Skip to main content

Houston Ranks No. 5 in Nation for Minority-Owned Startups, But Hurdles Remain

Published Feb 04, 2021 by A.J. Mistretta

downtown Houston aerial

The most diverse city in the nation is also a hub for minority entrepreneurship, according to a new analysis of Census data by the fintech company Self. 

Houston ranks No. 5 among the nation’s largest metros when it comes to the percentage of minority-owned startups. The report shows that nearly 5,600 startups in the Houston metro region are minority-owned—or about 30% of all companies less than two years old. Together, these minority businesses employ more than 22,700 workers in the region. 

But in a region where minorities make up 64% of the population, clear inequities in entrepreneurship remain in Houston that mirror the rest of the nation. “As 2020 has illustrated, opportunities to participate and succeed in the entrepreneurial economy are not equally distributed by race and ethnicity,” the report stated.  

The first and most significant structural barrier for would-be minority entrepreneurs is access to capital. The report points out that minority households on the whole have lower pre-existing wealth and savings to put towards a new business while banks are often less likely to approve loans for Black and Hispanic small-business owners. “Without upfront capital to invest in a growing business, minority entrepreneurs struggle to run and scale their operations.” 

Nationally, Hispanics represent about 18% of the population but just 7% of startup owners. For Black Americans, those figures break out to just 12% and 3% respectively. Meanwhile, Non-Hispanic Whites make up 60% of the U.S. population but own nearly 80% of the nation’s startups. 

Despite the challenges, there are currently close to 170,000 minority-owned startups in the U.S. employing more than 700,000 workers and generating close to $100 billion in annual revenue, the report shows. Based on demographic trends, these numbers are likely to grow as the population continues to diversify.

“As minority entrepreneurs, we are very good at our craft and our profession, however most of us have not functioned as a CEO before,” said Ed Ryland, President and CEO of Houston-based ARVO Realty Advisors. “I use this scenario to explain: I can be a great widget maker, however this does not mean I can run and build a great widget making factory. There are skills that need to be developed.”

Ryland, whose company is a member of the Partnership, said he would rather be an entrepreneur in Houston than anywhere else because of the support city leadership has demonstrated for entrepreneurs and the tight network of diverse entrepreneurs that works to help one another. “We have come a very long way,” he said. “However, the research shows we still have work to do.”

Ryland said there are steps Houston can take to help close the entrepreneur disparity gap. He points to stronger mentorship, better advocacy for minority businesses among corporate CEOs, new creative funding sources and a focus on attracting and retaining top talent to minority-owned firms. 

To create the report, Self analyzed data from the U.S. Census Bureau’s Annual Business Survey and calculated the percentage of all startup firms less than two years old that are minority-owned.

Related News

Racial Equity

PayPal CEO Dan Schulman Talks Values-Based Leadership and DEI at DiverseCity Summit

