Why Are There So Few Minority Owned Startups?

Sat, Jun 4, 2011 by

The question, Why are there so few minority owned startups?, came up on a startup Q&A site I participate on. The question stemmed from a study by the Center for Venture Research that stated:

Minority angels accounted for 2% of the angel population and minority-owned firms represented 6% of the entrepreneurs that presented their business concept to angels. The yield rate for these minority-owned firms was 19%, which for the fourth straight year is in line with market yield rates. However, the small percentage of minority-owned firms seeking angel capital is of concern.

I started to write an answer to the question, and then decided to turn it into a blog post. Here it is.

African Americans in business meetingMy Perspective

I’m a “double minority” – a Hispanic female.

There are very few females and Hispanics in the tech startup world. Not only are there few women and Hispanic startup founders, there is a lack of them in the startup scene in general. I have wondered about this a lot. I’ve thought about all the usual reasons people say there is such a lack of minority owned startups, but none of these reasons made much sense to me. Then about a month ago, it finally dawned on me. It’s the culture.

The Answer – Culture

There are some cultures that are more entrepreneurial than others. That’s just the way things are. For instance, Indians are considered a minority, yet they tend to be very entrepreneurial. The same can be said for other Asian cultures. So the general minority tag doesn’t work here. Instead we need to separate each of these minority groups and look at them independently. What you’ll find is that certain groups/cultures are more business minded than others.

Hispanics and African Americans tend to be less entrepreneurial than Whites. Why? Because of the difference in cultures. The real issue comes from within the culture itself, and has little to do with external factors (contrary to what many believe). Unfortunately, culture is an intangible, which makes it hard to point to specific notions within each culture that contribute to being one way or the other. The best I can think of is to look at what kind of behaviors are encouraged within each culture. Starting your own business is not something that is encouraged in all cultures.

So my opinion is that this really isn’t a problem. It’s perceived as a problem by many entrepreneurs, because we think this is the road to happiness, but it’s not really a problem. It only becomes a problem when there is a big percentage of minorities that want to start a tech business, but can’t. However, the reality is that a majority of people in certain groups just aren’t interested in tech startups. And of the small percentage that are interested, their success rate seems to be in line with non-minorities.

In fact, the quote from the study backs up my suspicions:

The yield rate for these minority-owned firms was 19%, which for the fourth straight year is in line with market yield rates.

How To Increase Minority Owned Startups?

Asian business teamSo, what can we do to increase the number of minority owned startups? The answer is not much.

I don’t think our society is doing anything to discourage minorities from starting their own business. In fact, there are already plenty of programs in place to encourage the growth of minority owned businesses. For example, when contracting work, the US Government will give preference to minority, or disadvantaged as they call them, owned companies when applicable.

There’s a delicate balance between ensuring that there are enough programs in place to guarantee that those in “disadvantaged” groups that want to start their own company can, without creating a situation where better candidates from the “non-disadvantaged” group are getting turned down simply because of their race. In essence we would be doing the same thing we are trying to prevent, but to a different group of people.

We are all different, and that’s what makes this world such a great place. Some people have no desire to start a business, and that’s perfectly fine. Starting, and running, a business is a lot of hard work, it’s stressful, risky, and it’s not for everyone. And to be honest, entrepreneurs can’t succeed without those people that are happier in the role of employee than CEO. So let’s thank them for their support, and help them achieve their definition of success, not ours.

I believe we should do what we can to help those that want our help, regardless of race, color, religion, etc. Those that come from historically non-entrepreneurial cultures may need more help – because of the innate aspects of that culture – and we should be willing to give them that extra bit of help. But we shouldn’t force our idea of success onto those with different beliefs. In the end it’s about being happy, and different things make different people happy.

So, what do you think? This is my opinion based on my personal experiences as a minority. Do you agree, or disagree, with my hypothesis? I’m very interested in this topic, and would love to hear your thoughts and perspectives in the comments below.

How to increase minority owned startups?So, what can we do to increase the number of minority owned startups? The answer is not much.

I don’t think our society is doing anything to discourage minorities from starting their own business. In fact, there are already plenty of programs in place to encourage the growth of minority owned businesses. For example, when contracting work, the US Government will give preference to minority, or disadvantaged, owned companies when applicable.

There’s a delicate balance between ensuring that there are enough programs in place to guarantee that those in disadvantaged groups that want to start their own company can, without creating a situation where better candidates from the non-disadvantaged group are getting turned down simply because of their race. In essence we would be doing the same thing we are trying to prevent, but to a different group of people.

We are all different, and that’s what makes this world such a great place. Some people have no desire to start a business, and that’s perfectly fine. Starting, and running, a business is a lot of hard work, it’s stressful, risky, and it’s not for everyone. And to be honest, entrepreneurs can’t succeed without those people that are happier in the role of employee than CEO. So let’s thank them for their support, and help them achieve their definition of happiness, not ours.