The Entrepreneurial Plight of Minority and Women-Owned Businesses

Bjorn Sorensen for NW & Associates, LLC

The purpose of this report is to start the conversation in suburban areas like the Greater Vancouver, Washington area, part of the metropolitan area of Portland, Oregon, and as Vancouver competes with Washington’s major metropolis of Seattle. In addition, we hope to clarify issues with those who choose to start and stay on this journey of the business founder who is looking for resources and technical assistance.  

The United States has a thriving entrepreneurial culture, with a rapidly expanding landscape of small businesses in particular. Each new venture brings jobs, products, solutions, and the strengthening of communities. Our country is referred to as The Land of Opportunity for this very reason.

Yet it takes a lot to set up and maintain a small business:  long hours, sources of cash and credit for growth and challenging times, networking with more experienced business owners, education, luck, and a lot more. We frequently hear about the mainstream tycoons who’ve beaten the odds, but not as much from the risk-takers who lost. Yet, despite the risks, many brave it all because they believe in the value it contributes to our society.

When we look at where jobs are created around the country and in Southwest Washington, we know that a high percentage – and often a majority – come from small businesses.^[1] That has been our track record.

We also know that many small businesses are women and minority-owned. “I’m not aware of any large minority-owned enterprises [businesses employing 250 or more] in the SW Washington area. They’re going to be small businesses,” says Tyrone Foster, the owner of Precision Landscape in Portland – a small, minority-owned business.^[2] Mr. Foster would like to expand into SW Washington.

Nationally, the number of minority-owned small businesses has increased by 25 percent from 1997 to 2007. Women-owned companies are up by seven percent. All White-owned businesses grew by only six percent.^[3]

Yet this year, even amid national social justice protests and heightened awareness about racial inequality, large imbalances persist in terms of race, class, and gender. The average Black person has 1/10th the wealth of the average White person in the U.S. today.^[4] For the purposes of the discussion here, that means Black small business owners have less equity and credit to start and grow a small business.

While all businesses have been challenged in 2020, an analysis of U.S. Labor Department data by the University of California, Santa Cruz economist Robert Fairlie found that Black small businesses have been forced to shutter during the pandemic at well over twice the rate of White businesses.^[5] Reports recently cited in The Week magazine show that Black business owners asking for Paycheck Protection Program (PPP) funds in banks typically got less than Whites – even when the Black owners had better financial profiles.^[6]

Since minority-owned businesses are closing at a far greater rate during the pandemic, local municipalities, such as Vancouver, can focus more on business diversity, providing a huge economic boost to our area as a whole. This effort would more accurately reflect the make-up of Washington school districts:  Vancouver (43% minority students), Evergreen (42% minority), and Camas (26% minority) are reflective of larger trends. Almost half of the K-12 student body (46%) in the State of Washington is non-White. ^[7]

STATE CONTRACTS

For the purposes of this article, we will be looking at the awarding of state contracts vis-a-vis gender and race.

In 2015, Washington Governor Jay Inslee formed the Subcabinet on Business Diversity. The Subcabinet states: “Washington’s diversity is one of its greatest economic and cultural strengths. Yet for the fiscal year 2018, only 3.6 percent of the nearly $5 billion that the state spends with the private sector is with small businesses owned by women, minorities or veterans. We need to do better. Diversity in state contracting is good business and good for the State.”^[8]

We all see SW Washington growing, as offering more business zones and fewer taxes than what entrepreneurs often find south of the river in Portland. We’ll examine business opportunities with the I-5 Bridge replacement, Vancouver’s waterfront development, and contracts offered by the City of Vancouver.

THE DISPARITY STUDY

NW & Associates, LLC started digging into these important questions regarding the diversity of small businesses via the State of Washington’s Disparity Study, released in 2019.^[9] It details the number and dollar amount of state contracts awarded across dozens of industries, like transportation, construction, and banking. It breaks down what percentages of available and capable minority and women-owned businesses (MWBEs) typically are getting contract awards relative to the gender and racial ownership makeup of firms in the State.

The study was put out by the Office of Minority and Women’s Business Enterprises (OMWBE). As Sarah Erdmann, Deputy Director of OMWBE, told NW & Associates, LLC:  “Diverse businesses create more competition, which in turn drives solutions that are innovative and cost-effective.”^[10] The more companies that apply for a particular state contract, the more options for the State to choose from in satisfying taxpayer demand, providing services to the public, and expanding resources for businesses.

