The St Louis region has garnered a
lot of attention for its startup scene. In the past year, the Washington
Monthly has called St. Louis an “entrepreneurial boomtown,” while
FiveThirtyEight dubbed it the “New Startup Frontier.” While it can be difficult
to separate truth from hype when it comes to amorphous topics like innovation
and entrepreneurship, it appears that something very real and very positive is
happening. Attention tends to be directed towards a relatively narrow subset of
firms. The Washington Monthly article used tech, bioscience, and craft beer
firms as examples to establish St. Louis’ startup bona fides. These are the
types of firms that often dominate the startup conversation, which can
reinforce a conception of entrepreneurship as typically young, white, and male.
Data on business starts in St. Louis suggest that this is not the case. In
fact, Black-owned firms account for the majority
of new firm starts in St. Louis. This incredible growth in Black-owned firms
demands further investigation into what is happening to drive such growth, and
what can be done to leverage this entrepreneurial activity as a community
asset.
Black-Owned Businesses Driving Growth in
Startups
So what do we know about
Black-owned firms in St. Louis? Not as much as we’d like, but enough to know
that something significant is happening. The Census Survey of Business Owners
(SBO) includes “all nonfarm businesses filing Internal Revenue Service tax
forms as individual proprietorships, partnerships, or any type of corporation,
and with receipts of $1,000 or more.” This survey population does not include
informal enterprises but is otherwise fairly comprehensive. The Census
completes the SBO every five years, and the most recent data available is from
2012. Although somewhat old, the data on firm growth in St. Louis City paint a
dramatic picture:
The City saw the total number of
firms increase 27% between 2007 and 2012. Disaggregating this into racial
groups reveals highly uneven growth. White-owned firms outnumbered Black-owned firms
by more than 3 to 1 in 2007, but Black-owned firms grew more rapidly in the
subsequent five years, nearly doubling their overall number. The City’s impressive growth numbers are
largely thanks to these Black-owned firms: of the 6,408 new firms formed
between 2007 and 2012, over 75% of them were
owned by Blacks or African Americans. This represents stunning growth in
the number of Black-owned firms.
This growth indicates a tremendous
amount of entrepreneurial activity, but underlying data suggest that it might
not be having the economic impact the striking firm numbers suggest. Table 2
breaks down total sales, receipts, or value of shipments for firms in St. Louis
over the same period. Revenue for Black-owned firms grew by 12% over this
period, which is far slower than the growth in the number of Black-owned firms.
In fact, revenue-per-firm decreased dramatically over this period, from
approximately $98,000 to about $56,000 per firm. Not only did per-firm revenue
decrease, it is far lower than that of White-owned firms. Total annual payroll
for Black-owned firms also decreased slightly over this period after adjusting
for inflation. These declines suggest that many of the Black-owned firms formed
in this period did not generate large amounts of revenue or employ many people.
However, that there is revenue or firm growth at all in the context of an
economic recession and population decline is notable.
Although these indicators may
dampen the enthusiasm that the 95% growth in Black-owned firms inspired, they
still represent real growth. The low revenue figures are likely due in part to
the fact that the period examined, 2007-2012, encompasses the Great Recession.
During the recession, the probability of folks entering self-employment was
higher, despite the challenging economic environment (Beckhusen, 2014). The
Survey of Business Owners includes the self-employed, and it is likely that
sole proprietorships make up a large proportion of firm growth. New data may
show a drop in firm numbers as workers transition back to wage employment in a
healthier economy.
The data suggest that many new
Black-owned firms are low-revenue, low-payroll firms—what which some might
dismiss as “marginal.” This does not mean that those firms will always be
marginal. After all, firms have to pass through being small before they become
large, and have to have low payrolls before they have high payrolls. Those
formed between 2007 and 2012 had not had much opportunity to grow.
Black-owned business as an antidote for
unemployment?
The major growth in Black-owned
firms is encouraging in and of itself, and it could mean more jobs in the parts
of the city that need it most. The Census data do not offer more reliable geographic
precision that the city scale, but it is reasonable to assume that a large
number of new Black-owned businesses are located in North St. Louis, which is
home to the majority of the city’s Black population.
North St. Louis suffers from high
unemployment rates. This widespread unemployment is due, at least in part, to
lack of access to jobs. Figure 1 illustrates how North St. Louis has become a
jobs desert. This map shows the top 25 census tracts of employment for
residents of North St. Louis. Of the top 25 tracts where North St. Louis
residents go to work, only one is within North St. Louis. Employment locations are
instead concentrated in the city’s Central Corridor, and in mid and north St.
Louis County. This indicates that North St. Louis residents often have to
travel far to find work. Considering that fewer than ¾ of North St. Louis
residents travel to work via private vehicle (either alone or in a carpool),
transportation could prove a major barrier to finding and maintaining employment
(Social Explorer, 2017). If Black-owned startups continue to grow, they could potentially
play a major role in providing accessible jobs in North St. Louis.
Figure 1: North St.
Louis Residents Travel Far to Find Work
Bringing Black Entrepreneurs into the Conversation
There is still a lot that we don’t
know. One huge missing piece: reliable information on which sectors firms are
entering. Anecdotally, it appears that many of these new Black-owned businesses
are not in the sexy high-tech fields that garner national attention and
magazine articles. Sole proprietorships and neighborhood retailers are unlikely
to achieve the mythical “100x growth” of tech entrepreneurship. However, we
would be doing these entrepreneurs, and St. Louis’ entrepreneurial ecosystem, a
disservice by ghettoizing their efforts. It would be far too easy to slip into
stereotypes and bifurcate the conversation into “good” and “bad” (or at least
unlucrative) types of entrepreneurship. Our treatment of entrepreneurs in St.
Louis needs to be a both/and approach rather than an either/or. Both the zeitgeisty
entrepreneurship of Cortex and the grassroots entrepreneurship in working-class
neighborhoods deserve recognition and support. What is more, they deserve and
need each other. Rather than running parallel—heading in the same direction but
never intersecting—these entrepreneurship ecosystems could be feeding and
building off each other. Even though they may operate in very different
contexts, many of the challenges entrepreneurs face and skills they need to succeed
are likely to be very similar.
There are many amazing things happening
when it comes to entrepreneurship in St. Louis, and only some of those things
are getting the recognition they deserve. Efforts are underway to promote
inclusion. The Equity in Entrepreneurship Collective is working to promote
racial and gender equity in high-growth startup fields. This is a promising
effort. A further step would be to recognize the entrepreneurship that is
occurring outside of the highest-growth fields. Working to better understand
and include a diverse array of startups is not only the right thing to do, it
will build on a real and unique asset to make St. Louis’ entrepreneurial
ecosystem even more competitive.
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