A new report by the British Business Bank reveals that Black, Asian and Minority Ethnic (BAME) entrepreneurs are having to overcome systematic hurdles, slowing their potential for success.
The study entitled: ‘Alone together: Entrepreneurship and Diversity in the UK’ shows that a business owner’s ethnic and economic background, gender and geography will often have a significant impact on their business outcomes.
Disparities in outcomes
After starting a business, Black business owners report a median turnover of £25,000 per annum, more than a third less than White business owners (£35,000). Many more Black business owners fail to make a profit (28% compared to 16% for White business owners), and fewer meet their business aspirations.
Just 30% of Black entrepreneurs say they met their financial aims and only half (49%) achieved their non-financial goals. This compares unfavourably to White business owners, where more than half (54%) met financial aims and 69% their non-financial dreams.
The success rate for starting up a business for Black entrepreneurs is in line with the UK average. However, entrepreneurs from Asian and Other Minority Ethnic backgrounds have a significantly lower success rate, making up around 3.5% of business owners, but making up 8% of those who wanted to start a business but failed.
These disparities persist despite BAME entrepreneurs investing more time and money when developing their business ideas. Entrepreneurs in these groups also typically have a higher level of educational attainment compared to those from a White British background.
Such differences in business outcomes can only be explained by interconnected and systemic factors. These include differences in access to finance, social capital, deprivation and household income, as well as the under-representation of certain ethnic groups among managers, directors and officials in the workplace, which reduces the opportunity to develop business-relevant skills, knowledge and networks.
More than a third (37%) of BAME female business owners report making no profit last year, which is more than double the amount of White female business owners (15%) that reported making no profit. Female business owners of all ethnicities experience significantly lower median turnover than male entrepreneurs (£15,000 vs £45,000 per annum), and fewer say they met their financial aims.
Societal inequalities and established gender roles, such as having primary caring duties for children and elderly relatives, are believed to contribute to these disparities in outcomes. However, even when these caring roles are accounted for, female entrepreneurs still experience less success.
London was found to be the toughest place in the UK to be an entrepreneur, with just 71% of London business owners reporting a profit in 2019. No other region in the UK reported a figure below 80% and the UK average was 84%. A fifth (20%) of business owners in London saw revenue decline last year, six percentage points higher than the UK average (14%). Meanwhile, entrepreneurs living in the South East see the most success, with subjective and objective success metrics well above average.
Differences between London and other areas across the UK are linked to a higher density of start-ups in London and tougher market competition. Higher costs of living and operating and greater disparity between poorer and wealthier neighbourhoods also help explain these findings. Only a small share of entrepreneurs run the kind of business that can benefit from the investment ecosystem that London is known for globally.
The report finds that irrespective of ethnicity and gender, household income is crucial to entrepreneurial success. Business owners with an income of £75,000 or more were most likely to report profit last year (87%) compared to those on an average annual income of less than £20,000 (76%).
Wealthier business owners were nearly twice as likely to see their business grow by at least 20% last year. The median turnover of business owners with an income of £75,000 or more is 12 times that of business owners with an income of less than £20,000.
The report will be used by British Business Bank help the BAME community overcome the disparities, says Catherine Lewis La Torre, CEO, British Business Bank.
“This research provides us with clear evidence to help us understand the scale of the barriers faced by BAME entrepreneurs, as well as other under-represented groups when starting and scaling their businesses.
“This research will help inform the Commission on Race and Ethnic Disparities, which we hope will begin action across both the public and private sectors to address inequalities which lead to different business outcomes.
“The report identifies access to finance and the opportunity to develop business-relevant skills as being a particular challenge for some groups. To help address this, the Bank runs the Start-Up Loans programme which has been successful in the past in providing loans to entrepreneurs from under-represented groups.
“The Bank also works to address regional imbalances in access to finance through regionally targeted investment funds as well as our Regional Angels Programme. However, we fully recognise the need to go further and this research provides a vital impetus to act.”
The British Business Bank runs the Start-Up Loans programme to help entrepreneurs from under-represented backgrounds start up a business. Of those who received a loan, almost 40% were women, more than a third (36.5%) were unemployed when they applied for the loan, and 20% came from BAME backgrounds. Of those, almost 10% of recipients are Black, almost 5% are Asian, and more than 5% are Mixed and Other Ethnicity.
Business giants still need to go further to help BAME entrepreneurs, says Roianne Nedd, Global Head of Inclusion and Diversity, Oliver Wyman: “Entrepreneurship is a career where foresight, innovation, and tenacity should be key components of success in the UK, but our research shows that sadly this is not always the case. What should be a level playing field is littered with obstacles.
“Yet there is hope. Our research not only highlights the barriers we must begin to tear down, but also the many factors that can positively shape an entrepreneur’s journey. It’s up to all of us to learn these lessons and act now to affect change.
“Let’s open our networks to entrepreneurs who are different from us. Let’s design financial products that reach people most in need. Let’s take a more thoughtful approach to selecting diverse suppliers. And let’s build support programmes that equip the under-represented with the practical tools necessary to transform their businesses from surviving to thriving.”