From the January 1996 issue of Entrepreneur

Recent events ranging from Supreme Court decisions on affirmative action programs to the outcome of the O.J. Simpson trial have left issues of race, gender and fairness on everyone's minds. In the words of one entrepreneur we spoke to, "You want to believe you're going to get a fair shake every time, but that's just not true." What is true, unfortunately, is that women and minority entrepreneurs sill face distinct challenges in starting, running and growing their businesses. But the news is not all bad-far from it. More women and minorities than ever before are turning to entrepreneurship as a way to take charge of their destinies-and more area succeeding at small-business ownership. To celebrate that success, as well as to offer help in overcoming the hurdles, we at Entrepreneur present this special report.

New Directions

We are a diverse country, and to not use that [diversity] is crazy." So says Joan Parrott-Fonseca, director of the Minority Business Development Agency (MBDA).

Appointed last spring, the former associate administrator of the General Services Administration's Office of Enterprise Development has sought to make her mark-no easy task, given recent attacks on affirmative action and the MBDA itself.

"We public officials have to take some responsibility for not providing the American people with a better explanation of affirmative action," says Parrott-Fonseca, the first woman to head the MBDA. "People don't understand that assistance to minority- or women-owned businesses helps all of us. When you waste a segment of society, it's like throwing money out the window."

In addition to defending affirmative action, Parrott-Fonseca is working to make changes at the MBDA. Although the agency's future was uncertain at press time due to congressional attempts to dismantle the Commerce Department, Parrott-Fonseca continues with plans to forge partnerships with the private sector.

"[The MBDA] funds 93 technical and management assistance centers," she explains. "In the future, we'll probably be partners in funding with [private] entities."

Parrott-Fonseca is also placing greater emphasis on growing businesses, as opposed to merely concentrating on start-ups. International trade and franchising are other priorities.

"For a minority or woman entrepreneur, [success] takes even more commitment," says Parrott-Fonseca. "[Those business owners] are already working hard to overcome barriers, and we'll be fighting along with them."

Fast Facts

Do women and minority entrepreneurs have clout where it counts? Here are the cold, hard facts.

WOMEN-Census statistics on women-owned businesses released in December 1995 marked the first time the Bureau has studied the entire population of women-owned firms. Some of its findings:

  • Women owned 34.1 percent of all U.S. nonfarm businesses in 1992.
  • Women entrepreneurs raked in total receipts of $1.5 trillion in 1992; the average woman-owned firm earned annual receipts of $246,000.
  • From 1987 to 1992, 89 percent of new women-owned firms were one-woman shops.
  • The 11 percent of entrepreneurial women who employed workers dominated in revenues if not in number-they accounted for 95 percent of the sales generated by women-owned businesses in 1992.
  • Among women entrepreneurs with employees, receipts rose by 146 percent between 1987 and 1992. Women entrepreneurs' explosive growth in revenues outperforms their growth in numbers, indicating that the average women-owned firm with employees is expanding rapidly and should continue to do so.

MINORITIES-Here's what a survey by the Joint Center for Political and Economic Studies, a Washington, DC, think tank, found:

  • A quarter of minority firms reported at least a 25 percent increase in annual sales in 1993. In the same year, only about 7 percent of nonminority companies reported a similar sales increase.
  • More than half of minority-owned firms had annual sales of $1 million or more in 1993, though nearly half of them started their businesses with less than $25,000.
  • The average minority-owned company was 11 years old, almost a decade younger than its nonminority counterparts.
  • Nearly one-fourth of minority entrepreneurs said they recruit employees from inner-city neighborhoods; only 10 percent of nonminority companies did the same.

LATINOS-Primarily first-generation Latino companies with average annual revenues of $5.8 million were the focus of a recent MCI study conducted by The Gallup Organization. The results:

  • They employ an average of two family members, and about 40 percent believe Latinos are more likely to base business dealings on personal relationships.
  • About 84 percent said they were equally comfortable doing business with non-Latino companies.
  • Fifty-three percent said Latino companies are more customer-service-oriented.
  • One-third are involved in exporting and importing.

Certified Success

A new nonprofit organization designed to help women entrepreneurs compete for government and corporate contracts expects to have the first national certification program for women up and running by March 1.

According to Kathleen Schwallie, president of Palos Verdes, California-based Women Business Owners Corp. (WBOC), the certification program will help women more effectively market their companies.

