About Face

Fifty years ago, the typical entrepreneur was relatively homogenous and static. He was usually a white man, sometimes working together with his family, who owned a small Main Street retail shop or a local manufacturing company. He knew most of his clients, and his company focused on local goods and services.

Today, much has changed. America's entrepreneurs are much more diverse racially, gender-wise and age-wise, and an increasing number are starting service businesses rather than manufacturing or retail companies. Economists, sociologists and small-business experts say the key trends in American entrepreneurship-growing diversity, an aging work force, a preference for starting companies that fit personal lifestyles, and a move into higher-value, global industries-are only likely to accelerate in the coming years. A decade from now, they say, the entrepreneur of the future will be drastically different from even today's business owners.

The New Face of Entrepreneurship
Perhaps the biggest change we'll see in the entrepreneur of the future is that 2010's business owner is more likely to be a woman or a minority. According to the Center for Women's Business Research, the number of privately held women-owned businesses in America grew by roughly 11 percent between 1997 and 2002, while privately held businesses as a whole grew only 6 percent. Similarly, the Center for Women's Business Research found that more than half of Asian-American and African-American women small-business owners say their firms have grown over the past three years, a significant feat in a down economy. Indeed, Joel Marks, executive director of the American Small Business Alliance, an industry trade group, notes that the number of minorities and women participating in his organization has grown sharply in recent years.

Several factors may explain why more women and minorities are starting companies. Most obviously, the percentage of women and minorities in the U.S. work force is growing as more women work and immigration increases the population of minorities, so their participation in business ownership is naturally rising as well. "Entrepreneurship is still living the American Dream" and thus appeals to recent immigrants, adds Marks.

But more complex factors also come into play. As an earlier generation of minorities began to go into entrepreneurship in the 1970s and '80s, they provided critical role models like Magic Johnson and Oprah Winfrey, who have sparked many more, younger minorities to consider starting their own companies. "There are more minority role models in entrepreneurship [today, so] entrepreneurship is increasingly seen by minorities as an acceptable way to go," says William Bradford, an expert on minority-owned small businesses at the University of Washington, Seattle.

Women and minority entrepreneurs are not only becoming more visible, but they're also becoming more vocal. As these entrepreneurs become more established members of the small- and midsize business community, says Marks, they "want to take on issues beyond the day-to-day [concerns]"-issues such as health-care reform, for example. Marks says more women and minorities now take part in lobbying in Washington or in their state capitals, pushing state governments and the federal government to address entrepreneurs' concerns.

One big concern is access to capital for minorities, who still find it hard to obtain traditional sources of funding, such as bank financing, SBA loans and venture capital. "The main thrust of the VC industry is still dominated by high tech, and there are fewer minority IT firms," Bradford says. But, he adds, minority small businesses are getting more adept at tapping alternative capital networks, such as debt financing and VC firms that focus on minority companies. In the long run, Bradford says, these alternative capital networks will provide minority entrepreneurs with more tools to raise capital. And their future success may convince the mainstream financing industry to invest more heavily in minority firms.

As minority entrepreneurs fight to stand on equal footing with non-
minority entrepreneurs, women struggle to catch up in a still predominantly male arena. America's population of entrepreneurs consists of 1.6 men for every 1 woman, says Heidi Neck, an assistant professor of entrepreneurship at Babson College in Wellesley, Massachusetts. She believes this is partly because universities don't offer classes targeting women who are interested in entrepreneurship.

It's clear women and minorities still have considerable ground to make up. But as their numbers increase, the demographics will force the business community to reassess its biases.

This article was originally published in the January 2004 print edition of Entrepreneur with the headline: About Face.