STRATEGY 8
Think and Act Entrepreneurially
I am a woman who came from the cotton fields of the South. From there I was promoted to the washtub. From there I was promoted to the cook kitchen. And from there I promoted myself into the business of manufacturing hair goods and preparations… I have built my own factory on my own ground. … Don’t sit down and wait for the opportunities to come; you have to get up and make them. … I got my start by giving myself a start.
—Madam C. J. Walker
IN HER MEMOIR, Success Never Smelled So Sweet (Random House, 2004), Lisa Price recalls loving scents from an early age. Most of the fragrant rose petals that she was charged with scattering as a flower girl at her aunt’s wedding never hit the floor—for Price they were much too precious for that. Instead, a young Lisa dropped a neat line of them all the way to the altar leaving her with a bounty of petals to savor later.
For Price, the saying “the nose knows” takes on special meaning. The scents that she adored in her childhood and turned into a hobby as a young adult later are now generating millions. Today, she is the founder of Carol’s Daughter Holdings LLC, which makes and sells a line of body and hair care products online, through company-owned stores, and through major retailers like JCPenney and Macy’s.
Price didn’t graduate from high school or college and immediately start a successful business. As we have observed and experienced, that’s rarely how it happens. Price’s life took twists and sometimes difficult turns. From a personal perspective, she dealt with a bad marriage and even personal bankruptcy after years of overspending. Career-wise, she worked at the United Nations, pursued a singing career, and even worked on The Cosby Show.
Figure 8–1. The path to greatness (Strategy 8).
All the while, Price was experimenting with oils—sometimes making fragrances for friends and coworkers. Eventually, she sold some of her creations, which expanded to include all kinds of creams, lotions, and potions—all made in her own kitchen set up at flea markets and then out of her apartment. In 1999, she opened her first store, and by 2001 she began the (not-so-smooth) process of moving the Carol’s Daughter operations from her home to a warehouse.
Today, Carol’s Daughter counts celebrities, including actress Halle Berry, actor Brad Pitt, and recording artist Erykah Badu, as customers. Songstress Mary J. Blige, rapper Jay-Z, and Hollywood super couple Will Smith and Jada Pinkett Smith invested in the business, helping to fuel its expansion. More recently, a private equity firm, Pegasus Capital Advisors, has invested in the company and is leading it through an expansion.
African-American Wealth Creation
Lisa Price took a hobby and turned it into a multimillion-dollar business enterprise that attracted investment from celebrities and others. Her experience shows how almost anyone can travel the path from running a small operation to creating wealth for herself and others. Today, family and friends work for her and she has drawn the interest (and money) of numerous investors.
There’s a good chance that you are familiar with the Rich Dad, Poor Dad book series started by real estate investor Robert Kiyosaki. Kiyosaki uses something he calls the “CASHFLOW Quadrant” to describe how money is made and wealth is created in America.
Figure 8–2. Kiyosaki’s CASHFLOW Quadrants.
From Rich Dad’s CASHFLOW Quadrant by Robert Kiyosaki. Copyright © 1998, 1999 by
Robert T. Kiyosaki and Sharon L. Lechter. By permission of Grand Central Publishing.
According to Kiyosaki, you can work for someone else as an Employee. As an employee you generate income from the work you do in someone else’s company. You generally do not share in the profits. The second option is to be Self-employed. To be self-employed means that you work for yourself, but you don’t have any other employees (or very few). In other words, if you don’t work, work doesn’t get done, and you don’t get paid.
You can be a Business owner, which is different from being self-employed because you have employees that are working on your behalf. If you are on vacation, work is still getting done and money is still getting made (hopefully). Business ownership, of course, requires systems and processes and that all employees are in sync in order for the business to function smoothly. Lisa Price made the transition from being self-employed to being a business owner by reinvesting earnings into her business.
Lastly, you can be an Investor, putting money into other businesses, real estate, or other situations in hope of making a profit. There is a lot that can be said about investing, much of which is beyond the scope of this book. However, we believe wise investments can go a long way toward creating wealth. We recommend that you consider investing in new ventures and businesses seeking growth capital.
There is a big difference between the first quadrant (Employee) and the second and third quadrants (Self-employment and Business ownership), both of which speak directly to being an entrepreneur. When we discuss entrepreneurship in this chapter, we mean formally registering your business with your state and creating a company that is legitimate in the eyes of the law. We don’t mean the informal economy, or what some people call “bootleg” businesses. There are important financial benefits to going through these formal processes. If you study the U.S. tax code you’ll see that it was written for business owners. You cannot take advantage of any of the rules for business owners without formally setting up a business. Our stance is that you are not in business unless your business is registered. All of your other efforts are just a precursor to having a real business, which includes network or multilevel marketing businesses, such as selling Mary Kay cosmetics, Amway products, Pre-Paid Legal, or Primerica financial services. In these situations you operate like you are in your own business, but essentially you are the marketing or selling unit of a big company. While this model works for many, it isn’t self-employment or business ownership in the traditional sense.
There is an even bigger difference between the first two quadrants (Employee and Self-employment) and the second two quadrants (Business ownership and Investor). The first two require that all of the work is done by you before money is made. The second two allow you to make money while you sleep, vacation, or do other things. We’ve written about various forms of capital throughout this book and now, finally, we get to the one that most people think of first: financial capital. Owning a business or investing is important for anyone who wants to create financial capital.
Financial capital refers to cash, savings, investments, real estate, or anything else that has some financial value associated with it—especially if it is easily converted into cash or can be leveraged for cash value. People usually think of financial capital as debt (money you borrow) or equity (money that others invest). Financial capital is important because it allows you to purchase things that you may want or need and to enjoy certain aspects of life.
However, financial capital is not wealth. Wealth is not just about how much money you make. It is about how much money you keep, what it is invested in, and how it is used across generations. There are many people with high incomes who aren’t wealthy because they spend everything they bring in or do not invest their money wisely in assets that will appreciate (increase value) over time and can be passed from generation to generation. Wealth and ownership are inextricably linked.
