Supporting underrepresented entrepreneurs to uplift individuals and the economy
Entrepreneurship inevitably involves risk and often involves struggle. According to the Bureau of Labor Statistics, most new businesses fail in less than a decade, and to many people, starting a business may seem possible only for the wealthy and established. Entrepreneurs may have to forgo access to a stable income, dependable health care, and quality childcare. These barriers and others—especially lack of access to capital—can discourage women and entrepreneurs of color from starting new businesses.
According to the Small Business Administration, the majority of new jobs in the United States are created by small and new businesses. Additionally, research has shown that entrepreneurial businesses create jobs across the United States rather than concentrating them in coastal, urban, high-tech, business centers. When entrepreneurship flourishes, tax bases increase, revenues of other local businesses increase, schools improve, and property values rise.
Meg Small, director of social innovation at Penn State’s Edna Bennett Pierce Prevention Research Center, researches how to support women and entrepreneurs of color in order to promote the health and well-being of individuals, local communities, and the entire economy.
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Closing the equity gap for underrepresented entrepreneurs can improve economic diversity, promote individual flourishing, and promote community flourishing.
– Meg Small
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The importance of women and entrepreneurs of color
Small believes that society should support underrepresented entrepreneurs for reasons of fairness and equity, but she also says that underrepresented entrepreneurs make unique contributions to the economy. She works with researchers across Penn State, nonprofit organizations like the Nasdaq Entrepreneurial Center, and individual entrepreneurs to promote business development among women and entrepreneurs of color.
“In interviews, women and entrepreneurs of color repeatedly told us that the mission of their businesses is to solve a problem within their own communities,” said Small. “Their different perspectives lead to the creation of businesses that are more likely to be community-focused and—at the same time—contribute uniquely to economic diversity. You can see this in MOMLogics.”
MOMLogics is an online platform that supports and advocates for the emotional and mental wellness of Black mothers through courses, coaching, membership, events, and ambassadorship. Lavelle Smith Hall developed the idea for the company after she became known as the “resource mom” in her community — the one whom others frequently turned to for advice on schools, tutoring services, or extracurricular activities.
Hall had plans for an app, but she lacked the capital to create a prototype that would enable her to seek funding for her business. Fortunately, Penn State alumnus Jeff Goldberg had created the Sky Devil Innovation Fund in the college. With support from the fund, an interdisciplinary, undergraduate team from Penn State’s Colleges of Health and Human Development and Information Sciences and Technology helped develop the first version of the app. Learn more about MOMLogics and how Penn State supported this project. business. Fortunately, Jeff Goldberg, co-founder of Sky Devil Wines and Penn State alumnus, had created the Sky Devil Innovation Fund in the college. With support from this fund, an interdisciplinary, undergraduate team from Penn State’s Colleges of Health and Human Development and Information Sciences and Technology helped develop the first version of the app.
“Commitment to community and a sense of purpose drive entrepreneurs to achieve incredible things,” said Small. “We are looking at the entire lived experience and seeing how business and life seem to support one another. At the same time, we are engaged with solving some of the real, nuts-and-bolts problems entrepreneurs are facing, like access to capital.”
Uplifting mothers in Chicago
An interdisciplinary team of Penn State undergraduate students worked with Chicago-based MOMLogics to create an app to provide resources, community, and support to Black mothers.
Providing tools and removing barriers
To support women entrepreneurs, Small and other Penn State faculty members collaborated with the Nasdaq Entrepreneurial Center to develop workbooks for small business owners: “Get Smart About Fair Pay: A Guide for Paying Yourself” and “Fair Pay Resource Guide: A Guide for Paying Your Team.” These workbooks contain decision trees that help entrepreneurs structure financial aspects of their business. A future workbook will provide guidance on how to access different sources of capital. Though they were designed with women in mind, these resources are free for anyone to download and use.
To inform the development of the workbookss, Small and Yoon Hur, assistant research professor in Penn State’s Evidence to Impact Collaborative, surveyed 2,201 members of the Nasdaq Entrepreneurial Center’s community of women entrepreneurs. A summary of their findings is available for download alongside the workbooks, and several findings have implications for the funding of startup companies.
