Entrepreneurship and people in fragile communities – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise4th July 2019
Entrepreneurship serves as a major driver of economic growth and mobility in the United States, which is why many lawmakers, scholars and nonprofit organizations focus on it. Opportunity Zones, of which there are approximately 8,700 nationwide, are the latest example of public-private partnerships that seek to bring $2.3 trillion into low-income urban and rural areas nationwide. Senator Tim Scott (R-SC) is a leader of this initiative. At the state and county level, scholars such as Craig Richardson, director of the Center for the Study of Economic Mobility at Winston-Salem State University, are identifying barriers and solutions to job growth in North Carolina. His recommendations have implications for other states.
Embedded in any discussion about entrepreneurship and opportunity are winners and losers or, better yet, stakeholders at the core and at the periphery. Women, people of color, and the poor have traditionally faced some challenges breaking away from the periphery. A high proportion of those demographics typically have been excluded from, or relegated to, the margins of the entrepreneurial landscape, with little chance to move out of the position assigned to them. Examples to the contrary exist, though many are knocking on an unanswered door of entrepreneurship every year.
Bringing about meaningful change to the current environment first requires a thorough understanding of the factors underlying the exclusions and limitations that entrepreneurs continue to confront. Following awareness of these deep-seated and enduring conditions, the next step must be to study the practices and systems through which these inequalities persist.
In April 2019, the Center for Advancing Opportunity (CAO) released its State of Opportunity in America report in partnership with Gallup, the Charles Koch Foundation, and Koch Industries. The report contains information about entrepreneurship (among other things) gathered from 5,784 people living in some of the most challenged socioeconomic zip codes in 47 states, which includes people living in the northern and central regions of Appalachia. A snapshot sample of who lives in fragile communities in America, which are characterized by high proportions of residents struggling in their daily lives and possessing limited opportunities for social mobility, includes the following: 71% are people of color and 29% are white; 53% have a household income of $34,999 or less, with the majority earning under $24,000 a year; 51% rent their place of residence; and 13% do not have a high school diploma — though 12% have earned a bachelor’s degree or more. Despite economic challenges, many people in fragile communities are, or want to be, entrepreneurs.
One goal for the CAO report is to present a more nuanced understanding of the barriers to opportunity confronting those living in fragile communities as they relate to entrepreneurship and job growth. We accomplished this goal by asking the people living closest to the issue what they think. For example, although just 2% of people living in fragile communities own their own business, 9% say they are planning to start their own business in the next 12 months. Interestingly, black (13%) and Hispanic (9%) residents are more likely than white residents (4%) to respond this way. Among those who say they plan start a business, 38% overall say they have the resources to do so.
Although interest in entrepreneurship shows promise, the story about why other people who want to start a business, but chose not to, is also telling. For instance, about 34% of residents in fragile communities who are not currently planning to start a business say they have considered doing so but decided not to. When asked why, here are the top responses:
- 78% say they do not have enough personal savings to start a business;
- 43% say they like the security of steady income;
- 42% have an idea, but do not know where to start;
- 34% worry that the odds of success of a new start-up are very low;
- 29% have no knowledge about running a business; and,
- 16% identify health challenges (i.e., not being well enough to take on the endeavor)
To a large extent, these figures supply fresh evidence to reflect the major obstacles standing in the way of many entrepreneurs as well as major opportunities for stakeholders to step in. Private and public organizations, for instance, can share their knowledge and experience with those in fragile communities to address the knowledge gap and the factors that can increase the likelihood of success. Additionally, these figures point us to potential solutions because they underscore the need for making business loans and venture capital more accessible to individuals of all demographics.
Along with research, private-public partnerships produce a model for advancing entrepreneurship. For instance, the Thurgood Marshall College Fund, the nation’s largest organization exclusively representing the Black College Community, partnered with Ally Financial Services and the Sean Anderson Foundation to create an entrepreneurial competition called Moguls in the Making. This competition selected 50 students from 10 HBCUs to compete in a week-long challenge to win a prize. Some of these college students are first-generation, and plan to open businesses that will improve the lives of people living in fragile communities.
Overall, linking entrepreneurial researchers and organizations with investors can create a symbiotic relationship that allows for the emergence of new and profitable businesses. Outreach methods tailored to a given community can also be beneficial on a number of other fronts identified in the CAO report: they advance awareness of what higher education, including vocational training and two-year associates degrees (whose association with higher levels of economic optimism and employment has been recognized) can achieve; and they demonstrate how partnerships can offer the individual increased opportunities and foster the overall health of their communities.
Altogether, a more inclusive entrepreneurial environment would work to the benefit of society-at-large, and provide evidence of our country’s commitment to advancing opportunity for all people. Moreover, it would benefit the US economy through increased development and expansion of entrepreneurship across the country.
Rebecca Feldherr is an intern at CAO and an undergraduate at Skidmore College.