We encourage people to strategize about creating wealth, not income. Investing in homeownership is an important step in the process for African Americans. But, as you may have guessed from our backgrounds, our favorite wealth creation strategy is entrepreneurship. We have witnessed the effect that entrepreneurship can have on people, places, and communities. This chapter focuses on entrepreneurship and the way we have used it as a vehicle for wealth creation. More important, we’ll show how African American entrepreneurship is a pivotal strategy to position yourself to redefine the game and reshape America.
THE STATE OF AFRICAN-AMERICAN WEALTH CREATION
Here in the United States, we have seen an increasing gap between the wealthy and poor, the “haves” and the “have-nots,” the rich and the rest. For example, the 13,000 richest families in the United States now have almost as much income as the 20 million poorest. And those 13,000 families have incomes 300 times that of average families. Moreover, the top one percent of Americans own approximately 40 percent of the nation’s wealth; the top 5 percent owns almost 60 percent; and the top 20 percent owns more than 80 percent. If you eliminated homeownership and only counted businesses, factories, and offices, then the top one percent owns 90 percent of all wealth, and the top 10 percent owns 99 percent.1 As severe as the inequalities are among Americans, they are significantly worse for minorities, and especially for African Americans. For instance:
African Americans still earn less than their white counterparts. Even when households with similar educational, occupational, and demographic characteristics are compared, a Black household earns almost $6,000 less than a white household with similar educational, occupational, and demographic characteristics.2 Clearly, the “cost of being Black” is high.
While there is considerable income in minority communities, there is also a considerable lack of wealth. The collective buying power of African Americans, Asian Americans, Latinos, and American Indians is projected to reach $4.5 trillion by 2015.3 That is income. But, as we discussed earlier, income is not wealth. In terms of wealth, in 2001 the average white household had a net worth of $121,000—including home equity. The figure for an average Black household: only $19,000!4 The median net worth for whites is $88,000, while the median net worth for Hispanics and Blacks is just $7,900 and $6,000, respectively.5 Furthermore, while minority groups represent approximately 27 percent of the U.S. population and are projected to be the majority by 2050, minority-owned businesses only receive 2.7 percent of all U.S. gross revenues.6 When juxtaposed against the perception that minority communities are doing well economically, we refer to these statistics highlighting the persistent gaps in wealth as “the illusion of economic inclusion.”
WHY WE NEED AFRICAN-AMERICAN ENTREPRENEURSHIP
At this point, you are hopefully asking the same question we ponder every time we read these and similar statistics: How can we build more wealth in the African-American community? There are a number of answers to this challenge. Part of the solution involves increased financial awareness and financial literacy that encourages members of our community to save, eliminate debt, and invest in education and other appreciating assets. However, the most effective way to build significant wealth is by becoming a business owner.
Entrepreneurship is the most viable pathway to creating significant wealth. Thomas Stanley’s book The Millionaire Next Door (Pocket Books, 1998) explains that seven out of every ten millionaires made their millions through entrepreneurship. Sadly, according to some sources, there are 8 million white millionaires in America and only 35,000 Black millionaires.7 It stands to reason that to create more African-American millionaires, we must create more successful African-American entrepreneurs.
We are among the most aggressive advocates for entrepreneurship in America. We have created companies together and consulted with small and medium-size businesses. We’ve taught entrepreneurship courses at universities, advised political campaigns and policy think tanks on the issue of entrepreneurship, written books on the subject, and we are actively engaged in several business ventures. We believe in entrepreneurship and its power to create wealth, transform communities, and boost the wealth of African Americans. But, we also know that African Americans are behind. With all of the wealth that was created in the last two decades, no Black athletes or entertainers have become billionaires (yet). Both of America’s only Black billionaires, Oprah Winfrey and Black Entertainment Television founder Bob Johnson, made their money through business ownership.
White Americans enjoy a 14-to-1 wealth advantage over African Americans, and to close this wealth gap we must close the entrepreneurship gap, which means creating more African-American entrepreneurs. However, to create more African-American entrepreneurs we have considerable work to do. The rate of entrepreneurship among African Americans hovers around 5 percent as compared to 10 percent for whites and Asians, according to U.S. Census Bureau 2000 data. So not only is there an income gap and a wealth gap, there is also a related entrepreneurship gap for African Americans. It certainly seems like a steep hill to climb.
But there is good news:
African-American businesses are on the rise. The number of businesses owned by Blacks increased 45 percent between 1997 and 2002 to 1.2 million businesses, and revenue was up 30 percent in the same period to $92.7 billion.8
African Americans have a strong desire to become entrepreneurs. African Americans (men especially) have the highest entrepreneurial intention of any group studied, according to the Kauffman Foundation.9
African Americans have a rich legacy of success in business. From Madam C. J. Walker, the first female millionaire (of any race), whose Walker Manufacturing Company employed more than 3,000 people in the early 1900s; to John H. Johnson, founder of Ebony and Jet magazines; to Earl Graves, founder and publisher of Black Enterprise magazine; to Reginald Lewis, the first African American to own and operate a billion-dollar corporation, TLC Beatrice; to Oprah Winfrey, the first African-American female billionaire and owner of Harpo Productions—the list of African-American entrepreneurs is notable and their accomplishments are significant. We draw inspiration from their stories and the tales of countless others.
For those of you already pursuing your entrepreneurial dreams, we applaud you for your efforts. For those of you who have a young person in your life with an entrepreneurial spirit, we encourage you to nurture it. And for those of you on the fence who are considering taking the entrepreneurial leap, we can only say to you what athletic shoe maker Nike has been saying for years: Just Do It! While we are quick to point out that entrepreneurship is not an easy path and is not for everybody, we want everyone to know that they have the choice to be a business owner should they choose to exercise it, and that not only can it be done, but our people have been doing it for centuries.
If you are working for someone else right now, maybe this is a wake-up call for you to consider taking the entrepreneurial leap. If you already have your own venture, you are taking advantage of one of the best vehicles for building significant wealth.
