white and male.
“My logo is an image of a black woman with natural hair,” she said. “I have to tweak what I have or tweak what my business is to make, for instance, a white person feel comfortable with my brand … [I’m] also feeling like I won’t be supported as much [by white people] because my brand is so focused on black excellence.”
Alicia Robb, a financial consultant and leading researcher on minority entrepreneurship, said financial constraints penalize black business owners twice—once for low startup wealth and then difficulty getting outside investment. “Our research has shown that this under-capitalization is one of the main constraints to both starting up, as well as continued growth and survival,” she said.
While the 2017 American Express report on the state of women-owned businesses showed African-American female-owned firms increased by 605 percent since 1997, black women also have the lowest earnings among all business owners, according to the National Women’s Business Council. Ray said not all of her frustrations are financial. “I don’t have anyone to actually really help me now that my business is expanding,” she said. “I’m just out here on the wind, trying to figure it out.”
Closing these funding gaps is a social and economic opportunity. According to the AEO report, raising employment levels of black-owned businesses to those of other businesses would create 600,000 new jobs and $55 billion for the economy.
Being part of a community of entrepreneurs and having mentors are important contributors to a new founder’s success, although the exact influence is hard to quantify, Robb said. White Americans are more likely to grow up with examples of entrepreneurs or have family connections to business. These networks help new business owners learn management skills and access hard-to-reach markets, according to research from the Kauffman Foundation.
Ray didn’t have business mentors close by, so she taught herself. She read articles, watched videos and studied other businesses from a distance. She feels as though she’s still getting up to speed in terms of operations, still trying to acquire the skills she might have learned with more guidance when her company was getting off the ground.
In 2016, Vox reported that black women are the fastest growing group of entrepreneurs in the United States, helping to turn a financial tide. Entrepreneurship could help close the racial wealth gap, and while white-owned firms still have consistently greater market share and revenue than black-owned firms, the AEO report found the median net worth for black business owners to be 12 times higher than black non-business owners.
According to Robb, there is no one single policy that would close the racial divides in accessing startup money. However, implementing Section 1071 of Dodd-Frank—which requires banks to report lending data that includes sex and race to the federal government—would provide more transparency and a better understanding of how credit markets are working for all Americans. The prospect of that happening under the current administration is slim. In May, President Trump signed a Dodd-Frank reform law, stopping the Federal Reserve from overseeing the actions of banks unless their assets are above $250 billion, of which there are only nine in the U.S.
In the meantime, developing a more diverse group of investors will help founders of color, Robb said. As more successful businesses are run by people of color, they’re more likely to become mentors, board members and investors in other companies. Founded by Arlan Hamilton, Backstage Capital has invested more than $4 million in underrepresented entrepreneurs. Oakland-based Kapor Capital invests with a focus on closing the access gap, and 56% of the companies in its portfolio are helmed by a woman or POC. In Atlanta, Kathryn Kinney’s digitalundivided has raised $25 million for black and Latinx women business owners.
“If you ask 10 people on the street to name five entrepreneurs, 99 percent of them are going to name five white men,” Robb said. “The more that other minorities and women see successful entrepreneurs, (they think) I can do this, too.”