Entrepreneurs from ethnic minority backgrounds experience substantially worse business outcomes than white entrepreneurs
- Black entrepreneurs report lower turnover and profit than White entrepreneurs, and many fewer meet their business aspirations
- Black female business owners, and female business owners from Asian and Other Ethnic Minority backgrounds experience the lowest levels of business success
- Economic background and location are critical to entrepreneurial success, irrespective of ethnicity and gender
Black business owners and those from Asian and Other Ethnic Minority backgrounds face persistent disparities in business outcomes, with systemic disadvantage playing a key role. This is revealed in a new report Alone together: Entrepreneurship and Diversity in the UK, published today by the British Business Bank and Oliver Wyman.
The report examines the profound effects ethnic and economic background, gender and geography have on business outcomes. The research will feed into the Commission on Race and Ethnic Disparities established by the Prime Minister.
Persistent disparities in business outcomes
After starting a business, Black business owners report a median turnover of £25,000 per annum, more than a third less than White business owners (£35,000). Many more Black business owners fail to make a profit (28% compared to 16% for White business owners), and fewer meet their business aspirations. Just 30% of Black entrepreneurs say they met their financial aims and only half (49%) met their non-financial aims. This compares unfavourably to White business owners, where more than half (54%) say they met financial aims and 69% met non-financial aims.
The success rate for starting up a business for Black entrepreneurs is in line with the UK average. However, entrepreneurs from Asian and Other Ethnic Minority backgrounds have a significantly lower success rate, making up around 3.5% of business owners but more than 8% of those who wanted to start a business but did not succeed.
These disparities persist despite Black, and Asian and Other Ethnic Minority entrepreneurs investing more time and money when developing their business ideas. Entrepreneurs in these groups also typically have higher level of educational attainment compared to those from a White British background.
Such differences in business outcomes can therefore only be explained by a host of interconnected and systemic factors. These include differences in access to finance, social capital, deprivation and household income, as well as the under-representation of certain ethnic groups among managers, directors and officials in the workplace, which reduces the opportunity to develop business-relevant skills, knowledge and networks.
Female entrepreneurs from ethnic minority backgrounds experience biggest disparities
More than a third (37%) of Black female business owners and 36% of female business owners from Asian and Other Ethnic Minority backgrounds report making no profit last year, compared to 15% of White female business owners. Female business owners of all ethnicities experience significantly lower median turnover than male entrepreneurs (£15,000 vs £45,000 per annum), and fewer say they met their financial aims.
Societal inequalities and established gender roles, such as having primary caring duties for children and elderly relatives, are believed to contribute to these disparities in outcomes. However, even when these caring roles are accounted for, female entrepreneurs still experience less success.
Location an important determinant of success, irrespective of ethnicity and gender
London was found to be the toughest place in the UK to be an entrepreneur, with just 71% of London business owners reporting a profit in 2019. No other region in the UK reported a figure below 80% and the UK average was 84%. A fifth (20%) of business owners in London saw revenue decline last year, six percentage points higher than the UK average (14%). Meanwhile, entrepreneurs living in the South East see most success, with subjective and objective success metrics well above average.
Differences between London and other areas across the UK are linked to a higher density of start-ups in London and tougher market competition. Higher costs of living and operating and greater disparity between poorer and wealthier neighbourhoods also help explain these findings. Only a small share of entrepreneurs run the kind of business that can benefit from the investment ecosystem that London is known for globally.
Economic background an important predictor of successful business outcomes
The report finds that irrespective of ethnicity and gender, household income is crucial to entrepreneurial success. Business owners with an income of £75,000 or more were most likely to report profit last year compared to those on an average annual income of less than £20,000 (87% versus 76% respectively).
Wealthier business owners were nearly twice as likely to see their business grow by at least 20% last year. The median turnover of business owners with an income of £75,000 or more is 12 times that of business owners with an income of less than £20,000. Many more of those with higher household incomes report meeting their financial and non-financial aims.
Catherine Lewis La Torre, CEO, British Business Bank, said: “As the UK’s economic development bank, we aim to improve access to finance for entrepreneurs so that more people may achieve their business goals and contribute to the country’s economic prosperity in so doing.