But we are not big believers in making money just for the sake of creating wealth for your personal benefit. Amassing wealth can create opportunity for others. It helps stabilize our families, build our communities, and put jobs in our neighborhoods. In fact, in one of the studies that Jeffrey Robinson and Greg Fairchild of the University of Virginia conducted, Black business owners were two to three times more likely to hire Black employees than white business owners.
If we have more Black entrepreneurs we will go a long way toward addressing the high unemployment rate in the Black community. Business owners address many issues in communities and contribute to the civic and philanthropic life of an area.
And with respect to the ever-changing game, wealth helps level the playing field by reducing income and wealth inequities. Increasing the number of African-American entrepreneurs has the potential to significantly improve the Black community.
We could write an entire book just on entrepreneurship or social entrepreneurship (in fact, we have written books on each subject already). So we won’t try to jam into this chapter everything we’ve ever learned about entrepreneurship. What we want to demonstrate is how thinking and acting entrepreneurially is a critical part of the journey to redefining the game and reshaping America.
Applying the Entrepreneurial Mindset
Nowadays, perhaps more than ever, regardless of whether you work for a company (an “employee”), run your own business (an “entrepreneur”), or are someone new to the job market (a new “entrant”) who is endeavoring to become an employee or entrepreneur, to be competitive in the marketplace you must think and act like an entrepreneur. The once tacit assumption and “contract” between employers and employees—namely, that if you work hard for a company they will keep you in your job—has been broken. It no longer exists. As a result, you cannot risk putting your fate in the hands of an employer. You must take control of your career; you must dare to be in the driver’s seat of your destiny; and you must be in a position to pursue your economic prosperity. Regardless of whether the economy is weak or strong, the entrepreneurial mindset of passion, creativity, resourcefulness, courage, and resilience is not just the recommended mindset in the twenty-first century, rather, it is the mandatory one.
So how do you apply the entrepreneur’s mindset? It is simple. You should not look for a single “job” that generates a “salary.” That’s an old-school mindset, where you are thinking and acting like an employee to create income and break the glass ceiling (see Figure 8–3). Instead, you should seek out multiple “sources of revenue” that generate “income streams.” That’s new-school thinking and acting like an entrepreneur to create wealth and master the ever-changing game (see Figure 8–4).
Figure 8–3. Old-school mindset: thinking and acting like an employee.
Figure 8–4. New-school mindset: thinking and acting like an entrepreneur.
A job is only one of many potential sources of revenue, and a salary is only one of many potential income streams. For example, investments, real estate (e.g., rental properties), consulting work, fee-for-service work, part-time work, freelance work, auctioning items, network or multilevel marketing, and, above all, business ownership, all represent alternative sources of revenue that can generate income streams. And the beauty of thinking and acting along these lines is that it opens up an entirely new realm of possibility to tap into all of your gifts and abilities, especially if your “day job” is only tapping into a few.
Depending on which of the three E’s most closely resembles your current reality—employee, entrepreneur, or new entrant—you may apply the entrepreneur’s mindset in a different way. But regardless of which “E” best describes you, the common theme is to diversify your sources of revenue so that you are not wholly dependent on any single source. Even companies may have several diversified sources of revenue in the form of different products, services, divisions, or lines of business under the firm’s umbrella.
If you are a new entrant to the job market—a young person, recent graduate, first-time job seeker, or someone recently laid off—then applying the entrepreneur’s mindset means taking a serious look at starting your own business in parallel with interviewing for employment positions. Be sure to consider the entire range of entrepreneurial ventures presented in this chapter. In fact, if you are a displaced worker, don’t think of it as being “let go,” think of it as being “set free” to pursue these options.
If you are an employee who works for a company, then applying the entrepreneur’s mindset means exploring additional ways to monetize your skills and abilities. We’ll talk about this in greater detail later in this chapter under the heading of “Profiting from Your Knowledge, Experience, or Expertise.”
If you are an entrepreneur who is self-employed or a business owner, then applying the entrepreneur’s mindset means constantly pursuing growth opportunities for your company by utilizing all of the concepts and strategies for “entrepreneurship for a profit,” encompassed here in Strategy 8. (You’ll also benefit from Strategy 9: Synergize and Reach Scale.)
Lastly, if you are more socially oriented, there is something in this chapter for you, too, as we delve deeper into the practice of social entrepreneurship, or what we call “entrepreneurship for a purpose.”
In summary, while every section of this chapter may not apply directly to you, we are confident the concepts and strategies discussed will be of tremendous benefit to you in applying the entrepreneur’s mindset to your life.
It should come as no surprise that the same quote from Earl Graves that we referenced in Strategy 3 also applies here in Strategy 8: “Your career is your own private business.” In other words, while your status may be best described as an employee or a new entrant, you must always think and act like an entrepreneur. Regardless of whether you work as a human relations manager, detective, or nurse—or aspire to pursue one of these careers or any other—the key is to think and act like an entrepreneur at all times.
Game-Changing Strategies for Entrepreneurship for a Profit
There are different types of business ventures for a profit and only you can decide what kind of venture best suits your interests. To best explain these options, let’s further separate entrepreneurship for a profit into lifestyle ventures, generally small companies that allow you to maintain a comfortable lifestyle, and growth ventures that expand and create wealth for you and your investors. Between the two, you have to decide where you want to play in the game.
CREATING LIFESTYLE VENTURES
People who don’t want to work for somebody else (i.e., entrepreneurs), want to generate additional steams of income (i.e., employees), or who go into business because they don’t have another option (i.e., new entrants) are good candidates for what we call lifestyle ventures. Lifestyle ventures replace or supplement your income.
These smaller-scale businesses provide products and services to the general public. Examples are small retail stores such as the coffee shop, the dry cleaner, the hair salon, and the caterer. These and many other businesses are great for creating a few jobs and for sustaining a comfortable lifestyle for yourself and your family.
