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White Men Are Now The Minority Of Business Owners In The United States

White men now make up the minority of business owners in the United States, a shift driven by fast growth in women- and LatinX-owned businesses, and one that has profound implications for the country’s finance and innovation infrastructure.

The 12.5 million white male business owners comprise about 41% of the 30.5 million total owners of small businesses in America. There are about 11.6 million women-owned businesses (about 65% of them are white-woman owned) and 6.5 million businesses are owned by men of color, based on a recent analysis venture capitalist Seth Levine and I conducted with the help of researchers from Stanford University using two sets of U.S. Census Bureau data from 2017, those for employer and non-employer businesses.

“This is a really powerful opportunity for the country to prosper in the future,” said Jerry Porras, Lane Professor of Organizational Behavior and Change, Emeritus and Stanford Graduate School of Business and co-director of the Latino Entrepreneurship Program. The new groups of founders are entrepreneurial and determined, he said. But the “ecosystem is not conducive to supporting their success.”

Researcher Inara S. Tareque, who has worked with Porras, provided data for our analysis. An analyst for the Census Bureau said by email that the bureau might do a similar look at the data in the future.

The number of women-owned businesses has been growing rapidly for decades, as more women entered the workforce. In 2018-2019, women started more than 1,800 businesses a day. In the past five years, women-owned businesses have grown at twice the rate of the overall population, and women of color have been starting businesses at 4.5 times the rate of the overall population, according to American Express State of Women-Owned Business.

LatinX owned businesses have been growing at a rate of two-to-four times the rate of the overall population since 2015, when Porras’s organization began surveying them. He estimates that there are 1 million net new LatinX-owned businesses created every five years.

An Overlooked Shift

The demographic shift in the makeup of the entrepreneurial class in the United States has been largely overlooked, because the U.S. Census bureau analysis is centered on employer businesses, where white men are a shrinking proportion of owners but still make up about 60% of all business owners. Narratives about business owners also tend to focus on a tiny minority of companies, fast-growth tech companies.

But non-employer businesses – companies that employ only a founder but are subject to federal tax — are growing in number and importance, because of the rise of technology that makes it easier to run a small business without hiring people. And, to some extent, experts argue, women and people of color are definitionally locked out of the opportunity to grow businesses. Defining their businesses in a separate category helps keep them small, as people who work in finance and other business services gear their offerings toward larger businesses, which are owned in greater proportion by men.

Makisha Boothe, founder and CEO of Colorado-based Sistahbiz, argues that putting businesses run by people of color into a category that is by definition tiny helps keep them there. Sistahbiz runs programs that meet the unique needs of the population that wants to start businesses, even as the regulatory burdens on small companies grow and the competitive landscape grows more difficult. For instance, Sistahbiz runs Black Girl Therapy gatherings, and spends time extensively preparing women of color to apply for bank loans (research shows people of color have a harder time getting bank loans and other forms of finance).

”Our women get put in the solopreneur zone. It’s connected to access to capital. They simply don’t have the budget for bureaucracy and they don’t have the startup funds to move from solopreneur to boutique agency,” she said in a recent panel discussion with Sen. John Hickenlooper, Democrat of Colorado and U.S. Rep. Joe Neguse, a Democrat who represents Boulder and surrounding areas. “It’s financial capital, social capital and human capital.”

There is a growing realization of the need to nurture the tiniest businesses, no matter who runs them. Indeed, you can argue that venture capital has succeeded as an asset class by recognizing and nurturing the potential of one particular kind of early stage business, software and tech startups. Recent World Bank research found that it’s almost impossible to predict which companies will eventually turn into “gazelles” — their term for firms that grow quickly. The same research found that gazelles exist in every sector.

Not recognizing the demographic shift in the broad landscape that includes the smallest and youngest businesses keeps systems from adapting to help them grow — and keeps the U.S. economy and that of other nations’ from reaping the rewards of that growth and innovation.

“Some business, academic and government leaders only see traditional firms with payroll as ‘real’ businesses, adopting a ‘go big or go home’ mindset. They tend to believe that only businesses that fit into a specific box are worthy of attention and significant resources,” said Elaine Pofeldt, author of the Single Person Million-Dollar Business. “Nonemployer businesses give many people greater control over their economic destiny. (And) if we supported these owners more … they could invest even more in their businesses and grow them exponentially.”

In our new book, The New Builders, venture capitalist Seth Levine and I argue that U.S. systems for funding startups and small businesses haven’t kept up with the changing demographics of founders.

“The systemic racism, sexism and ageism that pervades our culture means that today’s entrepreneurs often don’t get enough support,” we wrote in the book, released two weeks ago. “Our systems of capital and networks are dominated by White men.”

A handful of leaders are beginning to grapple with what kinds of support New Builders need, that might look different from existing systems, such as Boothe and Allison Long Pettine.

Long Pettine founded San Diego-based Ad Astra Ventures in 2018 with Silvia Mah and Vidya Dinamani after realizing that she was backing too few women founders in her other investment ventures. Ad Astra runs boot camps and accelerators for women entrepreneurs, focusing on helping women realize their own biases so they can approach growing their businesses in a relentlessly straightforward way. Ad Astra also invests in early-stage women-led companies.

At the same time, Long says, the system needs to adapt to support women entrepreneurs. For instance, one fundamental difference, generally, between men and women founders is that they have a different attitude toward risk, so that men tend to define only along financial lines, where women will consider risk across more dimensions, including to their relationships or to the missions of their companies. Being forced to adapt to patriarchal financial worlds that emphasize the ability to sell and the ability to project confidence means women may falter when they’re talking to venture capitalists. “They may not come across as authentic in pitches,” she said. “Venture capitalists are attuned to pick that up.”

The same mismatch may be happening at banks, or even as women pitch their friends and families for early-stage capital, or even as they sell their products.In The New Builders, we profile one success story, a baker from the Dominican Republic, Danaris Mazara, who was able to find support and financing through an organization called Entrepreneurship for All. She now employs more than a dozen women at Sweet Grace Heavenly Cakes in Lawrence, Mass. Mazara reflected on the power of being a small business owners as we interviewed her for The New Builders:

She found herself returning to a favorite Bible quote from 2 Timothy 1:7: For God hath not given us the spirit of fear; but of power, and of love, and of a sound mind.” If you have self-control, and love, you can be a powerful person, she told us…

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