Black-owned middle market businesses grow faster and through distinctive strategies.
Executive Summary
On the whole, the U.S. middle market is a historically overlooked yet incredibly
powerful segment of the economy. While the National Center for the Middle Market
has made great strides over the past decade in shedding light on the middle
market’s importance and outsized contributions, Black-owned middle market
companies remain somewhat of an enigma. Largely, this is because there are not
many of them to study. According to Pew Research Center, “majority Black-owned
businesses made up only about 3% of all U.S. firms that were classifiable by the
race and ethnicity of their owners in 2021.”
Researchers are nevertheless making attempts to learn more. A few recent
reports do help to better define the Black-owned business landscape, albeit
through specific lenses. For example, The 2024 Impact of Women-Owned
Businesses report by Wells Fargo included a demographic focus on Black/African
American woman-owned businesses, a subset that, according to the study,
accounts for 14.8% of all women-owned and 52.1% of all Black-owned businesses.
This group of firms reports revenue and employment growth rates that outpace
larger markets. These businesses collectively emerged from the pandemic
stronger than ever before.
Looking specifically at midsized businesses, a recent report by Next Street suggests
that diverse-owned businesses, including Black-owned companies, represent
approximately 30% of the middle market but account for only approximately 20%
of the revenue. The data illustrates an opportunity for diverse-owned businesses to
generate $1.3T in additional annual revenue by closing this gap.
The Center’s own Middle Market Indicator data support this theory, showing
extremely rapid revenue-growth specifically for Black-owned middle market
companies. Out of the 1,000 companies surveyed for the year-end 2023 edition of
the Middle Market Indicator, 92 organizations, or approximately 9%, have majority
Black ownership. These companies experienced year-over-year revenue growth of
17.7%, significantly outpacing the total middle market, which reported 12.4% revenue
growth for the same period. Black-owned businesses grew their workforces more
aggressively as well. They reported a significantly higher level of confidence in their
local economies, yet less willingness to reinvest in their businesses.
The Black-owned businesses in the Middle Market Indicator sample are younger
and smaller than the average survey respondent, which could help account for
some of the differences. Whatever the driving factors, the data clearly paints the
picture of a high-potential subsector of the middle market that begs to be better
understood, opening the door to many new questions.
HOW THE RESEARCH WAS CONDUCTED
Answers, however, were not easy to come by.
Despite considerable effort and support from
our research partners and leveraging a proven
research methodology, a statistically significant
sample for fielding a quantitative survey could
not be located. The team thus elected to
conduct qualitative research to gain insight
and perspective from the experts who know
the Black-owned middle market best of all: the
Black owners and executives who lead these
businesses day in and day out.
Our research team conducted individual
60-minute Zoom interviews with 13 Black
middle market business owners and leaders.
Our respondents are responsible for strategic
decision making in organizations spanning
different industries, including construction,
logistics, financial services and information
technology. The companies in the survey
ranged in size from $20 million to $500 million
in annual revenues.
By talking directly with these Black middle
market business leaders, we sought to better
understand the dynamics of Black-owned middle
market businesses in the United States, including
specific drivers of success as well as factors that
hinder success as companies grow to a specific
size and become midsize businesses.
LEARNINGS POINT TO UNIQUE
OPPORTUNITIES TO BETTER SUPPORT
THIS IMPORTANT SUBSECTOR
We learned that while Black middle market business owners see themselves as businesspeople
first, they face common issues and common barriers unique to being Black. They have proactively
developed strategies for tackling these challenges
both individually and collectively.
The four key findings in this report can help
educate middle market stakeholders on
the Black-owned business story. They give
insights into how industry partners and service
providers may be able to better support Blackowned middle market businesses. And they
can help define a road map for tapping the full
potential of this segment to contribute to and
shape the middle market’s continued prosperity
and success.
Insight #1
Diversity initiatives and programs are shifting away
from Black-owned businesses.
Former President Richard Nixon established the Office of Minority
Business Enterprise within the Department of Commerce in 1969
to expand opportunities for minority-owned businesses, including
Black-owned businesses, to participate in federal contracting and
procurement. Ever since, the federal government has played a
hands-on role in minority business development, including creating
certification programs to establish businesses as minority owned.
Today, many government agencies and private corporations maintain
supplier diversity programs designed to actively seek out suppliers and
service providers certified as minority business enterprises (MBEs). As
the Black middle market business owners in our research told us, certain
industries — such as construction, energy, automotive and consumer
packaging — value minority ownership more than others, and companies
operating in these industries are more likely to have stated intentions and programs to grow diversity in their
supplier base. Furthermore, the validity of opportunities varies from company to company and program to
program. In the words of one respondent, “In many cases, it is overstated what that opportunity might be or
what the advantage to that opportunity might be. But in other cases, it is a real opportunity.”
