Creating wealth in under-resourced communities begins with building a foundation of trust
Steve Grossman, CEO of The Initiative for a Competitive Inner City, shares what it truly takes to help entrepreneurs thrive and close the racial wealth gap.
The COVID-19 pandemic has laid bare many of the fault lines in American society and shown just how deep those cracks are. Not least among those cracks is the racial wealth gap. According to a national poll released by NPR, the Robert Wood Johnson Foundation and the Harvard T.H. Chan School of Public Health, 60 percent of Black households and 72 percent of Latinx households are facing financial troubles since the start of the pandemic. Compare that to 36 percent of white respondents who said they were facing serious financial problems.
These patterns are also seen among small business owners. Small business closures have increased precipitously since the start of the pandemic, with an estimated 60 percent of them permanent. But the Federal Reserve Bank of New York found that Black-owned businesses have shut down at twice the rate as businesses operated by white owners.
What can be done?
“Entrepreneurship is the ticket to wealth creation in America,” said Steve Grossman in an interview with the Aspen Institute. Grossman is the CEO of Initiative for a Competitive Inner City, an organization that has worked to drive inclusive economic prosperity in historically underserved communities.
But fostering entrepreneurship isn’t as simple as offering free classes. Through its Inner City Capital Connections Program, which Grossman has dubbed the “40-hour mini MBA on steroids” the organization has helped to develop small businesses and empower underrepresented entrepreneurs—women, veterans, and people of color. Grossman insists that it’s important to build trust with the people of the city to truly help them flourish.
ICIC’s program is currently available in 17 cities across the country, and at each location, there is a process of trust-building that must take place.
“We go to a city and we begin to build relationships with the people who have their finger on the pulse of the small business ecosystem, people who know those small business owners,” Grossman said. “The way we build trust is to really get to know the small business ecosystem and get to know the nonprofits that work with the business community.”
As an example, Grossman says forging a connection with West Side United, a consortium of eight hospitals in the west side of Chicago, as the key to helping small businesses and entrepreneurs in the Windy City. Anchor organizations like West Side United, as well as other medical institutions and universities, are an avenue of finding those small, neighborhood businesses that have a proven track record of success, yet need a boost.
Participating businesses receive education, one-on-one coaching to address their specific needs, but Grossman believes the most crucial component is the connections which will help them access capital. According to ICIC’s 2019 Impact Report, the rate of loan denial is almost twice as high for minority-owned businesses as it is for white-owned businesses. The report also found that Black and Hispanic entrepreneurs are more likely to avoid applying for a loan due to a fear of rejection.
“When you talk to primarily Black and brown business owners and you say what’s the biggest roadblock you face? What’s the brick wall that you bump into? They’ll tell you over and over again: Access to capital,” said Grossman.
Grossman says the average participant in the program has been in business for 11 years, but is often still struggling to make a living. After participating, 70 percent of participants will receive needed capital within a year, and 80 percent within two years.
As COVID-19 has a dramatic effect on small businesses, it’s also affecting the way ICIC operates, requiring the organization to pivot from in-person teaching and mentoring to digital. That’s why the organization is also making investments over the next two years to improve their digital offerings and revamping lessons to meet the current moment and to make it so that small businesses can connect in new ways.
“We made it a virtue out of necessity,” said Grossman. “We think there’s an opportunity if we build a platform over the next two to three years to create a digital model that can be relevant to small business owners in hundreds of cities all over the country and create a national network of small businesses that are doing business with one another.”
While typically ICIC only accepts businesses into the program who are established and making a certain amount of revenue, COVID-19 has caused them to reevaluate and decide to waive those restrictions. Since that decision, Grossman says ICIC has found that businesses both big and small, established and fresh, are learning from and feeding off of each other.
“The goal is to create small business ecosystems in all of these cities where there are high levels of poverty and high levels of unemployment,” said Grossman. “That is going to narrow the racial wealth gap and close that racial wealth gap which is our No. 1 goal.”