A talk with writer Robert Fairlie about barriers that blacks and Latinos brass in starting businesses and making them thrive

by John Tozzi

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Blacks and Latinos start businesses at a lower rate than whites and Asians, and their companies are less likely to be profitable, in a less degree likely to buy up employees, and more likely to close. A recent book, Race and Entrepreneurial Success, explores the reasons behind those gaps.

Authors Robert Fairlie and Alicia Robb, researchers at the University of California at Santa Cruz, discover that differences in startup capital, education, and experience working in other businesses explain the racial disparity in business success. Blacks, for example, be in possession of less than 10% the median personal wealth of whites and Asians, which limits the capital profitable to array in businesses. (More data from the book are available here.) Fairlie and Robb base their conclusions on extensive research from the past quarter-century of data on business ownership, including admittance to Census Bureau surveys not publicly available.

Fairlie, a leading expert on minority entrepreneurship who has spent 17 years researching the topic, spoke recently with BusinessWeek’s John Tozzi, and fielded questions from BusinessWeek readers with respect to why these differences in business performance persist. Edited excerpts of their conversation follow.

Why is it important to learn to what degree race relates to entrepreneurial success?

Looking at businesses that are owned by different racial groups is important for a number of different things. One is wealth-building and inequality…If in that place are some racial groups that are not doing well in occupation ownership, then that’s going to impede their ability to get ahead in society.

The other thing that I think is truly important here is job origination. If you took all of the minority businesses in the U.S. and could increase just their numeral and the average employment volume by means of means of about 10%, a relatively small increase, you would create about 1 million new jobs as being minorities. That’s a considerably large striking from relatively small changes in pupilage business ownership.

How do wealth differences betwixt racial groups affect business success?

One of the most important determinants of success in business is access to startup metropolis. That’s veritable for all entrepreneurs, not honorable truthful for minority entrepreneurs…[Startup capital] was the most important factor for determining why Asians do well in profession, and it’s the most important factor for why African-American businesses are not doing of the same kind with easily…Wealth inequality is transferring into business performance inequality. The groups that seem to be favored with a distribute of wealth are skilful to start better capitalized, faster-growing firms that do in good health. The ethnic and racial groups that don’t acquire that access to chief city because of low competence—they’re struggling.

Another factor you identify is human capital—things like education or working in similar businesses or working in family businesses. What role does the human chief gap play, and how does it compare to the role of monetary capital?

Financial capital was the greatest in quantity important factor, end we did find that the education of the owner was moreover very important, especially in describing why Asian-owned firms did so well…About 50% of business owners have a parent or another family member who owned a business in front of starting their own business…The new real exciting verdict is that this doesn’t help you. It doesn’t necessarily mean your business is going to act better—unless you be in action in that group of genera business. If I’m a youthful adult and I work for my parents’ business, then when I go to start a business it is going to be 10% to 40% better, because I’ve learned so much from my foregoing work experience at my parents’ business. So it’s a huge factor.