Each year, Guidant conducts a comprehensive study to understand American small business owners’ experiences, challenges, and future plans. In this post, we’ll delve into the top highlights from Guidant’s 2023 Small Business Trends study — focusing on the segment dedicated to Entrepreneurs of Color. Our Entrepreneurs of Color study shows insights into the aspirations, challenges, and emerging trends of minority-owned small businesses.
Get the full scoop on small business trends, challenges, and more in Guidant’s full 2023 Small Business Trends study.
Top Highlights from Guidant’s Entrepreneurs of Color Study
The 2021 Annual Business Survey (ABS) conducted by the Census Bureau showed a significant increase in both the number of Hispanic-owned businesses overall and minority-owned businesses in various sectors compared to a decade ago. Similarly, the 2020 Census revealed that the population of almost all racial and ethnic groups in the United States had experienced growth since 2010 — and the growth hasn’t stopped.
According to the Census Bureau, around 1.2 million small businesses in the U.S. are owned by minorities. Minority-owned businesses account for roughly 20 percent of small businesses — and employ approximately 9.9 million workers with an annual payroll totaling $357.4 billion.
Compared to pre-pandemic levels, Black business ownership rose by 38 percent this year with a reported 23 percent uptick in annual revenue growth, which is twice as fast for the average American business. Black-owned small businesses also recruited employees at double the rate of all businesses across the US, showing promising growth and confidence in the future of small businesses owned by people of color.
In the 2023 Small Business Trends Study, we continue to see the resilient spirit of entrepreneurship, the shifting diversity of small business owners, and the challenging dynamics influenced by a changing economy. Let’s look at an overview of the top trends and findings highlighted in the Entrepreneurs of Color study, starting with exploring the demographics and motivations among minority business owners surveyed.
Don’t forget to explore our full, in-depth Entrepreneurs of Color report for more data, graphics, and insights.
Demographics and Motivations
- The generational gap significantly impacts small business owners, including entrepreneurs of color. Over half of the small business owners of color surveyed are Gen X (50.34%), with more than 30 percent being Boomers (30.97%).
- Less than 19 percent of the entrepreneurs of color surveyed are Millennials (18.79%). However, small business ownership is changing — with younger generations, millennials becoming more prevalent. This shift is expected to continue as more Millennials reach the average age of business ownership (around 35 years old).
- The number of millennial business owners of color has increased by 32 percent from last year, while the number of those in the Boomer generation has decreased by 15 percent.
- The top motivators for entrepreneurs of color were the desire to be their own boss (30%), dissatisfaction with corporate America (20%), and pursuit of passion (13%) — the strongest three motivators were consistently cited among the business owners surveyed this year. Factors such as job loss (9%) and seizing an opportunity (11%) were common reasons for starting their businesses. Only eight delayed retirement, a slightly lower percentage compared to other groups.
- Male entrepreneurs of color are more likely to own and operate businesses than their female counterparts, with 68 percent of surveyed business owners of color identifying as male and 32 percent as female.
- Despite this, women of color are starting and growing businesses at a faster rate than any other demographic in the U.S. Black women-owned firms grew 67 percent from 2007 to 2012 and 50 percent from 2014 to 2019 — marking the highest growth rate of any female demographic. The study shows a trend of a 28 percent increase in women-owned businesses among entrepreneurs of color compared to previous years.
- The majority of business owners of color surveyed identified as “Black or African-American” (37%) and “Asian or Asian-American” (34%). “Native Hawaiian or Pacific Islander” was the third-largest group at 8.62%, while about seven percent identified as “Hispanic, Latino, or Spanish-Origin” (6.90%) and “Middle Eastern or North African” (7.76%).
- Most surveyed entrepreneurs of color did not feel represented by any political party (40%). The second and third largest groups affiliated with the Democratic (34%) and Republican parties (20%), respectively. Only six percent of entrepreneurs of color reported being Libertarian, a slight increase from the previous year. However, there were no significant changes in political affiliations among entrepreneurs of color compared to last year.
- Compared to the main study, entrepreneurs of color were 26 percent more likely to feel unrepresented by any political party and 75 percent more likely to affiliate as Democratic. While most small business owners in the primary study affiliate as Republican, most minority business owners either do not feel represented by any political party or affiliate as Democratic. Entrepreneurs of color were 52 percent less likely to associate with the Republican party.
- The study found a strong correlation between education levels and business ownership, particularly among entrepreneurs of color. Among surveyed entrepreneurs of color, 82 percent held a degree: a master’s degree (38%), a bachelor’s degree (34%), and an associate degree (10%). A smaller percentage held a doctorate degree (9%). Only nine percent of surveyed business owners of color had only a high school diploma. Entrepreneurs of color were two percent more likely to hold a degree than the main study.
Top Industries and Business Types
- A majority of entrepreneurs of color reported starting or purchasing a new franchise location this year, accounting for 32 percent of surveyed respondents. This trend is consistent with the main study, where 35 percent of all small business owners started a new franchise in 2023. The smallest percentage of respondents (14%) reported purchasing an existing franchise location.
- Twenty-nine percent of entrepreneurs of color reported purchasing an existing independent business, slightly lower than the 33 percent in the main study who reported doing so. Entrepreneurs of color were also more likely to start a new independent business from scratch. A quarter of respondents (25%) reported starting a new independent business.
