COVID-19 is having a disproportionate impact on Black lives and livelihoods, and in the case of Black-owned businesses—which draw some 40 percent of their revenue from sectors that are most vulnerable to the virus—that impact raises concerning implications for the future of Black wealth creation.
Black families in the U.S. possess about a tenth of the wealth white families do. If that wealth gap were closed, $1 to $1.5 trillion in economic output could be created. According to Shelley Stewart, a partner in our Marketing and Sales Practice who co-leads our research on Black wealth creation, increasing Black business ownership would play a key role in doing so.
The median net worth for Black business owners, Shelley explains, is about 12 times that of Black non-business owners. And if all minorities owned businesses in proportion to their share of the labor force, we would see up to one million new businesses, nine million jobs, and $300 billion in worker income added to the U.S. economy.
Shelley explained how that might happen—and why it hasn’t already—in a keynote presentation at accelerateHER during London Tech Week, an event that drew some 20,000 virtual attendees across 11 days. Immediately following his keynote, Shelley then co-convened a virtual roundtable alongside five other McKinsey leaders to brainstorm actions and initiatives that businesses, government, and investors could individually and collectively take to help address this issue. After the event, we caught up with him to learn more.
Is this just a matter of inspiring more Black entrepreneurs?
It’s about so much more than that. Twenty percent of Black Americans are starting or running new businesses right now—more than any other ethnic group. But only four percent of Black Americans run businesses that are older than three-and-a-half years. And the average Black-employer business earns only $858,000 in annual revenues; their white-employer counterparts earn $2.4 million.
In addition, an analysis of nearly 10,000 founders and 135 of the most active venture capital firms in the world found that less than one percent of VC-backed founders are Black. This—again—is despite a nearly 20 percent rate of entrepreneurial activity by Black founders versus 12 percent of white founders.
What are some of the factors that limit opportunities for Black-owned businesses?
First, there’s the legacy of historical forces that have created a vicious cycle of persistent and systematic differences in opportunity for Black people in the United States. Black people have been ignored by markets, excluded and distrusted in society, and subjected to numerous structural barriers, including unfair rules and policies that have prevented their rise.
Beyond that, this is very clearly an issue of a lack of representation among decision makers in the institutions that are deploying capital and among people who design processes that allocate capital. That lack of diversity creates a gap in understanding amid the ecosystem of founders, and it means that, far too often, Black businesses simply don’t get funded.
Are organizations aware of that lack of representation?
I think they’re aware, which raises a different and more important question—why is this the case? There’s enough research out there, including by our firm, that shows diversity of teams and thinking drives greater returns and opportunities to tap new customers and segments. So, I think it likely has to do with the way these institutions source their talent, and how they think about the availability of talent. It’s clear that the talent is there—but are we willing to do something different to find it?
How do leading organizations think about talent sources right now?
Even organizations that have a long history of recruiting at a number of contained schools have over time tried to think about expanding the funnel. This includes not only looking more at historically black colleges and universities but also at some of the big state systems of higher education, many of which offer big tuition incentives for top students of color or from disadvantaged communities.
They’re also evaluating recruiting processes to ensure they’re as free of bias as possible, and they’re investing in talent development to ensure these efforts don’t end the moment a talented person of color walks in the door. They’re working to make sure people who may have unique needs are supported in their career development all along their journey.
What role can government play?
Governments at the federal, state, and local levels have budgets that they can deliberately put to work for Black-owned businesses. They can deploy dollars to support small business investment, and they can also play a role in buying goods and services from Black-owned businesses in their vendor selection and support processes. In government pension funds, they can find diverse fund managers and ensure those people deploy capital among diverse businesses. And finally, government has a role to play as a watchdog. Even among good processes, you may still have bad actors or clusters of bad actors, and governments can help combat bias and discrimination.
How did people react to your keynote presentation on this at London Tech Week?
The thing I’ve been hearing the most is that people are thankful that we’re out there speaking truth to the facts that lay bare these inequalities. There’s a lot more work for us to do on the dissemination side, but it’s gratifying to hear that this message resonates.
What about the Black Lives Matter movement. Is that spurring change?
I’m hopeful that some of the impacts from this moment will be deployed in a way that is sustainable. I see institutions making a series of commitments, but it’s important to make sure that those commitments are sustainable over time, even when public attention is not as focused on this issue.
Finally, what’s your personal outlook on the possibility of progress?
I’m optimistic in the sense that we’re having a national debate and discussion about a lot of these issues of injustice. We’ve seen numerous commitments from large corporations, and I’ve been in executive forums where these issues are being discussed with a new level of urgency and commitment. But change won’t happen just because people make commitments. We have to hold ourselves and these institutions accountable for the right metrics and right measurements that indicate real progress.