Minority Business Minority Business DevelopmentDevelopmentin Clevelandin Cleveland

Prepared for the Cleveland FoundationPrepared for the Cleveland Foundation

August 29, 2005August 29, 2005

john a. powellExecutive DirectorKirwan Institute for the Study of Race & Ethnicity, Ohio State Universityhttp://www.kirwaninstitute.org

Roger Clay Jr. PresidentNational Economic Development& Law Centerhttp://www.nedlc.org

22

Purpose of this StudyPurpose of this Study

Identify strategies for The Cleveland Identify strategies for The Cleveland Foundation to improve its minority Foundation to improve its minority business development approachbusiness development approach

33

MethodologyMethodology

– Analysis of national MBE trends Analysis of national MBE trends – Identify best practicesIdentify best practices– Analysis of minority businesses in Analysis of minority businesses in

Cleveland & Cuyahoga CountyCleveland & Cuyahoga County– Interviews with stakeholdersInterviews with stakeholders

44

Presentation OverviewPresentation Overview

MBE development mattersMBE development matters Economic and geographic analysisEconomic and geographic analysis What What isis and what and what isn’tisn’t working in working in

Cleveland?Cleveland? Community leader perceptionsCommunity leader perceptions Best Practices among Best Practices among

IntermediariesIntermediaries Emerging OpportunitiesEmerging Opportunities ConclusionConclusion

55

Why Does MBE Why Does MBE Development Matter?Development Matter?

MBEs will become an increasingly MBEs will become an increasingly important factor in local, regional important factor in local, regional and national economiesand national economies

Minority businesses tend to hire non-Minority businesses tend to hire non-white employees at a higher rate white employees at a higher rate than do majority businessesthan do majority businesses

66

National MBE TrendsNational MBE Trends The number of minority owned businesses is The number of minority owned businesses is

growing faster than the rate for all U.S. firmsgrowing faster than the rate for all U.S. firms

Growth in Number of Firms

0

10

20

30

40

50

1992 to 1997 1997 to 2002

Perc

en

tag

e I

ncre

ase

MBEs

All Firms

17% of all companies in the U.S. were 17% of all companies in the U.S. were owned by minorities in 2002owned by minorities in 2002

77

Yet, A Decline in National Yet, A Decline in National Market Share for MBE’s 92-02Market Share for MBE’s 92-02

0%

1%

2%

3%

4%

5%

6%

7%

1992 1997 2002

MBE: % ofNational MarketShare

88

1997-2002 – Sales up nationally for 1997-2002 – Sales up nationally for African-American- and Hispanic-African-American- and Hispanic-owned businesses, but down in owned businesses, but down in

OhioOhio

22%

30%

22%

13%-8%

-8%

-10%

0%

10%

20%

30%

40%

Nation Ohio

All BusinessesAfrican American Owned Bus. Hispanic Owned Bus.

99

Description of Cleveland’s Description of Cleveland’s MBEs MBEs

Sales and receipts of African Sales and receipts of African American-owned businesses grew by American-owned businesses grew by 284% from 1992-1997. 284% from 1992-1997.

Larger MBE's are doing relatively well Larger MBE's are doing relatively well compared to other metropolitan compared to other metropolitan regionsregions

Most Hispanic or Latino MBEs are Most Hispanic or Latino MBEs are non-certified and disengaged from non-certified and disengaged from the regional economythe regional economy

1010

0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12 14

Poly. (All Firms)

Poly. (MBEs)

Firm Firm ExpansioExpansion Raten Rate

Number of YearsNumber of Years

Num

ber

of

Num

ber

of

Em

plo

yees

Em

plo

yees

70

75

80

85

90

95

100

5 to 9 10 to 19 20 to 49 50 to 99 100 & Over

Number of Employees

All FirmsMBEs

Average Average Credit Credit RatingRating

1111

Industry ConcentrationIndustry Concentration

Industry Strength of Cleveland's African-American-owned MBEs Compared to Nation

0

0.5

1

1.5

2

2.5

3

3.5

Construction Wholesale Trade Financial Services Manufacturing

Mar

ket

Sha

re R

atio

of

Indu

stry

Com

pare

d to

Ove

rall

Mar

ket

Sha

re

Cleveland PMSA

U.S.

1212

Size by IndustrySize by Industry LARGE:LARGE:

– Wholesale TradeWholesale Trade– ManufacturingManufacturing

SMALL-to-MID-sized: SMALL-to-MID-sized: – Retail TradeRetail Trade– Financial ServicesFinancial Services– ConstructionConstruction

Micro OR SMALL-to-MID-sized:Micro OR SMALL-to-MID-sized:– Professional ServicesProfessional Services

Growth: Financial Services were the only Growth: Financial Services were the only sector where the proportion of MBEs over $2.5 sector where the proportion of MBEs over $2.5 million in sales grew from 2000 to 2004million in sales grew from 2000 to 2004

1313

Credit Rating by IndustryCredit Rating by IndustryIndustry by Credit Rating, Percent of MBEs with Credit

Rating Over 80

40

50

60

70

80

90

1414

Geographic DistributionGeographic Distribution

Our analysis looked at the Our analysis looked at the geographic location of MBE’s and geographic location of MBE’s and how they were located in respect to how they were located in respect to other regional trendsother regional trends

1515

Where Where are are

MBEs MBEs locatedlocated

??

