Confronting the Odds

African American Entrepreneurship in Cleveland, Ohio

Bessie House-Soremekun

• Publisher: The Kent State University Press
• Year: 2009
• ISBN:
  9781612775647
• Topic: Geschichte
• Subtopic: Nordamerikanische Geschichte

The history of African American entrepreneurship has produced a number of studies of economic development on the national level, but very few have examined this growth at the local level. Confronting the Odds was written to bridge that gap, and Bessie House-Soremekun provides this historical analysis of African American entrepreneurship in Cleveland, Ohio, from the early 1800s to the present. Additionally, in examining these historical and current trends, House-Soremekun presents brief biographies of several successful entrepreneurs, among them George C. Fraser, best-selling author; Robert P. Madison, internationally acclaimed architect; Leroy Ozanne, founder of Ozanne Construction Company; and Rachel Y. Daniel, Chief Customer Experience Officer, Synergy International Limited, Inc. and Decision Point Marketing and Research, Inc.

House-Soremekun's statistical analysis of the factors that contributed to the success of African American businesses in Cleveland is supported by extensive research, and her policy recommendations about how entrepreneurship could be stimulated through public and private programs are thought provoking. Confronting the Odds documents life histories of business owners, compares African American male and female business owners, and offers insights into why some businesses succeed and others fail.

CHAPTER ONE

African American Entrepreneurship at the National Level

Since the 1970s, there has been a tremendous increase in the number of African Americans who are interested in entrepreneurial activities.¹ This interest includes an increasing sense of urgency on the part of African Americans to master the “art of entrepreneurship.” They want to do it well. In March 2000, I made a presentation about important business issues and trends for northeast Ohio that emanated from my research to the Greater Cleveland Minority Technology Council. During the presentation, I used various charts and graphs to explain my research design, my overall approach, and specific implications of my work. About halfway through the presentation, one of the black entrepreneurs in the audience raised his hand and indicated that he was especially interested in knowing what factors lead to success and failure. He asked, “What is the bottom line?” This question was important because getting to the heart of the matter, or the bottom line, is the major purpose of my work. As I have stated elsewhere, “A study that examines the variables which enhance the long-term survival of African American businesses is particularly germane at this point in time because during the past few decades, the number of businesses which are owned and operated by African Americans has proliferated to a large degree. The increase in the number of African Americans who are now ‘self-employed’ is attributable to the fact that economic development is seen by an increasingly larger number of African Americans as a viable and practical avenue for long-term economic survival.”²

Toward that end, numerous conferences and economic development summits have been held through the years to examine the economic conditionalities of African American people.³ My own study emerges at a time when there is a need and interest on the part of African Americans to master what the Reverend Jesse Jackson refers to as the final frontier, the economic sphere. His Rainbow/PUSH Coalition Wall Street Project, launched on the birthday of Martin Luther King, Jr., in 1997, has been instrumental in calling national attention to the needs of America’s own underserved market, which he argues “contains more than sixty million people, about 25 percent of the American population” and “commands more than $600 billion in annual earnings.”⁴ This means that, when it is compared to the major economies of the world, it ranks fifteenth. This emerging market consists of the minority population of the United States, which is largely African American, Latino, and urban.⁵

Economic development and self-reliance have long preoccupied African Americans. Yet, the African American community has fallen far short in achieving its goal of attaining genuine self-sufficiency and wealth creation for the long term. The tremendous gains for African Americans in politics since the sixties are not matched in the economic arena.⁶ As Melvin Oliver and Thomas Shapiro remind us,

Full equality, however, is still far from being achieved. Alongside the evidence of advancement in some areas and the concerted political mobilization for civil rights, the past two decades also saw an economic degeneration for millions of blacks, and this constitutes the crux of a troubling dilemma. Poor education, high joblessness, low incomes, and the subsequent hardships of poverty, family and community instability, and welfare dependency plague many African Americans. Most evident is the continuing large economic gap between blacks and whites. . . . Since the early 1970s, the economic status of blacks compared to that of whites has, on average, stagnated or deteriorated.⁷