What emerges from the Disparity Study is that many qualified minority and women-owned business enterprises are underutilized relative to their availability to fulfill state contracts. Black-owned firms were utilized at 2.52% relative to their overall availability, while Asian-owned firms were utilized at 30.37% and White female-owned firms at 53.06%.^[11] This illustrates overall patterns of large state work contracts being awarded to the same large, non-diverse firms year after year.

The Disparity Study concludes by saying that measures by the State to help all firms (“race- and gender-neutral” measures) do not go far enough in leveling the playing field for MWBEs. In other words, not having more specific and enforceable targets for gender and racial inclusion means we cannot reach our full employment and business potential.

“The good news about the Disparity [Study] is that, we have, for the first time, data. Every time we would share with legislators or stakeholders, particularly those who maybe weren’t as enthusiastic about supporting women or minority-owned firms. We could actually go in and say we have data,” says Lisa van der Lugt, director of Washington’s OMWBE. “The bad news is it confirmed everything we thought.”^[12]

SCALING TO SIZE

Sophie Somers, owner of the Vancouver-area small construction firm Somers Design Build, echoes some of what the Disparity Study reveals, especially in how difficult it can be for small businesses to bid on huge contracts. For example: “Liability and insurance are much harder for a smaller company to deal with. [It’s] harder to deal with employee turnover, with the training. I pay my guys really well, so we don’t have turnover, whereas the larger companies sometimes pay less and can afford turnover.”^[13]

Her situation is reflective of a larger pattern. Ten percent of construction firms in Washington state are women-owned, which would seem like a small number. However, it’s the highest percentage in the nation.^[14] Rough data shows more than 25,000 women are working statewide in some form of construction that involves family-wage jobs.^[15]

Access to capital is another issue for smaller businesses. “How do smaller firms get the additional money to be able to pay for the additional equipment and people?” asks small business owner Tyrone Foster. “Sometimes that’s what kills them! They don’t have a relationship with a bank like the larger companies.”²

OPPORTUNITY

With business zones opening up around Vancouver and development projects being completed along the waterfront, SW Washington could position itself as one of the state’s future leaders in diverse (and therefore overall) business development.

Within Washington state, we hear a lot about the Seattle/Everett area. We don’t hear as much about Spokane, the Tri-Cities – or the Greater Vancouver area. “Does a city’s strategic plan include values for diversity, equity, and inclusion?” van der Lugt asks. “Sometimes municipalities aren’t considering it. If you look at the leadership in that part of the state, there were no people of color, so it’s offering that assistance,” because there are a lot of new opportunities. There are also a lot of situations that hadn’t been faced before by an area’s political or business leadership. “Some of it is the fear of the unknown. How much is this going to cost me? What kind of work does this mean? You’re worrying about something that we [the OMWBE] may be able to help with [and] give you even an inclusion template to use. It’s just [that] getting the discussion going sometimes will spur other ideas, which is really exciting.”¹¹

Evidence of inclusion plans, whether enforceable or not, in projects like the I-5 bridge replacement, waterfront development, and in city contracts were difficult to find or to understand. Gramor, which leads the business partnerships for Vancouver’s waterfront development, did not respond to repeated calls for an interview with NW & Associates, LLC.

It should be pointed out that WSP, selected as the main engineering consultant for the bi-state I-5 Bridge Replacement Program, is working within a contract that will include a 15% Disadvantaged Business Enterprise (DBE)^[16] goal, which opens doors to more minority-owned businesses.^[17] This is based on federal mandates. In our conversations with Jackie Bayne, the Policy Manager in WSDOT’s (Washington Department of Transportation) Office of Equal Opportunity, the 15% DBE goal is “considered enforceable… contractors have to meet the goal, demonstrate Good Faith Efforts, or face penalties/sanctions.”^[18] The engineering consultant has a Chief Equity Officer to guide the Program in following an inclusive process with equitable outcomes, and in meeting their commitment of 20% DBE involvement. The current phase of the I-5 Bridge Replacement Program includes public engagement, environmental analysis, and preliminary engineering, which will take an estimated three to five years. Ongoing outreach, diversity initiatives, and strategies to provide assistance to DBE firms will continue through the life of the Program, according to Casey Liles, Design Manager for the Program. The construction phase, if funded, could take more than ten years and would have a separate DBE goal.^[20]

