Black Women Were Among The Fastest-Growing Entrepreneurs—Then Covid Arrived
Sherika Wynter of Thomas & Wynter Research and Development. SW
Sherika Wynter was on a roll.
Since releasing an insulated luxury tote bag for professionals in 2018, and subsequently selling out three times, her Maryland-based research and development company Thomas & Wynter had been featured in British GQ and the International Business Times and on several local news segments.
She walked into February 2020 with more notches on her belt: a Google small-business award and a joint venture deal with a prominent Black law firm to create another product for professionals.
“We were growing exponentially,” says Wynter, a Black entrepreneur who, with cofounder Shallon Thomas, started the business in 2014.
As the coronavirus threat escalated in early March, their sales declined, nearly hitting zero by April. That same month, Wynter laid off almost every member of her five-person team, save for one contract worker.
“Right now, we’re treading water and have applied for ten different grants with no success. It’s a little daunting, but we’re trying to carry the company on our backs,” Wynter says.
It’s no exaggeration to say that the pandemic has decimated small businesses and early-stage ventures, especially those owned by women and people of color. Black women sit at this juncture, bearing a disproportionate share of the virus’ impact.
For years, Black women have created new businesses at a rapid clip, far outpacing other racial and ethnic groups. But strong financial headwinds from the pandemic and a lack of access to new funding sources threaten to wipe out decades of economic progress, leaving Black female business owners in a state of perpetual uncertainty, waiting for relief they fear will never come.
The face of female entrepreneurship overall is becoming a lot less white. Black women represent 42% of new women-owned businesses—three times their share of the female population—and 36% of all Black-owned employer businesses.
High levels of educational attainment, coupled with overcoming barriers to corporate advancement, have prompted Black women to pursue entrepreneurship, where they’ve become a potent economic force. Majority Black women-owned firms grew 67% from 2007 to 2012, compared to 27% for all women, and 50% from 2014 to 2019, representing the highest growth rate of any female demographic during that time frame.
“There’s this assumption that entrepreneurship is a tech startup that’s venture-capital-funded because we see so much about Mark Zuckerberg and Elon Musk. People discount informal entrepreneurship and part-time business creation, which creates a narrow view of entrepreneurship,” says Donna Kelley, who has led research on the rate of Black entrepreneurship and serves as a professor of entrepreneurship at Babson College.
But the decade-long boom in Black business creation masks deep inequities in access to the financial resources needed to create businesses that reach maturation, which is widely recognized as past the five-year mark. There are fewer established Black female business owners relative to their high rate of entrepreneurship, Kelley says. “This is persistent over time, which tells us that fewer of them are sustaining their businesses into maturity.”
In America’s business ecosystem, it’s not uncommon for companies to operate in the red for years before becoming profitable. Their lasting power is often made possible because of outside investors or their ability to secure loans from commercial banking institutions or credit unions. But Black entrepreneurs have historically been locked out of these funding opportunities.
“A commonality for Black people, especially women, is that it takes longer to obtain capital, and so they have to put in a lot more sweat equity,” says Laquita Blockson, director of social innovation at Agnes Scott College and co-investigator on a study about the success of African American women-led entrepreneurial ventures.
The lack of access to capital also dictates, in part, to which industries Black women flock. “If you don’t have the personal resources to get your business up and running, you may pick businesses that are easy to get off the ground, but that are crowded with competition for similar products and services, and less opportunity for differentiation,” Kelley says.
Many of those businesses are in industries that have been severely affected by the pandemic, with about 40% of revenue generated by Black-owned businesses in the hardest-hit sectors, including leisure, hospitality, transportation and retail.
“Hair salons, catering, restaurants or anything related to events . . . all of that shut down, and so the success of business owners in those industries depends on how much they have in reserves or were able to get from the federal government—both of which pose challenges for Black entrepreneurs,” says Jeffrey Robinson, founding assistant director of The Center for Urban Entrepreneurship and Economic Development at Rutgers Business School.
When Sundrae Miller was forced to close the doors to her Adara Spa on March 26, she immediately sought out new funding sources. She received $2,300 under the Paycheck Protection Program, a $64,000 Economic Injury Disaster Loan and deferred her spa’s mortgage payment for one month. The Small Business Administration covered the next six months.
“That was my saving grace. If I hadn’t received that mortgage break, I’m afraid I’d be out of business,” says the Raleigh, North Carolina, resident.
Adara Spa reopened to the public on May 22, but business remains slow, and she fears a second state-mandated closure as winter approaches. In November, she’ll have to restart her mortgage payments.
