A COMPARISON OF THE LARGEST BLACKOWNED COMPANIES WITH THEIR WHITE COUNTERPARTS Matthew C. Sonfield, Hofstra University ABSTRACT This paper-presents a comparison of the largest black-owned businesses in the United States with those mainstream firms that are most comparable. In an analysis focusing on sales volume, sales growth, survival rates, and business category trends, a variety of similarities and differences between the two groups are determined. The relevance of these conclusions to American public and private social policy is then discussed. INTRODUCTION In the past few decades, a relatively small number of black-owned business firms have become successful to the point where they have attained a degree of national recognition. These firms and their owners have been written about, have been included on lists of the largest minority businesses, and have been used as examples of the possible success that can be achieved within "Black Capitalism." However, any study of even the largest and most successful black- owned businesses is in fact a study of small business. In 1984, within the one hundred largest black-owned businesses in the United states, only two had sales of more than $100,000,000 and all but eighteen had sales under $30,000,000. Similarly, only two had more than 1000 employees, and only seven had more than 500 employees.(1) In comparison, the largest firm on the "Fortune 500" listing had 1984 sales of $88,000,000,000 and the number 500 firm had $418,000,000 in sales volume. By the standards of mainstream business, the largest black-owned firms may not be "mom-and-pop" operations, but almost all would in fact fall under the U.S. Small Business Administration's definitions of "Small Business." The purpose of this paper is to study the available data on the largest (and, most successful) black-owned businesses in the United States, and to compare these firms, and their performance and attributes, to those mainstream firms that are most comparable. ("Mainstream" of course means largely white-owned rather than minority-owned.) Such a comparison should enable us to reach conclusions as to the level of progress and the current status of America's most successful black-owned companies, and furthermore, to develop some conclusions and perhaps some recommendations with regard to social policy. METHODOLOGY Since 1983, the magazine Black Enterprise (BE) has compiled an annual listing of "The Top 100 Black Businesses." This is a listing of those firms, at least 51% black-owned, in the fields of manufacturing or industrial or consumer services, having the largest sales volumes during the previous year. Since almost all of these firms are privately owned, without publicly traded stock, the information is collected from the firms themselves.

This is clearly the best listing available of the largest and most successful blackowned companies in the U.S. The choice of a comparable "mainstream" listing is not so simple. The best known of the mainstream "biggest" lists is the "Fortune 500" published annually by Fortune magazine. However, as discussed above, the firms on this list are so much larger in size than those on the BE list that any comparative analysis would be virtually meaningless. Furthermore, the Fortune 500 listing is only for industrial firms (ie. more than 50% manufacturing), while the majority of the BE firms are in service fields. There are several periodicals that focus on smaller business that publish annual listings of such firms. However, these listings are not of the "biggest" small firms (at what sales level does the biggest smaller firm leave the list and become a smaller large firm?), but rather are listings of those firms that are currently "hot": those with the highest growth rate or profit-to-sales ratio, etc., in the past year. These lists, then, would not provide a meaningful comparison to the BE listing either. For many years, Fortune magazine also published a "Second 500" annual listing, giving firms ranking #501 through #1000 in size. While still considerably larger than the BE companies, these firms might have provided a certain degree of value for comparative purposes. Unfortunately, this listing was dropped by Fortune after the listing for 1981, because of a "lack of editorial interest." (2) Thus, the absence of recent data makes this listing inappropriate for the purposes of this paper. The best published listing for comparison purposes is the Fortune "Service 500," also published annually. Several different service categories are included within this listing. One that might be comparable to the BE listing is the "100 Largest Diversified Service Companies," but this category was only begun for 1981. A more useful listing, however, is the "50 Largest Retailing Companies" category, which has been compiled for many years. While here too the listed firms are much larger than the BE firms, the majority of BE firms are in some form of retailing, and many more are in some other area of service. Thus, taking into considertation the significantly larger size of the Fortune "50 Largest Retailing" firms, it will be seen that the past ten years of this listing can be compared in many meaningful ways with the past ten years of the Black Enterprise listing. While both the Black Enterprise and Fortune listings go back for more than ten years, this particular time period of 1975-1984 seems quite appropriate for analytical purposes. ANALYSIS In 1975 the largest black-owned business in the U.S. was Motown Industries of Los Angeles, with sales of $43,500,000 and 300 employees. This entertainment company was then (and still is) the best-known black-owned firm in the country, largely because of the national reputation of many of it's contracted entertainers. The 50th firm the BE 1975 list was Cedar Lee Chrysler Plymouth of Cleveland Heights, Ohio, with sales of $4,460,000 and 37 employees. Typical of most BE firms, this automobile dealer was not known beyond its own trading area.

