Our Black Year (38 page)

This demonstrates that as much as $894 billion are being left on the table. While 100% of those dollars may not enter the Black community, a larger percentage than 2–5% should be feasible.

The Andersons' expenditures (to both Black and non-Black owned businesses) totaled approximately $135,000 in 2009. Based on that figure, they are in the top 6% of all Black households in terms of disposable
income.
⁴
Under the assumption that higher income individuals have more resources to devote to methodically patronizing Black businesses, we found that the aggregate of Black households with at least $75,000 of after-tax income reveals incredible potential for “Black” dollars, even with small increases (
Exhibit 12
).

 

While the 68% mark is ambitious, if Black households with substantial disposable income increased their spending from the conservative estimate of 2% ($3.6B) to 10% ($17.8B) with Black businesses, more than $14 billion
⁵
would be contributed to Black entrepreneurs or owner/operators' revenues. If this logic were simply applied to all income levels, the impact would be substantial (
Exhibit 13
).

As previously mentioned, the analysis focused on families that are economically similar to the Andersons because they are more likely to have the financial means and overall capacity to divert their resources to Black businesses. Accordingly, in order to scale The Empowerment Experiment,
we suggest that the movement start with higher-income individuals who can attract and patronize a diverse set of businesses in Black communities, followed closely by middle- and lower-income individuals. The added dollars from Black consumers should encourage would-be entrepreneurs to enter the market and capture the value of the Black consumer.

 

One of the challenges Black consumers face is that there simply are not enough Black-owned businesses that would make it convenient for local residents to “buy Black.” According to the US Census Bureau, while African Americans comprise 12.8% of the total population (2008 projections), 2002 data demonstrated that only 5.2% of all firms were Black-owned. This is a striking comparison to Asians who, in the same years, comprised 4.5% of the population but owned a proportionate 4.8% of firms.

If Black entrepreneurs saw more viable, sustainable opportunities for launching businesses in the Black community, these numbers could change drastically. Right now, there seems to be a vicious cycle that discourages potential entrepreneurs from realizing the revenue opportunity in Black communities (
Exhibit 14
).

 

Notwithstanding this cycle that Black entrepreneurs face, $14 billion, even as a conservative estimate, is a considerable value that is left on the table. To illustrate the power of the $14B, we calculated the number of Subway franchises that could be opened in Black communities if that revenue was generated for Black businesses. In the realm of entrepreneurship, franchises are often simpler and less risky to launch than a start-up; additionally the costs are known, which provides for a straightforward analysis. While Subway is not intended to represent the need for quality Black-owned businesses in all industries (as discovered by the Andersons), it will serve as a proxy for potential opportunity.
⁶

 

It costs between $81,300 and $203,000 to start a Subway franchise.
⁷
Using the upward bound of the Subway cost structure, the added $14 billion is enough to fund the creation of approximately 68,965 new franchises or more than two times the number of existing Subway restaurants all over the world.
⁸

Further, each Subway store employs 8 to 13 people. Using the model we have created, the conservative estimate of 68,965 stores can create 551,724 to 896,551 new jobs (
Exhibit 15
).
⁹

This model can be replicated for different franchises, across different industries, and for different business models. This model illustrates that with very small changes in consumption spending, the impact can be potentially far-reaching. Admittedly, Black entrepreneurs will have to make the first move and create quality businesses for Black consumers to patronize
and
find a way to capture the value of the Black consumer, which has yet to be done at scale. Despite this hurdle, it is clear that buying Black can create wealth and jobs for both the Black community and the community at large.

As previously discussed, the 2008 buying power of the Black consumer was estimated at $913 billion.
¹⁰
To contextualize this impact, this buying
power can be compared to GDP purchase power parity for some major world economies. If the US Black population were considered an economy unto itself, it would rank as having the sixteenth highest GDP compared with other countries.
¹¹

 

The estimated Black buying power in 2013, over $1.2 billion, is more than the current GDP of Canada. Given the extraordinary buying power of the US Black consumer, Black businesses should make a concerted effort to understand how to attract and engage Black consumers. This consumer base is growing, young, and eager to purchase consumer products and services.
¹²
Additionally, this kind of information may be successfully leveraged in making a case for the market potential for new business launches.

Historical data illustrate that capturing the value of Black consumers has been difficult for Black entrepreneurs.
¹³
Therefore, we would be remiss to ignore this obstacle in encouraging consumers to “buy Black” and Black entrepreneurs to launch more sustainable businesses. There are three key areas on which Black business owners and entrepreneurs can focus in order to capture meaningful value: awareness, accessibility, and absence (gaps in sectors served).

Business awareness was a significant hurdle for the Andersons as they specifically searched for Black businesses. It is not a stretch to assume that this would significantly hinder a broader population of Black households from supporting Black businesses. As previously detailed, the Andersons used web research, personal referrals, and organization referrals to identify Black businesses. As illustrated in
Exhibit 5
, web research is a powerful tool for business owners to reach potential consumers. Businesses should leverage online Black business search engines and ensure that their business websites clearly highlight Black ownership. This will allow them to more easily reach a large Black customer base that is
increasingly utilizing the web. The combination of a web presence and referrals provides consumers with a method of validating the service and quality of a business. This is essential for Black businesses to attract and enable potential customers to feel more confident about supporting them on a regular basis.

Once awareness has been developed, Black businesses must maintain high levels of quality and service in order to capture value and maintain it, which generates positive referrals. With the prevalence of social networking and consumer reliance on word of mouth, there is an incredible weight put on the quality of each individual experience. One negative review by a leader in an influential organization or a trusted community member can be detrimental to the long-term success of a Black business. In this study, 72 percent of the industries represented scored above average in their overall quality and service ratings, which means that there are Black businesses that are delivering at a level on par with or better than some of their nonminority business counterparts. However, building a sustainable Black business may mean reaching levels well above average. Ensuring high levels of quality and service will help break the vicious cycle with regard to Black business empowerment. High-quality products and services will help to pave the way for customers to become supporters and vocal champions of these businesses instead of averters.

A major issue encountered by the Andersons was the accessibility of Black-owned businesses.
Exhibit 17
on the next page shows the locations of the Black-owned businesses against the location of the Andersons' household. The Andersons sometimes had to travel at most 52 miles in order to purchase products/services from Black-owned businesses. This travel requirement would be difficult for the average family and signifies the opportunity entrepreneurs have in terms of serving the needs of minority communities. If entrepreneurs focused on establishing their businesses in primarily African American communities, they would receive a higher frequency of purchases and also capitalize on local residents who are unable or unwilling to travel long distances for their basic consumer needs.