Fat Cats Threaten Small Firms

The top threat facing Washington's minority-owned businesses, according to a recently released University of Washington study, is competition from big business.
"About 99 percent of the business growth in Washington and nationally is in small business, and the question is how do they compete?" says Dr. Vandra Huber, professor of human resource management at UW and a co-author of the recently released Washington Minority Small Business Survey.
"When you think of superstores like Wal-Mart putting small business out of business, it puts additional pressure on these organizations," Huber says.
"The threat of competition from large businesses is particularly felt by minority firms that seek government contracts," says William Bradford, another of the study's authors and a UW professor.
According to the survey, Black business owners are three times more likely than Asians or Hispanics to list government as their main customer.
"Minority businesses have lost government contracts to large businesses since the passage of I-200 in Washington State," Bradford says. "Initiative 200 outlawed affirmative action in government contracting and we're seeing the repercussions of it."
That could explain why Black business owners surveyed by the UW professors had the lowest level of confidence in Washington's business climate. Hispanic business owners had the highest level of confidence. 
The UW study asked 376 randomly selected minority small business owners from across Washington to share their feelings on the state's business climate and about future industry trends.
Of those surveyed, 107 were Black, 114 were Hispanic and 155 were Asian. About 80 percent of those businesses surveyed have fewer than five full-time employees, and 16 percent had only one employee – the owner. The study included businesses in several sectors including construction, finance and retail.
Minority business owners are facing an uncertain future filled with unmet financing, slow sales, low profits and competition from big business, and more than one-third of those surveyed by the UW professors called Washington's business climate unsupportive.
Despite this, the researchers said business owners are optimistic.
Huber, the professor who co-authored the survey with Bradford and Richard Yalch,  said this type of confidence "keeps Washington's minority entrepreneurs going, even when business performance falls short of expectations."
Rated on a 100-point scale, the business owners were asked how they viewed the future of Washington's business climate. The higher the score, the better the outlook. The overall confidence level was 56.
"Entrepreneurs everywhere tend to see the glass half-full rather than half-empty and minority small-business owners in Washington are no exception," Huber said. "While more than 50 percent of minority small-business owners said that sales and profits were poor or just OK during the last quarter of 2006, 60 percent were confident that business prospects in upcoming months would be good."
Black business owners were much more pessimistic than the Asian and Hispanic business owners surveyed.
"Black business owners have less favorable opinions of the state's business climate (including government, banks, media and community groups) and business conditions in their market area than do Hispanic and Asian businesses," according to the survey.
The UW study comes at a time when the number of minority-owned business is growing at a tremendous rate.
According to the U.S. Department of Commerce, minority-owned businesses have grown three times faster than other businesses in the last decade.
Bradford points out that, over the next few decades, minority owners will employ an increasing share of Washington's workforce.
That's good news for Washington workers as minority business owners are more likely to employ full-time employees rather than part-time workers.
According to the survey, Black businesses reported the highest number of job openings. However, the business owners "overwhelmingly reported no significant increases in their payroll over the preceding three months," the survey states.
Although big business was the top concern, many of Washington's minority small business owners say their inability to get proper financing is hurting their businesses.
About five percent of minority-owned business owners in the United States say they can't get proper business credit. In comparison, 17 percent of the business owners surveyed by the UW professors had the same complaint.
Of those surveyed, 13 percent of Asian business owners, 15 percent of Hispanic business owners and more than one-fourth of Black business owners said they couldn't obtain proper financing.
"Academic studies using national data have found evidence of lending bias against minorities in general and African Americans and Hispanics in particular," Bradford says.
"Clearly, more research is needed to understand what's going on in Washington State and what needs to be done in the future to keep minority business growing," he says.
The Washington Minority Small Business Survey was partially funded with a grant from the UW's Diversity Research Institute, the Office of Minority Affairs and Diversity and a grant from the Business School.
The researchers will survey minority and women-owned businesses this fall and plan to come out with a new study six months after that.