Making a better future for the next generation in Michigan.

Will Michigan Be Small Business Friendly in 2040? Part 2

Jul 19, 2023 | Economic Development, Entrepreneurs, Future, Michigan, North Carolina, Small Business | 0 comments

  • Michigan is doing well in supporting small businesses.
  • There is a large disparity between ownership by white non-Hispanic males and other demographic groups.
  • My family experience in business ownership suggests some key barriers are mentorship, experience, and access to “friends and family” capital need to be overcome to level the playing field.

In my last post, I related how my grandfather’s ability to start and grow a small business beginning in 1930 led to four generations of engaging career opportunities and prosperity for my family, service for tens of thousands of customers, and a good living for thousands of employees. We are not alone in creating opportunity for ourselves and others through a small business. Fully one out of five members of the workforces in Michigan own small businesses and together they employ almost half of the people working in the state.

By the numbers, Michigan appears to be supporting opportunity for small business today. Its rates of small business ownership is slightly better than in the U.S. as a whole, and is better than Indiana, which was recently named by Forbes Advisor as the best state in which to start a business. The question for the well-being of the next generation is whether Michigan is maintaining and expanding opportunities for small businesses to be formed and prosper.

Small businesses are a key factor in future employment

Since the small business sector employs almost half of Michigan’s workforce, it seems clear the state cannot prosper unless most existing small businesses are viable and new ones are starting up. For benchmarking purposes, let’s compare Michigan’s figures with North Carolina, Indiana, and the U.S.

Looking at 2021, the most recent year that figures are available from the Bureau of Labor Statistics, North Carolina is clearly trending better than Michigan or Indiana for business startups. In North Carolina, 9 people out of every thousand in the workforce took the plunge and started a business in 2021. In Michigan and Indiana (the best state?) it was only 6. Check out the Business Births and Deaths tab on this spreadsheet:

When the next generation takes on adult roles in the 2030s and 2040s, will Michigan and North Carolina be supportive for those who want to start businesses? For everybody? There is a problem. It appears that owners of small businesses that employ others are disproportionately non-Hispanic white males. Here is how ownership of these businesses compares to the population of the states and the U.S. –positive percentages are groups that are over represented and negative percentages are those that are under represented:

From the Ownership Demographics tab in the spreadsheet

Where is the problem in the pipeline for minority and women owned businesses?

As the U.S. figures show, the under representation of women and minorities in the ownership of businesses with employees is not just a problem for one state — although the disparity of Hispanic and minority ownership in North Carolina stands out from the rest. Others know much more about the obstacles women and people of color face when trying to start a business. Others know much more about the successes and failures of programs that have tried to level the playing field. What I can offer is a thought experiment about my own family’s journey in business ownership.

The first barrier is mentorship

When my grandfather Jack Fehsenfeld got out of high school in the early 1900s, he was lucky. He had a sweetheart named Ruth Barnes whose father took a liking to him. Frank Barnes took Jack under his wing and helped him get a job at the company where he worked, Great Western Oil Co. Then he spent time with Jack to pass on many lessons about business he had learned over the years. Would Frank Barnes have felt the same way if Jack was black?

The second barrier is experience

By the time Jack Fehsenfeld got fed up with working for a big company and started our family company Crystal Flash, he had worked in the fuel distribution industry for over a decade. He was running the central Indiana district for his employer and had a good grasp of the business. He knew how to gain and hold customers. He knew how to sell at a profit, how to hire good people, and how to deal with suppliers. That experience was a crucial factor in his later success as a business owner.

How many companies today would give that much responsibility to someone with just a high school diploma? These days, a four-year college degree is the ticket to get on the management track in many organizations. Women seem to be equalizing their ability to obtain four-year degrees with men, but according to the World Population Review Michigan, North Carolina, and Indiana are still showing significant disparities — 9% to 13% –between the proportion of the white population that has four year degrees and the proportion of the black population. If they can’t get a starter job in management, how will they learn to manage?

The third barrier is obtaining capital

When Jack Fehsenfeld was ready to start his business, he got a $10,000 loan from a relative and a $5,000 investment from his neighbor, the sheriff of Marion County. Friends and family are often the source of starting capital. However, Jack’s neighbor was also an official in the Indiana Ku Klux Klan. It’s doubtful Jack would have gotten the sheriff’s investment if he had been a black man.

What about family sources for people of color today? As of 2019, the Brookings Institute reported the median white household held $188,200 in wealth compared to a median black household holding $24,100. Probably slim pickings among black relatives. If a budding black entrepreneur lived in a largely black neighborhood and went to a largely black church, it would be probably be slim pickings there as well.

So, the thought experiment ends here. I don’t mean to undervalue the hard work, vision, and creativity my grandfather displayed starting a successful business. What I see in my family’s history is a lot of help in overcoming the barriers that others face. He received mentorship, the opportunity to obtain management experience, and easy access to capital. Finding ways to provide these for underrepresented groups will be the challenge for Michigan if we ever want to have a level playing in the ownership of businesses by 2040.

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