NW & Associates, LLC also spoke to Vancouver City Procurement Manager Anna Vogel about the importance of diversity in promoting business contract opportunities. Vogel talked about the City hosting or attending events like diversity fairs and reverse vendor trade shows – where government agencies sit in the booths and business owners walk around and visit them, learning about opportunities and how to take advantage of them. “The city attends one that typically would be held in October – of course, this year [it] won’t be held [due to COVID 19] – in Oregon, and then there’s a couple in the Seattle area that the City attends. We’ve hosted our own, but not in recent years.”^[20]

Vogel also mentions Procurement Technical Assistance Centers (PTAC) – run by the Federal Small Business Administration – which provides trainings and one-on-one sessions, which aim to pair more seasoned businesses with newer ones in order to learn how to navigate complex and sometimes daunting business contract offers and other opportunities.

In SW Washington, PTAC found a home in the Greater Vancouver Chamber of Commerce, but as of two years ago has been given a space to help small businesses at CREDC (the Columbia River Economic Development Council).^[21] While PTAC is a free federal program for all businesses, many of the small business owners we spoke with had not heard of it. Others said that entities like the Chamber of Commerce are better at generating business leads between its members instead of holistically providing resources to small businesses that may be disadvantaged to begin with.

Vogel also mentioned small works project contracts the City puts out for bids of between $1,000-$35,000, but did say that large businesses can also bid on these projects.¹⁹

THE REPORT RECOMMENDS

Several recommendations and talking points are offered in the State’s Disparity Report that could be used to start and drive discussions in our Greater Vancouver area about how to develop more business diversity. Here is a refined list along with some local responses:

1. Adopt more mentor-protégé and other networking programs between larger and smaller firms to help better navigate complex state contract proposals. “A lot of small businesses are started by people who are not business people. Somebody who was an employee somewhere else who had a falling out with the owner, for example,” says Tyrone Foster. “The state [and city government] could help with training, whether that be through community colleges or nonprofits, guest speakers with access to capital, angel investors. and exchange business cards. It’s those connections that help small business build for the long term.”²
2. Reduce contract sizes – also known as “unbundling” – so smaller firms are better scaled to win bids and build their project resumes. ¹⁸ And OMWBE is starting to collect data from subcontractors – those smaller, often women and minority-owned businesses that might work on less sizable parts of large state contracts. Sophie Somers sees promise in this effort: “I would love more training from OMWBE about getting contracts. We need agencies to reach out to us and show more things we can bid on. Unbundling is a huge thing for small businesses.”¹²
3. Implement race and gender-conscious contract goals. Review what kind of creative incentives or requirements might be included to increase participation from firms of all sizes. Inclusion plans are a useful item to require, but without hard goals, have not proven consistently effective.^[22] Offer bonuses based on enforcement: “It can be financial incentives earmarking more projects [for MWBEs] not only setting them, but enforcing them. Things get documented [by larger firms], but the goals consistently fall short,” says Foster. “The problem is larger firms didn’t put in the work. They didn’t go out and pound the pavement, press the palms, and engage with the communities [to bring MWBEs] in on those projects.”²  So the State or City can award larger contracts to the bigger firms if they can document and achieve true networking and other assistance to help small businesses get more contracts and projects. A potential win-win.
4. A suggestion from NW & Associates, LLC would be to tie improvements in the state’s unemployment and income rates to efforts that improve business inclusivity, so that everyone could see the shared benefits.

Finally, there’s an effort, by some, to correct the assumption that local and state leadership leveling the playing field for MWBEs is a zero-sum game. According to van der Lugt, the goal is clear. “Not pitting equity requests against each other-that tends to happen-because there’s room for everyone.¹² In other words, more room for new businesses to open, to hire, to provide more services, and subsequently lead to the generation of more tax dollars. The tax dollars could flow back to small businesses in the form of grants, loans, and training, or, more generally, for education, technology, and transportation improvements.

