The Rise of Business Ownership by Black Women in America: Data and Considerations

September 28, 2016
By Dell Gines, Senior Community Development Advisor


Growth in minority businesses from 2002 to 2012 has significantly exceeded average growth among all businesses. Among minority businesses, one unexpected group has grown the fastest—businesses owned by black women. The Survey of Business Owners shows that from 2002 to 2012, the number of business owned by black women increased 178 percent, nine times faster than the nation. Research has shown ownership of small businesses can reduce wealth gaps and improve household income. This makes growth of businesses owned by black women important to the U.S. economy in general and specifically to black communities, which traditionally lag national averages on employment, income and wealth. However, there is still great need to provide resources, education and support for this rapidly growing group of businesses owners. More research is needed to determine the cause of this growth and identify more effective ways of creating policy and programs that provide support.    

This article will examine trends in business ownership by black women, possible reasons for this segment’s sharp, rapid growth and some conclusions. 

Business Growth Among Black Women

As mentioned, businesses owned by black women have had the fastest growth rate among all women. Growth in business ownership by Hispanic women was a close second at 172 percent. Business ownership by black women has grown almost threefold faster than for men—63 percent—from 2002 to 2012.  

Black Women Sales Comparison

While the number of businesses owned by black women increased significantly, these businesses have the lowest average annual sales of any major racial or ethnic group, and across gender. Their annual average sales in 2012 of $27,752.56 were down 36 percent from average sales in 2002 of $37,786 and 26 times less than for the group with the highest average, white males. Sales by businesses owned by Asian women, No. 1 among all women, were six-fold larger than for black women. Among black business owners, sales by women owned businesses were just 30 percent of those owned by men.  

Employer Firms Owned by Black Women

Businesses owned by black women also have significant disparity in job creation. Only 3 percent of firms owned by black women have employees. This is 10 times less than businesses owned by Asian men. Businesses owned by black women are five times less likely to have employees than businesses owned by Asian women and less than half as likely to have employees as are black men.  

Ownership Percentage

One statistic unique to businesses owned by black women is their representation among all black-owned businesses. In 2012, businesses owned by black women represented 59 percent of all black-owned businesses, far ahead of the 36-percent share of all U.S. businesses owned by women. No other racial or ethnic group has more than 50 percent of its total businesses owned by women. 

Possible Explanations for Growth by Businesses Owned by Black Women

Businesses owned by black women can be characterized by rapid growth in numbers combined with low sales and few employees. While more primary research is needed to determine the variety of reasons for this growth and the disparity in sales and employment, the following are a few possible reasons: 

  1. Industry Clustering—Industry clustering may help explain lower sales averages and lower employment counts.  Currently, 68 percent of businesses owned by black women fall into just three industry groups, as defined by the North American Industry Classification System:
    • Administrative and Other Services
    • Health Care and Social Assistance
    • Support and Waste Management

      It is possible that lower capital requirements and ease of access into these types of businesses are providing an easier entry point to ownership for black women. However, businesses in these three clusters tend to be smaller and have lower sales regardless of the race, ethnicity or gender of the owner.   

       

  2. Necessity-Based Entrepreneurship—This theory states that when labor market discrimination occurs or there is lack of access to a job that creates enough household income to support the family, an individual will create a business out of necessity. Recent studies have shown that despite having similar degrees, minorities have lower salaries and are slower to get promoted. In addition, the high rate of black women as the only parent in the home and the need for income from multiple sources may be prompting black women to supplement their income with a business. Forty-six percent of black family households are headed by black women. In comparison, women head 15 percent of white households and 12 percent of Asian households, according to 2015 U.S. Census data estimates. 

    These factors may mean the rise of entrepreneurship among black women is occurring because of the increased need to find sources of household income outside of the labor market. It is also probable that a high percentage of these businesses are part-time efforts, given the low average annual sales. Many of these business owners could be operating a small business, while at the same time working another part-time or full-time job.

     

  3. Culture—Culture may also be a factor in the increase of entrepreneurship among black women.  Women of every major race and ethnic group, with the exception of white women, have doubled the total number of small businesses owned in a 10-year period. This may be signaling a shift in cultural attitudes toward small business ownership by race, ethnicity and gender. It is possible that black women are leading a cultural shift in business.

Final Considerations

New businesses owned by black women can create a significant opportunity for economic growth, wealth and the reduction of poverty and disparity. These businesses overwhelmingly are small and have few, if any, employees. Based on size, type, race and gender of ownership, program providers need to ensure they provide culturally and socially relevant support to these owners to maximize their potential. Helping even a small percentage of these businesses grow into scaled, employer businesses can provide significant dividends to local and national economies. There also needs be more research about not just businesses owned by black women but women-owned businesses of all races and ethnicities. This will help determine what is driving such rapid growth, answer questions about sustainability and provide information on how policy and programs can more effectively help develop this rapidly growing class of business owners.