“This research provides us with a clear evidence base to help us understand the scale of the barriers faced by Black, Asian and Other Ethnic Minority entrepreneurs, as well as other under-represented groups when starting and scaling their businesses. This research will help inform the Commission on Race and Ethnic Disparities, which we hope will galvanise action across both the public and private sectors to address inequalities which lead to different business outcomes.
“The report identifies access to finance and the opportunity to develop business-relevant skills as being a particular challenge for some groups. To help address this, the Bank runs the Start-Up Loans programme which has been successful in the past in providing loans to entrepreneurs from under-represented groups. The Bank also works to address regional imbalances in access to finance through regionally targeted investment funds as well as our Regional Angels Programme. However, we fully recognise the need to go further and this research provides a vital impetus to act.”
Roianne Nedd, Global Head of Inclusion and Diversity, Oliver Wyman, said: “Entrepreneurship is a career where foresight, innovation, and tenacity should be key components of success in the UK, but our research shows that sadly this is not always the case. What should be a level playing field is littered with obstacles, many of which are products of a complex system of racial and gender disadvantage, underpinned by the pervasive impact of wealth and location.
“Yet there is hope. Our research not only highlights the barriers we must begin to tear down, but also the many factors that can positively shape an entrepreneur’s journey. It’s up to all of us to learn these lessons and act now to affect change.
“Let’s open our networks to entrepreneurs who are different from us. Let’s design financial products that reach people most in need. Let’s take a more thoughtful approach to selecting diverse suppliers. And let’s build support programmes that equip the under-represented with the practical tools necessary to transform their businesses from surviving to thriving.”
The British Business Bank runs the Start-Up Loans programme to help entrepreneurs from under-represented backgrounds start up a business. Of those who received a loan, almost 40% were women, more than a third (36.5%) were unemployed when they applied for the loan and 20% came from Black, Asian and Other Ethnic Minority backgrounds. Of those, almost 10% of recipients are Black, almost 5% are Asian and more than 5% are Mixed and Other Ethnicity.
The report is based on a survey of 3,727 entrepreneurs across the UK, interviewed using a mix of online and telephone interviews between 9th April and 1st July 2020. Entrepreneurs include those currently working on a business idea or running a business launched in the last ten years, as well as those formerly working on an idea or running a business that had stopped in the last five years. Responses were weighted by gender and ethnicity to reflect the known make-up of the UK entrepreneur population. The survey was supported by Ipsos MORI and the report was developed in partnership with management consulting firm, Oliver Wyman. Full details on the research methodology and sample sizes are provided in the report.
About the British Business Bank
The British Business Bank is the UK government’s economic development bank. Established in November 2014, its mission is to make finance markets for smaller businesses work more effectively, enabling those businesses to prosper, grow and build UK economic activity. Its remit is to design, deliver and efficiently manage UK-wide smaller business access to finance programmes for the UK government.
The British Business Bank programmes were supporting more than £8bn of finance to over 98,000 smaller businesses at end of March 2020. Since March 2020, the British Business Bank has launched four new Coronavirus business loan schemes, delivering tens of billions of pounds of finance to over a million businesses.
As well as increasing both supply and diversity of finance for UK smaller businesses through its programmes, the Bank works to raise awareness of the finance options available to smaller businesses:
- The British Business Bank Finance Hub provides independent and impartial information to high-growth businesses about their finance options, featuring short films, expert guides, checklists and articles from finance providers to help make their application a success. The site also features case studies and lessons from real businesses to guide businesses through the process of applying for growth finance.
- The Business Finance Guide (published in partnership with the ICAEW and a further 21 business and finance organisations) impartially sets out the range of finance options available to businesses at all stages – from start-ups to SMEs and growing mid-sized companies. Businesses can take the interactive journey at https://thebusinessfinanceguide.co.uk/
As the holding company of the group operating under the trading name of British Business Bank, British Business Bank plc is wholly owned by HM Government and is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). The British Business Bank operates through a number of subsidiaries, none of which are authorised or regulated by the FCA or the PRA.
British Business Bank plc and its principal operating subsidiaries are not banking institutions and do not operate as such. A complete legal structure chart for British Business Bank plc and its subsidiaries can be found on the British Business Bank plc website.