In 1984, Johnson Publishing Company of Chicago was #1, with sales of $138,936,000 and 1786 employees. This company is the publisher of several black-oriented magazines, including "Ebony". Like Motown (#2 in 1984), it has been at the top of the BE listing every every year (it was #2 in 1975). Number 50 in 1984 was S.T.R. Corp. of Cleveland, a retail food company, with $19,400,000 in sales and 259 employees. In comparison, the #1 retailing company of Fortune's 1975 list was Sears, Roebuck, with sales that year of $13,639,887,000. Number 50 was Mercantile Stores of New York, with $630,604,000 in sales. Sears again topped the list for 1984 with sales of $38,828,000,000; while #50 that, year was Evans Products of Miami Beach, with $1,406,399,000 in sales. While the black-owned firms are very much smaller than their mainstream counterparts, it is interesting to note that the percentage increases in sales volumes for the black and mainstream firms have been comparable. The BE #1 position sales volume rose 319% from 1975 to 1984, while the #50 position sales volume rose 435%. In the Fortune listing, the #1 position ales rose 51% and the #50 position sales rose 222%. Similar percentage increases can be calculated for other banks within the two listings. Thus, it does not appear that these mainstream firms have surpassed their black counterparts in terms of sales volume growth luring the past decade. It is also useful to compare the number of firms that were on the 1975 listings that remain on these listings in 1984. Of the 100 firms on the BE list at the beginning of the decade, only 30 can be found on the most recent listing. On the other hand, 33 firms from the 1975 Fortune list (of 50) can be found on the 1984 list- a survival rate of 66%, more than twice the BE survival rate of 30%. Of course, not all firms that did not "survive" dropped below the list cut-off point or went out of business. A few of the BE firms moved into the mainstream by being acquired by a mainstream company or by at least 51% white ownership. Also, a few of the Fortune firms moved into the "Industrial" listing as the mixture of their operations changed. Still another focus for analysis is the nature of the firms on these two lists. What types of companies were successful enough to reach these levels of sales volume, and what trends appear to have taken place between 1975 and 1984? In this analysis, however, it must be remembered that the Fortune listing is by definition limited to retail organizations, while the Black Enterprise listing can also include other types of service companies, as well as manufacturers. The 1975 Fortune Retail listing was comprised largely of the major national or regional department store or general merchandise chains (Sears, Penney, etc.) and supermarket chains (Safeway, A&P, etc.), along with a few food service or franchising companies (ARA Services and McDonald's). Since 66% of these companies survived to be on the 1984 listing, it is obvious that the profile of the Fortune listing has not changed greatly in the past decade. We again see the major department or general merchandise chains (such