In some cases, these are part-time endeavors. For example, home-based retail operations, one-person consulting companies, and custom jewelry makers are typically lifestyle ventures. These types of companies generally do not require a lot of financial capital to start. The key is that lifestyle ventures generate enough income for the entrepreneur and allow her to maintain and, in some cases, improve her lifestyle.
Think about it—there are a lot of small businesses that don’t make millions of dollars in a year. According to the U.S. Department of Commerce, less than 20 percent of the 6 million U.S. companies with employees make more than $1 million in a given year. In the African-American business community, about 800,000 firms, only 3 percent have revenues above $1 million, according to the Minority Business Development Agency of the U.S. Department of Commerce. (Of course, we think this number should be much higher, and later in this chapter we have some ideas to share about how to increase the number of growth ventures.) An astounding 99 percent of businesses in the United States are small businesses, which are generally defined as companies with fewer than 500 employees. These companies employ more than half of the country’s private-sector employees and create 60 percent to 80 percent of new jobs in a given year, according to the U.S. Small Business Administration’s Office of Advocacy. Clearly, it is small and medium-size businesses that make the American economy flow.
Profiting from Your Knowledge, Experience, or Expertise. There are many ways people get into a lifestyle business both part-time and full-time. Some people take their passion for cooking and become caterers for hire. Lisa Price, who we introduced at the beginning of the chapter, transformed her love of scents into Carol’s Daughter. Some people take their gift of song or other artistic talent and turn it into a production company. Profiting from your knowledge, experience, or expertise in these ways is a great entry point for a lifestyle venture. Many entrepreneurs have gone this route and made substantial profits along the way. If you have valuable expertise, you may be able to pursue contracts as an independent consultant.
There are, however, two challenges with this approach. First, this type of entrepreneurship is limited by how much time and effort is required by you to create the final product or provide the service. If you work alone or with a small group, you may have capacity limitations that prevent you from growing your business. Second, there may not be a market for your passion or expertise, or it may take a long time to develop the market. In either case, the returns on all of your work may not be enough to sustain your lifestyle. This is why every person who wants to capitalize on their expertise isn’t necessarily financially successful. (When you can engage a team of employees, contractors, or business partners, however, the potential to grow the business increases exponentially. That leads to creating growth entrepreneurial ventures, which we talk about in the next section.)
There is certainly a level of autonomy when you have built a small business. Your clients may become your new bosses, but at least you have some choice about where and how you’ll complete the client’s work. But going it alone has its own set of burdens as well, and potential business owners shouldn’t jump into the entrepreneurial world without considering the pros, the cons, and the risks.
If you are a professional and you are going to become an entrepreneur, then make sure you pursue a venture that’s worth your time. Some small ventures don’t have the potential to generate wealth because the business can’t realistically be expanded to a larger scale or the profit-generating potential is very small. Other businesses have the potential to reach a bigger scale and generate wealth (Carol’s Daughter is an example), but the entrepreneur has to realize this and pursue the business in a way that will unlock its growth potential.
We know of several caterers who are excellent in the kitchen. They can prepare wonderful meals for any occasion. Yet most of the ones we know are small operations, where one lead entrepreneur does almost everything. These entrepreneurs usually have a few people they can count on to help them when necessary, but for the most part, they are on their own, working out of their home kitchen with the dream of opening a restaurant someday. In our experience, few of these entrepreneurs make the leap from being a one-person show to creating a business that hires people and creates wealth.
But there are a few exceptions. Tod Wilson of Mr. Tod’s Pie Factory (whybake.com) bakes delicious pies, cobblers, and cheesecakes. He started off working part-time in his godfather’s business and learned about pie making. He figured out that if he was going to generate wealth, he was going to have to take control of the entire operation and build the production capacity. That type of thinking—and subsequent action—is different from just making pies or cakes on the side for friends, family, and anyone else who happens to find out about you. You may have an expertise, but is your vision a small-scale business or a larger-scale enterprise? Mr. Tod was thinking big from the start. In fact, he negotiated a lucrative investment deal as an entrepreneur winner on the reality television show Shark Tank.
Marissa Blackwell’s love of cooking was a career she pursued in the hospitality industry. She developed her skill managing large operations at a major hospital in New York and working for a large food-services company. She started catering on the side and her customers raved about her food. Her goal was to one day work for herself, but it took a while to assemble the team to convert her small operation into one that could service multiple events simultaneously. Cravings, a catering company, came out of her desire to take her gifts in food preparation and presentation to a larger scale. Blackwell now has a large catering facility in Newark, New Jersey, and serves customers throughout the state and beyond.
Wilson and Blackwell demonstrate that expertise can generate profit. In both cases, however, these entrepreneurs had to put some serious business thinking into how they would take their passion from something that was a small operation and transform it into a growth venture.
When determining how you want to proceed, remember to consider the vision you have for your business. If you want to have a lifestyle venture that makes enough money to provide a decent income, then more power to you! Capitalize on your knowledge or expertise the best way you know how. Just keep in mind that these types of small ventures are developed differently than the growth venture firms we discuss in the next section.
CREATING GROWTH VENTURES
All-star entrepreneurs like World Wide Technology’s David Steward, Microsoft’s Bill Gates, Radio One’s Cathy Hughes, Google founders Larry Page and Sergey Brin, ACT•1 Group’s Janice Bryant Howroyd, and TLC Beatrice’s Reginald Lewis epitomize the idea of wealth generation. While Gates and many other successful company founders give back, most people focus on the money they made when they took their companies public or the profits they generate in a given year.
The alternative to lifestyle ventures is these kinds of growth ventures that expand in size or scale and create wealth for the entrepreneur and others who invest in the business. They include franchise businesses and partnerships and other arrangements where business ownership is shared or distributed. Growth ventures are capable of crossing that million-dollar threshold to become businesses that we see heralded in the media because they have made an economic impact on a city, region, the entire country—or even the world! These ventures have several characteristics in common:
They have the potential to scale up and expand to multiple locations and distribution channels. We can see this in action through following the expansion of Carol’s Daughter, which has grown from one store in Brooklyn to have several locations, mail-order operations, and distribution through major retailers and television-shopping networks.