WBOC's will be a private program modeled after one operated by the National Minority Supplier Development Council. The program, created through a collaboration of government, private industry and women business advocates, will include specific standards women must meet. Schwallie expects it will eventually achieve national acceptance.

WBOC will also audit and certify women under the ISO 9000 program (an internationally accepted set of standards for quality). "For many women and minorities, certification has been the only way to compete," explains Schwallie, "but it is only the very first step." For information, call (310) 530-7500.

Bank On It

If bankers like Ruth Salzman and Emma C. Chappell have their way, minority and women entrepreneurs may begin to see banks in a new light.

"Women and minorities have a more difficult time getting capital. That's why we created this bank," explains Chappell, founder of United Bank of Philadelphia, a 3-year-old community commercial bank that has grown to $95 million in assets largely due to her energy.

Ruth Salzman, executive vice president of Chemical Community Development Inc. in New York City, says Chemical Bank is specifically targeting women and minority small-business owners who have a hard time obtaining financing.

"We offer products tailored to the needs of small businesses and take into account some of the differences women and minorities may have," says Salzman, pointing to the CAN*DO (Chemical Access Network for Development Opportunities) Program as a key component of the bank's efforts. CAN*DO features character lending, a reduced owner's equity requirement, referrals from bankers and community organizations, technical assistance, and credit enhancements.

Chappell sees a brighter future ahead as more banks take an interest in the lucrative small-business market. And with the advent of credit scoring, a uniform system for rating applicants, Salzman agrees that writing these loans is becoming more attractive to banks.

Other programs to assist women and minority entrepreneurs in obtaining bank loans include the SBA's Women's Prequalification Loan Program (see "SBA Report," August 1994), the Minority Prequalification Loan Program (see this month's "SBA Update" on page 118), and the LowDoc Loan Program (see "SBA Report," September 1994).

Pennies From Heaven

Perhaps the most viable financing sources for women and minority entrepreneurs are angel networks-informal investment networks of wealthy individuals and families who invest in start-up businesses.

"Angel networks are replacing the role venture capital played 20 or 30 years ago," says Mary Bechmann, partner at Baccharis Capital, a venture capital firm in Menlo Park, California.

The growth of angel networks has made financing available to a wider spectrum of companies. "Angels have a different set of criteria than venture capitalists," says Bechmann. "You can [grow at] a slower pace and be more conservative."

To find angels, start with a solid business plan. Next, hire an accountant and a lawyer who are experienced in dealing with start-up companies and know the financial community.

There are no shortcuts to networking-but there's also no substitute for it. "Once you know one insider," says Bechmann, "you can get to others." And that's how you get financed.

Nothing Ventured . . .

When it comes to venture capital, women and minorities face some special hurdles. "Venture capital firms are [made up of] very clubby, 55-year-old white males with [Ivy League] MBAs," says Mary Bechmann at Baccharis Capital. Another hurdle: "To be worthy of venture capital, you're pretty much expected to have $50 million in revenues within five years."

But some venture capital firms are actively seeking women and minority-owned companies, asserts Thomas Sweeny, chairman of the Connecticut Venture Group, a private organization dedicated to networking among venture capitalists. "Lots of women- and minority-owned businesses have been supported by venture capital," says Sweeny.

That doesn't mean it's easy. "Since venture capital firms have the money, they can afford to sit back and wait for people to find them," says Sweeny. "The burden is on business owners to take the initiative."

Fair Share

Looking to get your piece of the lucrative procurement pie? Your first-and possibly only-thought may be to hit up the federal government. Although Uncle Sam is by far the biggest procurement contractor, corporations, local governments, colleges and nonprofit organizations are also valuable sources of procurement dollars.

Getting procurement dollars has not always been easy for women and minorities, so many entrepreneurs have used affirmative action programs to help them. "Affirmative action has lifted more than one-third of blacks in this country into the economic middle class," contends Harriet Michel, president of the National Minority Supplier Development Council (NMSDC) in New York City. However, despite such successes, recent court challenges and congressional activity may change the shape of affirmative action programs-if not eliminate them altogether.

  • State Of Affairs

Current procurement programs range from making informal efforts to spend money with women- and minority-owned businesses to setting aside a percentage of contracts for them. The federal government buys at least 20 percent of its goods and services from small businesses, with 5 percent of that going to firms owned by socially and economically disadvantaged individuals-a category that includes ethnic minorities and people with disabilities.

