We all know that a lack of diversity, particularly at tech startups, is a waste of talent and a surefire way to miss out on unique perspectives and good ideas. But what exactly is the price tag of our failure to tap into the talents of the full spectrum of the population when it comes to entrepreneurship?
A new report called "The Color of Entrepreneurship: Why the Racial Gap among Firms Costs the U.S. Billions," just released by the non-profit Center for Global Policy Solutions aims to put a number to all those missed opportunities. It focuses specifically on the underrepresentation of people of color among entrepreneurs with growing businesses and comes to some disheartening conclusions.
What's the total bill for America's excessively monochrome population of successful entrepreneurs? A whopping $300 billion in worker income and 9 million jobs lost.
Big on dreams, short on resources
Using data from the U.S. Census Survey of Business Owners, the report examines the economic impact of firms owned by minorities in the aftermath of the Great Recession. It turns out these companies did more than their fair share to help the U.S. economy bounce back. From 2007-2012, businesses with non-white owners were responsible for more than 72.3 percent of the jobs created by privately held companies.
But these firms could do far more if they had all the resources and support they needed to truly thrive and add more employees, the report goes on to say. "Interest in entrepreneurship among people of color is quite strong, but access to the resources to do it successfully is often a challenge," commented the report's author Algernon Austin. With better access to capital (this was a particularly big factor, according to the report), more experience in small business settings, and relevant mentors to help make their dreams a reality, non-white entrepreneurs could have hired 9 million more people and added that additional $300 billion to the economy.
The report further breaks down the data by specific demographic groups, looking at which fared best and worse during the recovery. (Businesses owned by Hispanic men posted the biggest growth in annual sales during the period, for example. Firms owned by black women fared worst by this measure.) It also delves into factors, like lack of family wealth, that might be holding specific types of entrepreneurs back. The complete document offers a deep dive for the interested.
What's to be done?
The report isn't just an accounting of the toll on the economy due to underutilization of minority business talent. It also offers specific policy recommendations including providing tax credits to promote venture capital investments in minority businesses, as well as tax credits for new low-income entrepreneurs, and encouraging the use by credit rating agencies of alternative data such as rent and utility payments in establishing credit histories.