They generate income for the entrepreneurs/founders/owners and create wealth through shared ownership and equity investment. If you have lived in or visited the Southeast United States, there’s a good chance you’ve seen and maybe even spent time in some of the structures that helped Herman J. Russell build a legacy for his family. H. J. Russell & Co. grew to become the largest African-American construction firm in the United States, having built notable landmarks, including Coca-Cola’s headquarters, the Georgia Dome, and Centennial Olympic Stadium/Turner Field. Today, Russell has stepped aside from the day-to-day running of the company and serves as chairman, with his son Michael B. Russell at the helm as CEO. A daughter, Danata, and another son, Jerome, also hold key positions in the enterprise.
They leverage the skills, talents, and abilities of many people, not just the lead entrepreneurs. This is evident in every entrepreneur that we mention and profile for this book—as well as in our own venture, BCT Partners. At BCT, Randal is the face of the company going out and generating deals. We rely on our own team and subcontractors to fulfill those contracts.
They are prepared for investment, merger, acquisition, and other exit strategies. In 2007, Rodney Hunt, who owned a 75 percent stake in RS Information Systems (RSIS), told Black Enterprise magazine that he was mulling the future of the technology and defense contractor. As CEO, Hunt led RSIS to generate about $328 million in annual revenue. At the time of the BE interview, the company had unfilled orders of about $1.3 billion—a level that made it an attractive acquisition target. About a year later, RSIS announced that it would be bought by Wyle, a privately held competitor, for an undisclosed sum.
They are typically fulltime endeavors for managers and employees of the company. The entrepreneurs we have featured here made a fulltime commitment to their businesses. They show that to go the distance, you must eventually be able to put in the time and energy and have a team in place to get the job done.
There is a heightened level of complexity associated with creating (and sustaining) growth ventures. Increased scale means greater complexity. When you have multiple locations you have to have systems and processes in place to monitor operations in these different places. To leverage the skills, talents, and abilities of many people, you have to have a great team and be able to manage them across space and time.
Creating a Winning Team. While people tend to focus on the individual entrepreneur, very few entrepreneurial success stories are accomplished by individuals alone. Our team of Randal, Jeffrey, Lawrence, and Dallas would not have been able to launch BCT Partners were it not for our collective efforts. To create this kind of growth venture, you, likewise, will need to have a strong team working with you. We talk extensively about teams and partnerships in Strategy 6, but we cannot emphasize this point enough.
BEYOND SMALL BUSINESS DEVELOPMENT
TO BUSINESS ENTERPRISE DEVELOPMENT
The question we pose to African-American entrepreneurs is not how we can continue to develop more Black-owned small businesses. We’ve been doing that for years. In fact, our country is not at a loss for small businesses. Small businesses represent the backbone of our economy.
However, small businesses come and small businesses go. According to the U.S. Small Business Administration, more than 33 percent of small businesses fail in the first two years, and 66 percent fail within the first four years. So, small businesses are created and then they fail. Then more small businesses are created and more fail. Only a select few ultimately succeed. This is simply the reality of entrepreneurship. It is also why the question we pose to aspiring and established African-American entrepreneurs is not how we can develop more Black-owned or operated small businesses, but rather, how can we develop more business enterprises, that is, growth ventures, that reach scale?
We need more Black-owned small businesses to evolve into Black-owned business enterprises because business enterprises are critical to generating and retaining significant wealth in minority communities and eliminating “the illusion of economic inclusion,” as described earlier. Business enterprises can serve as the cornerstones for job creation and opportunity and, perhaps most important, generate significant wealth for individuals, families, and communities.
Whether we like it or not, in the twenty-first century business landscape, size matters. While small businesses are indeed the backbone of the U.S. economy, it is becoming increasingly difficult for small businesses to remain competitive. For example, over the past few decades we have witnessed several mergers and acquisitions among long-standing, multinational corporations that we never dreamed would have joined forces: AT&T and Cingular; Bank of America and Merrill Lynch; Wells Fargo and Wachovia; Citicorp and Travelers; Sprint and Nextel; Delta Airlines and Northwest Airlines; Hewlett-Packard and Compaq and EDS; AOL and Time Warner; FedEx and Kinko’s; XM Radio and Sirius Radio; and even the UPN and the WB television networks. As already-big companies get bigger, it reduces the number of players in their industry. The remaining players are likely to be larger than ever before, making it harder for smaller companies to remain competitive.
This trend of consolidation raises the bar for African-American entrepreneurs (and those who support their development). True business enterprises stand the best chance of competing in the marketplace, achieving longevity, and generating wealth for generations and generations to come. We often refer to a minority-owned business as a “minority business enterprise,” or MBE. For us, the operative word is “enterprise.”
Social Entrepreneurship
When people use entrepreneurship as a vehicle to transform communities, address social issues, or improve the environment, they are employing entrepreneurship for a purpose. If this describes what you do, or what you desire to do, then you are the kind of person who believes you can achieve the double bottom line—“do well” (for yourself financially) and “do good” (for others and the community) at the same time.
The traditional model of capitalism in the United States is to create a company and grow it to be very big and make lots of money. Then, after you’ve made your millions or billions of dollars (in many cases), you turn your attention to charitable deeds and create a foundation. Some of the major companies and wealthiest families in the nation followed this pattern of wealth creation and then foundation creation. Think of the Ford, Rockefeller, and Gates foundations. These and other foundations have been used as a significant means of taking wealth generated in business and applying it toward creating social value or change.
Entrepreneurship for a purpose flips the traditional model on its head by creating economic value and social value simultaneously. Just like the double bottom line for social intrapreneurs working inside established organizations, you can work on the outside to strike the double line. The core of this idea is called social entrepreneurship. In fact, many people are striving for triple bottom lines where they also create environmental value by defending the natural environment or reducing our impact on it.