A recent overhaul of the procurement system mandated that 5 percent of federal dollars spent on small companies must go to women-owned firms. "This is the first time mandatory goals have been set for women-owned businesses," says Judith Roussel, the Small Business Administration's (SBA) deputy associate administrator for government contracting. A Women-Owned Business Procurement Pilot Program is being tested in 11 federal agencies to increase dollars spent on women-owned businesses.

In addition to the government, cities, school boards, public utilities, universities and corporations also seek women and minorities to supply products and services. In Springfield, Illinois, for instance, a minority business enterprise/female business enterprise policy specifies 12 percent of all city dollars must be spent with these businesses.

  • Procurement Procedures

To sell to the federal government, start by registering with the SBA's Procurement Automated Source System (PASS). Also, actively market your business to specific agencies or prime contractors, and check out the Commerce Business Daily, which lists available contracts. Another source, the annual U.S. Government Purchasing and Sales Directory, lists more than 4,000 items the government buys.

Certification as a women- or minority-owned firm is essential. Entrepreneurs can be certified through many different venues. Many cities or entities have their own certification programs. A good general place to start is with the SBA, which offers the 8(a) program for minorities as well as the PASS system. Minorities can also be certified through the NMSDC.

From The Trenches

Are women and minorities pursuing the entrepreneurial dream because they perceive diminished opportunities elsewhere or simply because they want to control their own destinies?

"For those people who are entrepreneurs in spirit, it's something they've carried with them for a long time," says George Johnson, 47, co-owner with David Moore (left) of Quality Croutons Inc., a $6.5 million company in Chicago. "Perhaps it starts as nothing but a small kernel inside them, but as they grow older and learn more, the desire eventually becomes all-consuming."

"Historically, there's been a much lower proportion of the black population in entrepreneurship" relative to their numbers in the population, says Timothy Bates, professor of urban and labor affairs at Wayne State University in Detroit. "Today, [there is] tremendous growth in [black] self-employment." Apparently Johnson, who jumped off the corporate fast track to start his firm, is part of a growing trend.

From The Trenches

For Elizabeth Lisboa-Farrow, becoming an entrepreneur meant having to overcome a number of obstacles-not the least of which were the expectations of her Puerto Rican family.

"In the Hispanic culture, you're pushed by your family to get married young and have children," explains the Washington, DC, entrepreneur. "I wasn't exactly working out the way my family had envisioned. I remember turning 30 and getting a call from my brother saying, 'Don't you think you should be married?' I replied, 'I don't think so. What I'd really like to do is start my own business.' "

That was 18 years ago. Today, Lisboa-Farrow sits proudly at the helm of Lisboa Associates Inc., a $2 million communications firm. And more and more women are choosing the same path: Nearly 8 million women in the United States own businesses.

Despite the progress, "obstacles do exist," Lisboa-Farrow admits. "I remember going to the Pentagon with two of my male staff members. The project director responded immediately to the guys-and thought I was a secretary! It's a constant education process we as women and as minorities have to work at."

From The Trenches

It was a gamble," says Jill Duval of her decision to finance Duval Publications with credit cards. "But if that's your only option, that's what you have to do."

More than 50 percent of women use personal resources, including credit cards, to start their businesses, says Betsy Myers, White House director for women's initiatives and outreach.

Duval, whose Albuquerque, New Mexico, firm publishes magazines and business directories, has since paid off many of her cards, but she emphasizes this financing method is risky business: "Make sure you can pay it back so you don't ruin your credit."

Resources

National Minority Supplier Development Council Inc., 15 W. 39th St., 9th Fl., New York, NY 10018, (212) 944-2430

Business and Professional Women's Foundation, 2012 Massachusetts Ave. N.W., Washington, DC 20036, (202) 293-1200

U.S. Hispanic Chamber of Commerce, 1030 15th St. N.W., #206, Washington, DC 20005,

(202) 842-1212

National Association for Female Executives, 30 Irving Pl., 5th Fl., New York, NY 10003,

(212) 477-2200

U.S. African American Chamber of Commerce, 117 Broadway, Oakland, CA 94607,

(510) 444-5741

National Association of Women's Business Advocates, 100 W. Randolph, #3-400, Chicago, IL 60601, (312) 814-7176

The Office of Women's Business Ownership, Small Business Administration (SBA) Central Office, 409 Third St. S.W., Washington, DC 20416, (202) 205-6673

Minority Enterprise Development Program, SBA Central Office, 409 Third St. S.W., Washington, DC 20416, (202) 205-6410