1616

MBEs by Sales VolumeMBEs by Sales Volume

1717

MBEs by Change in Sales Volume MBEs by Change in Sales Volume 2001-20052001-2005

1818

What is Working in What is Working in Cleveland?Cleveland?

Targeted technical assistance, business Targeted technical assistance, business networking, mentoring, and supplier networking, mentoring, and supplier diversification effortsdiversification efforts

Mainstream lending institutions compete for Mainstream lending institutions compete for MBE lending MBE lending

Cleveland has best practice community Cleveland has best practice community development financial institutions and development financial institutions and community development venture capital community development venture capital fundsfunds

Good support from universities and collegesGood support from universities and colleges

1919

What is not working?What is not working?

ExclusivityExclusivity CompetitionCompetition Informal business networkingInformal business networking Need for more accountability and Need for more accountability and

measurable outcomesmeasurable outcomes Need for programs to monitor and Need for programs to monitor and

take advantage of public take advantage of public procurement programsprocurement programs

2020

Community Leader Community Leader PerceptionsPerceptions

Structural challenges to MBE developmentStructural challenges to MBE development– Limited social capitalLimited social capital– Racism and weak political environmentRacism and weak political environment– EconomicsEconomics– Public educationPublic education

Institutional based challengesInstitutional based challenges– Difficulty in accessing capitalDifficulty in accessing capital– Need for more cooperation and specializationNeed for more cooperation and specialization

Individual based challengesIndividual based challenges– Limited skill sets; talent; and strategic visionLimited skill sets; talent; and strategic vision– Tendency toward life-style businessesTendency toward life-style businesses

2121

Best Practice for foundations funding Best Practice for foundations funding MBE development – a MBE development – a

comprehensive approachcomprehensive approach

Targeted Business Development AssistanceTargeted Business Development Assistance Well-planned Business NetworkingWell-planned Business Networking Research, Advocacy & Public Policy Research, Advocacy & Public Policy

formulationformulation Community development financingCommunity development financing Promotion of regional climate to support Promotion of regional climate to support

MBEsMBEs

2222

Emerging OpportunitiesEmerging Opportunities

1.1. Strategic partnershipsStrategic partnerships

2.2. National trend toward supplier National trend toward supplier diversitydiversity

3.3. Strong and emerging sectors locallyStrong and emerging sectors locally

4.4. New public sector affirmative New public sector affirmative procurement programs – especially procurement programs – especially Cuyahoga CountyCuyahoga County

2323

More Emerging More Emerging OpportunitiesOpportunities

5.5. Ohio’s new Minority Business Venture Ohio’s new Minority Business Venture Capital Tax Credit ProgramCapital Tax Credit Program

6.6. Large land bank of the City of Large land bank of the City of ClevelandCleveland

7.7. New workforce development strategiesNew workforce development strategies

8.8. Local market gaps for small-businessesLocal market gaps for small-businesses

9.9. Retail and Services in the growing Retail and Services in the growing Latino communityLatino community

2424

RecommendationsRecommendations

The Foundation should serve as a The Foundation should serve as a funder and convener of funder and convener of intermediaries working to promote intermediaries working to promote and develop MBEand develop MBE

Support for MBE intermediaries Support for MBE intermediaries serving various parts of Cuyahoga serving various parts of Cuyahoga County, in addition to Cleveland County, in addition to Cleveland

Provide multi-year grantsProvide multi-year grants

2525

RecommendationsRecommendations

Fund intermediaries that:Fund intermediaries that:– Articulate measurable goals and outcomesArticulate measurable goals and outcomes– Coordinate and cooperate with other Coordinate and cooperate with other

intermediaries funded by the Foundationintermediaries funded by the Foundation– Partner with diverse stakeholders to Partner with diverse stakeholders to

support minority businessessupport minority businesses Develop a tracking system to monitor Develop a tracking system to monitor

the health of minority businessesthe health of minority businesses

2626

RecommendationRecommendation

Support the following:Support the following:– A clearinghouse intermediaryA clearinghouse intermediary– Technical assistance and professional Technical assistance and professional

development grants to intermediariesdevelopment grants to intermediaries– Research and evaluation to support Research and evaluation to support

the continued refinement of MBE the continued refinement of MBE servicesservices

– Public policy formulation and Public policy formulation and advocacyadvocacy

2727

RecommendationsRecommendations Support for multi-organizational and Support for multi-organizational and

regional strategies that target regional strategies that target specific industry sectorsspecific industry sectors

Support for micro-enterprise and Support for micro-enterprise and small-business development small-business development strategies that target industries with strategies that target industries with the most potential to grow to the the most potential to grow to the next levelnext level

2828

ConclusionConclusion

• The Cleveland Foundation has a The Cleveland Foundation has a strategic opportunity to take its strategic opportunity to take its MBE promotion and development MBE promotion and development to the next level, with the to the next level, with the combination of the intermediaries combination of the intermediaries in place and many exciting, in place and many exciting, emerging opportunities.emerging opportunities.