We take the broadest possible definition of social entrepreneurship so that we can help you understand how creating social and economic value at the same time redefines the game and reshapes America. Here is a definition from a book that Jeffrey co-edited with his colleagues Joanna Mair and Kai Hockerts:
Social entrepreneurship is recognized as encompassing a wide range of activities: enterprising individuals devoted to making a difference; social purpose business ventures dedicated to adding for-profit motivations to the nonprofit sector; new types of philanthropists supporting venture capital-like “investment” portfolios; and nonprofit organizations that are reinventing themselves by drawing on lessons learned from the business world.10
Instead of using the terms “for-profit social business” and “nonprofit organization,” we use the terms social venture and civic and community venture.
THE FOUR ELEMENTS OF SOCIAL ENTREPRENEURSHIP
From our perspective, four elements must be present for a venture to be considered social entrepreneurship: social impact, social innovation, sustainability, and success measures.
Social Impact: What issue or problem is the venture being set up to address? Social impact is a key element of a social venture. How a social venture makes a difference and where it wants to create change are important strategic decisions. A social venture can solve challenges at community, local, regional, or national levels. Social ventures are often challenged by the trade-off between breadth and depth of their social impact. How the venture’s management and board reconcile this tension is an important strategic consideration.
Social Innovation: Is the venture using a new approach to addressing the social/environmental issue? Social ventures break new ground, pioneer new approaches, or develop new models. These ventures need to creatively navigate the economic, social, and institutional barriers to addressing the social need. Social entrepreneurs develop new approaches to addressing social problems or utilize technology to facilitate problem solving. It is important that social ventures use effective innovations for the problem they are addressing.
Sustainability: Is the venture financially viable? Is the venture positioned to fulfill its mission over the long term? A sustainable social venture is financially viable and positioned to fulfill its mission. Many social ventures are not sustainable because they rely upon unstable grant-making or government institutions for funding. Alternatively, earned-income or fee-for-service business models are generally more effective strategies for social ventures. Some social ventures are not sustainable because they have not organized their internal resources effectively to fulfill their mission. How a social venture marshals its resources is an important strategic decision that often separates traditional nonprofit organizations from social entrepreneurship. Later in the chapter, we will expand upon this concept of sustainability.
Success Measures: How does the venture measure its social impact and evaluate success? Are the measurement tools appropriate for this type of venture? Measurement and evaluation are essential to social entrepreneurship. In addition to the financial metrics used by traditional ventures, social ventures must measure their impact and evaluate their effectiveness. There are many ways to measure and evaluate the social impact of a venture. Depending on the venture, examples of measures include improved student grades, reductions in the incidence of a disease, or decreases in environmental emissions. The key is that the social venture is using an appropriate type of measurement tool that is in line with its theory of change. A theory of change is the way that social entrepreneurs define how their innovation makes a social impact or how they think change will be made. It is also a concept we will revisit in Strategy 9.
These four elements guide the way for using the social entrepreneurship approach to address the social and environmental issues in the African-American community and beyond. We acknowledge that social entrepreneurship is not the only approach that can lead to change in the African-American community, but we strongly believe that it is an approach that makes a difference. Emerging social entrepreneurs that consider these four elements when creating and operating their social ventures and business will be more effective and make a substantial impact in our communities.
Game-Changing Strategies for Entrepreneurship for a Purpose
Here we present social entrepreneurship for a purpose in two categories, namely, civic and community ventures and social ventures.
CREATING CIVIC AND COMMUNITY VENTURES
In this category, we place all nonprofit and community-based organizations, including grassroots, educational, and faith-based organizations, created to address social and/or environmental issues. This category includes groups offering exposure, expertise, and mentoring to schools, churches, and mosques, as well as entities promoting youth development, professional development, and economic development.
We also believe that when you create your own organization of this type that you are being just as entrepreneurial as someone who creates a multi-billion-dollar business enterprise. The only difference is that central to your mission is a desire to make a socially important difference.
Nationally, there has been an explosion of these types of nonprofit organizations. When we say nonprofit organizations, we are referring to the registered nonprofit corporations that have tax-exempt status under IRS code 501(c)(3). Not only do they not pay corporate taxes, but they also are able to accept donations. Individuals who give these nonprofits donations can claim those donations as charitable contributions and reduce their taxable income.
Following Your Passion. We meet many people who tell us that they are not challenged by or passionate about their fulltime jobs. Often they say they are passionate about youth development, education, or public health. In fact, it is the disconnect between their “day job” and their passion that causes many people to be frustrated. For some people, starting a new community organization is something that can be more rewarding than being in corporate finance, engineering, or sales.
For example, Angela Glover Blackwell’s path to becoming a social entrepreneur began when she graduated in 1967 from an admittedly uninvolved four years at Hampton University and moved into the thick of the Black Power Movement in New York City.
“I went from zero to sixty miles an hour in no time at all because I had literally done nothing. When I was in college I didn’t join anything; I didn’t lead anything, I just was observing,” Blackwell related to us in an interview. “But when I entered the Black Power Movement, life became purposeful and the skills that I had developed—in church, in the community, in debates around my dining room table—suddenly had a place where they could be focused.”
And so began a career organizing first in New York City and then in Los Angeles. She earned a law degree at the University of California at Berkeley and became a public-interest lawyer working for organizations like the American Civil Liberties Union and the NAACP. The Rockefeller Foundation recruited her from the Urban Strategies Council in Oakland, which focused on policies that dealt with infant mortality, teenage pregnancy, early childhood development, and school improvement.
But like many of the people we run into who have that social entrepreneurial spirit, something was missing.
“I accepted that offer because I thought it was a way to spread the kind of work that we were doing in Oakland,” Blackwell explains. “But I found philanthropy to be frustrating. It wasn’t action-oriented enough for me. After three years being there, though, I recognized that what was missing was a policy organization that actually did its policy work from the wisdom, voice, and experience of people who were working locally.”
