Minority Business Development in Cleveland

1
Minority Business Developmentin Cleveland

• Prepared for the Cleveland Foundation
• August 29, 2005

2
Purpose of this Study

• Identify strategies for The Cleveland Foundation
  to improve its minority business development
  approach

3
Methodology

• Analysis of national MBE trends
• Identify best practices
• Analysis of minority businesses in Cleveland
  Cuyahoga County
• Interviews with stakeholders

4
Presentation Overview

• MBE development matters
• Economic and geographic analysis
• What is and what isnt working in Cleveland?
• Community leader perceptions
• Best Practices among Intermediaries
• Emerging Opportunities
• Conclusion

5
Why Does MBE Development Matter?

• MBEs will become an increasingly important factor
  in local, regional and national economies
• Minority businesses tend to hire non-white
  employees at a higher rate than do majority
  businesses

6
National MBE Trends

• The number of minority owned businesses is
  growing faster than the rate for all U.S. firms

• 17 of all companies in the U.S. were owned by
  minorities in 2002

7
Yet, A Decline in National Market Share for MBEs
92-02
8
1997-2002 Sales up nationally for
African-American- and Hispanic-owned businesses,
but down in Ohio
9
Description of Clevelands MBEs

• Sales and receipts of African American-owned
  businesses grew by 284 from 1992-1997.
• Larger MBE's are doing relatively well compared
  to other metropolitan regions
• Most Hispanic or Latino MBEs are non-certified
  and disengaged from the regional economy

10
Firm Expansion Rate
Number of Employees
Number of Years
Average Credit Rating
11
Industry Concentration
12
Size by Industry

• LARGE
• Wholesale Trade
• Manufacturing
• SMALL-to-MID-sized
• Retail Trade
• Financial Services
• Construction
• Micro OR SMALL-to-MID-sized
• Professional Services
• Growth Financial Services were the only sector
  where the proportion of MBEs over 2.5 million in
  sales grew from 2000 to 2004

13
Credit Rating by Industry
14
Geographic Distribution

• Our analysis looked at the geographic location of
  MBEs and how they were located in respect to
  other regional trends

15
Where are MBEs located?
City of Cleveland boundary represented by red
outline.
16
MBEs by Sales Volume
City of Cleveland boundary represented by green
outline.
17
MBEs by Change in Sales Volume 2001-2005
City of Cleveland boundary represented by green
outline.
18
What is Working in Cleveland?

• Targeted technical assistance, business
  networking, mentoring, and supplier
  diversification efforts
• Mainstream lending institutions compete for MBE
  lending
• Cleveland has best practice community development
  financial institutions and community development
  venture capital funds
• Good support from universities and colleges

19
What is not working?

• Exclusivity
• Competition
• Informal business networking
• Need for more accountability and measurable
  outcomes
• Need for programs to monitor and take advantage
  of public procurement programs

20
Community Leader Perceptions

• Structural challenges to MBE development
• Limited social capital
• Racism and weak political environment
• Economics
• Public education
• Institutional based challenges
• Difficulty in accessing capital
• Need for more cooperation and specialization
• Individual based challenges
• Limited skill sets talent and strategic vision
• Tendency toward life-style businesses

21
Best Practice for foundations funding MBE
development a comprehensive approach

• Targeted Business Development Assistance
• Well-planned Business Networking
• Research, Advocacy Public Policy formulation
• Community development financing
• Promotion of regional climate to support MBEs

22
Emerging Opportunities

• Strategic partnerships
• National trend toward supplier diversity
• Strong and emerging sectors locally
• New public sector affirmative procurement
  programs especially Cuyahoga County

23
More Emerging Opportunities

• Ohios new Minority Business Venture Capital Tax
  Credit Program
• Large land bank of the City of Cleveland
• New workforce development strategies
• Local market gaps for small-businesses
• Retail and Services in the growing Latino
  community

24
Recommendations

• The Foundation should serve as a funder and
  convener of intermediaries working to promote and
  develop MBE
• Support for MBE intermediaries serving various
  parts of Cuyahoga County, in addition to
  Cleveland
• Provide multi-year grants

25
Recommendations

• Fund intermediaries that
• Articulate measurable goals and outcomes
• Coordinate and cooperate with other
  intermediaries funded by the Foundation
• Partner with diverse stakeholders to support
  minority businesses
• Develop a tracking system to monitor the health
  of minority businesses

26
Recommendation

• Support the following
• A clearinghouse intermediary
• Technical assistance and professional development
  grants to intermediaries
• Research and evaluation to support the continued
  refinement of MBE services
• Public policy formulation and advocacy

27
More on Public Policy and Impediments

• Supporting (and building support) for public
  policies is critical
• Example Public procurement policies
• Need to look more careful at impediments slowing
  the growth of mid-size MBE
• Our study found that mid-size MBE have a similar
  credit rating but grow slower than majority firms
• What causes this?
• Lack of relationships/connections/networking
• Discrimination

28
Recommendations

• Support for multi-organizational and regional
  strategies that target specific industry sectors
• Support for micro-enterprise and small-business
  development strategies that target industries
  with the most potential to grow to the next level
• Target growing market share for MBE

29
Conclusion

• The Cleveland Foundation has a strategic
  opportunity to take its MBE promotion and
  development to the next level, with the
  combination of the intermediaries in place and
  many exciting, emerging opportunities.