SUMMARY Minority Business Enterprise Study Report 2022 MBE UTAHNEVADAARIZONA,COMBINEDRESULTSSTUDYANDFINDINGS
MINORITY BUSINESS ENTERPRISE REPORT 1 SUMMARY Minority Business Enterprise Study Report PRESENTED BY Arizon A Hisp A nic cHA mber of c ommerce f ound A tion FUNDED BY u . s . d ep A rtment of c ommerce m inority b usiness d evelopment Agency c oron A virus r esponse A nd r elief f und RESEARCH CONDUCTED BY West g roup r ese A rc H 2022 MBE UTAHNEVADAARIZONA,COMBINEDRESULTSSTUDYANDFINDINGS
2 MINORITY BUSINESS ENTERPRISE REPORT ENDORSINGACKNOWLEDGMENTSORGANIZATIONS Arizon A Hisp A nic cHA mber of c ommerce found A tion RESEARCH TEAM Glenn Iwata West g roup r ese A rc H Katy Gallert West g roup r ese A rc H Mon I ca S. V I llalobo S Arizon A Hisp A nic cHA mber of c ommerce c atal I na Perez Arizon A Hisp A nic cHA mber of c ommerce c er I la Ga I ll I ard o rc H estr A ting y our s uccess Kaaren- l yn Gra V e S A i A nn H* p roject n A bedc PRODUCTION TEAM c ar M en G. Mart I nez Arizon A Hisp A nic cHA mber of c ommerce *AMERICAN INDIAN, ALASKA NATIVE, & NATIVE HAWAIIAN (AIANNH)
MINORITY BUSINESS ENTERPRISE REPORT 3 STUDYSTUDYACKNOWLEDGEMENTSHIGHLIGHTSFINDINGS I. Challenges during the Pandemic II. Strategies during the Pandemic III Challenges/Strategies being a Minority-Owned Business IV. Business Characteristics V. Owner Characteristics VI. Rural and Economically Distressed Areas VII. Indigenous Community/Remote Tribal Communities CONTACT INFORMATION TABLE OF CONTENTS 42 108611121314 14 NOTE: INDIGENOUS AREAS INCLUDE RURAL AND/OR ECONOMICALLY DISTRESSED AREAS
A total of 1,983 telephone interviews were conducted with MBEs from January 15 through April 20, 2022. This was broken down into 870 MBEs and 1,113 non-MBEs. The original target was to contact 400+ MBEs in each state, but sample sources of minority businesses were significantly less in Nevada and Utah businesses because of the lower percentage of MBEs compared to Arizona. As a point of reference, the total number of MBEs with paid employees as defined by the 2018 U.S. Census by state were Arizona 16,438, Nevada 9,612, and Utah 4,866.
4 MINORITY BUSINESS ENTERPRISE REPORT STUDY HIGHLIGHTS
In addition, specific survey targets included economically disadvantaged businesses, especially those operating in rural areas (HUBZone locations – 699 interviews), and businesses with American Indians/those in Indigenous Communities (95 interviews). WERE KEY TAKEAWAYS FROM THE STUDY? CHALLENGES/SOLUTIONS A NATURAL PROGRESSION followed the same patterns as non-MBEs regarding the challenges they faced during the pandemic and how they dealt with the problems. The problems and solutions that
MBEs faced was a natural flow of problems and businesses responses. WHAT HAPPENED? HOW BUSINESSESWEREAFFECTED? STAGE 1: mandatesshutdownGovernmentbusinessesandlimitingoperations STAGE 2: Conflicts adhering to CDC guidelines STAGE 3: Return to business STAGE 4: Parts of economy more affected than others STAGE 5: Pandemic continues Immediate loss of revenue Conflicts with customers/suppliersemployees/decidingwhethertofollowguidelinesNeedingcashtoreplacelostbusinessTryingtoreplaceworkersSupplychainissuesTobedetermined Cut expenses, laid off workers, shutdowns Most stayed within government requirements Applied for government loans/ grants; increased marketing efforts (e.g., started new lines of business) Changed hiring practices Accepting longer wait times, Tried new lines of business. To be determined WHAT BUSINESSESDIDDO?