From there, Blackwell fused her experience working with people as a community organizer and her experience in philanthropy to create PolicyLink, which works with people in communities to create sustainable opportunities for people to improve their lives. One successful PolicyLink initiative has been to fight the spread of obesity and other diet-related diseases by attracting grocery stores to underserved areas. When people don’t have access to fresh, healthy food options, as is the case in many low-income communities, they aren’t able to make better food choices. PolicyLink serves as a consultant to organizations and communities that are trying to make a difference by implementing these kinds of projects.
Bringing your experience and expertise from your profession into the social sector is a great way to make an impact in communities. But, we also want to caution you about creating a new organization for the sake of creating something new. In some cases, it is better to develop your efforts through an existing organization.
The Challenge for Nonprofit Organizations. We believe that creating a new nonprofit organization or civil society organization (CSO) is an entrepreneurial act. The challenge we see with many of these organizations is that after they are created, they stop being entrepreneurial. Sometimes the mind-set of the founders shifts from getting off the ground to providing the services or meeting the need and they forget about the resourcefulness and entrepreneurial drive necessary to grow a nonprofit organization. Sometimes, the tax-exempt status and restrictions placed on nonprofit organizations make it difficult for these organizations to be creative. Boards of directors can make things more complicated if they have a perspective that is different from the staff of the organization.
We’ve seen the amazing work done by civic-or community-based organizations disappear because the sources of their funding—government agencies and philanthropic individuals or foundations—shifted their priorities. Others did not run their organizations like they were businesses. They didn’t write a business or an operational plan. They let inefficiency and ineffectiveness creep in. All of this leads to the diminishing of the vital services that you are providing.
Creating and sustaining a small nonprofit organization can be difficult. The hours are long, the pay can be low, and you become emotionally invested in the success or failure of each project or program. You may be following your passions, but we advise that you find team members who are excited about the work that you do but also have the ability to address the operational challenges that every organization has when it is starting out or growing. It is just as important to have people with an accounting or financial background as it is to have people with a passion for the work that your organization does. People with these necessary business skills will help your organization be financially sustainable and effective and efficient at meeting your mission, vision, and organizational goals.
CREATING SOCIAL VENTURES
Social ventures use entrepreneurial and business skills to create innovative approaches to solving social and environmental problems. These are mission-driven organizations focused on the double (or triple) bottom line of social impact and financial growth. Whether they are called social ventures, social purpose businesses, or social enterprises, we consider all of them social entrepreneurship.
They share these characteristics:
A central purpose of the organization is the desire to make a socially important impact.
They leverage new approaches (social innovation) to address social and/or environmental issues.
They create a sustainable business and operational model that allows them to make a social impact over the long term. Among the possible models are earned income strategies, partnerships, fee-for-service, and state or federal contracting.
They measure and promote their success in addressing specific social or environmental issues.
We meet many people with an entrepreneurial spirit who also want to make an impact on the world. They come to us and usually say something like, “I want to start a nonprofit organization.” This statement often reveals old-school thinking. We will often respond with the questions: “Why does it have to be a nonprofit organization? What is it exactly that you want to do?”
Old-school thinking says that nonprofit organizations and CSOs are the only type of entities that can meet social needs or address environmental problems. New-school thinking says that the terms nonprofit and for-profit are only organizational forms. (Remember, we already gave you the technical definition of a “nonprofit, tax-exempt organization” in the previous section.) A social entrepreneur can use either form of organization to achieve social and environmental goals.
If you want to help solve a social problem, you should figure out the best type of organization to achieve your goals. The best approach will allow you to accomplish those goals efficiently and effectively.
Social entrepreneurs can use any of the following methods to address social and environmental issues. Each approach is an entrepreneurial act:
Creating nonprofit organizations that generate earned income. An example is Green Worker Cooperatives, a nonprofit incubator for entities that work to solve environmental issues in the South Bronx. Its first cooperative, Rebuilders Source, salvages used building materials from new construction and demolition projects and sells them to the general public below retail prices to generate earned income—while also keeping tons of waste out of landfills.
Developing for-profit subsidiaries for a nonprofit organization. Greyston Bakery, a for-profit in Yonkers, New York, was founded to create an income stream for a Zen Buddhist meditation group, but later expanded to create jobs for community residents including former felons and the homeless. The organization grew to become the exclusive maker of brownie mix-ins for the Ben & Jerry’s ice cream brand and creates gourmet pastries and wedding cakes.
Operating a nonprofit organization like a business. Co-founded by one of Randal’s mentors, Rey Ramsey, Washington, D.C.–based One Economy works to help people improve their lives through access to technology and media. The organization works to bring broadband Internet access to low-income communities and creates programming for its Public Internet Channel (PIC.tv), including a series on single motherhood produced and directed by Robert Townsend and thebehive.org, which provides content on finances, healthy habits, housing, and education. One Economy accepts funding to support some of its activities, but also derives a large percentage of earned income from fee-for-service activities such as installing broadband service in low-income housing developments.
Creating a for-profit business that addresses a social or environmental problem as part of the central mission of its business. Eden Organix, a Raritan, New Jersey, spa founded by Jeffrey and his wife Valerie Mason-Robinson, promotes taking a natural approach to solving skin care problems through the use of holistic products, instead of using harsh chemicals that could have harmful side effects. Sweet Beginnings is a Chicago-based maker of honey-based spa-quality products that absorb more easily into the skin than many synthetic products. Sweet Beginnings trains and employs residents in the city’s North Lawndale community who are often locked out of the traditional labor market due to criminal records or other barriers to employment. Eden Organix creates jobs for women who have fallen on hard times and donates 10 percent of its profits to environmental and other charities.
Creating for-profit companies whose products and services provide a societal benefit. Our company, BCT Partners, offers an array of strategic management, technology, and organizational development services to support efforts aimed at producing positive change. Under one contract, BCT works with the U.S. Department of Housing and Urban Development to help public housing authorities that have won grants to better utilize their resources in implementing a community revitalization plan while meeting other grant requirements.
