Executive Summary

This report, The State of Minority Business Enterprises: An Overview of the 2007 Survey of Business Owners, provides an overview of minority business enterprises (MBEs) operating in 2007 and the growth of these firms since 2002. The report is part of the research generated by the Minority Business Development Agency (MBDA) to understand factors that impact a firm’s performance in order to develop strategies and programs that promote the growth and global competitiveness of MBEs.

The data presented in this report is based on the 2007 Survey of Business Owners (2007 SBO) and the 2002 Survey of Business Owners (2002 SBO) published by the U.S. Census Bureau. Data in this report include statistics for employer firms, those with paid employees; and non- employer firms, those without paid employees.

Trends in the growth of minority-owned firms, both large and small, are presented in this report through comparisons between all U.S. firms and nonminority- owned firms, taking into consideration the market share of the U.S. minority population. This report also assesses the entrepreneurial parity of these firms, measured by the percentage share of minority-owned firms, their gross sales and paid employees, relative to the share of the U.S. minority population ages 18 and older. The data indicates both positive and negative trajectories as the U.S. economy grew, while homes sales and personal wealth were on the decline.

Key Findings

Minority-owned businesses continued to outpace the growth of nonminority firms in the number of firms and gross receipts between 2002 and 2007.

In 2007, MBEs represented 21.9 percent (5.8 million) of all classifiable firms.¹ MBEs grossed 9.4 percent ($1 trillion) of all annual gross receipts generated by classifiable firms, and MBEs with employees represented 10.3 percent (5.8 million) of all paid employees of classifiable firms.
The number of minority-owned firms grew at a pace more than four times that of nonminority firms² from 2002 to 2007. Minority-owned firms increased 45.5 percent, from 4 million in 2002 to 5.8 million in 2007. Nonminority firms increased at a rate of 10.9 percent, rising from 18.5 million firms in 2002 to 20.5 million firms in 2007.
Between 2002 and 2007, gross receipts of minority-owned firms grew 55 percent (from $661.1 billion to $1 trillion), which was more than double that of nonminority firms at 22.2 percent (from $8.1 trillion to

$9.9 trillion).
Regardless of size, minority-owned firms also outpaced the growth of nonminority firms in the number of firms, gross receipts and employment among larger firms (with receipts of $500,000 or more), and smaller firms (under $500,000 in receipts).
The number of larger minority firms (with receipts of $500,000 or more) increased 42.1 percent between 2002 and 2007, while nonminority firms of comparable size grew 9.8 percent.
Gross receipts of larger minority firms increased 59.2 percent, more than 2.5 times faster than the 22.2 percent growth of all nonminority firms’ gross receipts.³
Larger minority firms increased their number of employees by almost 27 percent, while similarly sized nonminority firms experienced a 7.7 percent reduction.
Compared to the 1997-2002 period, the 2002-2007 performance of minority-owned firms (for both employer and non-employer firms) showed more rapid growth in numbers of firms and gross receipts, than nonminority firms.⁴ The data indicates sustained improvement in the growth and performance of minority-owned firms since 1997.

Average gross receipts of minority-owned businesses remained smaller compared to nonminority firms in 2007.

Despite the significant growth of minority-owned firms, these firms had smaller average gross receipts ($178,000) compared to nonminority firms ($483,000) operating in 2007.
Average gross receipts of minority-owned firms grew slower than those of nonminority firms, 6.5 percent and 10.2 percent, respectively between 2002 and 2007.

Minority employer firms outpaced the growth in firms, gross receipts and employment – while employment at nonminority employer firms remained flat between 2002 and 2007.

The number of minority-owned firms with employees (“minority employer firms”) grew at a significantly higher rate, 21.7 percent, than nonminority employer firms, that declined by 2.6 percent between 2002 and 2007.
Gross receipts of minority employer firms increased by 54.3 percent compared to 22.4 percent for nonminority employer firms.
Between 2002 and 2007, paid employment grew faster at minority firms (24.4 percent) compared to that of nonminority firms (0.2 percent), all U.S. firms (5.9 percent), and publicly held firms (9.5 percent).