MINORITY-OWNED BUSINESSES OTHER THAN BLACK-OWNED BUSINESSES ARE
PERCEIVED TO RECEIVE GREATER PREFERENCE.
Every Black-owned business leader represented in our research appreciates the potential value of an MBE
designation or similar certification. They collectively recognize the importance of the different programs
designed to support Black-owned entities. Across the board, however, there is a clear sense that an MBE
designation means less today than it once did, or at least that the opportunities such certifications afford have
become watered down or less available to Black-owned companies in particular.
On one hand, there is broader recognition of the importance of diversity and inclusion in business, and with that
comes acknowledgement of a wider range of communities that can be considered diverse. As a result, MBEs
other than Black-owned companies may be receiving higher priority or a greater preference in some cases or
with some opportunities.
NEGATIVE PERCEPTIONS AROUND DEI ARE LIMITING OPPORTUNITIES.
At the same time, controversy around diversity, equity and inclusion (DEI) efforts in general continues
to mount, and some Black business leaders feel the pendulum is swinging away from people of color in
particular. Several leaders
referenced the George
Floyd tragedy and how the
surge of support for Blackowned businesses spurred
by the incident has since
diminished, specifically
related to investment
opportunities and access
to capital.
Insight #2
Programs that contribute to the initial success of Black-owned businesses
often end up limiting future growth.
Black-owned businesses often scale through supplier diversity and similar programs, including disadvantaged
business programs, 8(a) programs (a Small Business Administration initiative created to help firms owned
and controlled by socially and economically disadvantaged individuals), and federal and municipal contracts specifically for minority-owned or Black-owned companies. As one Black founder and CEO of a
petroleum supply company put it, “We got our first opportunity with that preference. It wasn’t a guarantee that a
preference will make you a successful business, but it does give you an opportunity to have an opportunity.”
Virtually all leaders concur that certifications and programs are essential to building the business and attracting
new customers, including those specifically seeking out Black-owned business partners or suppliers for
various reasons.
Unfortunately, Black
business leaders are
growing increasingly
frustrated with what they
view as broken government
contracting and certification
processes. Some even
contend that the programs
put in place to help Black
entrepreneurs are ultimately
hurting them instead.
CUMBERSOME APPLICATION REQUIREMENTS MAKE
MANY PROGRAMS AND BENEFITS INACCESSIBLE.
In some cases, the programs are simply too difficult to access.
In their attempts to limit access only to those that truly qualify, the
verification processes have become especially cumbersome. Leaders
cited “certification battles” and issues with navigating complex
application processes and government bureaucracy, including the vast
amount of information required to apply for contract opportunities that
ultimately go to the lowest-cost bidder, or for grant processes that can
take six months or longer to complete. “They are punitive to the business
owner, versus punitive to those who try to cheat the program,” one
respondent said.
Others mentioned the hard-to-meet prerequisites of various government
programs or the need to have existing support in place to successfully
complete the application process.
MAINTAINING ELIGIBILITY IMPOSES A
CEILING ON GROWTH.
Other times, programs that initially contribute to
success can become a burden to future growth or
even create an unintentional ceiling, especially as
companies outgrow eligibility, exceed size or revenue
thresholds for certain designations, or lose access to
opportunities.
The need to maintain majority Black ownership to
qualify for certain certifications and programs can
hamper growth as well, particularly for organizations
looking to access capital as they move beyond small
business status and into the middle market segment.
Insight #3
Discrimination is a universal experience not likely to go away anytime
soon, but it does not define Black business owners or their paths forward.
Black business leaders are used to being the “first” or the “only” in various situations. One owner of multiple
organizations, who as a child attended a segregated elementary school, explained that his life story is a series
of such experiences. Time and again, he was the first African American to take on various responsibilities in
different settings, from the military academy to the C-suite to the boardroom. While he views his experiences as
successful and paving the way for other Black leaders, being first is not without its challenges.
DISCRIMINATION MEANS BLACK BUSINESS LEADERS FEEL THEY OFTEN NEED
TO MAKE A GREATER EFFORT THAN THEIR COUNTERPARTS.
Sometimes, discrimination comes in the form of a less-than-inviting or receptive atmosphere. Other times, it’s
more pronounced, and many Black owners and leaders report that they are treated differently and regarded not as
individuals first, but as members of the Black business community.
Many of the Black leaders we interviewed feel that an additional onus is
on them to prove themselves and make others feel comfortable. “It is a
constant need to do more homework, be more buttoned up, be prepared
to do a little bit more with less,” one respondent explained. “I think that
it is an extra burden or an extra challenge from my standpoint to make
people comfortable and let them know that we’re competent, to let them
know we’re experienced, to let them know we actually know what we’re
doing,” said the senior partner of a hospitality finance business.
