What Businesses Are POC Entrepreneurs Starting in 2020?

Starting a new business is always a bold, even risky endeavor. In 2020, it’s hard to imagine people taking that risk on top of everything else going on in the world. And yet, entrepreneurship is on the rise: New business applications are up 45%[1] from this time last year.

People of color (POC), who have been disproportionately impacted by the coronavirus pandemic[2], were a substantial portion of respondents to a survey we recently conducted asking entrepreneurs about their plans for starting a business in 2020.

POC entrepreneurs often do not have access to the same resources that their white counterparts do when getting their business off the ground. They have less startup capital[3], receive less assistance from bank loan officers,[4] and tend to lean more heavily on assistance from family and friends than traditional financing.[5] And still, many POC entrepreneurs are motivated to strike out on their own—to be their own boss, pursue their passions, and take advantage of new opportunities.

Using the results of our 2020 entrepreneurship survey, let’s take a look at the businesses people of color in the United States are starting this year. 

What Kinds of Businesses Are POC Entrepreneurs Starting? 

In our survey, we asked entrepreneurs what industry they planned on opening a business in during 2020. 

The results were varied, but there were some clear winners:

The top response by a decent margin was accommodation and food services at 17.4%. Retail trade (10.6%); arts, entertainment, and recreation (9.2%); real estate and rental/leasing (8.7%); and healthcare and social assistance (7.3%) and educational services (7.3%) rounded out the top six.

Another top selection for respondents was “other” (13.3%). When asked to elaborate, respondents gave a variety of answers, from cleaning businesses to gas stations to event planning to liquor stores.

With the exception of retail trade, which—particularly in the massive “niche” that is ecommerce—has done well during the pandemic, these top industry choices have all been heavily impacted by the events of 2020.

About a quarter of POC respondents (24%) said that they were inspired to start a new business due to changes in the market due to the pandemic, while another 17% said they were laid off from their full-time job recently and were looking to go in a new direction. Clearly, some of these respondents see an opportunity in some of these struggling fields—or, as one respondent put it, “Still pursuing opening up my business whether it’s a pandemic or not.”

In terms of what these businesses will look like: 28% of respondents said their businesses will be entirely virtual. Another 38% said the business will have both an in-store and online presence. The remaining 34% said the business will have a physical component only.

Finally, POC entrepreneurs are mainly building these businesses as a side hustle, to start: 64% said this business will be a side hustle that they build while staying at their day job; the other 36% will dedicate all of their time to this project. 

One such entrepreneur is Shanese Williams, who started her business, High on Health Vending, in April when she purchased three vending machines. Williams says that her vending machine business is one of several entrepreneurial pursuits she’s started in the past year, and she is dedicated to these ventures full-time. The pandemic has posed difficulties, but she has forged ahead anyway.

“To date it has been a challenge getting placement for the machines and I believe it’s due to COVID-19,” Williams told JustBusiness. “There are many businesses that are not open and my placement team has not been able to successfully place my machines. This has been a challenge and I wish things were better, but I don’t regret it because I know I want entrepreneurship. It’s important to stay the course until things get better.”

The Vast Majority of POC Business Owners Plan to Hire Others

More businesses owned and operated by people of color can lead to higher rates of employment for other people of color. For example, research has shown that Black-owned businesses are more likely to hire Black employees,[6] which helps to address disparities in unemployment, job access, and wages among Black workers.

In addition, during a year where the economy has gone into a recession and an unprecedented pandemic has rocked the labor market, businesses owned by people of color, immigrants, and women have been hit especially hard.[7]

That’s why it’s encouraging to see that the majority of POC respondents to our survey plan to become “employer firms,” or businesses with employees: 70% said they planned to hire workers to help staff their business. 

Many POC Entrepreneurs Will Use Personal Savings to Get Started

Finally, it’s worth noting that as these businesses get started in 2020 and beyond, they require capital. Traditional means of funding, such as bank loans, are more often out of reach for POC entrepreneurs than their white counterparts. That trend is confirmed—and perhaps exacerbated by the events of 2020, as many lenders have tightened their credit boxes[8] in response to the pandemic—by the responses to our survey.

When asked how they planned to fund their new businesses, the leading response with 34% was personal savings. Business loans came in second at 27%, with angel investing/venture capital at 11%, credit cards at 9%, and loans from family members also at 9%. Only 1% said they’d use a grant to get started.

The Bottom Line

Entrepreneurship often continues unabated through both boom times and recessions. Though 2020 has been a particularly difficult year, it appears that nothing can dissuade entrepreneurs like those surveyed above from moving forward with their plans.

Methodology

This survey took in responses from 232 entrepreneurs from August 7 to September 9, 2020.

Article Sources:

1. Census.gov. “Business Formation Statistics

2. NPR.org. “As Pandemic Deaths Add Up, Racial Disparities Persist — And In Some Cases Worsen

3. Stanford Institute for Economic Policy Research. “Black and White: Access to Capital Among Minority-Owned Startups

4. Economic Development Quarterly. “Impacts of Owner Race and Geographic Context on Access to Small-Business Financing

5. Stanford Institute for Economic Policy Research. “Black and White: Access to Capital Among Minority-Owned Startups

6. Institute for Research on Poverty Discussion. “Why Are Black Employers More Likely Than White Employers to Hire Blacks?

7. Fast Company. “Small businesses owned by women, people of color, and immigrants are harder hit by COVID-19

8. National Business Credit & Services. “What Will Business Financing Look Like After the Covid-19 Pandemic?

Eric Goldschein

Eric Goldschein is the partnerships editor at JustBusiness and Fundera.

Eric Goldschein has a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business data and trends. He has written for a number of outlets including Business Insider, HuffPost, Men’s Journal, BigCommerce, Volusion, Square, RetailNext, Zenefits, and Keap.

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