Entrepreneurial parity for minority-owned firms was not reached in 2007 when compared to the size of the U.S. minority population.

Entrepreneurial parity is a measure used to determine the level of minority business participation at a rate comparable to their proportion of the U.S. population. Parity would be reached when the share of the number of minority-owned firms, gross receipts and employment is equivalent to the percentage share of the minority population 18 years old and older.⁵

In 2007, the adult minority population⁶ represented 31.5 percent of the U.S. population 18 years old and older (71.5 million), up from 29 percent in 2002 (62.5 million).
Although the minority adult population represented 31.5 percent of the U.S. population in 2007, minority- owned businesses (5.8 million) accounted for only 21.9 percent of all classifiable firms (26.3 million) in 2007, generated 9.4 percent (about $1 trillion) of classifiable firms’ gross receipts of $10.9 trillion, and employed 10.3 percent (5.8 million) of all classifiable firms’ paid employees (56.6 million).
The gap in entrepreneurial parity for minority-owned firms narrowed in terms of number of firms between 2002 and 2007, but widened slightly for paid employees and for gross receipts. Minority-owned firms represented 21.9 percent of all classifiable firms in 2007, up from 17.6 percent in 2002. The difference in share of the number of firms (4.3 percent) between 2002 and 2007 was greater compared to the difference in share of the minority adult population (2.5 percent), for which the parity gap narrowed.
The share of minority gross receipts increased from 7.6 percent in 2002 to 9.4 percent in 2007, and paid employees from 8.5 percent to 10.3 percent. Parity in gross receipts would have required an additional $2.4 trillion in 2007, compared to $1.8 trillion in million in 2002. Parity in paid employees would have required 12 million more employees in 2007, compared to 11.4 million in 2002.
According to the data, no minority-owned firms, despite their general growth, reached parity in gross receipts and employment compared to that of all classifiable firms, except for Asian-owned firms.⁷ These firms exceeded parity in number of firms compared to their adult population share in 2002.

States showing the fastest growth in MBE gross receipts in 2007 included Vermont, Washington, Utah, Nevada and Missouri suggesting growth beyond the most concentrated MBE states (California, Texas, Florida, New York and Georgia).

Minority firms did not approach parity in any state, and the gap was wide for all states, except for Florida.
In 2007, minority-owned firms were most concentrated in five states: California (1,220,580); Texas (723,057); Florida (680,069); New York (537,544); and Georgia (263,356). These five states represented 59.5 percent of all MBEs in the U.S. and 50.9 percent of the nation’s total minority population.
States showing the fastest rates of growth in gross receipts were: Vermont with 193.1 percent growth; Washington with 142.5 percent; Utah with 101.5 percent; Nevada with 99.4 percent; and Missouri with 82.7 percent. Only Nevada ranked among the top five states with highest rates of growth in both the number of minority-owned firms and in gross receipts. Twenty-eight of the 50 states also had percentage changes in gross receipts greater than in the number of firms, suggesting improved overall performance of minority firms in these states.
The number of minority-owned firms also grew fastest in five states: 91.3 percent in Georgia; 87.2 percent in Nevada; 84.5 percent in Alabama; 66.1 percent in North Carolina; and 66 percent in Florida.

Minority-owned firms were widely distributed among all 19 industry sectors in 2007.⁸

Minority-owned firms were most concentrated in the following industry sectors: health care and social assistance; administrative and support and waste management and remediation services; professional, scientific, and technical services; and other services.⁹
Average gross receipts of minority-owned firms by industry sector were smaller compared to those of their nonminority counterparts, except for minority-owned firms in the management of companies and enterprises industry sector. Average gross receipts for MBEs in the management of companies and enterprises industry sector were $2.3 million compared to $1.8 million for nonminority firms in 2007. The difference between the two groups of firms in this industry increased from that in 2002, when the average gross receipts for nonminority-owned firms was $1.2 million and for minority firms, $1.3 million.¹⁰

