Council Post: Why Fueling An Inclusive Entrepreneurial Economy Matters

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Lee Henderson: Fervent supporter of young entrepreneurs and their businesses. Connector of the entrepreneurial ecosystem.

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An African proverb encapsulates how I think about entrepreneurship and society: If you want to go fast, go alone. If you want to go far, go together. While we often imagine entrepreneurs as bootstrap pioneers forging ahead on their own, the reality is almost always very different. Many of the world’s most successful entrepreneurs have been supported by an ecosystem that offers advice, funding and other resources. What happens to the others who are not engaged in these supportive networks?

Research has shown that business ownership is one of the key paths to wealth creation: The more people who can build successful businesses, the more who prosper and the better off we all are.

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What does that mean write large? Data from a recent study of EY’s Entrepreneur Of The Year program participants—a pool of over 10,000 alumni in the US—shows the outsized impact successful entrepreneurs have on society.

On average, winners’ companies grow 50% faster—and create four times more jobs—than the overall US economy. These companies also generated nearly $5 trillion in revenue and employed 16 million people in 2020.

Collectively, I believe we need to put more effort into engaging women founders and entrepreneurs of color. This can not only lead to a more inclusive and prosperous society by expanding opportunity and reducing wealth disparities, but it also injects more innovation into the economy and increases healthy competition across industries: a virtuous cycle of economic growth.

Nearly 40% of businesses are diverse but face unequal challenges.

US Census data shows that companies owned by women and people of color account for approximately 38% of all businesses. Yet these enterprises are the most disadvantaged when it comes to access to funding and advisors, executive leadership-building resources and more.

The need couldn’t be more acute, starting with early-stage funding. That’s evident in where venture capital (VC) dollars are invested. A little over 2% of all VC dollars go to women founders, and only 1% goes to Black founders.

Kathleen Utecht, a venture capitalist and managing partner at Core Innovation Capital, which invests in financial services and insurance technologies that benefit everyday people, notes: “Something that will help is getting more Black and Latino VC funders. Only 9% of check writers are female, but once you have a female VC, you’re more inclined to have female portfolio companies. The same goes for Black and Latino VCs.”

Even established entrepreneurs can have trouble accessing the capital and support they need, underscoring the need for a comprehensive ecosystem that can take a company from the startup phase through successfully scaling and finally to an exit, if desired.

Karla Trotman, a Black business leader based in Philadelphia, was seeking funding to finance the buyout of her family business, Electro Soft.

Karla went to seven banks and, as she explains it, “Despite having been in business for over 30-years, having over $1 million in machinery, multiple properties, zero debt, a strong cash flow, excellent personal credit, excellent business credit, and a history of retained earnings, not one bank offered [her] exactly what [she] was asking for,” which was a commercial loan.

Gen Z is leading us all into the future.

If the benefit to society alone is not enough to work toward an inclusive entrepreneurial ecosystem, consider the demands of the future workforce. Gen Z comprises 46.4 million people, and an EY study found that nearly two-thirds favor businesses with a genuine commitment to their values—and increasingly find that quality important in their employers. What’s more, Gen Z is the future of entrepreneurship, with 45% saying they are very or extremely likely to start their own business.

How can we help build an inclusive ecosystem?

Now is the time to build an inclusive entrepreneurial ecosystem. Given the inequities that currently exist—and the great gains that can be realized through a more inclusive model—it’s imperative that we move ahead decisively.

The Ewing Marion Kauffman Foundation, a sponsor of EY’s Entrepreneur Of The Year program, works with entrepreneurs to empower them with tools and resources while breaking down barriers that stand in the way of starting and growing their businesses.

Philip Gaskin, the Ewing Marion Kauffman Foundation’s vice president of entrepreneurship, shared with me what this looks like. It includes a belief that everyone should enjoy the chance to reach economic success – stability, mobility, and prosperity. This requires working within communities to strengthen the workforce and entrepreneurship.

Most entrepreneurs need a supportive ecosystem, here are some of the efforts currently in action to shape a more inclusive model:

Policymakers: The Kauffman Foundation has laid out a compelling blueprint in “America’s New Business Plan,” a policy platform to help spur the entrepreneur economy, including supporting a talent pipeline, making it easier for smaller companies to navigate the process of starting a company, and considering what kind of safety nets would be appropriate to help entrepreneurs take risks.

Corporations: Business leaders are increasingly asking themselves whether they are engaging with vendors who come from historically underserved backgrounds and whether they’re collaborating with minority entrepreneurs for R&D initiatives. They are taking a fresh look at the systems they have in place to attract and retain a diverse workforce.

VC and private equity firms: These groups are asking themselves whether their portfolios include companies with minority founders and leadership teams and if the makeup of their own leadership teams reflects society at large.

Opportunities available to any entrepreneur should be available to every entrepreneur.

We must redouble our efforts to go far by going together and create an inclusive entrepreneurial ecosystem that affords equal opportunity and support to everyone with a great idea and the gumption to give up everything to pursue it.

The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.


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