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ED Now Feature: How to Help Disadvantaged Entrepreneurs: Part One
Eli Dile   on Monday, June 18, 2018 at 9:03:00 am

By Della G. Rucker, AICP, CEcD                                                                                      

Entrepreneurs are unique people -- they want to move fast, they’re obsessed with their vision, they’re inclined to do everything themselves, and they’re overwhelmed. Especially when they finally confront the fact that they can’t do everything themselves.

Entrepreneurs typically solve problems by leaning on their network. They get advice from a colleague, they contract for professional support, or they leverage their reputation to get someone to support them. But what if it’s a weak network? What if it’s not big, diverse, supportive, or flexible enough?

Disadvantaged entrepreneurs come in every color, every place, and every type of business. Some are disadvantaged because they are new to a place. Some are disadvantaged because of decades of deep-seated discrimination and rejection. Some are disadvantaged because they look different from the people around them, while others are challenged by issues the casual observer cannot see.

There’s no simple solution to addressing these barriers, and when we pursue simple solutions, we can do more harm than good. But if we listen and learn, we can make our communities more equitable for entrepreneurs of all backgrounds. 

Who is a disadvantaged entrepreneur?

A policy brief from the OECD describes disadvantaged entrepreneurs as “women, youths, seniors, unemployed, disabled, ethnic minorities and immigrants who run a business.”[1] That’s a rather broad definition, and most others are even less specific. Fundamentally, a disadvantaged entrepreneur is one who, due to some inherent characteristic(s), is likely to encounter barriers to entrepreneurship that a non-disadvantaged entrepreneur would not encounter. Disadvantages may be:

  • Structural, such as credit or citizenship requirements;
  • Cultural, such as racist or sexist attitudes on the part of decision-makers;
  • Interpersonal, such as communication barriers;
  • Informational, such as knowledge about standard bookkeeping practices; and
  • Material, such as lack of legacy family wealth.

And of course, disadvantages often overlap, such as a woman of color unable to access conventional credit due to a previous family financial crisis, or an immigrant unable to understand a property lease due to a language barrier. Supporting entrepreneurship among disadvantaged populations, therefore, requires a high level of sensitivity to the ways these disadvantages manifest.

Simply providing disadvantaged entrepreneurs with money (or making it cheaper for them to operate) is not always the solution. Yes, many of them lack access to funding, but that’s often a symptom of a larger challenge. If that deeper issue isn’t addressed, the strings attached to the gift, grant, or loan may disadvantage that entrepreneur even more. Consider this scenario, based on an experience at a previous organization I worked with.

An African-American woman of Jamaican heritage wants to start a food stand in a local market to break her family out of a low-income job cycle. An upper-income person hears her tell her story and gives her a no-interest loan of $10,000. She opens a small shop in the market and sells jerk chicken dishes to an appreciative audience.

The entrepreneur is a good cook, but she buys the ingredients at the local grocery store rather than from a commercial supplier, which raises her expenses. She buys new kitchen equipment because the supplier is also Jamaican, and she feels comfortable with him. But she does not check his prices against other suppliers. Since she needs to take care of her daughter after school, she recruits her sister to help manage the shop, but the sister has no patience with customer questions and has trouble using the point-of-service software.

Over the first six months, the shop’s expenses increase faster than sales. The entrepreneur finds that she can’t judge how much food she needs to buy because the inventory tracking system is not accurate, and she must discard a couple hundred dollars’ worth of inventory every few days. Arguments with her sister become more intense. She tries to find ways to reduce costs, but the equipment she purchased is on a fixed contract that she cannot break without incurring additional costs. Meanwhile, the loan provider sees that the shop is popular and starts pressuring her to pay back the loan. When she explains that she does not have the money for repayment, the loan provider suspects she is lying.

It’s not difficult to envision this scenario ending badly. The entrepreneur may have to take a night job, which will impair her ability to find more creative solutions for her supplies and equipment. Her relationship with her family may be damaged, leaving her and her daughter more socially isolated. And if the business is not generating enough profit to pay back the loan according to terms, chances are slim that she has the personal savings to cover it.

In this scenario, the loan did not solve her true challenges and may have made things worse.  

Why networks matter

In the previous scenario, the entrepreneur needed help from people who had access to loan capital, equipment, ingredients, flexible labor, and more. Note where her help came from. Her flexible labor came from someone with whom she has a complex and highly personal relationship. Her equipment came from someone she decided to trust because they had a shared background. Her foodstuffs came from a consumer retailer because she did not have a better source.

Our ability to benefit from the people and organizations we know is called our social capital. Social capital has two dimensions: the number of people we know, and the degree to which we share with them some norms of behavior (i.e., assumptions and expectations) that make it easy to get help when we need it. Social capital determines if an entrepreneur can access the help they need, whether that help is information, support, funding, or something else.

Very often, when we look closely at disadvantaged entrepreneurs, we find networks with limited social capital. We can fund, we can educate, we can provide storefronts and mentors and grants, but if we are not intentionally building their access to social capital, chances are they will not be successful.

[1] “Sustaining self-employment for disadvantaged entrepreneurs A background paper for the OECD Centre for Entrepreneurship, SMEs and Local Development.” Dr. Robert Blackburn and Dr. David Smallbone, 2014.

Look for part two of this series, which will explore strategies to build stronger networks for disadvantaged entrepreneurs, in the next edition of ED Now.

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Della Rucker is a principal with Wise Economy Workshop and co-founder/operations lead for Econogy Talent Group.

 

 

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