MOVING THE NEEDLE:  NEXT STEPS AFTER THE DISPARITY STUDY

What follows the Study? The OMWBE is continuing to assist in the development and completion of Community of Practice (CoP) standards, created with the state’s Subcabinet on Business Diversity, that provides diversity, equity, and inclusion resources to state agencies (including the inclusion plan templates and suggestions). This in addition to guidance on community outreach and engagement. By the end of June 2021, the plan is to have piloting completed with the six state agencies that represent 2/3rds of state spending. The remaining agencies (including all educational institutions) will be in the final report, targeted to be out by the summer of 2023. An updated electronic data collection system, which will capture subcontractor data, is in development.¹⁰

“I would encourage folks to reach out to us,” says van der Lugt. “Having conversations like we’re having with you [NW & Associates, LLC] are important because it elevates what’s happening in your area. There’s a lot going on out there that we don’t know about.”¹¹

The OMWBE is also asking the State for more language access assistance for contract bidding opportunities and more Internet broadband service, especially in rural areas.

THE PERSONAL APPROACH

Ask a small business owner in the Vancouver area:  is SW Washington a good place to make business connections?

“I’ve talked to people in Vancouver who are business owners who say ‘I’ve got to drive across the river to Portland to do networking,’” says Tyrone Foster.

He concludes our interview by saying that the attitude of business owners both in Portland and Vancouver play a huge part in business developments large and small. “I’ve seen these things, I’ve heard things. I’m an optimist. To me, that sounds like an opportunity. It’s not where it should be. If like-minded people are really committed, I think that it is very possible to move in the right direction. It just takes smart people getting together and saying yeah, we’re really committed. We’re really going to roll up our sleeves.”²

SW WASHINGTON MWBEs and NON-MWBEs

We know that a good source of job creation is a healthy small business and start-up environment. So:

• Have you heard of or read the Washington State Disparity Study?
• Regardless of whether you’ve heard about the Study, what are your experiences with the issues it brings up?
• Have you been a part of a successful mentor program or worked with incentives in ways that helped you and other businesses?
• What can SW Washington do to lead the charge toward more business diversity?

Please share your comments and questions!

Bjorn Sorensen, M.A.T., worked for nine years as a K-12 classroom teacher in Oregon, Washington and abroad, three years in community organizing and the last 13 as a business manager in the Greater Vancouver area. He has spent much of the pandemic working out, camping, safely visiting relatives and dreaming about international travel.

^[1] 63% of our nation’s net new jobs from 1993-2013 came from small businesses. U.S. Small Business Administration, “Frequently Asked Questions about Small Business: March 2014.” https://www.academia.edu/18545283/Frequently_Asked_Questions

^[2] Video interview and email correspondence for NW & Associates, LLC between Bjorn Sorensen and Tyrone Foster, 8/6/20 and 10/8/20.

^[3] The Brookings Institute Hamilton Project Report “Minority and Women Entrepreneurs:  Building Capital, Networks and Skills,” March 2015. For the purposes of this “More Seats At a Large Table” article, a small business is an entity with fewer than 500 employees. A minority business in which at least half of owners do not identify as White, non-Hispanic.   https://www.brookings.edu/wp-content/uploads/2016/07/minority_women_entrepreneurs_building_skills_barr.pdf

^[4] Brookings Institute, “Examining the Black-White wealth gap,” 2/27/20. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/  The Washington Post, “The Black-White economic divide is as wide as it was in 1968,” 6/4/20. https://www.washingtonpost.com/business/2020/06/04/economic-divide-black-households/

^[5] Stanford Institute for Economic Policy Research, “The Impact of Covid-19 on Small Business Owners:  Evidence of Early-Stage Losses From the April 2020 Current Population Survey”, May 2020. https://siepr.stanford.edu/publications/working-paper/impact-covid-19-small-business-owners-evidence-early-stage-losses-april

^[6] Asking for PPP funds and Georgetown study: THE WEEK magazine, “The black wealth gap,” Oct. 2, 2020, pg. 11.