as Sears, still #1), but now several of the names are specifically discount-type stores (K mart, etc.). The supermarket chains (Safeway drops from #2 to #3) also remain a major part of the listing. Again, a few food service or franchising operations make the list, as well as a few more specialized retail chains (Toys "R" Us, etc). Thus, we can see that the "Fifty Largest Retailing Companies" are a rather consistent group of firms, requiring a national or at least regional market to achieve their large sales volume. Furthermore, for most of these firms, high levels of sales have been achieved by a generalist rather than a specialist marketing strategy. In contrast, the nature of the firms on the Black Enterprise listings is a more complex one, with some clear trends appearing over the past decade. The majority of the firms on the BE listing are neither national nor even regional, nor are they generalist multi-product companies. Rather, most of these firms are single- location operations, serving a particular local market with a specific product line or service. Also, the markets served by these companies are most often largely black or other minority markets. Further-more, this profile has not changed in the past decade- about 10% of the BE firms in 1975 were national or regional rather than local, and the same percentage holds true in 1984. The BE firms cap be categorized into the following groups: Automobile dealerships Construction/contracting Fuel oil/coal retailers/distributors Media (print & broadcasting) Cosmetics and hair-products manufacturers Entertainment Computer service/retailing Food/beverage wholesaling/retailing Miscellaneous manufacturing Miscellaneous service. Figure I charts the number of firms in each category for each year's BE "Top 100" listing from 1975 through 1984. Figure 2 charts the percentage of the total sales volume for the one hundred firms held by each of these categories. This latter measurement provides a somewhat more accurate picture of the relative strength of each business category, given the wide range in sales volume between the top and bottom of the list. A number of analytical points can be made. It can be seen that automobile dealerships constitute the strongest segment of the black business listing. Since the rise of "Black Capitalism" as a social goal in the 1960's, the various American (and more recently foreign) automobile manufacturers have felt a need to assist black entrepreneurs in acquiring or starting car dealerships in the inner cities. Thus, it is now quite common for urban areas having major minority populations to have one or more local minority-owned auto dealers.

It can be seen in Figures 1 & 2 that this automobile dealer segment of the BE listings is also the most volatile of the business groups. In fact, this segment's sales trend follows the national passenger car retail sales figures quite closely: 1975 1976 1977 1978 1979 1980 1981 1982 1983

8640 (000 cars-sold) 10110 11185 11312 10671 8979 8536 7979 9181

1984

10500 (est.) (3)

Another obvious trend among the various business categories is that of computer service/retailing. Of course, there has been a national upward trend in both data processing services and in computer sales in the past decade, as can be seen in the national data: COMPUTER EQUIPMENT SALES ($million) 1975 1976 1977 1978 1979 1980 1981 1982

8560 10388 12924 16558 21466 26594 32032 37403(4)

One further trend that can be seen in these charts is the rise in fuel oil prices in the late 1970's and early 1980's, and the leveling off of these prices in more recent years. While it may appear that other trends are indicated on these charts, in fact most of the other business category sales variations are more the result of the trends in automobiles, computers, and fuel oil, rather than meaningful trends themselves. Since both charts have a finite limit (100 firms or 100% of total sales volume), any significant rise in one category must result in a drop in another category, even if the second category is also rising, but at a lesser rate. Thus, certain other business categories are well-represented on the BE listings, and have been relatively consistent in strength over the past decade. It is important to note that several of these categories, such as fuel oil and coal and construction/contracting, owe a portion of their sales volume to federal and local government procurement actions. In the best known program, Section 8(a) of the Small Business Act authorizes the U.S. Small Business Administration to subcontract federal awards for goods and services to

