ENTREPRENEUR | DBEs Most At-Risk Right Now

Disadvantaged businesses are struggling for resources to survive

Illustration by Tony Healey

Keith Twitchell spent 16 years running his own business before becoming president of the Committee for a Better New Orleans. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.


 

This is not going to be the happiest column you have ever read, but this is a serious subject that needs to be understood and addressed. I will do my best to find a few points of light along the way.

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We all know that in our region, the pandemic has disproportionately impacted people of color, in terms of health outcomes, job losses, education issues and more. Now, evidence is emerging that minority and women entrepreneurs are being more severely affected as well – and that situation was already deeply imbalanced before the coronavirus arrived.

Estimates nationally are that 30% of small businesses will likely not survive the pandemic. Given how many of our businesses are tourism-dependent, that percentage will be higher locally. As one example, the Louisiana Restaurant Association estimates that 30% to 40% of local restaurants will not survive.
Restaurants are one sector where there is a higher percentage of DBE (Disadvantaged Business Enterprise) ownership than average.

One possible ray of hope specific to the restaurant business locally was offered by tourism industry leader Stephen Perry in an October Biz New Orleans interview, in which Perry was explicit in stating that “those most able to survive are going to be the neighborhood restaurants.”
By my observation, neighborhood restaurants are even more likely to be owned by women and people of color than the downtown establishments, which include the large restaurant groups like the Brennan family and Emeril Lagasse.

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Access to entrepreneurial resources, most particularly funding, has long been a much greater challenge for female and minority entrepreneurs, and new data from PitchBook shows that, specifically for women, venture capital funding has regressed to 2017 levels. This is despite the fact that in the third quarter of 2020, overall VC funding has remained fairly stable compared to the previous year.

As always seems to be the case, the consequences of a crisis seem to be falling most heavily on those who are most vulnerable.

This vulnerability is amply defined by a recently released study from Tulane University’s A.B. Freeman School of Business. This is their second-annual “comprehensive overview of the region’s entrepreneurial ecosystem,” and it does not paint a pretty picture. A quick summary from the accompanying press release: “The 2020 survey, which was expanded to more accurately reflect the city’s demographics, illustrates that Black, Indigenous and People of Color (BIPOC) entrepreneurs in Greater New Orleans face clear inequities in accessing critical resources to successfully grow their companies. The report shows that startups with BIPOC founders face important differences in obtaining loans and investment funding and are less likely to have high revenue and profit margins compared with those founded by white entrepreneurs.”

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Among the key findings:

  • Angel investment was more than twice as likely to go to white-founded enterprises, 23% compared to 11% of BIPOC firms.
  • Bank loans had a similar disparity, at 16% to 8%.
  • 28% of white-owned startups took in revenues of $1 million or more, compared to 8% of BIPOC firms.

To be clear, this data was compiled before the pandemic began. Given that many businesses are currently seeking new capital, bridge loans and similar financing as they struggle to survive, it is fair to assume that the same disparities continue to impede DBEs. Indeed, per the PitchBook data, the inequity may be getting worse.

In hopes of ending on a more positive note, I want to suggest that there are two things that we everyday-type people can do to improve this situation.

First, challenge your bank. Ask to see their data on business loans. If they are not supporting local DBEs (and small businesses in general), tell them you will take your accounts elsewhere if they do not provide you with a specific plan for improving. Quick hint: Local banks tend to do much better on this.

Second, we all need to support all of our local businesses. Patronize your local restaurant, grocery store, hair salon, etc. – and make a little extra effort to visit those owned by your neighbors who are women or people of color. Where we spend our money makes a difference.

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