Minority Business

Development
in Cleveland
Prepared for the Cleveland Foundation
August 29, 2005

john a. powell Roger Clay Jr.

Executive Director President
Kirwan Institute for the Study of National Economic Development
Race & Ethnicity, Ohio State & Law Center
University http://www.nedlc.org
http://www.kirwaninstitute.org
 Purpose of this Study
 Identify strategies for The Cleveland
Foundation to improve its minority
business development approach

2
 Methodology

– Analysis of national MBE trends

– Identify best practices
– Analysis of minority businesses in
Cleveland & Cuyahoga County
– Interviews with stakeholders

3
 Presentation Overview
 MBE development matters
 Economic and geographic analysis
 What is and what isn’t working in
Cleveland?
 Community leader perceptions
 Best Practices among Intermediaries
 Emerging Opportunities
 Conclusion

4
 Why Does MBE
Development Matter?
 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

5
 National MBE Trends
 The number of minority owned businesses is growing
faster than the rate for all U.S. firms
Percentage Increase

GrowthinNumber of Firms
50
40
30
MBEs
All Firms
20
10
0
1992 to1997 1997 to2002

 17% of all companies in the U.S. were

owned by minorities in 2002
6
 Yet, A Decline in National
Market Share for MBE’s 92-02
7%
6%
5%
4% MBE: % of
3% National Market
Share
2%
1%
0%
1992 1997 2002

7
1997-2002 – Sales up nationally for
African-American- and Hispanic-
owned businesses, but down in
40%
Ohio
30%
30%
22% 22%
20%
13%
10% -8%
-8%
0%
-10%
Nation Ohio

All Businesses
African American Owned Bus.
Hispanic Owned Bus.

8
 Description of Cleveland’s
MBEs
 Sales
and receipts of African
American-owned businesses grew by
284% from 1992-1997.

 LargerMBE's are doing relatively well

compared to other metropolitan
regions

 Most Hispanic or Latino MBEs are non-

certified and disengaged from the
regional economy
9
 100
90

Firm 80
70
Expansio 60
50 Poly. (All Firms)
n Rate

Employees
Number of
40 Poly. (MBEs)
30
20
10
0
0 2 4 6 8 10 12 14

Number of Years
100
95
90
85
All Firms Average
MBEs
80
75
Credit
70
5 to 9 10 to 19 20 to 49 50 to 99 100 & Over
Rating
Number of Employees

10
 Industry Concentration
Industry Strength of Clev eland's African-American-owned M BEs
Compared to Nation
3.5
Market Share Ratio of Industry Compared

Cleveland PM SA
to Overall Market Share

2.5
U.S.

1.5

0.5

0
Construction W holesale Trade Financial Services M anufacturing

11
 Size by Industry
 LARGE:
– Wholesale Trade
– Manufacturing
 SMALL-to-MID-sized:
– Retail Trade
– Financial Services
– Construction
 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

12
 Credit Rating by Industry
In d u s try b y C re d it R a tin g , P e rc e n t o f M B E s w ith C re d it
R a tin g O v e r 8 0
90
80
70
60
50
40

Es
e

on
ing

rad
s

MB
ad

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ic e
s
tur

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ce

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ice

tru
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erv
fac

A ll
rvi

tai

ns
erv
a le

lS
nu

Se

Re

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rt S
les

cia
Ma

al
ho

ion

an

po
W

Fin

up
ss

n/S
ofe
Pr

mi
Ad

13
 Geographic Distribution
 Ouranalysis looked at the
geographic location of MBE’s and
how they were located in respect to
other regional trends

14
 Where
are
MBEs
located
?

15
MBEs by Sales Volume

16
MBEs by Change in Sales Volume
2001-2005

17
 What is Working in
Cleveland?
 Targeted technical assistance, business
networking, mentoring, and supplier
diversification efforts
 Mainstream lending institutions compete for
MBE lending
 Cleveland has best practice community
development financial institutions and
community development venture capital funds
 Good support from universities and colleges

18
 What is not working?
 Exclusivity
 Competition
 Informal business networking
 Need for more accountability and
measurable outcomes
 Need for programs to monitor and
take advantage of public
procurement programs
19
 Community Leader
Perceptions
 Structural challenges to MBE development
– Limited social capital
– Racism and weak political environment
– Economics
– Public education
 Institutional based challenges
– Difficulty in accessing capital
– Need for more cooperation and specialization
 Individual based challenges
– Limited skill sets; talent; and strategic vision
– Tendency toward life-style businesses

20
Best Practice for foundations funding
MBE development – a
comprehensive approach

 Targeted Business Development Assistance

 Well-planned Business Networking
 Research, Advocacy & Public Policy
formulation
 Community development financing
 Promotion of regional climate to support
MBEs

21
 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

22
 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

23
 Recommendations
 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
 Provide multi-year grants

24
 Recommendations
 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

25
 Recommendation
 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

26
 Recommendations
 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

27
 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.

28