This interview originally appeared in Community Dividend, an online publication of the Federal Reserve Bank of Minneapolis, on June 29, 2016.
During the depths and aftermath of the Great Recession, minority-owned businesses in the U.S. bucked the trend. According to the U.S. Department of Commerce’s 2012 Survey of Business Owners, the number of minority-owned firms in the U.S. grew by 38 percent from 2007 through 2012, from 5.8 million to 8.0 million. By contrast, the number of non-minority-owned firms declined by roughly 1 million over the same period. Yet even though the number of minority-owned businesses increased, organizations that track small business development and entrepreneurship, such as the Kauffman Foundation, report that barriers to their formation and growth persist. In particular, these barriers include difficulty accessing equity capital, credit, and business and social networks.
As they seek to establish and grow viable businesses, do minority entrepreneurs in the Twin Cities face similar barriers? What support is available to help them get their ideas off the ground? What traits do these entrepreneurs share and what types of businesses do they want to start? To explore these and other questions, Community Dividend spoke with Marcus Owens, president of Northside Economic Opportunity Network (NEON), a nonprofit organization located in the heart of North Minneapolis. This racially diverse quarter of the city, located north of downtown and west of the Mississippi River, faces a number of challenges. For example, North Minneapolis was the epicenter of the region’s foreclosure crisis and its housing market is still recovering. The area also has one of the highest rates of household poverty in the state.
A recent graduate of the University of St. Thomas’s MBA program, with prior experience in the retail and banking sectors, Owens is a fourth-generation Northside resident with a passion for entrepreneurship. Since 2014, he’s led NEON in its mission to expand economic development opportunities and build wealth for low- to moderate-income entrepreneurs in North Minneapolis, most of whom are people of color. NEON’s work includes making strategic capital investments, providing training and business development services to entrepreneurs and small businesses, and strengthening the support network for the area’s entrepreneurs.
Community Dividend: Why was NEON created and what services does it offer to clients?
Marcus Owens: We were created ten years ago to foster entrepreneur development in North Minneapolis on behalf of organizations that aren’t located here. Our early work focused on recruiting promising entrepreneurs for community development organizations like the Neighborhood Development Center in St. Paul and the Metropolitan Consortium of Community Developers in South Minneapolis. As their partner, we searched for entrepreneurs within the community and then assessed their readiness for participating in different training programs and consulting offered by these organizations.
At the end of 2013, we decided to start providing those services ourselves, because many of our clients reported that it was difficult to travel to our partner organizations’ offices. We still partner with other organizations at some level, but we saw a need for an organization located here in the community that could help guide entrepreneurs through their challenges, struggles, and opportunities.
Initially, we focused on providing technical assistance to entrepreneurs and then soon hired a business advisor who consulted directly with them. When I came to the organization in 2014, we brought all of the services and consulting under one roof. Today, our programs include training, where we look to support the whole spectrum of entrepreneurship. We currently have a full pipeline of individuals thinking about and actively working on their business goals.
CD: Let’s talk about the clients that you work with. How do people connect with NEON?
MO: Since our office has been located on the main corridor in North Minneapolis—West Broadway Avenue—for ten years now, a lot of people simply walk in to check us out. Clients also visit our website [at www.neon-mn.org] or connect with us on Facebook or Twitter [at @NEONBusiness]. Regardless of how they get to us, they’re curious about what we do and also have an interest in starting their own business. For those who are just beginning to explore entrepreneurship and want to have a perspective on what it’s like to run a business, we created a seminar called “Thinking about Business” that we hold once a month. We bring in an entrepreneur from within NEON’s network to talk candidly about their journey into business. For people who’ve been thinking about pursuing their business idea, the conversation often sparks them to realize that they don’t have all of the steps figured out yet.
Building a better community through food
Appetite for Change is a nonprofit organization working to create social change in North Minneapolis through food-related initiatives, including community-based cooking workshops, leadership development, and urban agriculture. The organization runs Breaking Bread, a café and catering business on West Broadway Avenue that trains and employs young people from the area, and also operates Kindred Kitchen, a 2,000-square-foot commercial kitchen that is open to local entrepreneurs who need a workspace to launch or grow their food-related businesses. For more on Appetite for Change, visit www.appetiteforchangemn.org.
