While many people dream of starting their own business, the majority will do nothing more than dream about it. After all, starting a business is not easy, and it is even more challenging for black entrepreneurs who don't always have the same access or aren't aware of the capital and resources available. In spite of those obstacles, black entrepreneurship is going strong. For example, the State of Small Business Survey 2019 has found that more and more African Americans are quick to start their own businesses. More black millennial founders are emerging, particularly women. And healthy Black-owned businesses could be a critical component for closing the United States’ Black-white wealth gap, which McKinsey and Company projects will cost the economy $1 trillion to $1.5 trillion. In fact, the median net worth for Black business owners is about 12 times that of Black non-business owners. So, if you are already an entrepreneur or ready to take the plunge, read on as Our Money Matters has aggregated some crucial advice and resources.
1. Think about Scale
It sounds simple enough, but most companies think too small. They don't start with a scalable idea or a large enough target audience, limiting their ability to grow. Black entrepreneurs are especially prone to falling into this trap, as they generally pursue businesses in less lucrative sectors. For example, wholesale businesses represent 24 percent of business revenues, yet only 1 percent of Black female and 2 percent of Black male entrepreneurs are in the sector. The bottom line is you need to do substantial research into the long-term potential of your business sector.
2. The Power of Referrals
Don't ever underestimate the power of word of mouth and referrals. Both networking and social media can be a way to spread the word about your products or services. Don't limit yourself to your comfort zone, either. While it is crucial to connect with other local businesses or industry groups, go beyond those channels and attend events in person or virtually that can put you in touch with a broader audience. Word of mouth is free marketing for your business, and people are often willing to trust other people's recommendations about a product or service. A Nielsen study found that up to 92% of people trust their friends and family recommendations. As the company's founder, you are the person with the passion and the vision, so spread the word.
3. Take Advantage of Both Paid and Free Resources
Many Black business owners do not outsource professional services because of expense, accessibility, or mistrust. In fact, only 58 percent of Black owners sought professional service compared with 70 percent of white owners. However, entrepreneurs can often save time and money in the long run by outsourcing accounting, marketing, or other responsibilities. It also allows you to focus your time on scaling the business rather than being down in the weeds with no time to plan strategically. It's possible to find affordable services, and business networks can be a great way for Black entrepreneurs to not only find out about those services but support other Black-owned businesses as well.
And while Black entrepreneurs can benefit significantly from groups that can help and support them, they are often less likely to know and hear about them. One example of this disconnect is that corporate and government procurement programs that target Black-owned businesses tend to be underutilized. The Minority Business Development Agency (MBDA) found in a 2016 research study that Black-owned companies saw less utilization relative to their availability than white-owned companies in the same industries. To ensure that you don't miss out on crucial resources, click here.
4. Learn the Art of Negotiation
Successful negotiating is key to successful businesses. Whether buying a product or service from another vendor and ensuring that you get the best price or selling your products to a customer, it's all about learning the art of negotiation. And negotiation is an art as well as a science. As MIT Sloan Professor Jared Curhan teaches in negotiation analysis, there are seven key elements to prepare for before a meeting, including understanding potential stakeholders and their motivations, possible alternatives if the deal does not go through as planned, and creative ways for addressing the needs of the other party. Preparation and resilience are also essential. As Sherika Wynter, co-founder of T|W Tote, says, "Everything in life is negotiable. That's what I live my life by. I don't do well with the word no. I might take no for a nanosecond, but then I'm back asking you again in another way, shape, or form. I think if you want to be an entrepreneur, you're going to have to negotiate your way through this." In other words, don't assume that no is really a no. Most entrepreneurs get rejected numerous times before they get a positive response, so be prepared and don't let it ruin your self-confidence.
5. Customer Satisfaction is Key
You can never take your customers for granted, no matter how successful you become. Even if you are the darling of your industry, that won't necessarily last. So, don't ignore the people that got you there in the first place. Reward loyal customers, check in on them and always be willing to improve. As we said earlier, recommendations are essential, so you can't afford to overlook negative feedback. If a significant customer is unhappy, reach out to them sooner rather than later, listen carefully to their concerns and try to make it right. Relationships are still meaningful even in a digital world, and companies can't ignore them. Replacing customer churn costs time and money and can ruin your reputation.
6. Go Digital
For younger entrepreneurs, this is a no-brainer but all companies that sell a product or service need a good website. Most consumers or businesses will research a company prior to buying from them and a credible website can make all the difference. So, hire a professional and don’t try to do it yourself. Also, many brick and mortar miss out on a whole segment of consumers by not offering multiple buying options to their customers. Don’t assume that you won’t be able to sell your product online because many consumers (especially with COVID) prefer to buy from the comfort of their couch. Not convinced? 55% of 2020 Black Friday purchases came from mobile devices and 60% of shoppers said they preferred online over physical stores during the holiday season in 2020. And it does not just lower ticket items either as 47% of consumers buy financial services online.
In summary, all entrepreneurs start out with the intention of being highly successful, but unfortunately many fail. According to an article by CNBC, 20% of businesses fail within the first year, 30% within the second year, and 50% within the third year. But for those that do succeed, the hard work and sacrifice are worth it. Increasing black-owned businesses contributes to sustained wealth. A report on The State of Black Entrepreneurship in America found that existing Black businesses employ one million people and generate $165 billion in revenue each year. With the societal inequities that persist, it is more important than ever for all Americans to support Black entrepreneurs. The public and private sectors should make it mandatory to hire more suppliers of color. Government should continue to invest in programs that support minority entrepreneurs and consumers should make it a priority to buy from Black-owned businesses. Now is the time to make sustainable change.
Our Money Matters is supported through a generous financial grant by the Wells Fargo Foundation