In the thick of COVID-19 lockdowns, people were suffering. Being a business school professor, I teach — and believe — that businesses can make the world a better place, so I turned to business to help. I started a coffee company that gives 100 percent of its profits to Black and Hispanic mental health causes.
I was lucky to have a lot of people who could help me. My favorite coffee roaster agreed to do production for me. A local videographer agreed to make my promotional video. Friends helped me set up my digital operations, and they, along with the thousands of students I’ve had the privilege of teaching, were among my first customers. A network like that was invaluable to my business, and asking for advice is ostensibly free.
In my research, I study a nationally-representative survey of entrepreneurs. One of the puzzles that has carried through the last decade of this research is how few people — only about 18 percent — take the step of talking to friends and families about their ideas.
That puzzle was at the forefront of my mind during a recent study with my collaborator, David Robinson at Duke University’s Fuqua School of Business, where we examined the entrepreneurial process for Black, Hispanic and female respondents in the survey. All three of these groups have lower rates of business ownership, and there is a lot of interest in the business community and policy circles as to why.
While some have suggested that the pattern is driven by less interest in business ownership, we found that respondents from racial minority groups (44 percent for Black respondents and 43 percent for Hispanic) were actually more likely to have considered entrepreneurship than white respondents (33 percent). Something was getting in the way between intention and starting. Women, on the other hand, were less likely to have considered entrepreneurship, but those who did consider it were actually more likely to actually start the business.
Just knowing those patterns changed the way we think about barriers to entrepreneurship.
When we asked respondents who had considered entrepreneurship but hadn’t actually started, we got a surprising picture of why they hadn’t. Although numerous studies have shown that all three of these groups are less able to raise capital, we found that only women reported being more likely to have given up due to a lack of access to financing.
When we dug deeper, the advice-seeking puzzle re-emerged. While women were more likely than average to have sought advice from friends and family, Black and Hispanic men were less likely than average to have done so. That gap starts to disappear when there are more business owners from their group in the local community. The Black and Hispanic men who did tap their social network were more likely to seek funding. When they did that, though, they were more likely to attribute not starting to not being able to get financing.
Through more analysis, an explanation started to emerge. My network was critical for my business. I was lucky to be able to ask for help. If I hadn’t had that help to fully realize my idea, there would have been no point in seeking funding for it. Similarly, if I didn’t have access to the capital I needed to act on that advice, why bother getting feedback on a fantasy? I needed both.
Funding isn’t the only barrier to startups starting. Founders need community.
The study taught us that one size doesn’t fit all, and we need different, targeted solutions if business communities and policymakers want to break down barriers to the new jobs, products and opportunities that entrepreneurship can bring. Our findings suggest that more attention should be given to helping individuals build networks and lowering the cost of critical advice, enabling them to develop their ideas at the very beginning of the process, long before incorporation or raising capital.