WHAT
MBEs
PANDEMIC
The Arizona Hispanic Chamber of Commerce designed this study to be a resource for businesses, organizations, educators, government agencies and individuals who want Minority Business Enterprises (MBEs) to succeed. This was funded by U.S. Department of Commerce, Minority Business Development Agency, Coronavirus Response and Relief Fund to assist with the following: a) identifying potential policy topics for MBDA to champion, b) comprehensive data collection which could be used in future MBE studies, c) information analysis on minority business enterprises, and d) information programming for business organizations. The MBE Study focused on providing insights regarding the challenges businesses faced during the pandemic and the strategies they used to overcome them. Other topics include challenges and strategies of being an MBE as well as gaining access to capital. Comparisons were also made with businesses located in Historically Underutilized Business Zones (“HUBZones”), (1) and businesses operating in Indigenous Communities.
FOLLOWED
NOTE: Individual reports by each state have been written and highlight the similarity in survey results, themes storylines and conclusions.
The economic, technological, and operational business problems created by the pandemic generally did not differ by type of businesses or ownership. Similarly, the strategies and solutions used were also common to most businesses; however, there were differences, not by types of problems and solutions, but by the urgency and impact they had on MBEs and the various target groups.
Respondents’ comments highlighted the ongoing nature of this issue even prior to COVID and the difficultly in trying to grow the business and pursue larger projects due to capital constraints.
MINORITY BUSINESS ENTERPRISE REPORT 5 SIMILAR BUT WITH GREATER URGENCY – The challenges and strategies used during the pandemic were generally consistent comparing MBEs vs. non-MBES, between states (Arizona, Nevada, and Utah), HUBZone vs. non-HUBZone and Indigenous Communities.
ACCESS TO CAPITAL WAS A CONSISTENT THEME – MBEs were more likely to feel this was a significant challenge than non-MBEs, especially in HUBZone areas and for businesses in Indigenous areas. This is a critical focal point in trying to help these businesses. Because MBEs are often smaller in size than non-MBEs, many did not have as many financial resources to handle the pandemic. It was also clear that this issue is not just pandemic-related.
o More aggressive strategies - The main difference in the pandemic impact is that MBEs and those in HUBZone and Indigenous Communities appeared to be more severely affected financially by the pandemic than non-MBEs. As a result, they had to be more aggressive in their efforts to address the pandemic challenges, especially by expanding their marketing efforts to make up for lost revenue (such as starting new business lines and/or increasing advertising) and applying for loans.
STUDY HIGHLIGHTS
EMBRACING THE MBE STATUS – While it is clear that MBEs continue to have to overcome negative perceptions of being a minority-owned business, the top strategies they use are to embrace rather than hide their status by networking and promoting their minority foundation.
6 MINORITY BUSINESS ENTERPRISE REPORT CIRCLED IN BLACK – SIGNIFICANTLY DIFFERENT AT 95% CONFIDENCE LEVEL BETWEEN STATES NOTE: TOP INDIVIDUAL COMMENTS WERE LISTED Challenges During Pandemic By State 11% 6% 5% 5% 7% 2% 15% 21% 31% 8% 6% 5% 9% 8% 8% 13% 20% 24% 4% 5% 6% 7% 7% 10% 11% 26% 29% 0% 20% 40% NOCHINFLATION/RISINGPROBLEMS/CHALLENGESCOSTSANGESINGOVERNMENTREGULATIONSACCESSTOCAPITALCOMMUNICATINGWITHCUSTOMERS/EMPLOYEESDURINGQUARANTINEKEEPINGEMPLOYEESFROMCATCHINGVIRUSSUPPLYSHORTAGES/DECREASEDINVENTORYKEEPINGEMPLOYEESDECREASEINSALES/LOSSOFBUSINESS ARIZONA NEVADA UTAH Significantly different at 95% confidence level between states Note: Top individual comments were listed The top challenges mentioned by MBEs were consistent across all three states and the target groups. While there were some differences (see state comparisons below), none significantly changed the interpretation of the data. STUDY FINDINGS I. CHALLENGES DURING THE PANDEMIC CHALLENGES DURING PANDEMIC By StateChallenges During Pandemic By State 11% 6% 5% 5% 7% 2% 15% 21% 31% 8% 6% 5% 9% 8% 8% 13% 20% 24% 4% 5% 6% 7% 7% 10% 11% 26% 29% 0% 20% 40% NOCHINFLATION/RISINGPROBLEMS/CHALLENGESCOSTSANGESINGOVERNMENTREGULATIONSACCESSTOCAPITALCOMMUNICATINGWITHCUSTOMERS/EMPLOYEESDURINGQUARANTINEKEEPINGEMPLOYEESFROMCATCHINGVIRUSSUPPLYSHORTAGES/DECREASEDINVENTORYKEEPINGEMPLOYEESDECREASEINSALES/LOSSOFBUSINESS ARIZONA NEVADA UTAH black Significantly different at 95% confidence level between states Note: Top individual comments were listed
SUPPLY CHAIN ISSUES – 13% of MBE respondents (all three states combined) - An issue that followed along the pandemic progression was the shortage of supplies and inventory. Supply chains were directly and indirectly affected by the pandemic and have slowed down the ability to recover.
