FRANKFORT, KY: Aundrea Owens grew up in Frankfort, Ky., in the 1960s. Back then, there were still some stores where she and her mother weren’t welcome when they went downtown to buy an Easter dress.
Last year, she and her husband, Darnell, opened a retail cooperative on Main Street, a small storefront where she and her friends – Black and white – are selling wares from men’s suits, to T-shirts, to jewelry and art. The evening before I stopped by, a sip-and-shop event at the Drip Drop had seen two pieces of art sell for upwards of $500.
“The fact that I have a store on Main Street in downtown Frankfort … I pull up and it gives me goosebumps,” Owens said. She and her husband see themselves as part of an economic renaissance, not in a siloed, “black entrepreneurship” way, as her husband, Darnell Owens told me, but as part of the community in their city.
They are part of a nationwide surge in entrepreneurship since the pandemic, one that is surprising experts with its power and longevity. The number of business formations continued at a near-record pace in 2022, up 27.8% compared with 2019, according to the Economic Innovation Group.
Nearly 1.7 million applications for businesses likely to hire employees were filed in 2022, the second-largest total on record, and only 6.5% less than 2021’s record level, according to EIG. Including businesses not likely to employ others, the number of new business applications was 5.1 million.
One likely explanation is a COVID-19 reset. “The pandemic has altered the way the economy works, including where people live, and how people live. These shifts can lead to opportunities,” said Daniel Newman, EIG research and policy analyst. “There is hope it has ignited an era of business formation.”
COVID most fundamentally changed the way people think, however. And as reporting across America has shown, that is playing out in the Black community in a special way.
The data shows the increase is particularly marked in some areas that have large Black populations. People of color, including especially Hispanic people, are the fastest-growing groups of new entrepreneurs in United States. Businesses owned by people of color also were more likely to close during the pandemic.
Indeed, the composition of this generation of entrepreneurs raises big questions about how successful the new companies – some 15-25% of business formations go on to be employer businesses – will be.
“The question here is do they have access to capital?” said Joe Scantlebury, CEO of Living Cities, a New York City-based collaborative of philanthropic foundations and financial institutions working to close racial income and wealth gaps in U.S. cities.
Why This Is Important
Americans like to think of themselves as living in a particularly dynamic economy – and for much of the 20th century, that was true. But the United States, like other developed countries, had been experiencing a decline in entrepreneurship before the pandemic. New firms, those less than five years old with at least one employee on the payroll) constituted 38 percent of all businesses in 1982 but were only 29 percent of them in 2018, according to the Congressional Budget Office. The fastest declines have been among business ownership by white people, according to the Ewing Marion Kauffman Foundation, in a November 2016 report on Main Street Businesses.
In 2020, the long decline turned around. People often start businesses during recessions, because they need income. But the real surprise came in 2022, when the rate of business formation stayed high. (Other media, by the way, missed this story entirely because they were focused on the tech economy.)
Economists watch these trends so closely because they are so important. Startups and small businesses create most of the dynamism and much of the job growth and innovation in any economy. Small business ownership is also one of the few things that can close the racial wealth gap – which might be one reason that entrepreneurship has stayed strong and grown lately among people of color.
Indeed, the recent data does not surprise Scantlebury, the CEO of Living Cities. With a presence in 23 cities nationwide and a $7 million annual budget, the New York City-based organization runs city leadership peer networks that help leaders access funding and technical expertise. It also invests in organizations and intermediaries that work on closing racial income and wealth gaps. He hopes to raise $40 million for a fund that will, in turn, invest in funds managed by people of color by the middle of this year.
“When I was coming up Black enterprise was the only thing you saw. As a kid I sold toilet paper on the street for 25 cents a roll,” he said. “I think that spirit has always been there.
“Now we are having the forthright conversation about our contribution to the economy.”
Rejecting A Corporate System That Doesn’t Serve
Economists have yet to identify a “unifying theory” of 2022’s increase in business formation, said Newman of EIG. Teasing the trends out is hard, Newman said. Some areas of high increase are simply starting from a small base to begin with.
