Minority Business Development in Cleveland Prepared for the Cleveland Foundation August 29, 2005 john a. powell Executive Director Kirwan Institute for the Study of Race & Ethnicity, Ohio State University Roger Clay Jr. President National Economic Development & Law Center

2 Purpose of this Study Identify strategies for The Cleveland Foundation to improve its minority business development approach 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 MBE development matters Economic and geographic analysis Economic and geographic analysis What is and what isn’t working in Cleveland? What is and what isn’t working in Cleveland? Community leader perceptions Community leader perceptions Best Practices among Intermediaries Best Practices among Intermediaries Emerging Opportunities Emerging Opportunities Conclusion Conclusion

5 Why Does MBE Development Matter? MBEs will become an increasingly important factor in local, regional and national economies 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 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 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 % of all companies in the U.S. were owned by minorities in 2002

7 Yet, A Decline in National Market Share for MBE’s 92-02

– Sales up nationally for African-American- and Hispanic-owned businesses, but down in Ohio

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

10 Firm Expansion Rate Number of Years Number of Employees Average Credit Rating

11 Industry Concentration

12 Size by Industry LARGE: LARGE: –Wholesale Trade –Manufacturing SMALL-to-MID-sized: SMALL-to-MID-sized: –Retail Trade –Financial Services –Construction Micro OR SMALL-to-MID-sized: 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 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 MBE’s and how they were located in respect to other regional trends Our analysis looked at the geographic location of MBE’s and how they were located in respect to other regional trends

15 Where are MBEs located?

16 MBEs by Sales Volume

17 MBEs by Change in Sales Volume

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

19 What is not working? Exclusivity Exclusivity Competition Competition Informal business networking Informal business networking Need for more accountability and measurable outcomes Need for more accountability and measurable outcomes Need for programs to monitor and take advantage of public procurement programs Need for programs to monitor and take advantage of public procurement programs

20 Community Leader Perceptions Structural challenges to MBE development Structural challenges to MBE development –Limited social capital –Racism and weak political environment –Economics –Public education Institutional based challenges Institutional based challenges –Difficulty in accessing capital –Need for more cooperation and specialization Individual based challenges 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 Targeted Business Development Assistance Well-planned Business Networking Well-planned Business Networking Research, Advocacy & Public Policy formulation Research, Advocacy & Public Policy formulation Community development financing Community development financing Promotion of regional climate to support MBEs Promotion of regional climate to support MBEs

22 Emerging Opportunities 1. Strategic partnerships 2. National trend toward supplier diversity 3. Strong and emerging sectors locally 4. New public sector affirmative procurement programs – especially Cuyahoga County

23 More Emerging Opportunities 5. Ohio’s new Minority Business Venture Capital Tax Credit Program 6. Large land bank of the City of Cleveland 7. New workforce development strategies 8. Local market gaps for small-businesses 9. 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 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 Support for MBE intermediaries serving various parts of Cuyahoga County, in addition to Cleveland Provide multi-year grants Provide multi-year grants

25 Recommendations Fund intermediaries that: 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 Develop a tracking system to monitor the health of minority businesses

26 Recommendation Support the following: 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 Recommendations Support for multi-organizational and regional strategies that target specific industry sectors 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 Support for micro-enterprise and small- business development strategies that target industries with the most potential to grow to the next level

28 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. 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.