We’ve also started reaching out to find and cultivate entrepreneurs for industries where we see some local growth opportunities. For example, there are potential opportunities to develop restaurants, cafés, or catering businesses, so we’re doing direct outreach in order to recruit food-related entrepreneurs. We estimate that at least 30 percent of the overall demand for these sorts of food-related businesses, or $7 million a year, leaves North Minneapolis and goes to other communities. We’re working with Appetite for Change, which operates a commercial kitchen near our building, to develop an incubator program so food businesses can get started. Once they get going, NEON can provide all of the wraparound services and support that they’ll need in order to grow.
CD: Who are the individuals who make it past this initial step on the road to becoming an entrepreneur?
MO: We see two types of entrepreneurs at this point. First, we see individuals who’ve been working for employers in their specific trade for a long time. They have a lot of experience and they just want a way to do it on their own. We recently worked with an entrepreneur who has 13 years of experience working for major construction firms in the Twin Cities. He had a passion to start his own business and came to us in 2014 with the idea to start a janitorial company. We asked him, “Why would you do that, when you have all of this construction experience?” He said that he thought the janitorial angle was his gateway into construction. After talking with him and probing a little further, it became clear that he just needed to identify the right path to get to construction. Fast forward six months and, after going through our training program and working with our business advisor, he’s got his own construction business. And now he’s working on some really big projects with local organizations like the Minneapolis Foundation, Medtronic, and Target, and hiring other folks within the community as employees, which is great.
The second type of entrepreneur we see is someone who keeps looking for opportunity. They’ve been going from job to job and they just can’t find a stable career path for themselves. At the same time, they’ve always had this fire inside of them to be their own boss. They come in with an idea for a new business they’ve been thinking about for a while. They also come to us with great ideas for products. For example, we have a woman in our program who’s developed fruit-flavored barbeque sauces. For the last ten years, she’s been working passionately and persistently to develop those products, which are fantastic. So, we see those two kinds of individuals come through our doors.
CD: How does NEON work with both types of entrepreneurs?
MO: To start, entrepreneurs work their way through our training process in order to build their foundation of entrepreneurship. When they get to a point where they feel they’re ready to start their business, each one takes a seminar focused on completing a business plan. Along the way, we provide technical assistance and business consulting, covering a wide variety of topics and issues—accounting, record keeping, bookkeeping, operations, real estate, legal, marketing and design, all the way to promotion and set up. As they develop their plan, we also focus on where they’re going to get the money to start their business or expand it. We have great partners in the community that help us with this step.
The next part is opportunity. You have a plan, are trained, and have the money to get started, but if you don’t have opportunity, meaning that you don’t have any connection to your market or your customers, then you don’t really have a viable business. You really just have a hobby. NEON connects people through marketplace development that includes pop-up restaurants, fashion boutiques, farmers markets, and other marketplaces, including local stores. We also help entrepreneurs with bid development, including requests for proposal or requests for quotation for companies, nonprofits, and government agencies.
The last piece we offer is our incubator program. We have a co-working and shared-space environment that currently hosts 15 businesses and individuals who flex in and out throughout the week. They either have a home office or a second office but they also want to be around other entrepreneurs. We provide them with an affordable workspace that has all the resources like printing, copying, and conference rooms at hand, and they get direct access to our business advisor. We can also support entrepreneurs who are ready to expand their business within the next three to five years, with the hope that they can hire individuals from within the community. Right now we have a full-time fashion boutique with about 400 square feet of retail space located in the front of our building. The owner is a women’s fashion designer and retailer. NEON is working with her so that in three to five years she can fill a gap in the retail clothing market in North Minneapolis and can hire folks, too.
CD: What are some notable characteristics you see in some of your successful entrepreneurs?
MO: First, they’re tenacious. They don’t take no for an answer and they don’t give up. They also want to come back and figure out how they can do it better the next time. Second, they’re continuous learners. They realize that they don’t have it all figured out. They want to learn new concepts and repeat that learning. Third, they’re not just out for themselves. All of our successful clients are looking to reach back and pull other people up with them. They have a sense of purpose and justice for others and their community. It’s fantastic! It keeps me engaged in this work too, because when we see them succeed we know that they’re going to bring someone else up with them.
CD: What are some of the key challenges that your entrepreneurs face in starting a business?