businesses owned by minorities and other socially or economically disadvantaged persons. The total value of 8(a) contracts has risen throughout the decade, from $566 million in 1977 to $2.7 billion in 1984. (5) DISCUSSION The Reagan administration concludes that minority business has made "modest gains" in recent years.(6) Still, the performance gains of the "Top 100 Black Businesses" have been more than modest. This analysis has shown that the biggest and most successful blackowned firms have kept pace with the largest mainstream firms in terms of sales growth, with gains of 300% to 400% and more over the decade. Yet the data also shows that even the largest black-owned firms are very vulnerable to fluctuations in the economy and other environmental factors. The survival rate on the BE list is less than half that on the Fortune list. Although specific reasons for this greater degree of weakness can be identified, such as the heavier burdens of debt that blackowned firms tend to carry in comparison to mainstream firms (7), this data also indicates a more general weakness of black-owned companies that goes beyond specific causes. The data furthermore shows that certain industries or markets are more likely to be avenues to success for black entrepreneurs and business owners than are others. It is no coincidence that most of the firms on the BE listing fall into a handful of business categories. Government and major corporate efforts to promote Black Capitalism and the economic strength of urban minority markets have provided the opportunities for a majority of the BE firms. Thus, most of these largest black-owned business firms are not really in the stream at all. Many may have a sizable mainstream segment within their market or customer roster, but the basis or their niche in the economy is still that they are black, and that for some reason being black is desirable in their particular business situation. In most of the business situations occupied by BE firms, the decision by a larger mainstream firm to combat the black firm for its business would result in a mainstream victory. One example of this currently happening is in the hair-care products industry. In recent years, the large mainstream cosmetics and personal-care products companies have discovered that blacks individually spend three to four times more on hair- care products than do whites, and they have made major inroads into this formally black firmdominated market. Firms like Revlon, Alberto-Culver, and Clairol have entered and gained about 40% of the market, and this penetration continues. Analysts attribute this to the much greater financial strength of the mainstream companies, and their ability to spend much greater amounts on advertising and promotion. If federal, state and local procurement programs were to end, it is quite likely that many of the fuel oil, construction/ contracting, and other BE firms would find it very difficult to survive, or at least to remain among the "Top 100" black firms. Similarly, if the retail automobile industry were not constrained by a system of manufacturer's geographic

franchises, many of the BE automobile dealers would find themselves under great competitive pressure from those dealers currently limited by their franchises to other geographic markets. CONCLUSIONS Black-owned firms can be successful. Fine examples of such success can be seen on the Black Enterprise "Top 100" listings. Yet these same listings also illustrate the precarious position and vulnerability of these very firms. Companies among the top ten on the BE list in one year may be absent from the entire list in the next, having gone bankrupt in the past twelve months. As in the areas of employment and education, it is not sufficient to end discrimination and then leave smaller and weaker black- owned firms, and black entrepreneurs, to fend for themselves in competition against older and stronger mainstream firms. Rather, it is the social responsiblity of both the public and private sectors to take "affirmative action" to assist black and other minority business owners and entrepreneurs to gain a safe foothold in our economy. Most of the appropriate "affirmative actions" already exist and are in place. Examples of government procurement and corporate franchising efforts have been previously discussed in this paper. Other existing public and private sector efforts provide debt and equity financing to minority businesses, particularly important because of the greater financial vulnerability experienced by most minority firms. Federally sponsored Minority Enterprise Small Business Investment Corporations (MESBIC's) have increased their financial aid to minority firms throughout the past decade. In still another area of effort, many major corporations also are engaged in procurement assistance, by working to increase the proportion of their purchasing from minority suppliers. All of these efforts, and perhaps others not currently considered, must be continued and further strengthened. As federal, state and local government spending and deficits come under greater pressure, it is important that efforts in support of minority business not be diminished in favor of other budget priorities. Whether or not it is realistic to expect that black and other minority-owned businesses may ever achieve true proportional parity with mainstream business, it is clear that current affirmative efforts have been effective, and that they should be maintained as a component of American public and private social policy. [FIGURE 1 OMITTED] [FIGURE 2 OMITTED] NOTES: (1) Black Enterprise, June 1985, pp. 87-105. (2) Telephone interview, Mrs. Benjamin, Fortune magazine editorial office, New York,

May 15, 1985. (3) U.S. Industrial Outlook, (Washington: U.S. Dept. of Commerce, January 1985), p. 36-6. (4) Ibid., p. 28-9 (5)The State of Small Business: A Report of the President, Washington: May 1985), p. 353. (6) Ibid., p. 339. (7) Ibid., p. 348 (8) "Blacks Fight For Market Niche," The New York Times, June 1985, pp. Dl, D5. (9) Most recent example: Vanguard Fuel Oil, Brooklyn, NY-#7 in 1983, bankrupt in 1984.