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Memo to business: ignore the recession

The statistics speak for themselves. According to a 2007 Survey of Business Ownership conducted by the U.S. Census Bureau, African American businesses grew at more than triple the rate of national business growth in the United States from 2002-2007.

That year, the Census counted 1.9 million Black firms, which represented a 60.5 percent increase from 2002. Additionally, the report found that Black-owned firms increased their hiring by 20.6 percent, employing more than 900,000 people. These companies also posted total receipts of $137.5 billion.

At the same time, the average salary of an employee at a Black-owned firm, which according to an article in the Atlanta Black Star hired two of every three Black workers, was $33,000 compared to the average salary of $21,239 for African Americans.

And then came the Great Recession. This economic downturn in 2007-2009 ferociously pounded the Black business sector, not to mention individual consumers.

There is no better indicator of just how devastating this period was to America’s Black economy than the declared insolvency of Chicago’s ShoreBank in August 2010. At the time of its closing, ShoreBank was the oldest and largest community development bank in the nation.

Other dire economic indicators include the decline in Black firms. According to Automotive News, by mid 2011, there were only 261 Black-owned auto dealerships in the nation, half as many as three years previously.

And, according to the Gazelle Index, between 2007 and 2010 the performance of small businesses owned by African Americans was below that of all U.S. small firms. During that time, Black business revenue grew by 26.5 percent and employment grew by 6.3 percent. This is compared to a 39 percent growth of revenue among all small businesses and an 11 percent increase of employment on average.

The Gazelle Index provides timely information that helps improve the performance of minority and small businesses.

A survey by the Kauffman Firm found that in 2004-2008 the Black businesses that declined most during the Great Recession were retailers, while technology firms retained the highest five-year survival rate among Black firms.

To put the situation into context, most of the highly prosperous Black-owned companies are concentrated in certain states–New York, Georgia and Florida–and cities like New York, Chicago, Houston and Detroit.

And even franchising, which has always been an important entree point for minority entrepreneurs, has seen involvement by people of color dip precipitously.

That is because minorities are less likely to be able to obtain start-up funding, and because franchisers who previously had programs in place to recruit minorities have in some cases scrapped them in favor of staying afloat themselves, and not loosing franchisees, says Robert Bond, cofounder of the National Minority Franchising Initiative, which was established in 2000 to increase the number of minorities in franchising.

One published report also noted that franchisers have also shifted away from recruiting minorities toward wooing veterans.

A report by the National Urban League, called “State of the Urban Business 2011: Metro Areas That Lead the Way,” noted the top metropolitan areas for Black businesses–Washington-Arlington-Alexandria; D.C.-Va.-Md.-W.V.; Los Angeles-Long Beach-Santa Ana, Calif.; Chicago-Joliet-Naperville, Ill.; Detroit-Warrner-Livonia, Mich.; Atlanta-Sandy Springs-Marietta, Ga.; Charolotte-Gastonia-Rock Hill, N.C.-S.C.; St. Louis, Mo.; Dallas-Fort Worth-Arlington, Texas; Cleveland-Elyria-Mentor, Ohio; New York-Northern New Jersey, Long Island, N.Y.-N.J.-Pa.; Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md. and some key common characteristics: they had cities with strong diversity supplier policies; and provided easy access to business-to-business and government contracts.

Additionally, of the 1.9 million Black businesses in the country, only a little more than 100,000 had paid employees, and only 14,000 of those had receipts of $1 million or more.

While Black businesses have definitely struggled to stay in the game during this recent recession, Skip Cooper of the Black Business Association Los Angeles, sees a silver lining.

“We haven’t seen large growth among Black businesses, but we have seen survival . . . and you remember what Jerry Butler said?” asked the BBA/LA president and CEO. “If you survive, it means you come out stronger, and should be able to be more competitive. Survival makes you stronger. When people come from struggles, they generally become stronger. When a married couple overcomes some problems in marriage, the marriage becomes stronger. This is just the nature of the beast.”

In addition to survival, there are some Black businesses, such as Our Weekly newspaper that found the great recession a time to take the creativity that typically exemplifies small businesses and use it to grow while others like Dulan’s on Crenshaw have seen opportunity during the economic doldrums to grow their companies.

According to Our Weekly Publisher and CEO Natalie Cole, the recession found this South L.A.-based media company facing tight cash flow because, as is typical with businesses large and small, when revenues slow down people look for places to cut costs.

“Marketing and advertising are the first to go, because they consider such purchases a nice-to-have but not a have-to-have,” pointed out Cole. She continues that this is actually quite inaccurate.

Secondly, companies both large and small, begin to pay their bills at a slower rate, and that’s what Our Weekly experienced, said its CEO, noting that some of the newspaper’s automotive, banking, and telecom customers were paying bills four, five and even eight months behind.
All those factors forced she and her partner David Miller to make some hard decisions. These included not refilling staff positions and asking their current employees to do a little more.

“We also focused on keeping company debt low, and this helped us manage and move forward more freely with confidence as to being able to meet our financial obligations,” said Cole.
It also forced the veteran media duo to be innovative, creative and, according to Miller, to remember and live by the adage: “Never place all your revenue in one bucket.”

In Our Weekly’s case that meant adding to their product line.

“We looked at what areas didn’t necessarily have a newspaper that spoke to African Americans,” said Miller. This led to the creation of a version of their core product that spoke to the Antelope Valley.

