With all the police brutality drama occurring in the media, supporting black businesses has grown with popularity. Of course, I find this to be a good thing but I do see many problems with black businesses so I’d like to take the time to address those here and now.
1. Wrong Industry
Blacks habitually choose the wrong industries to enter. It makes me sick to my stomach to see another vegan food brand, or another shea butter maker, or bath essentials. How much soap does one person need? Sheesh!
Sure these products are easy to make and I believe that’s exactly why blacks choose these products. They must be thinking to themselves, “this can’t be too hard.” Personally, I think essentials should be made at home for the home. For sale? Not so much. This type of independence will allow a household to save quite a bit of cash.
Well here’s the problem. Scalability. But before we get into that, I’d first like to point out that these are physical products and I loathe marketing physical products (that aren’t unique).
Physical products mean you have to buy materials, then you have to sit in the kitchen and whip up the batch of soap, then you have to package it, then store it, then you have to sell it. HOURs of work, for what? Only to turn around and sell a $7 bar of soap when people can buy soap at the grocery store for a fraction of that. You cannot possibly compete with the big guys.
What’s your earned hourly rate if you took into account your expenses and time spent making these goods? Like $2 an hour? You might as well go apply for a job at McDonald’s or Walmart.
Now, let’s talk scalability. This term means; how easy can we take what you’re doing on a small scale, add some more employees, manufacturers, distribution channels, and funding dollars to generate higher revenue, faster. If it costs you $1 to make $3 then if I invest $1,000,000 into your business, I should expect $3,000,000 to return. That’s a 300% ROI and most investors would jump at the opportunity to invest.
The problem with the above industries is scalability. They are not easy to scale. Soap, shea butter, etc have to be sourced, then manufactured, then packaged, then stored, then sold. And we haven’t even gone into marketing, legal fees, or compensated for cost-of-sampling and hiring influencers. Let’s not even mention distribution and how that’s been monopolized.
And what can an investor make from investing in your business? A few million? That’s not worth most VC’s time. These guys want to make billions not millions. Because of opportunity cost, it doesn’t make sense for a VC to give you $500k to make $1,000,000 when that same $500k could earn $100 million elsewhere. A terrible business person would say, “But they still made money”. No, they lost money; about $100,000,000.
But a consultant or software engineer need only package their product and it’s ready to be sold. A few tweaks along the way are necessary but for the most part, they spend the bulk of their time selling their product or service. The lady selling facial scrubs is probably developing arthritis from whipping that pot. Software companies can easily be sold for hundreds of millions of dollars or even billions. That’s the type of potential blacks need to seek. But alas, blacks are not tech savvy. We’ll address that in a later blog post.
2. Monkey see, monkey do
Another pet peeve of mine is how blacks see an industry open up and they swarm like locusts. Basically, they copy and mimic which eventually completely saturates an industry. What does this do? It creates competition and competition chops into profit margins. The more players in a market segment, the more the pie gets divided up.
How many new podcasts or “self-taught make-up artists” have sprung up in 2016 alone? Remember when everyone had a new mixtape and wanted to be a rapper? That’s what podcasts have become. Podcasts are the new mixtape. Makeup tutorials are the new mixtape.
Also, look at how many people are now selling weave on Instagram or have an “online boutique”. You’ll notice that many of these entrepreneurs are competing on price. Well, there goes your profit.
In addition, where is this weave sourced? Are we going to India to get it straight from the source or is this hand-me-downs and leftovers from what didn’t sell when the bundles landed in California? How many middle-men are there in your supply chain?
3. Business acumen
Time and again, I consult black business entrepreneurs, who have great intentions but have next to no business acumen. Even worse, they do no independent research on business. I ask, “what’s your business model?” or “What’s your unique value proposition?” and usually the response I get is a blank stare or, “I don’t know.”
If black businesses are to be successful, they have to go understand business AS A WHOLE. Go take a course online, they’re 75% OFF, or use YouTube as a resource. Google is free. You can find information on anything. Growing a business is way more than posting products shots on Instagram and hoping someone visits your terrible SquareSpace hosted website.
4. Lack of funding
As we all know, many black businesses do not have sufficient start-up capital. Well, most entrepreneurs, in general, don’t have start-up capital. Your business expenses are funding by the paycheck from your day job.
Celebrities have been asking, how can they help the black community? Gifts are not the answer. Donations are NOT the answer. Charity is NOT the answer. We’ve BEEN doing those things for years and it barely makes a dent with impact.
Donations, charities, et cetera, produce dependence. The goal is INDEPENDENCE. Giving money to people randomly stagnates growth. Instead start up VC funds like Kobe Bryant did. Empower the entrepreneurs in the inner cities and in turn they will hire their peers. Now blacks don’t have to ask whites for a job. They supply their own people with jobs.
5. Lack of professionalism
How come every time I walk into a Jamaican restaurant, they always running out of beef patties, curry goat, or ox tails? Something is ALWAYS out, no matter what time of day it is.
How come my barber has to hold a phone conversation whilst cutting my hair? Why does he have to pause to watch the highlight of some football game? Why does he have to smoke a cigarette in-between each customer? Why do the specified shop times display, “Open at 9am” and it’s 10am but nobody is at the shop? You just lost at least 10+ customers because that angry person is going to tell everyone how he couldn’t get his haircut because you can’t open your shop on time.
Black entrepreneurs have to diversify their business portfolios. Create businesses that complement each other. For example, if a black opens a barber shop or hair salon, then why does the Korean man own the beauty supply shop AND the trucking company that makes the deliveries? Blacks need to own the whole supply chain.
“The poor buy retail. The wealthy buy wholesale.”
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Look at the market size and research the competition before you decide to open your business. You may find that even if you win, you’ll probably barely cover rent and expenses.
Do the math. Try to guesstimate the possible cost structure. Calculate estimated revenue and expenses to see if it’s even worth your time. Will it allow you to buy your mom a new house? Two houses and a boat? Private jet? Space shuttle?
Stop copying what your peers are doing and go be innovative. Do something that people rarely do or think about. Be unique and you’ll win. If your product isn’t unique, find ways to make it unique.
For example, if you sell shea butter, maybe your unique value proposition indicates that you only source organic ingredients from indigenous populations in Africa. Find a way to stand out.
The fix for black struggle is not a quick one. This is a generational battle. We have to make sure that our kids’, kids’, kids’ don’t have to look for a job. “Empower individuals and you’ll empower a city” [click here to tweet this quote].
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