More recent information from the Census Bureau indicates that the racial divide is not diminishing. Family inequality between blacks and whites is still high. In 1999 the median income of African American homes was $27,900, while the figure for whites was $44,400.⁸ In 2007, the median weekly income for black female workers was $540 which was only 69 percent of the earnings generated by white men. The median income for full-time black male workers was $585 per week, compared to $783 for white male workers.⁹ A growing body of data suggests that the economic position of the black family is still more a function of current income than it is of wealth accumulation over time, which is a better long-term barometer of a person’s economic well-being. As Oliver and Shapiro have suggested,

Middle-class blacks, for example, earn seventy cents for every dollar earned by middle-class whites but they possess only fifteen cents for every dollar of wealth held by middle-class whites. For the most part, the economic foundation of the black middle class lacks one of the pillars that provide stability and security to middle-class whites—assets. The black middle class position is precarious and fragile with insubstantial wealth resources. This analysis means it is extremely premature to celebrate the rise of the black middle class. The glass is both half empty and half full, because the wealth data reveal the paradoxical situation in which blacks’ wealth has grown while at the same time falling further behind that of whites.¹⁰

Several noteworthy studies have provided analyses of blacks’ historical struggle to achieve economic independence through their participation in entrepreneurial activities in the United States. Although numerous studies have been performed through the years, in this section I discuss a few that have particular significance for my work. Hence, this is not an exhaustive discussion of the entire literature.¹¹ John Sibley Butler and Juliet E. K. Walker have made significant contributions to our knowledge base regarding the extent of black business involvement in the American economy. Walker provides an extensive historical overview of the development of black businesses from the 1600s to the present and analyzes various areas of black business activity, which include participation in real estate, land development in urban and rural areas, building, and construction, as well as hair care, manufacturing, and international trade. Butler’s study documents the tremendous tradition of black business activity and self-help that existed among black people and that he believes has been omitted by many contemporary scholars who conduct research on ethnicity, race, and economics.¹²

One of the most interesting contributions of Butler’s book is his application of the “economic detour” theory to African American behavior. The idea behind the theory of the economic detour is that following the Civil War, in particular, African Americans were prevented by law from developing and operating their own indigenous enterprises in the open, competitive marketplace. Although other ethnic communities, such as the Japanese, were able to build up a clientele that was largely outside their own ethnic community, this was not true for most African American owners. When blacks were able to develop some sort of clientele outside their own ethnic enclave, they were apt to be more successful. Therefore, enormous differences emerged as European middlemen minorities had the opportunity to develop a market and other types of advantages, while African Americans became basically consumers, rather than producers. Governmental legislation had the end effect of circumscribing the development of African American businesses into very restricted markets or racially segregated areas.¹³

Timothy Bates identifies several key factors that are positively correlated with economic success for African American entrepreneurs. First, larger-scale firms have better chances to survive. Second, the age of a firm is important; survival chances increase with the age of the firm. Third, educational background is also important. Owners with lasting firms were usually those who had attended college for four or more years. Fourth, firms were also more likely to survive if their owners had invested sizeable amounts of financial capital into them. Fifth, firms that were purchased in buyouts have a greater likelihood of succeeding than those that started from scratch. He also pointed out that two other characteristics are important in firm survival: the owner’s labor contribution in terms of the number of hours worked, and managerial expertise. Of these characteristics, the gap between white and black owners was considered to be more fully explained by the difference in the owners’ financial investment in their businesses.¹⁴