Leaders also expressed feeling pressure to keep the conversation
neutral and to keep any potential racial tension at bay. Sometimes, there
is the need to overcome misconceptions around the expectations or
assumptions of the Black-owned organization. Indeed, Black business
owners are often emphatic about not wanting to win opportunities solely
based on their designations. Instead, they seek to win based on their
unique qualifications and the perspectives they bring to the table.
DISCRIMINATION HAMPERS GROWTH.
Discrimination and bias are hurtful on a personal level, but they can
also be damaging to businesses in tangible ways, limiting access to
relationships, opportunities and capital needed to grow. Black business
leaders and owners report a sense of being left out of the broader business
conversation and being overlooked for the biggest opportunities.
These challenges can be particularly difficult when companies are first
starting out, specifically when it comes to accessing capital. According
to the owner of a fintech startup, “I’ll say fundraising is one of the biggest
challenges as a Black owner or Black founder. Why? Because if you
don’t come from a certain background or you don’t have certain types of
people on your team, if you don’t have a certain profile, sometimes it’s
a bit harder to raise money. You definitely have to be at the forefront of
where people want to invest.”
A track record does help open more doors; however, even the largest and most established Black-owned middle
market companies in our research sample report ongoing negative impact from discrimination, particularly related
to access to capital. The owner and CEO of a successful 40-year-old middle market petroleum supply company
said he experiences the same challenges today that he did four decades ago. “Now my capital requirements are
20 times what they were when I first started,” he said. “And so, the banks look at me all over again like I’m a kid, a
kindergartener, just starting brand new. So nothing’s changed.”
BEING BOTH REALISTIC ABOUT THE SITUATION AND DETERMINED TO
OVERCOME IT ARE ESSENTIAL.
Generally, the Black business owners and leaders we interviewed expressed some sense of permeance related
to these challenges and their operating environments. But they don’t see them as insurmountable. More
importantly, they don’t feel that MBE designations and supplier diversity programs are or should be the only
answer to their problems.
The key is in being honest about the situation and realistic about how best to mitigate the impediments.
Insight #4
Maintaining a separate network and economy is viewed as key to generating opportunity and overcoming challenges.
Black middle market business owners take a proactive approach to
addressing challenges and hurdles to business growth, including
establishing and being part of networks where being a Black
businessperson is highly valued. Through these intentional associations,
Black business leaders have unique opportunities to collaborate with
others who are experiencing similar challenges, wins and losses. They
support each other and provide access to resources and opportunities
that Black-led organizations have historically struggled to obtain.
BLACK BUSINESS LEADERS ARE INTENTIONAL
ABOUT PAYING IT FORWARD.
In nearly every case, the business leaders in our survey said that someone from their past — either family, church
leader, peer or mentor — contributed heavily to their success. The networks and separate economies that Black
business leaders create within their communities are a way to pay it forward by helping to offset the negative
impacts of discrimination while establishing a legacy that can help future Black business leaders emerge.
As the co-founder and CEO of an IT management consultancy shared, seeing someone succeed who looked
like him, who came from the same neighborhood and the same school systems, was a powerful motivator.
The “If he can do it, why can’t I?” mentality that inspires so many Black business leaders to band together
and create opportunities for collective success within their community while paving the way and ensuring
opportunities for other, less experienced Black-owned businesses and the next generation.
NETWORKING IS A HIGH PRIORITY
FOR BLACK MIDDLE MARKET
BUSINESS LEADERS.
Virtually all business owners rely heavily on their
networks. These networks grow out of valued
personal and professional relationships cultivated
over the years, and they almost always include fellow
alumni, educational and professional mentors, and
colleagues from prior jobs.
The Black business leaders in our research prioritize
membership in key industry and minority associations,
chambers, fraternities and entrepreneurial groups, and
they make it a point to pursue and maintain leadership
positions. Executive education is important too, and
Black business leaders embrace opportunities to
engage in learning at universities and institutions where
their networks continue to develop and grow.
BLACK-OWNED BUSINESSES SUPPORT AND PROMOTE EACH OTHER.
The networks are key to identifying fundraising and business opportunities both within the network and
externally. Most Black-owned organizations are intentional about seeking out other Black-owned businesses as
suppliers, especially as new needs arise.
Additionally, companies promote each other within the larger business community. Indeed, Black-owned
businesses are often asked by their customers and partners if they can refer another Black-owned company
or even a Black candidate for a specific position because, in the words of the majority owner of a commercial
furniture business, “They started realizing that scaled and sizable minority businesses know their peers.”
Black business leaders take making these referrals seriously and often consider it a responsibility to help
promote their networks. “One of the challenges that we always ran into was where people would say, ‘We
can’t find people of color-owned companies, woman-owned companies, that could do things at scale in the
technology space,’” said the CEO of a mobile technology company. “I wanted to be in a position to solve that,
and how do we think about businesses differently, especially minority enterprises? How do we make sure that
they’re able to service these larger technology companies? I don’t want a certain portion of society to not
participate in the broader economy based on perception.”
