Black Entrepreneurship Took Off During COVID. The Reasons Aren’t All Good

Don Lee, Rob Wile Miami Herald

WWR Article Summary (tl;dr) As the Miami Herald reports, "Last year, there were more new Black-owned businesses proportionate to the total population than at any time in the last quarter-century, according to the Kauffman Foundation’s annual study."

Miami

Overtown resident Lakeycia Cooper — the mother of two daughters — learned that young girls love to be pampered as much as any adult woman.

As the pandemic wore on last year, Cooper began looking for an opportunity to augment her event-planning business and fulfill her dream of opening a spa for children.

One day, she spotted a vacant business space on Northwest Third Avenue. It was bland, Cooper said, but she had a vision. After seeing the space had remained available for about a month — and after praying on the decision — Cooper signed a lease and began setting up what would become the Lollipops and Gumdrops Children’s Spa.

Today, it is believed to be the only Black-owned children’s spa in the U.S. Their soft launch was last Halloween — and while business is still not what Cooper hoped it would be, she is thrilled at the response it has received from customers.

“Our passion is to teach them that we are empowered as women,” Cooper said. “To teach them about self-care, teach them to love the skin they’re in — that it’s OK to have long hair, short hair, curly hair, light skin, dark skin. And that it’s OK to be pretty, girly and confident. I’m just so grateful and so proud of what’s taken place at Lolllipops and Gumdrops.”

If ever there were a hint of a silver lining in the pandemic, it may be the thousands of Black entrepreneurs turning adversity into opportunity by starting businesses of their own.

Last year, there were more new Black-owned businesses proportionate to the total population than at any time in the last quarter-century, according to the Kauffman Foundation’s annual study. Black entrepreneurism ranked higher than for white-owned and Asian-owned companies, the group found.

On average 380 out of every 100,000 Black adults became new entrepreneurs during the 2020 pandemic, up from 240 in each of the prior two years, according to the study, based on Census data.

Downside to the growth of black businesses To be sure, the startup surge was not entirely positive. It was partly a reflection of the heavier toll the COVID-19 crisis took on Black Americans, in deaths as well as job and income losses.

About 40% of Black-owned firms closed in the immediate aftermath of the outbreak versus 20% of all active U.S. businesses, according to research by Robert Fairlie, an economics professor at the University of California, Santa Cruz.

And the startup numbers almost certainly included businesses that were simply reopening after closing during the early days of the pandemic, according to Fairlie, who coauthored the Kauffman report.

Finally, many of the Black-owned businesses that formed last year were what are called “necessity” startups — that is, firms that people started to survive a layoff, or a cut in hours or income.

And such necessity enterprises tend to have higher failure rates than “opportunity” startups, which are more common during good economic times.

Still, for many Black workers and would-be entrepreneurs, the economic crisis spurred by COVID-19 provided an opportunity to try for something better.

“They had a moment of pause induced by the pandemic,” said Everett Sands, chief executive of Brea-based Lendistry, whose bank saw a surge in inquiries from Black customers interested in starting businesses.

For some, he said, that meant “Let me try something else.” And so they opened up a daycare center or used their cars to get into delivery service, Sands said.

How many African-American entrepreneurs will make it? Sands’ bank is one of the largest Black-owned small-business lenders in the nation, and it’s been busier than ever, thanks in part to government-sponsored COVID-19 relief grant and loan programs.

Just how many of the new startups will survive and grow, creating jobs and building wealth, is an open question. Historically, the failure rate for Black-owned startups has been high. But Sands and others who work with Black-owned businesses see reasons to be more hopeful this time than in the past.

The overall economic recovery is strong. And many more Black entrepreneurs are taking advantage of the pandemic-accelerated boom in demand for goods online. They are also making use of social media and new technology platforms to grow their brands and customers.

On March 15 last year, RaeShawn and LaShone Middleton, 30-year-old identical twins, were laid off from their server jobs only hours apart at two restaurants in Washington, D.C.

Out of work and hungry for Maryland blue crabs one afternoon last summer, the sisters, who years earlier had graduated from culinary school, thought, “Why not cook and deliver crabs online?”

The Middletons prepared a bundle of seasoned crabs in their home in Laurel, Maryland, and went door to door in their neighborhood handing out promotional fliers. They sold two orders totaling two dozen crabs that August day.

Last month their company, R&L Crab, filled 648 orders for thousands of crabs, plus countless hush puppies, corn and other sides.

On a recent weekday afternoon, LaShone was out making deliveries while RaeShawn scrambled in a rented shared kitchen in northeast Washington, checking orders on her laptop, pouring light beer into 10-gallon pots of crab, and showing a new part-time hire how to tell when they are done. “That is a perfect crab,” RaeShawn said as she took one out of the pot, folded an upper leg and felt the texture under it.

The sisters want to have their own kitchen and envision five locations covering the Washington region. They also plan to open a bar.

“At this point, we just need capital. Capital is what’s important,” LaShone said.

Gov’t., corporations try to reduce racial inequity In the wake of last year’s racial protests following the murder of George Floyd, major banks have pledged more money than ever to help Black-owned and other minority-owned businesses as part of their effort to address race and economic inequities.

JPMorgan Chase said it would make an additional 15,000 loans to small businesses in Black and Latino communities. Bank of America announced a $1 billion commitment.

Target, Apple and other nonfinancial corporations have said they too would pony up billions of dollars for Black communities, to increase spending with them, for education and to build their roster of minority vendors.

Nearly a year into some of these commitments, most have been quiet about how these efforts are progressing. And thus far the broader picture is not very encouraging. Of about $50 billion pledged by corporations for racial equity, Creative Investment Research said last month that only about $250 million has been spent.

“It’s a lot of talk and commitments, and there’s a fundamental challenge in getting that money out the door,” said Michael Roth, managing partner at Next Street, which helps raise capital for small businesses.

“Large corporates are not yet making whole, making true on their commitments,” he said. Roth led the Small Business Administration’s transition for the Biden administration.

“You do see a groundswell of activity,” he added, but what’s needed now is fundamental change in the way government and lenders make capital and other resources accessible to Black-owned businesses so they are sustainable.

Though Black Americans make up just over 13% of the nation’s population, they account for fewer than 2% of U.S. businesses and only 0.3% of total sales, according to 2018 data, the latest, from the Census Bureau.

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