10/29/21
Dan Schulman’s first job as a young adult was driving a truck after getting rejected from multiple colleges he applied to. Later, he landed a job as an assistant account executive at New Jersey Bell while attending night school at New York University. Such humble beginnings helped shape the attitude of one of the most successful leaders in the tech world. Today, Schulman is CEO of the fintech giant PayPal where he’s leading the charge to democratize financial services and e-commerce. He’s also widely recognized for his commitment to social change, and his passion for equality, justice and basic human rights. Schulman discussed the importance of values-based leadership, the big steps he took to make his company’s workforce more financial stable and other topics during a fascinating fireside chat at the Partnership’s DiverseCity Summit this week. He spoke with Partnership Senior Vice President of DEI LaTanya Flix. Here are a few key takeaways:  Values-Based Leadership  Schulman said he’s learned that the single biggest competitor differential for his company is the caliber of people who work there and the passion they bring. “Your company’s mission needs to be supported by a set of values and those need to be something that guide your decisions as a CEO,” he said. “They need to be more than words up on a wall—they need to be lived.”  Schulman said embracing diversity and fostering an inclusive environment is a key value for PayPal—one that’s guided his actions as CEO for the last seven years.  As a major company, it’s impossible for PayPal to avoid the culture wars that have become pervasive nationwide, Schulman said. “We have to make hard decisions. People can disagree with those decisions…But that’s what it means to be a responsible CEO, it’s values-based actions.” He added that consistency is critical. “Our employees understand what we’re going to stand up for. They may not agree with every public stand we make but we are very consistent about it.”  “We think that standing up against discrimination of any kind isn’t a red issue or a blue issue, it’s a red, white and blue issue,” Schulman said.  Thinking Beyond the Bottom Line  It’s not easy being the CEO of a major company these days, Schulman said. Employees, customers, board members, shareholders and other constituencies all have expectations that often don’t align. “But we need to stand up for much more than making money,” he said. “I don’t believe that the ideas of profit and purpose are at odds with one another.”  Taking a Hard Look Inside  Though aware of the statistics that show many Americans struggle to make ends meet, Schulman said he naively thought that wasn’t the case at PayPal. After all, his company pays its thousands of employees at or above market rate for their wide range of roles. But after conducting a poll, he found that many entry-level employees at PayPal were struggling with their finances and having to make tough decisions about health care and other necessities. For a large segment of the company’s workforce, net disposable income—or income after paying for basic needs such as food and shelter—was between just 4% and 6%.  That led to conversations with nonprofits and other groups and the realization that PayPal should try to get net disposable income for its workers to 20%. It took a series of conversations with the company’s board and shareholders, but changes were implemented. Today, no PayPal employee has less than 18% net disposable income.  “This was an investment in our people, and it was more important than any marketing or anything else we could invest in as a company, because the foundation of our success rests on the shoulders of our employees,” Schulman said. Following the changes, PayPal’s attrition rate dropped, as did training costs, while productivity rose.  “Creating financial health for our employees was thinking about the future of our company,” Schulman said. “But also, how do we move from being a good company to a great company over the medium and long term.”  “A Movement Over Time”  Schulman is one of the founders of the Southern Communities Initiative (SCI). Launched in April 2021, the initiative aims to accelerate the deployment of corporate resources into six southern communities, including Houston, that are home to roughly 50% of the nation’s Black population. In the aftermath of the George Floyd murder, Schulman wanted to determine the best way to fight inequity and thought PayPal would give a few million dollars to organizations working on the front lines nationwide. “Someone said to me: ‘this needs to be more than a moment in time, it needs to be a movement over time.’ And it made me think: is there more I can do?”  PayPal made a $535 million commitment to “advance racial equity, sustain and strengthen underrepresented businesses and communities, and help address the economic underpinnings of racial injustice,” the company said in a statement earlier this year. By working alongside other companies through SCI, PayPal is making a bigger impact.  “Working together instead of separately lets us experiment with what works best—starting with these communities in the South,” Schulman said.  The fireside chat capped off the first day of the DiverseCity Summit where the Partnership presented the findings of the region’s first Equity & Inclusion Assessment. Learn about the findings of the assessment and the next steps through the Partnership’s One Houston Together commitment here. Get additional information about One Houston Together here. 
Read More
Racial Equity

Houston Business Equity & Inclusion Assessment Illustrates Progress, Opportunity to Act