MO: The biggest hurdle our clients face is creating a business plan that is actionable. They come to NEON with a lot of great ideas and a lot of passion, but not necessarily a step-by-step approach to making their ideas happen. After some research and talking with others in the field, we decided that the lean-start-up model was the best solution for our clients. Lean start up is focused on identifying and developing a minimal, viable product or service that you can get to the customer rapidly. Over time, we can get you to the big vision, but you need to start out lean with a product or service as a first step. A great example of this is an individual who came to us saying that he wanted to start a restaurant. He had no previous food experience, but had a steady civil-service job and reliable income. He wasn’t an experienced chef and was mostly cooking out of his home. Using the lean-start-up methodology, we said, “Let’s start catering, then let’s progress and get some feedback as we move forward.” Catering can be a low-risk, high-return enterprise where you can get feedback right away. You don’t start by opening this great big restaurant where no one comes to eat because you never tested out your product.
We tell our entrepreneurs to take the lean-start-up approach because the next barrier that they’ll encounter is accessing capital. If we can build them up and get some momentum going today, there may be a direct path to some capital that we can find for them down the road.
CD: You just mentioned capital as a barrier. What specific challenges do your clients encounter as they seek financial resources, such as capital, to start or support their businesses?
MO: Just finding financial resources is such a challenge. Low- to moderate-income entrepreneurs typically do not have a 401(k), sizable savings, or a relative who can give or loan money to them to start a business. The hard part is figuring out how to get a business started with minimal resources. We have some terrific partners in the community who are helping to create better, more efficient tools for supporting the financial needs of our entrepreneurs. NEON is a trustee of Kiva U.S. [formerly known as Kiva Zip], where entrepreneurs can obtain a zero-interest crowdfunded loan. We have a great partner in Twin Cities LISC [Local Initiatives Support Corporation], which will match up to $2,500 that our entrepreneurs raise on the Kiva platform. This does two things. It gives an entrepreneur some initial capital and also shows that there is support for their concept. They can then use that money to leverage other sources of capital, potentially. Finally, most of the financial tools available to entrepreneurs focus on debt, which tends to be a straightforward three-year term product. We need to find ways to supplement this reliance on loans and debt with other financing tools, such as equity capital, for these small businesses.
CD: What sorts of connections or partnerships do the entrepreneurs you work with need to have in order to succeed?
MO: With regard to partnerships, the biggest gap that we see right now is business-to-business relationships. We need to be able to connect entrepreneurs with opportunities. When I was at Target, one of the corporate goals was to increase “diversity spend.” Other firms and organizations across the Twin Cities and the nation have similar business goals. For NEON, the question is, How do we get entrepreneurs who are in that business-to-business category access to those opportunities? Take the example of our client who has a line of fruit-flavored barbeque sauces. How do I get her in front of a buyer from Whole Foods or SuperValu so she can get her product onto a shelf? That’s a difficult process to undertake. If entrepreneurs think they can go to a store and talk to a cashier or manager and get their product on the shelf—well, we know that’s not the way to get it done. On the other hand, we need to get larger organizations to understand that they need to reach out to these entrepreneurs in order to give them a chance.
CD: Are there organizations that already provide this business-to-business bridge for entrepreneurs?
MO: Some organizations, such as North Central Supplier Diversity Council, are doing a good job making connections between entrepreneurs of color and the corporate community. Still, I believe there’s an untapped opportunity for entrepreneurs to get connected to the supply chains of mid- and large-size corporations in the region.
Another way to get entrepreneurs connected and better informed is through mentorship. NEON is exploring how we can get key corporate leaders and professionals to mentor aspiring entrepreneurs, help them make those connections, and ultimately help them gain a better understanding of how to develop their product or service. We have several corporations and financial institutions that are interested in starting something like that, but the question for us is, How can we make it happen? This isn’t a simple one-time interaction, as these are potentially long-term relationships. We need to determine what sort of event, program, or other opportunity will be most effective for developing authentic mentoring relationships.
CD: Given the community’s past struggles and current economic conditions, how do you think NEON can help shape the future of the North Minneapolis community?
MO: We see clear market needs in North Minneapolis. We need to identify strategies that will attract existing businesses to the area or create new businesses to fill the gaps so we’ll have a sustainable community. The focus of a number of conversations has been about transit and access to jobs that are outside of the community. For NEON, the question is, How do we create jobs and opportunities here, along with the other amenities that communities in other parts of the city have to offer? For example, one of our greatest assets is that we have a lot of vacant real estate, both in terms of land and buildings that need to be rehabilitated. We need to attract development in order to get those properties back into shape. In doing so, we can attract more businesses to come in. At the same time, NEON can develop and strengthen opportunities for businesses that grow out of the community.