BCG SAYS MINORITY BUSINESSES IMPORTANT, BUT LACK SCALE, SIZE, CAPABILITIES OF MAJORITY-OWNED FIRMS

THE NEW AGENDA FOR MINORITY BUSINESS DEVELOPMENT JUNE
2005: A Study Prepared by Boston Consulting Group

SUMMARY OF FINDINGS
Marked and measurable progress has been made in
minority business development since
the authors first examined the topic in depth for the
U.S. Department of Commerce more
than 25 years ago in the reports The New Strategy for
Minority Businesses (1978) and
Minority Business Enterprise Development in the 1980s
(1980).1 The evolution from
nascent to noteworthy however was just the first step
in minority business development.
Taking the next step, moving from presence to
prominence, poses new challenges and
therefore demands a “New Agenda,” with a focus on
growing larger and self-sustaining
minority businesses.

The Gains
Once hobbled by a lack of capital, lack of access to
government and private-sector
market opportunities, and a lack of managerial talent,
minority businesses face a vastly
different reality today. Since the 1980s, with
support from expanded government and
corporate supplier diversity programs as well as other
initiatives, minority firms as a
whole have seen their revenue rise by about 10 percent
annually, have created
23 percent more jobs, and have enjoyed an overall
growth rate three times higher than
that of traditional businesses.

The Gap
Even though the number of minority businesses has
reached unparalleled heights, their
proportion does not yet fully reflect the growing size
and importance of minority
communities in the United States—soon to account for
40 percent of the population.
Fueling the disparity is the fact that minority
businesses are disproportionately
represented in low-growth and no-growth sectors. They
also tend to rely on personal
debt and family financing over business loans, equity,
and other tools that are otherwise
commonly accepted in the capital markets. As a
result, minority businesses often lack the
size, scale, and capabilities of their majority
counterparts.

A shift in mind set is required for:

• Corporations—elevating minority business development
to a higher level in
terms of strategic importance and fostering increased
collaboration between
minority entrepreneurs, consumers and employees
• Government—recognizing the critical importance of
minority business in
economic development and fostering the growth of not
just small businesses, but
those companies of size and scale that are positioned
in growth industries
• Minority Entrepreneurs—growing businesses of size is
the major imperative,
requiring the entrepreneur to use all aspects of
corporate supplier diversity
progress and assume broader leadership roles—in their
communities and on major
corporate boards.

Specifically, to achieve greater size and scale
and expand their capabilities, minority
businesses “community” must proactively close the gap
by:
• Viewing minority business development as a key to
U.S. economic development
• Diversifying or expanding minority businesses to
seize opportunities in growth
industries
• Building capacity and capabilities of minority
businesses to provide more value-
added products and services
• Growing these businesses beyond the “sole
proprietorship” model of business
ownership
• Expanding the use of mergers, acquisitions, and
strategic partnerships
• Fully accessing and deploying the capabilities of
the financial markets for
minority business development
• Aggressively responding to major trends in global
supply chain management.

The good news is that minority entrepreneurs can
indeed close the gap with their
competitors in the broader business community if they
operate innovatively; radically
change the way they think about their business, their
customers, and their competition—
and move aggressively. The bad news is that those
businesses that won’t or don’t make
transformative changes to close the gap will
ultimately fail. The growth rate for these
firms will begin to slow, and a limited number of jobs
will be created within our society.

The Challenge
Closing the gap for minority businesses requires that
all the major players in the field—
large corporations, government officials, major
universities, foundations and of course
minority entrepreneurs themselves—shift their mindset
and their focus to embrace a New
Agenda. Past and current efforts—while successful in
making broad gains—will prove
inadequate in resolving the remaining disparity and in
achieving future progress. Efforts
must be consolidated and resources allocated with
precision to home in on the most
promising and powerful opportunity: building minority
businesses of size.

The overarching conclusion is that only large
minority-owned businesses can create the
kind of explosive and transformative growth that is
needed to invigorate minority
communities, inner-city markets, minority
entrepreneurs and business leaders, and both
the local and national economies.

The Benefits—and the New Opportunities
The New Agenda will be challenging to pursue, but, if
successful, its benefits will accrue
not only to the entrepreneurs who succeed but also to
corporations and society as a
whole. Minority communities will enjoy both stronger
economies as well as a new breed
of leadership—one capable of effecting change in the
community and society at large.

Private-sector corporations will benefit from more
dependable suppliers that are capable
of taking on major opportunities and eventually
fostering minority business programs of
their own. Bolstered, all these businesses will
contribute to the economic development
agenda of government—revitalizing inner-city
communities, expanding the tax base, and
creating new jobs.