Conclusion

Minority-owned enterprises grew in number of firms at a much faster pace than their gross receipts, average gross sales, or paid employment between 2002 and 2007. The data also demonstrate that minority-owned firms outperformed the growth of nonminority-owned firms in all four measures during the same period. Despite these gains, however, gross receipts and average sales of minority- owned firms remained lower than those of nonminority firms. While entrepreneurial parity narrowed, in terms of the numbers of minority-owned businesses between 2002 and 2007, the gap widened slightly for paid employment and gross receipts. MBEs did not close the parity gap in terms of number of firms, gross receipts and paid employment when compared to their share of the U.S. adult population.

Minority-owned employer firms continued to be an engine of job opportunities between 2002 and 2007, despite the above mentioned disparities in parity. As the data suggest, minority-owned firms contributed to the U.S. economy with positive growth in employment regardless of firm size, while nonminority-owned firms experienced a decline in employment among their larger firms, along with a very modest increase in employees among their smaller firms.

The data in the report indicates that advancing the economic and financial performance of minority-owned businesses must be a national priority. The state of minority businesses in 2007 suggests this will require expanding opportunities for these firms and convening government, educational institutions and the private sector to develop solutions that effectively enable MBEs to be successful, while addressing barriers to market entry.

The data in this report also surfaces the importance of these strategies for increasing average gross receipts, enabling these firms to hire workers, and, in turn, build more sustainable communities, cities, and states. Moving forward, research that builds upon the state of minority businesses could explore more opportunities to help these firms enhance capacities, increase access to capital and strive towards greater economic parity.

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Notes:

1 “Classifiable firms” are all U.S. firms less publicly held, foreign-owned, non- profit and other firms whose ownership cannot be classified by race, ethnicity, or gender. Classifiable firms include minority and nonminority owned firms.

2 In this report, “nonminority firms” are defined as all firms less publicly held, not-for-profit or foreign-owned firms, and less minority firms. This definition differs from the U.S. Census definition of “nonminority firms” that excludes firms which are owned equally by minority and nonminority owners. The definition used in this report includes firms owned equally by minority and nonminority owners in the nonminority totals. The definition used in this report is consistent with definitions for 2002 data used in this and prior MBDA reports.

3 Data for larger nonminority firms were unavailable for comparison. The difference between the growth in gross receipts for larger minority firms and all nonminority firms suggests that the growth in gross receipts of larger minority firms would have outpaced that of larger nonminority firms with sales of $500,000 or more.

4 See U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business Enterprises: An Overview of the 2002 Survey of Business Owners. Washington D.C., August 2006. See more in Appendix A regarding comparisons.

5 U.S. Department of Commerce, Minority Business Development Agency, The State of Minority Business Enterprises: An Overview of the 2002 Survey of Business Owners (2006), 12-14.

6 Minority population is calculated from the U.S. Census Bureau population estimates as total population less non-Hispanic white population.

7 Asian firms do not include firms owned by Native Hawaiians and Other Pacific Islanders. Parity may have not been reached by all ethnic groups within the category of Asian-owned firms.

8 The North American Industry Classification System (NAICS) is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. The NAICS contains 19 industry sectors at the two-digit code level.

9 The category of “Other Services” includes establishments not provided for elsewhere in the classification system that are engaged in activities such as equipment and machinery repairing, promoting religious activities, grant-making, advocacy, providing dry-cleaning and laundry services, personal care services, and dating services. It does not include public administration.

10 MBDA utilized a combination of 2002 Survey of Business Owners (SBO) releases for this calculation. The most recent SBO estimate for minority- owned receipts in NAICS 55 is withheld to avoid disclosing data for individual companies. See Survey of Business Owners (SBO): Company Statistics Series: Statistics for Minority-Owned Firms by State, Selected Metropolitan Statistical Area, and Kind of Business, 2002.

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