Capital
The most significant barrier facing underrepresented entrepreneurs is access to capital. According to the researchers, traditional funding providers—banks, credit unions, venture capitalists, and others—need to consider different criteria when evaluating potential investments. People from a background without generational wealth, for example, are much less likely to have high credit scores.
As long as banks evaluate lending on the basis of information such as credit scores rather than the potential profitability of the businesses, entrepreneurs of color and people from households lacking generational wealth will remain at a disadvantage to secure funding. In their survey of women entrepreneurs, Small and Hur found that many women entrepreneurs often did not even seek funding for their businesses through traditional channels because of these criteria.
Eight years of support
Conventional wisdom in financial circles holds that businesses need five years of financial support to become self-sufficient. Small and Hur, however, found that women who created startups did not begin paying themselves any salary for an average of eight years, leaving a three-year-gap that could result in the failure of many businesses.
“How many businesses die because they don’t have enough runway to get off the ground?” Small wondered. “How many die because the five-year timeline for profitability was set arbitrarily and not using evidence? This study was conducted with women entrepreneurs, but this may be true for anyone starting a business. More research is needed on this issue.”
Health care and food insecurity
In the United States, health insurance is often tied to employment, so paying for healthcare is a common concern for entrepreneurs. Moreover, women entrepreneurs are two times more likely than the average American to experience food insecurity. Despite these hardships, entrepreneurs routinely demonstrate resilience, adaptability, and flourishing, according to the researchers.
Childcare
The researchers also found that lack of access to quality childcare is a common barrier for women entrepreneurs. Because women provide the majority of childcare in the United States, policy changes that improve access to affordable, quality childcare could increase entrepreneurship among women.
Penn State’s College of Health and Human Development was highlighted with other partners on The Nasdaq MarketSite Building in New York City. College researchers are participating in the Venture Equity Project.
Understanding the problem and developing solutions
Across corporations, universities, and nonprofits, people are working to better support entrepreneurs of color.
“Right now, we are in a data desert,” Small said. “Because of the nature of venture capital funding, we have almost no data on the funding barriers faced by underrepresented entrepreneurs or on what is being done to correct these problems. An interdisciplinary team lead by Max Crowley, associate professor of human development and family studies and public policy and director of the Evidence-to-Impact Collaborative, at Penn State is building the integrated data environment that will allow us to ask important questions like, ‘Are we getting better or worse at solving this problem?’”
Penn State is embarking on this work as part of a large-scale project by the Nasdaq Entrepreneurial Center that aims to remove venture funding barriers for entrepreneurs of color. After the Venture Equity Project data are collected, researchers in Penn State’s Evidence-to-Impact Collaborative will identify areas where local, state, and federal government policy can help address the problem. Potential solutions will be evaluated based on the data being collected right now.
Turning Evidence into Impact
Max Crowley is associate professor of human development and family studies and public policy and director of the Evidence-to-Impact Collaborative (EIC) at Penn State. He and other members of the EIC collaborate on work with the Nasdaq Entrepreneurial Center on creating a more equitable future for entrepreneurs of color, which he discusses in this podcast on Spotify.
Connecting health, human development, and entrepreneurship
The mission of the College of Health and Human Development remains at the heart of this work for Small.
“Research from across our college is so relevant to this work,” said Small. “Intersectional areas of study like health care, childcare, and food insecurity are all empirically tied to the entrepreneurial experience. I have always thought of economic policy and social and health policy as distinct and separate, but our research data showed again and again how linked they are. If we want people to flourish, we have to address their economic needs. If we want the economy to flourish, we have to make sure that people’s whole lives are healthy.”
The description of MOMLogics was adapted from a story written by Jessica Hallman. Thanks to Lee Carpenter for editing support.
Photo Credits
Header Graphic –
- Women silhouettes overlay – Kevin Smart via Getty Images
- First and Second videos – Hiraman via Getty Images
- Third Video – FG Trade via Getty Images
Turning Evidence into Impact – FocusArea via Getty Images
Icons:
- Hand shake and money bag: ihorzigor via Getty Images
- Medical: -VICTOR- via Getty Images
- Teddy Bear: Bakai via Getty Images
Uplifting mothers in Chicago: Photo courtesy of MOMLogics Chicago.