DIVERSE THINKING BENEFITS BUSINESSES OF ALL TYPES.
Black business leaders view these referrals not just as a means of helping another minority organization
succeed but also as a way to help the entire business community leverages the benefits of diverse thinking.
Black Middle Market 2.0
As some of the fastest-growing companies in the middle market,
Black-owned businesses have demonstrated their ability to
succeed by leveraging available resources, taking advantage
of opportunities and establishing well-managed organizations
capable of meeting market demand, often in diverse or innovative
ways. These businesses are committed to thriving not only for the
benefit of their own stakeholders, employees and customers, but
also to create opportunities for other current and future Blackowned businesses to grow and succeed, too.
However, according to the Black business owners and leaders
we interviewed, obstacles unique to Black-owned companies
exist when it comes to achieving middle market revenue
status and growing beyond it. Whether it is the limitations
inherent in programs designed to support minority businesses,
discrimination or other hurdles, these issues are likely restricting
the number of Black-owned businesses within the middle market
and preventing these organizations from fully contributing to the
nation’s overall economic success.
While Black business leaders are deliberately working to overcome
many of these obstacles, other middle market stakeholders have
critical roles in developing solutions and resources that can
support the next stage of growth.
Perspectives on the Impact of Studying Black Leaders in the Middle Market
“This is the beginning of a journey: a journey to uncover the overlooked — owners of Black middle market companies. We’re doing this to elevate their stories, to expand their access to capital and customers, and to support their overdue, equitable participation in the global economy. Stories, coupled with data, have the power to change systems, unlock product innovation and design better policy, benefitting generations to come.”
- Moses Harris Black/African American Segment Leader | Wells Fargo
“There has never been a better time for providers to bolster the rapid revenue growth of current and future black owned Middle Market businesses who are some of the fastest growing and most confident companies in a segment that outperforms other all other segments. We’re proud of the work we do with the National Center for the Middle Market including this important research to better understand the needs of black-owned Middle Market businesses.”
- Leigh Radtke
VP, Head of North America Product | Visa
“This report identifies key issues
reflected by the continued
disparities Black businesses
face among NMSDC-certified
minority business enterprises
(MBE) — something highlighted
in NMSDC’s Minority Businesses
Economic Impact Reports last
year. The challenges these
businesses face when seeking
certification, as emphasized in the
Demystifying the Black-Owned
Middle Market research, is one
probable cause for this inequity. Fortunately, NMSDC is actively
addressing these barriers in
several ways, including updating
our certification process to
make it less burdensome for
businesses to get certified (and
recertified) and pioneering
innovative programs like the
Growth Initiative program that
enable MBEs to maintain their
certification while accessing the
capital they need to overcome
the growth barriers often
experienced by Black and other
minority businesses. While it is
clear we still have a long way to
go to help Black MBEs achieve
true economic parity, reports like
this one and NMSDC’s Economic
Impact Report provide the
benchmarks needed to ensure
our efforts to accomplish this
goal are on track.”
- Jetheda Hernandez, Senior Director of Strategic
Partnerships and MBE Services | NMSDC
“This research report captures
a lot of the sentiment from
many of the local Black- and
Brown-owned businesses that
the Chamber of Commerce
for Greater Philadelphia
engages with. It validates what
we already know; that it’s
important to really invest in
diverse businesses and prioritize
supplier diversity programs as a
key tactic in a business growth
strategy. As a chamber for a
large metropolitan community,
we know that we’re not just
impacting businesses, we’re
impacting communities as well.”
- Ken Anderson, Vice President, Civic Affairs | Philadelphia Chamber of Commerce
“Black-owned middle market
companies are a very important
subset of the next generation
of middle market companies
and the population of Black
businesses overall. The voices
and experiences amplified in
this insightful report point to a
clear need for more capital and
broader networks to offset the
changes, uncertainty and bias
in supplier diversity models
and government programming.
This research provides valuable
information for improving
initiatives, and we at The
Mezzanine Fund look forward to
collaborating on those efforts as
a capital provider.”
- Anne Richie, Founder and Managing Director | Mezzanine Fund
“I sense that Black-owned
businesses do not have the access
needed for involvement in the
buyers’ planning process. They
do not have meaningful inclusion
in the innovation process where
strategic decisions are made,
such as product development
and launch, product and process
innovation, and R&D. This lack
of involvement in the strategic
planning and being unable to
escape the commodity position
results in a lack of upward
mobility for minority suppliers.”
- James Hill, Chair, Department of Operations and Business Analytics and Professor of Operations Management | Fisher College of Business, The Ohio State University