^[7] Public School Review, 2020-21 for Vancouver (https://www.publicschoolreview.com/washington/vancouver-school-district/5309270-school-district), Evergreen (https://www.publicschoolreview.com/washington/evergreen-school-district-clark-school-district/5302700-school-district) and Camas (https://www.publicschoolreview.com/washington/camas-school-district/5300810-school-district). Battle Ground School District has 18% minority students (https://www.publicschoolreview.com/washington/battle-ground-school-district/5300380-school-district). 2019 U.S.Census data shows that 32.5% of the population of the State of Washington is minority. This is the percentage of the population that does not identify as White, non-Hispanic. https://www.census.gov/quickfacts/WA

^[8] Governor’s Subcabinet on Business Diversity, 2020. https://omwbe.wa.gov/governors-subcabinet-business-diversity  Jackie Bayne, the Policy Manager in WSDOT’s Office of Equal Opportunity, adds more detail within the field of transportation:  “Federal Highway Funded projects are meeting 12.7%… for DBEs. Also, our state-funded only contracts are at:

• Minority Business Enterprise 5.6%
• Women’s Business Enterprise 2.6%
• Veteran owned Business 2.3%
• Small Business 13% (include M/WBE firms due to state rule)”

^[9] State of Washington Disparity Report, 8/30/19. https://omwbe.wa.gov/governors-subcabinet-business-diversity/disparity-study

^[10] Video interview and email correspondence for NW & Associates, LLC between Bjorn Sorensen and Sarah Urdmann, 8/13-8/18/20.

^[11] Accounts for what sometimes is a small number of firms dominating a single industry category like client services or electrical contracting. According to the OMWBE:  “Client services are exempt from competitive solicitation per RCW 39.26.125. Client services are defined as “services provided directly agency clients including, but not limited to, medical and dental services, employment and training programs, residential care, and subsidized housing. These contracts are also exempt from Initiative 200 RCW 49.60.400.

The disparity ratio for Hispanic firms deviated from what we have seen in dozens of other studies across the country. Hispanic firms are concentrated in a NAICS code where the Hispanic share of contract dollars exceeded the State’s spending in that code and the State’s share was relatively high. NAICS code 238210–Electrical Contractors and Other Wiring Installation Contractors–contained 8.3 percent of all State spending, but 28.6 percent of all Hispanic contract dollars.”

^[12] Video interview for NW & Associates, LLC between Bjorn Sorensen and Lisa van der Lugt, 8/13/20.

^[13] Phone interview for NW & Associates, LLC between Bjorn Sorensen and Sophie Somers, 8/27/20.

^[14] The Seattle Times, “Hard hats and thick skin:  Seattle’s building boom should include number of women workers,” 10/12/18. https://www.seattletimes.com/seattle-news/hard-hats-and-thick-skin-seattles-building-boom-should-include-number-of-women-workers/

^[15] K5 News, “Western Washington program aims to add women in construction jobs,” 11/18/19. https://www.king5.com/article/news/local/seattle/women-in-construction/281-eddee233-2f73-4062-8456-17097153b4e5

^[16] “Disadvantaged Business Enterprises include small businesses that are at least 51% owned by: Minorities: Blacks, Hispanics, Native Americans, Asian-Pacific Americans and Subcontinent Asian Americans; Women; Other individuals on a case-by-case basis.” Oregon Department of Transportation website, https://www.oregon.gov/odot/Business/OCR/Pages/Disadvantaged-Business-Enterprise.aspx

^[17] Washington State Department of Transportation I-5 Bridge Replacement Program website homepage, 2020. https://wsdot.wa.gov/construction-planning/search-projects/i-5-interstate-bridge-replacement-program

^[18] Video interview and email correspondence for NW & Associates, LLC between Bjorn Sorensen and Jackie Bayne, 9/29/20.

^[19] Video interview for NW & Associates, LLC between Bjorn Sorensen and Casey Liles, 9/29/20.

^[20] Video interview and email correspondence for NW & Associates, LLC between Bjorn Sorensen and Anna Vogel, 9/29/20-10/6/20.

^[21] Email correspondence for NW & Associates, LLC between Bjorn Sorensen and Jeannet Santiago, Government Contracting Specialist, Washington State Procurement Technical Assistance Center (PTAC), 10/6/20.

^[22] Washington State Disparity Study Presentation, 2019, pg. 19. https://omwbe.wa.gov/sites/default/files/public/DES%20Disparity%20Study%20Presentation%202019.pdf