It’s easy to get distracted by the news. 2023 has been a relentless cycle of conflicts – the ongoing Russia/ Ukraine war, civil war in Sudan, gang violence in Haiti, the expanding war in Gaza/ Israel, the trade and tech war between China/ U.S., daily gun violence… All of these conflicts matter deeply to Next Streeters. But there’s a fresh conflict that has reminded us of why our firm exists: to help every small business realize their potential.
Inspired by the Supreme Court ruling on affirmative action and under the veil of a war on woke capitalism, there is an assault on small businesses, the very foundation of the U.S. economy.
The Dismantling of Equitable Economic Progress and the Downstream Effect on Small Businesses
We know it takes a village to help small businesses grow. Larger organizations support entrepreneurs and small businesses as suppliers and buyers of small business goods and services. They also fund programs intentionally focused on helping small businesses thrive.
Historically, longstanding discrimination has limited access to small business support for diverse populations and women. While many U.S. small business owners leverage resources from larger organizations, white-owned entrepreneurs and business owners can also lean on families, friends, and professional networks to help them overcome business obstacles. For black, brown, and other historically excluded entrepreneurs and small business owners the resources provided by governments, foundations, corporations, and other organizations offer vital support that might not be otherwise available due to systemic barriers.
Since the Supreme Court ruled at the end of June that affirmative action in university admissions was unconstitutional, there have been ongoing legal attacks on organizations to curb race-conscious programs around the country, even to those that do not fall under the ruling itself. These attacks have spread beyond academia to affect entrepreneurs and small business owners of color, the fastest growing small business segment. Recent examples include:
- A racial discrimination lawsuit was filed and subsequent court actions were taken against the Fearless Fund, a venture capital fund that supports black women-owned small businesses, blocking the organization from awarding $20,000 grants to black female entrepreneurs.
- The state of Massachusetts was sued over an Inclusive Recovery Grant program. This paused the delivery of grants up to $75,000 to small businesses owned by women and people of color recovering from the pandemic.
- A NY-based cannabis license program was suspended after a lawsuit was filed against the prioritization of minority- and women-owned businesses.
- Progressive Insurance and Hello Alice were sued for offering $25,000 grants to black-owned businesses, putting into question the future of these intentionally-focused grant programs.
- A federal judge required the Small Business Administration’s 8(a) Business Development program to strike a race-focused provision of the program, meant to open a pipeline of government contracting dollars for historically disadvantaged groups, causing thousands of small businesses to scramble to access this program.
Without pronounced action, these lawsuits may just be the tip of the iceberg. Organizations from corporations to foundations are taking note of what’s happening following the Supreme Court’s ruling. In addition, coupled with lawsuits targeting corporations’ small businesses DEI programs, some firms are pulling back their Diversity Equity and Inclusion (DEI) initiatives. Following the murder of George Floyd, companies were eager to talk about and ramp up their diversity initiatives. Now for some, at the sign of real testing, there is a reluctance to do so. Mentions of DEI on earnings calls and at conferences among Russell 3,000 Index companies fell by 54% in the third quarter, according to data compiled by Bloomberg.
Some investments in small business initiatives, particularly those focused on business owners of color, have shrunk or been shelved. This will adversely affect the growth of small businesses that rely on programs to help them navigate the choppy waters of owning a business. If investments in small business owners of color continue to be pulled back, there may be catastrophic effects for our economy, which hurts us all.
Why a Focus on Business Owners of Color Matters
In January, the Census Bureau released data showing that Americans have applied to start 10.5 million new businesses over the last two years, making 2021 and 2022 the strongest two years on record for new business applications. Americans filed about 5.1 million business applications in 2022, nearly 14,000 a day, up from 3.5 million in 2019.
For several years, black and brown–owned businesses have been the driver of that growth. For example, black business ownership increased by nearly 30% post-pandemic, compared to pre-pandemic levels. And black business owners reported a 23% increase in annual revenue (twice as fast as overall U.S. employer businesses) and added employees at double the rate.
Small businesses continue to fuel the U.S economy. In addition to being the bedrock of our economy, small businesses are the soul of our local communities and drive innovation. Small businesses account for:
Investing in small businesses of color makes sense. It’s not just that the population is shifting whereby minorities will be the new majority in the next twenty years. As Supplier.io notes, the economic impact is undeniable for jobs, tax revenue, and wealth creation. McKinsey says that if spending with MWBEs doubled to two trillion, the move could generate $280 billion in additional income and four million jobs. McKinsey also calculated that if enterprises directed 40 percent of the funds they have already committed to MWBEs to high-growth economic sectors, it would generate more than 190,000 jobs and $15 billion in additional income.
Keeping the drumbeat
It’s been three months since the Fearless Fund was sued for operating a program that helps more of our citizens contribute to our economy and community. Yet, it was deemed a ‘racially discriminatory program’ in violation of Section 1981 of the Civil Rights Act of 1866. Since that time there has been an ongoing assault on small business programs, particularly those focused on businesses owned by people of color.
The good news is that the Fearless Fund, Hello Alice, and many of the organizations we work with are not giving up. In a recent interview, Arian Simone, Fearless Fund’s Co-Founder and CEO said, “I am pretty resilient. The word fearless is not just the company name…. I am going to keep pushing.
Nor are we giving up. In the words of Elie Wiesel,“There may be times when we are powerless to prevent injustice, but there must never be a time when we fail to protest.”
At Next Street, we stand firmly behind our mission and values. We continue to believe that targeted, race-conscious policies and programs will unlock small business potential and propel economic growth. That means we will:
- Continue to keep the focus on the fastest growing segment of small business: the black and brown business owner. What’s at stake is not only the future of small business but also the growth of the U.S. economy.
- Call out organizations to deliver on the commitments they shared around small business and racial equity following the murder of George Floyd and encourage them to deploy the remainder of the $340 billion that has yet to be distributed.
- Bring together coalitions focused on intentional race-based small business programs and recommend others in our space do so as well. The power of numbers is real.
- Make the business case for investing in businesses of color and demonstrate the real impact through our work across the U.S.
While discord rages on across the world and at home, there’s still something you can and should do to sustain our economy, our local communities, and our entrepreneurs and small business owners. We encourage you to join us to make a difference. In addition to purchasing goods and services from small businesses, don’t forget to hold organizations accountable to their small business commitments and continue to call out the injustices that are affecting small business owners of color.
For Next Street and our partners, we will continue to deliver on our mission to ensure the prosperity of small business owners and entrepreneurs, particularly those that have been historically held back.