BEYOND NONPROFIT SUSTAINABILITY TO SOCIAL ENTERPRISE GROWTH
Capacity building refers to the multitude of activities geared toward enhancing an organization’s ability to function more effectively in achieving its desired outcomes. These activities include training, technical assistance, strategic planning, fund-raising, technology assistance, partnership development, and much more. Old-school capacity-building efforts aimed at nonprofit organizations (e.g., community-based organizations, faith-based organizations, charter schools, CSOs) have focused on achieving sustainability or simply maintaining an organization’s current level of capacity. In fact, the paradigm of sustainability is somewhat reflected in the language traditionally used by some within the nonprofit sector to describe those who support their work.
For example, some within the social sector refer to their capacity-building supporters as “funders” who provide “funding,” while others refer to their capacity-building supporters as “investors” who make “investments.” The Merriam-Webster dictionary definitions of some of these terms are as follows:
Invest—1: to commit (money) in order to earn a financial return; 2: to make use of for future benefits or advantages.
Investment—the outlay of money usually for income or profit [profit is defined as “a valuable return”].
Funding—to make provision of resources for discharging the interest or principal; to provide funds for.
These definitions are suggestive of two potential paradigms. The first paradigm—a sustainability paradigm—treats resources as funding and discharges these resources in a way that maintains the status quo. It is an organizational paradigm that is willing to accept occasional growth, occasional capacity building, survival, and breaking even. The second paradigm—a growth paradigm—treats resources as investment and makes use of these resources to achieve a valuable return on the investment. It is an organizational paradigm that emphasizes continuous growth, continuous improvement, future benefits, and future advantages. The question we pose to those working in the nonprofit, faith-based, educational, community, or civic sectors is: Which of these paradigms best applies to you and your organization?
Perhaps not surprisingly, we are vocal advocates of the growth paradigm. It is the more empowering paradigm. It places a premium on advancement and progress. It is wholly consistent with the entrepreneurial mindset. When a civic, community, or social venture enacts the necessary rigor that promotes organizational growth financially, procedurally, technologically, and operationally along the lines of revenue, budgets, staff development, new systems and processes, and strengthened partnerships, we call this becoming a social enterprise. Experienced social entrepreneurs seek to move beyond a paradigm of achieving sustainability to a paradigm of growth that reaches scale and expands the scope of their impact.
Figure 8–5 summarizes the four types of entrepreneurial ventures we have discussed in this chapter—lifestyle ventures, growth ventures, social ventures, and civic and community ventures.
Figure 8–5. Four types of entrepreneurial ventures.
Institution Building
The challenge for the last generation of African-American entrepreneurs was breaking down doors and lobbying government and corporations to even consider doing business with minority-owned firms. The challenges of today apply to both entrepreneurs for a profit and entrepreneurs for a purpose, but in subtly different ways.
Today’s generation of African-American social entrepreneurs represents a vanguard of socially conscious, business-savvy individuals who must similarly break down doors to create social enterprises that can grow and reach scale to address the pressing social and environmental problems facing society. African-American entrepreneurs must continue the momentum of their predecessors and work together to build companies that can also grow and reach scale. However, these business enterprises must be oriented toward creating lasting, generational wealth and promoting much-needed economic development in communities across our globe.
Looking ahead to Strategy 9: Synergize and Reach Scale, it’s important to note that business enterprises and social enterprises are just a particular class of organizations we refer to as institutions. In Strategy 6: Find Strength in Numbers, we introduced the continuum of group relationships that ended with organizations. Institutions are organizations that stand the test of time. Institutions are establishments: organizations that will exist long after we have left this world and, in doing so, will continue to uphold their governing ideas of mission, vision, and values.
Government is an institution. It was here before we were born and will likely be here after we have moved on. The existence of government helps perpetuate certain ideals, norms, and standards for generations past, present, and future. The Baptist Church and the Catholic Church are institutions. Many well-recognized corporations such as World Wide Technology, General Electric, CAMAC, and McDonald’s are institutions. Viable nonprofit organizations like the College Fund and the Red Cross are institutions. To further illustrate what it takes to be classified as an institution, consider the following:
The difference between an independent consultant and a long-standing consulting firm is that the latter is positioned to become an institution. The independent consultant’s impact may be felt for years, but the point of view, processes, and methods that he used to do his work won’t fuel another business after he stops working.
The difference between Oprah as a talk-show host and Harpo Productions, which is owned by Oprah, is that Oprah one day will no longer host a talk show. Harpo is positioned to exist as an institution for years after Oprah has moved on.
The difference between a nonprofit, church, or school that survives for two, three, or maybe four years and one that remains in the community for a hundred years is that the latter has become an institution.
An institution does not necessarily imply a large organization. A small-, medium-, or large-size organization can be an institution. Size and scale are not the distinguishing characteristics of an institution; rather, it’s about staying power and permanence. No organization is meant to truly last forever, but some organizations do last much longer than others. So we’re not talking about “Mom and Pop operations” that cease to exist once Mom or Pop move on. They’re great, but that’s what past generations of African-American entrepreneurs were poised to accomplish: They opened storefronts, independent consulting firms, and community groups with a single staff person.
Therefore, the ultimate question put to entrepreneurs and social entrepreneurs alike is the following: If the founding members or key leaders of your organization were to step down tomorrow, would your organization continue to grow? If the answer is “no,” then there is more work to be done for your organization to be considered an institution. If the answer is “yes,” then your organization is likely to be there. One of the primary reasons certain governments, corporations, and nonprofits are institutions is because they have institutionalized their ability to replace their leaders. To the extent that you want your organization to have staying power, you must do the same.
As you can see, our definition of institution applies equally to public, private, community, educational, philanthropic, and faith-based organizations. Strategy 9: Synergize and Reach Scale will make clear how to work across all of these sectors—intrapreneurs and entrepreneurs alike—to empower people and build institutions that have longevity and create lasting change.