Minority Business Development in Cleveland
Prepared for the Cleveland Foundation
August 29, 2005
john a. powell
Executive Director Kirwan Institute for the Study of Race & Ethnicity, Ohio State University http://www.kirwaninstitute.org
Roger Clay Jr.
President National Economic Development & Law Center http://www.nedlc.org
Purpose of this Study
Identify strategies for The Cleveland Foundation to improve its minority business development approach
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Methodology
– Analysis of national MBE trends – Identify best practices – Analysis of minority businesses in Cleveland & Cuyahoga County – Interviews with stakeholders
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Presentation Overview
MBE development matters Economic and geographic analysis What is and what isn’t working in Cleveland? Community leader perceptions Best Practices among Intermediaries Emerging Opportunities Conclusion
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Why Does MBE Development Matter?
MBEs will become an increasingly important factor in local, regional and national economies Minority businesses tend to hire non-white employees at a higher rate than do majority businesses
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National MBE Trends
The number of minority owned businesses is growing faster than the rate for all U.S. firms
Growth in Number of Firms
Percentage Increase
50 40 30 20 10 0
MBEs All Firms
1992 to 1997
1997 to 2002
17% of all companies in the U.S. were owned by minorities in 2002
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Yet, A Decline in National Market Share for MBE’s 92-02
7% 6% 5% 4% 3% 2% 1% 0% 1992 1997 2002
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MBE: % of National Market Share
1997-2002 – Sales up nationally for African-American- and Hispanic-owned businesses, but down in Ohio
40% 30% 20% 10% 0% -10% Nation Ohio 30% 22% 22% 13% -8%
-8%
All Businesses African American Owned Bus. Hispanic Owned Bus.
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Description of Cleveland’s MBEs
Sales
and receipts of African Americanowned businesses grew by 284% from 1992-1997. MBE's are doing relatively well compared to other metropolitan regions Hispanic or Latino MBEs are noncertified and disengaged from the regional economy
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Larger
Most
100
Number of Employees
Firm Expansion Rate
90 80 70 60 50 40 30 20 10 0 0 2 4 6 8 10 12 14
Poly. (All Firms) Poly. (MBEs)
Number of Years
100 95 90 85 80 75 70 5 to 9 10 to 19 20 to 49 50 to 99 Number of Employees 100 & Over
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All Firms MBEs
Average Credit Rating
Industry Concentration
Industry Strength of Cleveland's African-American-owned MBEs Compared to Nation
Market Share Ratio of Industry Compared to Overall Market Share
3.5 3 2.5 2 1.5 1 0.5 0
Cleveland PMSA U.S.
Construction
Wholesale Trade
Financial Services
Manufacturing
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Size by Industry
LARGE:
– Wholesale Trade – Manufacturing
SMALL-to-MID-sized:
– Retail Trade – Financial Services – Construction
Micro OR SMALL-to-MID-sized:
– Professional Services
Growth: Financial Services were the only sector where the proportion of MBEs over $2.5 million in sales grew from 2000 to 2004
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40
50
60
70
80
90
Ma nu fac W ho les a le Tr ad e Pr ofe s sio na lS er vic e s er vic e s tu rin g
dm in/ Su pp or t Se rvi c es
Fin an cia lS
Re ta il
Tr ad e Co ns t ru cti Al
Credit Rating by Industry
Industry by Credit Rating, Percent of MBEs with Credit Rating Over 80
on lM BE s
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Geographic Distribution
Our analysis looked at the geographic location of MBE’s and how they were located in respect to other regional trends
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Where are MBEs located?
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MBEs by Sales Volume
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MBEs by Change in Sales Volume 2001-2005
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What is Working in Cleveland?
Targeted technical assistance, business networking, mentoring, and supplier diversification efforts Mainstream lending institutions compete for MBE lending Cleveland has best practice community development financial institutions and community development venture capital funds Good support from universities and colleges
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What is not working?
Exclusivity Competition Informal business networking Need for more accountability and measurable outcomes Need for programs to monitor and take advantage of public procurement programs
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Community Leader Perceptions
Structural challenges to MBE development
– – – – Limited social capital Racism and weak political environment Economics Public education
Institutional based challenges
– Difficulty in accessing capital – Need for more cooperation and specialization
Individual based challenges
– Limited skill sets; talent; and strategic vision – Tendency toward life-style businesses
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Best Practice for foundations funding MBE development – a comprehensive approach
Targeted Business Development Assistance Well-planned Business Networking Research, Advocacy & Public Policy formulation Community development financing Promotion of regional climate to support MBEs
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Emerging Opportunities
1.
2.
3. 4.
Strategic partnerships National trend toward supplier diversity Strong and emerging sectors locally New public sector affirmative procurement programs – especially Cuyahoga County
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More Emerging Opportunities
5. 6. 7.
8.
9.
Ohio’s new Minority Business Venture Capital Tax Credit Program Large land bank of the City of Cleveland New workforce development strategies Local market gaps for small-businesses Retail and Services in the growing Latino community
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Recommendations
The Foundation should serve as a funder and convener of intermediaries working to promote and develop MBE Support for MBE intermediaries serving various parts of Cuyahoga County, in addition to Cleveland Provide multi-year grants
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Recommendations
Fund intermediaries that:
– Articulate measurable goals and outcomes – Coordinate and cooperate with other intermediaries funded by the Foundation – Partner with diverse stakeholders to support minority businesses
Develop a tracking system to monitor the health of minority businesses
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Recommendation
Support the following:
– A clearinghouse intermediary – Technical assistance and professional development grants to intermediaries – Research and evaluation to support the continued refinement of MBE services – Public policy formulation and advocacy
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Recommendations
Support for multi-organizational and regional strategies that target specific industry sectors Support for micro-enterprise and smallbusiness development strategies that target industries with the most potential to grow to the next level
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Conclusion
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The Cleveland Foundation has a strategic opportunity to take its MBE promotion and development to the next level, with the combination of the intermediaries in place and many exciting, emerging opportunities.
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