333 Years Until Economic Parity

Who Has That Kind of Time?

333 years and counting … Recent studies show that with no concerted effort to make significant changes in corporate and government procurement and buying practices, it will take 333 years for minority-business enterprise (MBE) business revenue to match that of white-owned businesses. UNACCEPTABLE. We must diversify the supply chain now and close the gap.

The Michigan Minority Supplier Development Council (MMSDC), a nonprofit organization committed to driving economic growth within minority communities, recently released a study titled “Facilitating Growth for Minority-owned Businesses.” The report explores “rethinking supplier diversity and creating results-driven processes to achieve revenue parity [between minority- and  white-owned businesses].” The MMSDC commissioned supplier.io, a provider of supplier diversity solutions, to research and assess the growth rate of MBEs and ascertain the length of time required to achieve revenue parity and close the gap with white-owned U.S.-based businesses.

14.2% New Job Creation yet only 7.3% Revenue Growth

To no surprise, the study reports that MBEs still suffer from disproportionate economic growth in the U.S. In the five years from 2014 to 2018, MBEs created 14.2 percent of the new jobs in the country but continued to lag behind white-owned businesses in getting economic benefits. MBEs experienced only 7.3 percent revenue growth during the same five-year period. Additionally, just as the COVID pandemic keeps killing more Blacks and other people of color than white Americans, Black-, Latinx-, and Asian-owned businesses experience 41, 32, and 26 percent decreases in revenue respectively, whereas white-owned firms’ revenues fell by only 17 percent. MBEs also secured loan approvals at far lower rates than white-owned firms, according to the U.S. Federal Reserve Bank’s 2020 Small Business Credit Survey.

333 Years to Close the Gap

Shockingly, the report says that if MBEs continue growing at current rates, it will take 333 years – yes, more than three centuries – to achieve revenue parity with white-owned firms.  Only significantly increased direct government and corporate spending with MBEs will close the gap. So, organizations must activate their Supplier Diversity programs and award meaningful prime contracts to minority-owned businesses. Additionally, the past performance requirements must be alleviated to allow MBEs to participate in the bidding process.

MBEs that never receive multi-million, multi-year prime contracts, never acquire the past performance required to secure one. While MBEs with over $1 million in revenue represented 17.4 percent of all U.S. firms, they earned $4.8 million on average compared to $9.7 million for white-owned firms. What’s more, even though the number of MBEs with more than $1 million in revenue grew by 26 percent in the five-year period and the cumulative sales of those MBEs grew from $864 billion to $1.2 trillion, spending with MBEs needs to increase two to four times the current levels to achieve revenue parity; without change, this will take 333 years.

Actions to Close the ‘333 Years’ Gap Now

The actions that procurement and buying decision-makers can take today to help MBEs close the gap include:

1.     1% YoY spending increase = 15 years to close the gap

• Commit to increasing spending targets year over year. If all government agencies, corporations, and white-owned firms grow their MBE spending percentage by 1 percent annually, the journey to parity would go from 333 years to less than 15 years.

2.     Commit to spending with MBEs as primes across all categories

• Stop focusing on low margin or low growth areas of the economy such as construction, manufacturing, and janitorial services. Procure more from MBEs in high growth, high margin fields such as advanced manufacturing, technology, and professional services.

3.     Help create pools of viable and qualified MBEs

• Improve access to capital, accelerate revenue growth and reduce the time to parity by as much as 25 percent.
• Increase access to customers. Include MBEs in sourcing activities which include opportunities with a legitimate chance to compete and win.
• Improve access to strategic knowledge. Share strategic expertise and assistance directly from buying decision-makers who mentor and partner with MBEs to grow in their specific industries.

White-owned corporations and the Fortune 1,000 must actively address the persistent racial wealth gap that creates a dangerous fault line through the foundation of our nation’s economy. Local, state, and federal governments must also initiate policies that help MBEs achieve sustainable growth. By doing so, MBEs might attain revenue parity before global warming wipes us all off the face of the earth.

Your Marketing Momma,

Cheryl McCants ~ Impact President and CEO