Cole and Miller also created several magazines that addressed some key subject areas that were just a bit outside the norm for African American media concerns–a health magazine called Healthier You and an educational offering called Careers and Education.

Both Cole and Miller acknowledge that their approach, particularly during an economic downturn, was definitely a little outside the box.

“But it’s easier to start something new, when things are tight in the marketplace and the economy; you are able to negotiate better deals (with suppliers) because they are struggling. And you lock yourself into an agreement or contract,” said Miller, adding that it was about stepping out on faith and taking a chance.

One of the biggest chances Cole and Miller took was creating a signature event called the West Coast Expo (WCE). A combination trade and consumer show, WCE has something for everyone, said Miller.

“. . . it’s a one-stop shop; a weekend full of different events that benefit everyone,” Miller said.
And while creating the expo was a step into the unknown, Miller said it was a calculated move that involved more than six month’s work to line up key sponsor support.

“The expo was an opportunity to network with, connect with and support other small businesses. It was an opportunity to generate new energy,” added Cole, who said creating a new product idea just made sense. “We acted like we didn’t get the memo on the recession.”

Despite all the doom, gloom and destruction that the recession has generally wrought in the African American community, Greg Dulan also found opportunity in the wake of the economic downtown, that prompted him to reopen the Southern food restaurant he first founded in 1991 in Los Angeles near Crenshaw Boulevard and 48th Street.

“I could see the neighborhood changing,” noted Dulan about what prompted him to reopen his eatery full-time. “There is more development, more business. But the one thing I really recognized, which really pushed me to reopen is that where my location is, there’s a food desert. There are very few places where people can go and get a good home-cooked meal.”

Dulan said the customers who come into Dulan’s on Crenshaw since it opened its doors again last October, are senior citizens, young families and people who don’t want to cook. The restaurant–which is open 11 a.m. to 8 p.m. Sunday/Monday; and from 11 a.m. to 9 p.m. Tuesday through Saturday is playing to a slightly different customer mixture. While still primarily African American, Dulan’s customers are now more multi-ethnic than when the restaurant first opened.
These customers are people who live in the neighborhood as well as folks who drive in from East Los Angeles, Ontario, Riverside, Orange County, and even from Oakland.

Prior to reopening the restaurant, Dulan incorporated a robust catering program into his business. He started serving school lunches mostly at charter schools and had grown this portion of the company to 20 full-time employees who served 8,000 meals a day.

But the recession impacted the company’s cash flow because payments from the schools came slowly. Consequently, in order to survive the recession, Dulan cut back to six full-timers and sold a few of his trucks.

“But one thing that helped me, that saved me was years ago when I bought the building that houses the restaurant, is that I paid off the mortgage real quick. So I own my own property. That took off a lot of the stress. I didn’t have to worry about a mortgage. And most of my trucks were paid free and clear.

“I always tried to operate with as little debt and I could. That’s how I survived the rough times,” Dulan continued. “When times are good, you have to position yourself. You can not rest on your laurels and assume that times are going to be good all the time. You have to prepare yourself for the bad times that are inevitably going to come.”

Being in business for 25 years has also taught Dulan that times are cyclical. “You want to take advantage of the up cycles and pay off your debt–pay off your building if you can. Pay off your trucks if you can.

“When the recession hit, yes, I felt it. But I wasn’t concerned about losing my business; I wasn’t concerned about losing everything.”

Unlike in past recessions, an article in the Wall Street Journal noted that the number of businesses starting up during the Great Recession was down significantly and pegged the causes as an absence of funding from venture capital and angel investors as well as the mortgage crisis which sapped away the home-equity financing that entrepreneurs often use to fuel their new businesses.

Eric Johnson, founder of the apparel line Thatz Tyte Designs was recently honored by RISE (formerly Community Finanical Resource Center), and is bucking that downward start-up trend. The rapper-turned-entrepreneur founded his Hip Hop, urban clothing company in 1995, but it sat on the shelf until 2005.

Then when the Los Angeles-based entrepreneur was ready to re-energize his company, the recession hit and his line of credit pulled a disappearing act.

“At the time, I had good credit. But when the recession hit, the bank snatched everything back,” said Johnson, adding that he had never been late on his business credit card payments. “They gave me some cockamamie story, but I just know it was the economy. I also don’t think I was using the credit fast enough for them.”

So what Johnson did was get creative and do other things to bring money in. This included returning to the music business and helping others with their businesses. He also went back to school to learn everything he could about his industry.

“Going to school gave me more knowledge. I also want to know the industry frontward and backward. Too many folks start a business but don’t know the industry and the next thing you know they’re out of business. I want to be around for the long run.”

Going back to school slowed down the development of his business, but Johnson said this was done purposely to give him time to really learn the industry.

His schooling consists of taking small business management courses at West Los Angeles College and working with the JobStarts program as well as getting involved in the educational and lending programs at the Community Financial Resources Center, now called Rise.

As a result, Johnson has been slowly growing Thatz Tyte Designs by holding clothing parties, selling on consignment locally, participating in trade shows and taking advantage of other selling opportunities.

The Thatz Tyte entrepreneur is symbolic of what business owners who survived the recession did–be creative and innovative as well as being willing to think outside the box and take calculated risks that are really nothing more than a high-level investment in their companies.