Barbara Pruitt, Kauffman Foundation
Sarah Brewster, media relations representative
Authors analyze the reasons behind the success gap among different races
(KANSAS CITY, Mo.), Aug. 12, 2008 – Education, prior work experience and financial backing are crucial factors in the success of entrepreneurs, according to a new book by Robert W. Fairlie and Alicia M. Robb and funded in part by the Ewing Marion Kauffman Foundation. The book examines why Asian American-owned businesses do well in comparison to white-owned businesses, and African American-owned firms do poorly in relation to both. The book also explores the broader question of why some small businesses succeed and others fail.
According to Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States, the most significant factors contributing to a firm's level of success are its startup capital and the owner's education level and business experience. The book, which was recently released by MIT Press, provides a new comprehensive analysis of Census Bureau data that are rarely seen by the public.
"This book delves deep into the link between opportunity and race as it pertains to entrepreneurial business owners," said Robert E. Litan, vice president of Research & Policy, Kauffman Foundation. "Entrepreneurs are a vital part of the economy, and it is important to know why some are succeeding and some are struggling."
African American-owned businesses tend to sell less, have fewer employees, earn smaller profits and go out of business more often. Furthermore, African Americans are far less likely to own their own business in the first place. Of the 13 million business owners in the United States, only 5.7 percent are African American.
Fundamental issues of education and financing heavily affect entrepreneurs' potential for success. Fifty percent of African Americans have less than $6,200 in personal wealth, which is a level one-eleventh of that held by whites and Asian Americans. Less than 20 percent of African Americans go to college, versus 30 percent of whites and 50 percent of Asian Americans.
"We were interested in examining the importance of human capital, financial capital and family-business background in successful business ownership," said Fairlie, the book's co-author. "The conclusions we were able to draw are eye-opening."
Beyond the educational and wealth disparities, the lack of an entrepreneurial legacy strongly impacts African Americans as they try to start a business. Few gain important experience from working in a family-owned business, which stems in part from high rates of growing up in single-parent families. Currently, 55 percent of African American children live with only one of their parents.
"This book will demystify some of the reasons for the disparity in the success rates of some minority businesses," said Daryl Williams, director of Minority Entrepreneurship at the Kauffman Foundation and national director of the Urban Entrepreneur Partnership. "The ability of minority entrepreneurs to fully participate in the economy is critical. Any work that moves us in that direction is of the utmost importance."
"We will be interested to see how the presidential candidates discuss entrepreneurship, the economy and race," Robb said. "As more data like these become available, we believe that policymakers will come to better understand the impact race has on entrepreneurship and develop policies that will help entrepreneurs grow the economy."
For more information about the book, please visit www.kauffman.org, and http://mitpress.mit.edu.