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Support African-American Entrepreneurs: Buy from Black-Owned Business

by Katherine Noyes
The Challenge

 Inviting bids from black-owned businesses is a matter of fairness: Even though African-Americans represent roughly 12.9 percent of the U.S. population, they owned just 7.1 percent of American companies in 2007. Those black-owned businesses, moreover, earn only 43 cents for every dollar earned by a white-owned firm; they also receive a disproportionately low portion of government-backed business loans.

African-American entrepreneurs face fewer opportunities and more challenges than others do in this country. So until more American companies embrace supplier diversity and make it a practice to buy from black-owned businesses, African-Americans will continue to face a dim future in the business world.

In the United States, black-owned businesses are 35 percent more likely to fail than white-owned businesses are. Black-owned businesses also tend to start with less capital, and are four times more likely to be denied credit than are white-owned firms. In addition, African-Americans are less likely to benefit from the multigenerational family and social ties that so often lead to business partnerships among white-owned firms in this country.

The entrepreneurial picture isn't quite so dismal for all minorities. In fact, unlike blacks, Hispanics and women, Asians have actually passed the point of "entrepreneurial parity," so that the proportion of U.S. business owned by Asian-Americans--about 5.7 percent--now exceeds the roughly 4.6 percent of the U.S. population they account for.

In corporations, supplier diversity is a goal frequently discussed but rarely achieved. As far back as 1978, the federal government mandated that federal agencies — as well as corporations that do business with them — award roughly 8 percent of the value of their contracts to small, disadvantaged and minority-owned businesses, including those that are black-owned. That created a flurry of activity among those in and around the government, with repercussions to varying degrees in the rest of the corporate world. Many companies began to embrace diversity programs, but often they focused primarily on staffing. Black-owned companies have remained relatively few and small (94 percent have no employees), receiving a disproportionately small portion of the procurement pie.

As a result, many black-owned vendors never even get considered for supplier roles in most corporations, particularly when it comes to professional services, which are often chosen outside the traditional procurement process. Contracts frequently get awarded to suppliers that the functional manager already knows — which, according to the numbers, very likely don't include any that are black-owned. An unspoken "perception of incompetence" bias works against many black-owned businesses, which are believed to be somehow inferior or to have lower professional standards. There's also a common misperception that prices will be higher, and that supplier diversity somehow costs a company more. In fact, data suggests quite the opposite: Companies using best practices for supplier diversity have been found to achieve a higher return on their procurement operations.

But there are many other reasons to support black-owned businesses. For example, African-American firms tend to hire minority employees in much higher proportions than other companies do. Fewer successful African-American companies means fewer jobs for minorities and less hope for multicultural neighborhoods — and the country as a whole.

Of course, the highest value of supplier diversity is equal opportunity for all. By encouraging your company to invite bids from black-owned businesses, you can help an underrepresented population gain the foothold it has long deserved on the economic ladder.

How to Make a Difference

Do Your Part:

If you control a budget within your company, make an active effort to request bids from black-owned businesses, both for commodities and for professional services. Ideally, to be representative of the US population, roughly 13 percent of your suppliers should be black-owned businesses. It's important to work directly with first-tier minority firms rather than via subcontracted relationships, which have less benefit for the black entrepreneur.

In addition to numerous services eager to help companies manage supplier diversity efforts (for a fee), there are also many free online directories of black-owned companies nationwide, including:

Encourage Your CEO to Mandate Fairness:

It may take a mandate to get managers companywide to leave their comfort zones to seek out top-flight, black-owned businesses. So, encourage your senior management to require supplier diversity in centralized and decentralized purchasing processes.

To do so, urge your senior management to adopt this four-part plan:

  • Insist that about 13 percent of the budget in each spending category (e.g., information technology, accounting, finance, and legal) be awarded to black-owned firms. Require budget managers to go beyond their personal network to find top quality black-owned firms. Organizations like the Alliance of Business Leaders and Entrepreneurs can help your company find highly qualified vendors.
  • Do business directly with black-owned businesses, not through intermediaries. If you are interested in supporting smaller black-owned firms, then partner with a larger black company that will take responsibility for cultivating and mentoring smaller black-owned businesses.
  • Extend the same respect to black business owners as you do to all others. It is not necessary to tell black business owners that, "Our company is going to insist that minorities perform as well as majority firms." That's patronizing. If your prospective suppliers don't know they have to outperform their competition, then they don't deserve your business.
  • If you hire a black-owned firm and they under-perform, fire them. But seek another black-owned firm to take their place. Your managers need to know that they can't just hire any old black-owned firm, let them fail, and then go back to business-as-usual with the excuse, "We tried."

The best supplier diversity programs are mandated from the top with more than lip-service, by installing formal programs for goal-setting, measuring, reporting and achieving supplier diversity goals.

Tracking spending by category is particularly critical. To have real "teeth," mandated supplier diversity goals should be among the evaluation criteria in managerial salary and promotion reviews for any manager that controls a significant departmental or functional budget.

Additional supplier diversity advice can be found in Chicago United's Professional Services Model, which shows how to incorporate minority-owned professional services firms into the supply chain.

Invest for the Future:

If you work for a Fortune 1000 firm, ask your company to invest a portion of its pension funds in firms that are members of the National Association of Investment Companies (NAIC), a trade organization for venture capital that invests in minority entrepreneurs.

Supporting supplier diversity doesn't mean giving handouts or sacrificing quality in the products or services your company receives—quite the contrary. It means giving black-owned and other minority businesses a long-overdue chance to prove their worth.