10/26/21
HOUSTON (October 26, 2021) – Houston area companies are largely proactive when it comes to advancing equity and inclusion in their business practices, but many are falling short of adequately addressing the racial, ethnic and gender gaps in the talent pipeline and promoting people of color and women to senior leadership roles and board positions, according to findings from the Houston region’s first Equity & Inclusion Organization Assessment. A total of 120 companies and organizations representing 215,000 employees in the region participated in the assessment conducted by the Greater Houston Partnership, which will use the results to guide its efforts to advance equity and inclusion in the business community.  The Partnership invited businesses and organizations across the 12-county region to participate in the assessment as a key component of One Houston Together, the organization’s commitment to leverage the power of the business community to reduce inequities in the metro area. The 120 organizations that responded are a representative sample of the region’s private sector companies as well as nonprofits and public entities. While the results reveal areas for focus, they also highlight the range of maturity in the region. The assessment, based on a tool designed by the Greater Cleveland Partnership, helped responding organizations measure their progress on workforce and leadership, race and gender diversity, supplier diversity, and 15 DEI Best Practice categories. The assessment’s regional baseline is the first of its kind among major U.S. metros and establishes a starting point for advancing equity and inclusion in the Houston area. Key findings of the assessment include:  35% of Houston organizations are rated as “proactive” across the 15 categories. Technology and financial institutions lead other industry clusters.  People of color and women are underrepresented in senior leadership roles. Racial and ethnic diversity decreases by about half, whereas gender diversity decreases by roughly one-third between workforce and leadership levels. Female representation deteriorates at higher levels across all races.  Hispanic talent is underrepresented at all levels. Houston companies report higher maturity in foundational and internally focused DEI practices, such as recruitment and retention, but lag when it comes to externally focused DEI practices, such as responsible sourcing.  Less than one-third of participants reported on their Minority Business Enterprise (MBE) spending and those that did averaged just 2% of their total market spend on MBEs. On average, responsible sourcing practices were the least mature of the 15 categories among respondents. Note:  Minority Business Enterprise are defined as those with 51% operations owned and controlled by one or more person(s) belonging to the following groups: Black or African American, Hispanic or Latino, American Indian/Indigenous or Asian. Public/Non-profit organizations outperform private sector organizations in addressing racial and gender gaps in new hires and promotions. Houston organizations average at the “proactive” level -- 35% maturity level compared to 100% for best practices Technology, financial institutions, energy, healthcare/life sciences, and professional services are the most mature industries. The Partnership established a Racial Equity Committee of its board in 2020, which has since adopted guiding principles for racial equity and identified two areas of action for One Houston Together: accelerating the growth of underrepresented businesses and increasing racial equity in the corporate talent pipeline and executive leadership. The committee deployed the assessment to better understand where area businesses are in their equity and inclusion journey and establish a baseline for future advancement. Boston Consulting Group assisted the Partnership in analyzing the results of the assessment, which were released at the DiverseCity Summit on October 26.  Addressing inequity and ensuring opportunity for all are critical to the long-term economic success of the Houston metro. In the most diverse city in the nation, minority business owners and individuals in the Houston workforce must be afforded the same opportunities for advancement as their peers to sustain the prosperity of the region. Houston organizations recognize the imperative to lead in this work.  “Advancing opportunity for all is one of the primary pillars of the Partnership’s Houston Next strategic plan aimed at advancing further as a great global city,” said Bob Harvey, President and CEO of the Partnership. “That’s why it was important for us to take this step as the first major metro to establish a regional baseline for where our business community stands on equity and inclusion. We are admittedly not where we want to be, and these results tell us that we have much work to do. However, now we have the knowledge needed to take decisive action. This assessment provides the starting point from which we can move forward.”  “Today’s business and organization leaders know they need to be doing more when it comes to equity and inclusion, however they’ve lacked a roadmap,” said Ruth Simmons, President of Prairie View A&M University and Co-chair of the Partnership’s Racial Equity Committee. “This assessment tells us that our current hiring and promotion practices are insufficient in addressing the gap in talent diversity, but it also provides us with the tools needed to carry this forward in a constructive way. I believe Houston is poised to make significant progress, but we can’t let the perfect be the enemy of the good.”  Through One Houston Together, the Partnership will take specific actions to begin tackling the equity challenges in talent and procurement.  Provide an interactive online dashboard for deeper learning and to help CEOs, human resource professionals, diversity and procurement leaders benchmark their organization’s performance within their industry and against other industries  Facilitate industry work groups to align on regional indicators of progress and share best practices for talent advancement, board representation, and supplier diversity Develop industry fact sheets to help companies identify shared ambitions and starting points for action Support organizations to identify strategies as well as set bold goals and track progress on advancement, representation, and supplier diversity. “Businesses and organizations now have the responsibility to act on the information gathered in the assessment,” said Amy Chronis, Deloitte LLP’s Houston Managing Partner and Partnership Board Chair. “Many organizations are moving in the right direction, and have alignment on what’s needed to create change,” Chronis said. “Real, meaningful change doesn’t happen without collective action and the commitment needed from the business community.”  See the full assessment results on an interactive dashboard.  See the slides below for some of the findings. You can click on each image to enlarge.  Click to expand Click to expand Click to expand Greater Houston Partnership The Greater Houston Partnership works to make Houston one of the best places to live, work and build a business. As the economic development organization for the Houston region, the Partnership advances growth across 12 counties by bringing together business and civic-minded leaders who are dedicated to the area’s long-term success. Representing 900 member organizations and approximately one-fifth of the region’s workforce, the Partnership is the place business leaders come together to make an impact. Learn more at Houston.org. CONTACT:                                                            A.J. Mistretta Vice President, Communications      amistretta@houston.org     (c) 504-450-3516                         
Read More

Related Events