Why Are There So Few Minority Owned Startups?
Sat, Jun 4, 2011 by Zuly GonzalezThe 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.
My 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?
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 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.
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.
I’m admittedly not as “culturally aware” as I probably should be but of the Indians I know over half own their own businesses, and most are fairly successful.
I also wonder if culture may steer some ethnic groups towards certain fields of study (engineering, business, the arts, etc). Of the time we worked together while in college I can only recall five of our fellow college age engineer co-working being a minority, of which you were one.
I think it’s possible. I think culture plays a big role in our lives. But I think it has mostly subconscious effects, because it’s not something that people within the culture stop to think about. This makes it hard to determine exactly how much of an impact our culture has on the decisions that we make. Fields of study may certainly be one of them.
Thanks for sharing your thoughts!
I disagree about Hispanics being less entrepreneurial than Whites or other races. If you look at the amount of small businesses in Mexico, Central and South America you’ll be surprised with the amount of small business owners. If you visit one of these countries you’ll find hundreds of tiny businesses around you, they are often called micro businesses and are usually run by one person or a small group of individuals, micro-entrepreneurs.
The small percentage of Hispanics entrepreneurs in the US is probably due to factors such as language barriers, difficulty to get capital, etc… Nearly a quarter of Mexico’s workforce is self employed, with people running from little street shops and restaurants to larger established businesses and firms offering many different products and services. However, it is also true that in the US, only about 6% of Hispanics are entrepreneurs.
I know many people (Hispanics) who are always looking to start businesses in industries other than technology and thus don’t get the recognition or attention that other folks get when creating something that can be written about in a site such as TechCrunch. These are entrepreneurs that are not technology oriented but still entrepreneurs looking to succeed with businesses such as restaurants, retail shops, non-technology services and the like… this is not the type of business that angel investors are interested on.
I agree with you about not being able to offer any more help than what is currently offered to minorities. I guess that just by having conversations about this topic and bringing it to the attention of more people would help. Also, as more minorities become successful entrepreneurs, it would be beneficial if they take some time to share their knowledge with other minorities to encourage them about starting businesses and even offering support in the form of capital and or mentorship.
Great comments, and thanks for the statistics!
I agree, there are a lot of Hispanic owned businesses outside of the tech arena. The same can be said for women owned businesses. There are very few female tech founders, yet there are a lot of female owned businesses in other areas.
The purpose of this post was to focus on the lack of minority owned tech startups, not minority owned small businesses in general. I got very similar feedback from someone else, so I obviously wasn’t very clear about that. After re-reading my post I can see where the confusion may be – I used the generic label entrepreneur on a couple of occasions. I wanted to focus only on tech startups because that seems to be where the biggest gap is. (Plus I believe that was the intent of the original question I linked to.)
So the question becomes, why don’t Hispanics start tech businesses? I’m sure there are lots of things that contribute to this, but something that came to mind yesterday was that in general the Hispanic culture tends to be more family oriented than the American culture. (And for the record, that’s not meant as a criticism for either culture.) Because of the nature of tech startups, my guess is that they require a lot more time away from home to be successful. I don’t know if I’m right about that, but it seems like a reasonable explanation to me.
I should also point out, that I’m only focusing on this issue within the US. I don’t consider Mexicans a minority in Mexico.
Thanks for taking the time to share your thoughts with us! Feel free to share any additional thoughts you may have.
Hi Zuly,
I am a “double” – hispanic female – as well, trying to raise angel capital for a company I am starting in the wine & spirits category. Do you have recommendations for groups to go to, or a full list of the minority-owned/led investment groups you referenced in your statistics?
Hi Romina,
Congratulations on starting your own business! This must be an exciting time for you.
The paper I referenced did not provide a list of the minority angels included in the study. Here is a link to it anyways, in case you are interested: http://wsbe.unh.edu/sites/default/files/2010_analysis_report.pdf
AngelList is currently the best list of angel investors available. You can find it here: http://angel.co, and that would be my recommendation to you. AngelSoft.net also has a big list of investors here: http://angelsoft.net/startup-tools/investor-search.
Also, see this link for additional angel lists: http://answers.onstartups.com/questions/3547/looking-for-a-list-of-angel-investors
And some recommendations on how to get introductions to investors can be found here: http://answers.onstartups.com/questions/20025/how-to-get-introductions-to-investors
Best of luck to you! I wish you much success!
Zuly
Zuly, find my group and coming service to keep track of them: http://www.facebook.com/home.php?sk=group_142003655869825&ref=ts
@startuplatino
LP
Thanks for sharing, Louis.
I am not completely comfortable with the statement that Hispanics are less entrepreneurial, but I do agree that there is a cultural component buried, not too deeply, in there somewhere.
I think, we are very entrepreneurial, though we have some catching up to do in this new world of technology. Even though many of us are 3rd, 4th generation, and more, we are still tied to our third world countries in some way. Many of us are just escaping the cycle of poverty, or establishing education as a viable option for each following generation and not just entering the workforce.
When it comes to this new world of technological entrepreneurship, we are also a little behind, fourth world maybe, remember the term, digital divide? Of course, there are still the issues of lack of opportunities, education, and yes, racism that we must face.
Lastly, the cultural thing is there. I think it’s not a lack of entrepreneurship, it’s a lack of support among ourselves. I find that many of our own have the me first attitude, are so desperate to make it they put the blinders on and don’t help each other if they are not the one steering. I feel this may just be the case with any people on the rise from one state to another, but it surely is one of the biggest things holding us back.
Thank you for your original blog post.
Inti, great points.
Yes, in retrospect, the phrase “Hispanics are less entrepreneurial” was not the best choice of words. That phrase was meant to point out the low number of Hispanics starting businesses in the tech field.
I’m not sure the lack of support among ourselves is a result of the me first attitude. I think we are very giving people. My guess is that this is related to a mentality that only focuses on short term gratification, and ignores the long term. Poverty and lack of opportunities and education probably play a role here.
Thanks for taking the time to read my post and share your experiences.
I don’t like American “gusto.” Americans are usually pushy, unnecessarily fast-paced, and impatient. Their inflections are usually disconcerting.
I’m going to block any abstraction or philosophically argument.
I just don’t like having business meetings with Americans. They’re obnoxious. I’d rather write code or conduct business with another “minority.” But the pool is disproportionate as it is.
Then, of course, there are the minority groups that try to mimic American business style.
Which is even worse.
It’s the same with musicianship and touring, I bet. And the arts.
I’m not sure why this should be considered a new problem, though maybe a newly discovered one in a newly discovered industry.