Bates posited that the three most important factors that continue to prevent entrepreneurial success by black owners are the difficulties they experience with regard to the acquisition of financial and equity capital, their business location, and increasing challenges to the constitutionality of assistance programs earmarked for minority-owned firms. Business location becomes a crucial factor, particularly for black businesses located in inner-city communities. In such areas, minority entrepreneurs must contend with the reality that these locations are frequently redlined by financial institutions, which significantly decreases the likelihood they will receive the appropriate amount of capital needed for their businesses to succeed. Additionally, the clientele who reside in these economically disadvantaged communities often have little purchasing power. Consequently, some entrepreneurs decide to move to other areas.¹⁵

A number of scholars have pointed out that one of the most important variables with a direct bearing on the economic outcomes of business owners is their social capital. Social capital can be defined as resources acquired from kinship networks, peers, members of one’s own family or community, business entities, or other groups that provide various types of help to the business owner. These may include the provision of entrepreneurial role models, informal training in various community activities, financial support that one may acquire outside the umbrella or network of formal commercial lending institutions, the development of labor resources (i.e., employees), customers, and business clients.¹⁶

Gavin Chen and John Cole found that Asian and Hispanic firms are similar to nonminority businesses in the sources that they rely upon for capital, in the cost they pay for their capital, their total capital investment, and their access to capital. One of the most interesting findings of their study was that black firms have faced discriminatory barriers in their acquisition of all sources of capital, which greatly impeded their access to capital resources, increased its cost, and ultimately affected the overall profitability levels of their firms. This led to a situation in which black firms tended to have a lower level of capital composition, both at the time of the start-up of the firm and later on during the operational phase of their businesses. The only exception to this general pattern occurred in instances where both minority and nonminority financial institutions avidly competed for the patronage of black businesses, which led to a situation where the cost of borrowing funds was reduced and the availability of funds increased.¹⁷

Asian entrepreneurs received more economic support from their friends, family members, and the community at large than their business counterparts in other minority groups. For example, the authors found that the Asian community provides about 18 percent of the investment debt capital for its business sector, compared to 9 percent for nonminorities. The figures are 13 percent for Hispanics and 8 percent for blacks. Furthermore, Asian owners were also able to get financial assistance from the previous owners of their firms more than any other groups in the study (i.e., black, Hispanic, and nonminority owners). This phenomenon could be attributed to a number of factors, which may include the fact that the Asian owners in the study were more open or willing to buy out risky firms or that the former owners of the companies may have had a positive opinion of the ability of the Asian entrepreneurs to become successful because of a perception that they are hardworking and diligent. Whatever the case, a number of scholars have suggested that having strong social capital networks is a positive factor in attaining economic success. Hence, this factor has undoubtedly aided in the tremendous economic success that some Asian entrepreneurs have experienced thus far.¹⁸

Frank Fratoe utilized data from a 1982 Characteristics of Business Owners (CBO) survey to compare and contrast the use of social capital by black entrepreneurs and other ethnic groups, such as Asians, Hispanics, and nonminorities. One major strength of this study is that national and subnational level data were used to examine the issue of social capital. These issues had been examined in a much less systematic manner in the past. The CBO database included information on 125,000 people who owned businesses in 1982, and the sample was divided fairly equitably among the Hispanics, blacks, and other groups included in the study. It also included women and nonminority males. Although the database included information about the entrepreneurs on a number of important issues such as marital status, educational attainment, previous business experience, and hours worked per week, Fratoe relied largely on selected variables that related more to the use of social capital.¹⁹

Fratoe’s study makes an important contribution to the literature on minority businesses because several writers have previously asserted that one reason blacks have been less involved in entrepreneurship relative to other groups is that less support has been made available to them by the black community and black institutions. His analysis of this issue allows him to delve more deeply into issues such as this in order to empirically assess to what extent these postulations are credible when using comparative national data on minority and nonminority businesses.

A small number of black business owners (about 21 percent) indicated that they had relatives who were also entrepreneurs. This was in stark contrast to nonminority male owners, whose percentage of relatives who were self-employed was almost twice the level of the black owners in the study. Fewer black owners had attended college for four or more years (25 percent), as compared to the Asians (42 percent), and nonminority m...