- The retail industry is the most popular among small businesses, with 21 percent of respondents owning businesses in this sector. Entrepreneurs of color were 17 percent more likely to own a retail business than the main study.
- The Health, Beauty, and Fitness services industry ranked second among entrepreneurs of color, comprising 16 percent of their businesses. The Food and Restaurant industry is also still popular among business owners of color, with 10 percent of them running businesses in this sector.
- Business services, automotive services, and education each make up roughly eight percent, tying for fourth place among the top industries for entrepreneurs of color. Childcare and residential services accounted for six percent of small businesses owned by entrepreneurs of color. Despite a rising demand in the construction and contracting industry, only five percent of businesses owned by entrepreneurs of color are in this sector.
- Small business owners of color have faced challenges this year, including economic uncertainty, political unrest, recruitment and retention, inflation, and lack of capital. The three biggest challenges reported were recruitment and retention (24%), inflation and rising prices (21%), and lack of capital (16%).
- The top three challenges were the same across all segments. However, business owners of color reported an eight percent higher difficulty with cash flow than other business owners surveyed. This disparity in cash flow difficulty has been consistent in previous years’ data, peaking at a ten percent difference.
- The trend of recruitment and retention being a primary challenge continues from the previous year, though fewer reported this difficulty in the current year. Still, recruitment continued to be a significant challenge for business owners of color this year — with over 40 percent of surveyed respondents describing the hiring process as either somewhat or very difficult. In fact, 25 percent reported recruitment as “somewhat difficult compared to other years” and 18 percent as “very difficult compared to other years.”
- Entrepreneurs of color plan to ease hiring difficulties this year by offering more compensation (27%), improving retention efforts (21%), and expanding benefits (9%) or recruitment advertising (10%).
- While it’s challenging to find qualified candidates across the board, the most difficult role to fill this year were sales positions (17%), management positions (16%), healthcare positions (15%), and food service positions (15%) among business owners of color.
- A majority of respondents reported a low number of applicants or lack of interest as a significant recruitment barrier (22%). Coming in at a close second, 20 percent of business owners reported competition from other employers as a critical challenge. Many business owners of color also said job candidates lack work experience (18%), technical skills (11%), and soft skills (11%).
Facing Economic Uncertainty and Confidence in the Future
- Nearly half of surveyed small business owners of color believe the U.S. is heading into a long-term recession (48%), while 33 percent are unsure. Fewer respondents are confident that the U.S. isn’t heading into a long-term recession (19%).
- Many business owners of color lack confidence in today’s changing economic climate, with 29 percent feeling “somewhat unconfident” and 11 percent feeling “very unconfident.”
- Still, 38 percent of business owners are “somewhat confident” (30%) to “very confident” (8%), and 22 percent feel neutral.
- Despite economic concerns, the majority of entrepreneurs of color are optimistic about the future, with 74 percent feeling confident that their businesses will survive in today’s economy. In fact, small business owners of color were more confident about the economy than all other business owners surveyed this year — with a 16 percent higher confidence level.
Business Plans and Happiness Levels
- Many minority-owned businesses plan to make strategic investments in their businesses this year. The main focus is addressing recruiting difficulties, with 27 percent planning to increase their staff.
- The second most popular plan for 2023 is investing in marketing — 31 percent anticipate investing in traditional and digital marketing.
- Business expansion and remodeling are the third most popular plans (19% each).
- In the face of new economic challenges and uncertainty, a majority of small businesses owned by people of color were profitable this year (54%). This is a promising sign, particularly given that most respondents are new business owners who typically take two to three years to reach profitability.
- Despite the many challenges minority-owned businesses face, a significant 74 percent of respondents reported being either “very happy” (38%) or “somewhat happy” (36%) as small business owners. A mere ten percent of business owners felt “very unhappy” (3%) or “somewhat unhappy” (7%).
- The number of very happy business owners of color rose by 33 percent compared to the previous year, showing a positive trend in overall happiness.
The 2023 Small Business Trends Study has painted an encouraging picture of entrepreneurs of color who, despite facing significant hurdles, continue to drive growth, display resilience, and express optimism in their business journeys. As the age divide narrows, we can anticipate an increasingly diverse and young set of business owners making their mark on the small business landscape.
Guidant’s Entrepreneurs of Color report shows that minority-owned small businesses are predominantly profitable, even with many being new businesses. Most respondents surveyed also express happiness as business owners — with more business owners of color reporting satisfaction compared to our overall study. Although many respondents feel optimistic and content, they have braved their fair share of challenges this year.
Recruitment and retention, inflation, and lack of capital were among the top challenges for business owners of color this year. In spite of these persistent challenges, however, small business owners of color continue to make significant strides, especially in recruiting — outpacing all other small businesses in the country.
Growing with Guidant
At Guidant, we’re committed to promoting growth and success in underserved communities, with a special focus on supporting businesses owned by women and entrepreneurs of color. We’re thrilled to help support and increase diversity in the small business world. Since 2003, Guidant has provided assistance to over 30,000 small businesses across America, empowering numerous entrepreneurs.
Our team of financial experts can work with you to create a custom financing strategy tailored to your business goals. Plus, we offer cost-effective Accounting & Tax and Payroll services to address all your needs, allowing you to minimize administrative tasks and focus on growing your business. Contact our team today at 425-289-3200 to discover how Guidant can help support and turn your business dreams into reality!