As financial services professionals, we must understand the broader landscape of socio-economic trends in our country. The recession and economic upheaval of the last few years has illuminated the significance of small business owners in the U.S. Their economic impact has manifested in the American economy in several ways. In the aggregate, small business owners:
- Employ about half of all private sector employees
- Pay 43% of total U.S. private payroll
- Have generated 65% of net new jobs over the past 17 years (1993-2009).
With statistics like these, one could argue that small businesses are the backbone of America’s economy, and we have a duty to ensure that they survive and thrive so that our economy can do the same.
A trend that should not be ignored is the growth of minority small businesses owners. The U.S. Census Bureau’s 2007 Survey of Business Owners indicates that “the number of minority owned businesses has increased at more than double the rate of all U.S. businesses between 2002 and 2007.” Because almost 23% of all businesses in the U.S. are either minority owned or equally minority/nonminority owned, the growth of these firms is equally important to our country and our national economy.
While many of us focus efforts on working with small business owners to help them protect their businesses and families, we often roll minority-owned businesses into the effort with little focus paid to the unique differences between these two broad markets. If we recognize the importance of minority owned to the business landscape, our country and our national economy, we should work to understand what the unique differences are among and between them.
Once understood, we need to work with multicultural small business owners — first by educating them and then by helping them put long-term plans into place — to ensure their businesses survive and thrive so that our economy can do the same.
Massachusetts Mutual Life Insurance Company (MassMutual) launched the study Business Owner Perspectives: 2011 Insights in an Uncertain Economy, one of the first of its kind to look at the attitudes, motivations and concerns of small business owners in the U.S., with a specific focus on multicultural business owners.
This is the latest effort by the company in both business and multicultural markets, bridging the two to come up with this unique study. In short, we find there are similarities among all small business owners as well as unique findings among each cultural group. This article focuses on one of the key findings in our research.
Motivations for starting a business
In our research, we interviewed ethnic and non-ethnic business owners. The multicultural groups surveyed are African-Americans, Asian-Indians, Chinese, Koreans, and Hispanics. We see several differences among general population business owners and multicultural business owners in respect to the reasons why they started their businesses.
For example, when asked why they own their businesses, multicultural business owners are significantly more likely than non-multicultural owners to cite the inheriting of the business from family members who have retired, become disabled or died. Multicultural business owners also are significantly more likely to cite giving back to their community as a major reason why they went into business (49% multicultural versus 21% for general market business owners). Further reasons for starting their businesses that are more highly rated among multicultural business owners included having something tangible to pass on to their children (48% versus 35%), and to be their own bosses (72% versus 57%). These differences are important for understanding business owners’ goals and values, enabling financial professionals to address what matters most.
Within the multicultural groups surveyed, we see significant differences among the groups. Koreans, for instance, are slightly more likely than Asian-Indians (68% versus 64%) to think that owning a business is the only way to get ahead (32% for the general population of business owners).
We also see a significant difference among the cultural groups regarding the desire to give back to the community. Just 4% of Koreans cited this as a major reason for starting their businesses, compared to 54% and 53% for Hispanic and African Americans, respectively.
The differences in these subtle, yet important, motivations highlight the need for producers to understand the uniquenesses of multicultural business owners as a group and individually. These insights can be used to start conversations to help you understand your clients’ or prospects’ motivations for starting their businesses; the reasons may be different than what you assumed.
Implications: So What?
We cannot ignore the pressing need that MassMutual’s 2011 Business Owners Perspectives study points out to educate business owners regarding their finances. The multicultural business owners who participated in the MassMutual study indicate in significantly higher numbers that they are eager for this education. Thirty percent of the multicultural respondents indicate that they are interested in growing their businesses, but lack the financial knowledge to do it, as opposed to only 14% of the general population business owners.
Our economy is counting on these businesses to help lift the country out of the current recession, as they have done so many times before. By partnering with the organizations that support our country’s business owners, we can help to bring awareness of the need to prepare personal and business financial plans. Groups that can help include chambers of commerce, professional groups, cultural affinity groups, and business mentoring programs.
U.S. Dept. of Commerce, Census Bureau: Statistics ofU.S. Businesses, Current Population Survey, and Business Dynamics Statistics; and the Edward Lowe Foundation.