Hunting for business grants has become like a full-time job for Miller, who often finds herself searching and applying for sources of capital until 2 a.m. She has applied for 21 grants to date, securing $23,000 from five of them. While the additional funding may seem sizable, Miller says she lost $20,000 each month her spa was closed and is losing $10,000 monthly since reopening at half-capacity. “I have a few grant applications out right now and I’m thinking to myself, ‘Okay, Lord, please let something come through,’” she says.
Little of the $670 billion PPP funding reached Black business owners, largely due to built-in structural limitations, such as stipulations around minimum headcounts and revenue requirements. When Wynter received a $1,000 PPP loan for her research and development company, she laughed. “They said, ‘Here’s a 30-year loan for $1,000,’ and I said, ‘What am I supposed to do with this?’ It was a slap in the face.”
Others had some success. The majority Black-owned architecture and engineering firm Sabir, Richardson & Weisberg (SRW) received a $150,000 Economic Injury Disaster Loan and a $280,000 PPP loan less than one month after applying for each.
Yvette Richardson, on the far right, at SRW. PEEK PHOTOGRAPHY, LLC
“We usually have far under three months of runway. Without the PPP loan, we would have had to lay people off and not take a salary,” says Yvette Richardson, one of the company’s four partners, three of whom are Black.
Access to capital is a major predictor of business success and Black entrepreneurs find it difficult to weather economic duress, reach scalability and pivot away from unsustainable business models without financial backing.
“A lot of Black businesses will not survive this pandemic without more help. That is the sobering truth,” says Asahi Pompey, president of the Goldman Sachs Foundation.
Black business owners who apply for funding have a rejection rate three times higher than that of their white counterparts, according to a Goldman Sachs 10,000 Small Businesses report that surveys participants in a program bearing the same name.
Some 43% of Black-owned businesses in Goldman Sachs’ entrepreneurial program say they are likely to lose their cash reserves by the end of 2020, versus 30% of the overall program’s population, and 31% say less than 25% of their pre-Covid revenue has returned, compared to 16% of the overall population. The report defines growth-oriented entrepreneurs as individuals with businesses that have revenues of around $150,000 and two to six employees.
“This data lays bare the structural inequities Black people face and that’s born out in their entrepreneurial endeavors,” Pompey says. Already, Covid-19 has shuttered 41% of Black-owned businesses, compared to just 17% of white-owned businesses.
Blockson warns that not only will Black female entrepreneurs find it difficult to survive this period of economic downturn, but also that those who temporarily close shop will find it far more challenging to reopen.
“It will be a huge shock in the economic system, and it is raising alarms,” she says. “But I am also very hopeful and optimistic that this could be a great opportunity for those who are positioned for it and able to make a shift.”
Some Black businesses are getting creative and diversifying their offerings to stay afloat. SRW, for example, has sought out more healthcare projects and is dabbling in HVAC technology, anticipating the services clients will need as the demand for indoor ventilation systems grows.
However, many small businesses aren’t easily adaptable without a massive infrastructure overhaul, which requires a significant financial investment. And most Black and women-led businesses only have a few weeks to a month of cash flow.
“This is a critical moment in time that is going to set us on a trajectory that could certainly be problematic in terms of the state of Black businesses for years to come,” says Goldman Sachs’ Pompey.
When small businesses flourish, so do their communities, and Black business owners often intentionally locate themselves in Black and Brown spaces, acting as economic spigots in these neighborhoods. Their erasure comes with far-reaching consequences, including the loss of jobs, community development and new economic opportunities for residents of underserved areas.
Nearly 75% of Black business owners in Goldman Sachs’ survey say they recently mentored others in their communities, compared to 50% of white business owners.
“It’s not just that it’s a single business that shuttered. It’s that it’s a pillar of the community and someone who’s a leader or a mentor. The blast radius impact of the pandemic on Black communities is something that can’t be overstated,” Pompey says.
The pandemic’s paradoxical silver lining is that it has brought increased attention to revitalizing small businesses, which provide almost half of all jobs in the U.S. At the same time, a resurgence of the Black Lives Matter movement has generated an influx of support for Black-owned businesses and corporate grants that cater to Black entrepreneurs.
Wynter is capitalizing on this surge in public interest and has seen a spike in online sales since the national reckoning on racial injustice began in June. Sales jumped from 7 orders in May to 87 in June, she says. “People have really been a free marketing mechanism for small businesses, which has been a blessing.”
Even still, she and her cofounder are wary about the longevity of their company. They tapped into their savings in September, putting a combined $8,000 into the business, and are raising new funds through a friends and family round.
“As a business owner, you plan and you try to bob and weave through things,” she says. “But there is no way to bob and weave this pandemic. You have to take its hits and hope that you don’t get knocked out.”