But he and others have noted that in addition to the increases being concentrated in places where there is large population growth, some of the areas with the highest increases in business formation are those that also have a high concentration of Black people. Three of the states with the biggest increases – Georgia, Alabama and Mississippi — have large Black populations. So does metro Atlanta, which is a hotspot of business formation.
Reporting From The Ground
A woman volunteering in the Owenses’ shop told me what she thought was really going on. During the pandemic, it was clear which workers were essential and which weren’t. The essential workers – mainly women, Black and brown people asked themselves—If they were so essential, why were they being paid so little and let go when it suited the companies?
“A lot of people were not being compensated for the work they were doing,” she said.
The woman asked me not to use her name because she was worried that her volunteer work would draw attention from the bureaucracy that issues her disability checks. Starting businesses for some people is in part a rejection of a corporate and government system that has not served them well.
The behavior of a lot of large companies during the pandemic was tough to swallow. Here’s one example: In January 2021, The Washington Post reported on 21 large companies that laid workers off despite being profitable and promising they wouldn’t lay workers off, including Berkshire Hathaway, Salesforce, Cisco Systems and PayPal.
Whether New Businesses Succeed Is A Different Story
The other question is how economically significant the rise in entrepreneurship will be. An estimated 15-25% of formations go on to be employer businesses. And the key question there – which got even tougher with the new questions about the banking system in the wake of Silicon Valley Bank’s collapse – is whether the new entrepreneurs will be able to get funding and financial tools, grants and low-interest loans, to build their businesses.
Most new entrepreneurs in America are women and people of color, who historically lack access to the capital that is critical to growing businesses. That was already hard, and with new pressure on small and medium-sized banks that are the source of much of the remaining support for small business, it will likely get harder.
After George Floyd was murdered, many companies pledged to diversify everything from their investments to their employee base to their suppliers. Much of that has faded away.
“I push back on the George Floyd piece. Horror and sensationalism brought promises, but investment is a longer-term attention and relationship,” Scantlebury said. “Can we achieve growth and equity? Can we do that together for more than a minute?”
Putting Their Savings In
Many experts believe helping people of color to launch and start small businesses is one of the few ways both to tackle structural racism, at the same time it grows the economy.
If the Owens, who also support members of their extended family, like a young grandson who moved to Kentucky from Detroit, succeed, they will not only employ themselves, but members of their family and community. If they sell the business or make enough to save, they’ll create generational wealth that can be handed down.
The couple ran a hospice center in their home, which closed during the pandemic. They moved into the center of the small city and opened the space last spring. It has not been easy. But things turned around when they switched from a flea-market model to one in which they took sliding commissions on sales, depending on the type of product. They’re proud that a section of the store contains suits put on consignment by the long-time owner of a now-closed fancy men’s dress shop in Frankford, and another contains T-shirts created by a pair of junior entrepreneurs (about 8 and 10 years old, they say).
Setting Up On A Shoestring
Both are keeping their day jobs – Aundrea Owens had worked more than 100 hours as a hospice worker the week before I interviewed her; Darnell Owens works for the state government – and they have sunk their savings, a combined $50,000, into The Drip Drop. Darnell Owens has joined a downtown business board, which has given him a voice in the community. “A lot of these places,” he gestured to vacant storefronts outside, “are owned by absentee landlords as part of their portfolios.”
That’s a frustration. Another is that he found so little information on how to run a business on a shoestring. Like, how do you set up inexpensive credit card systems? And the information online wasn’t helpful. “I don’t need someone to teach me how to be a good consumer of bank products,” he said.
But they’ve been supported by the community, especially, they say, by the white community.
They’re hopeful they will be cash-flow positive early this summer. They also have an idea for a higher-profit-margin business called Vine Time Tours: tours of wineries and local adventures for women. They hope to market it to women who accompany their husbands coming for bourbon country tours.
The Owenses struck out on their own almost as a matter of faith.
“Our social consciousness rose,” said Darnell Owens.
“I’ve got a lot of friends with businesses on the side,” Aundrea Owens said. “I told them, come, share this space. Try it for a month. If we work on the concept of community, we can get somewhere.”
The couple looked at each other. “We decided to bet on ourselves,” said Darnell Owens.