KEY THEMES
MINORITY BUSINESS ENTERPRISE REPORT 7 STUDY FINDINGS
I. CHALLENGES DURING THE PANDEMIC
KEEPING EMPLOYEES – 21% of MBE respondents (all three states combined) - The second most often mentioned challenge was how to rebuild the business. After the initial layoffs and return to work recovery, MBEs found themselves struggling to keep their operations staffed.
2. GREATER URGENCY – While the top challenges mentioned during the pandemic were similar across the business groups and states, MBEs were more likely to have been negatively affected from decreased sales/loss of business than non-MBEs.
LOSS OF SALES – 27% of all MBE respondents (all three states combined) - The pandemic was not only a medical crisis, but for many of the businesses surveyed, COVID resulted in a financial emergency at multiple levels. For each problem and solution mentioned throughout the survey, the respondents’ comments often ended up at the economic impact. The loss of customers/sales/cash flow all placed pressure on these MBEs. In addition, those that responded to the survey were the ones that have so far stayed in business. MBEs were significantly more likely to mention loss of sales than non-MBEs (20%).
1. FOLLOWED THE PANDEMIC PROGRESSION – Most businesses tended to follow a natural progression through the pandemic. 1. Businesses experienced lost revenues when COVID shutdown much of the economy and resulted in lost revenues. 2. As businesses started to return, the workforce shortages surfaced as a being a major challenge. 3. Further into the recovery, the supply chain problems became more prevalent as workforce issues and shifts in the economy (not all pandemic related) resulted in supply shortages which slowed down the business recovery.
8 MINORITY BUSINESS ENTERPRISE REPORT STUDY FINDINGS II. STRATEGIES DURING THE PANDEMIC The top strategies used by MBEs during the pandemic were also consistent across all three states, and each of the groups that were tested. NOTE: Responses were top-of-mind answers. When directly asked if they tried some of these solutions, a significantly higher percentage of the respondents recal led taking these steps. CIRCLED IN BLACK – SIGNIFICANTLY DIFFERENT AT 95% CONFIDENCE LEVEL BETWEEN MBE s AND NON-MBE s NOTE: TOP INDIVIDUAL COMMENTS WERE LISTED Strategies/Solutions to Challenges During Pandemic Minority vs. Non Minority 11% 11% 8% 15% 13% 5% 14% 7% 8% 9% 10% 11% 11% 19% 0% 10% 20% SWITCHED TO REMOTE CHANGEDFOLLOWEDCHANGEDCHANGEDWORKFORCESTAFFING/HIRINGPRACTICESOPERATIONSCDCGUIDELINES,MASKS,VACCINESDIDNOTHINGAPPLIEDFORLOANSMARKETINGSTRATEGIES M B E S N o n -M i n o r i t y Circled in black Significantly different at 95% confidence level between MBEs and non MBEs Note: Top individual comments were listed STRATEGIES/SOLUTIONS TO CHALLENGES DURING PANDEMIC Minority vs. Non-Minority CHANGING MARKETING AND COMMUNICATION EFFORTS – 19% of MBEs top-ofmind– The focus of many of the businesses at this stage of the pandemic was recovering lost revenues through changing marketing and communication strategies – e.g., starting new products/services, increased advertising/social media, networking. APPLIED FOR LOANS – 11% of MBEs top-of-mind – This was the second highest top-ofmind mention regarding how MBEs addressed the pandemic. o When asked directly later in the survey, 42% mentioned receiving aid through the Paycheck Protection Plan (PPP).
o In all three states, MBEs were either as likely or more likely to apply for/receive PPP loans than non-MBEs; however, non-MBEs received an average of almost twice as much funding (average $70,000) as MBEs received ($39,000).
MINORITY BUSINESS ENTERPRISE REPORT 9 STUDY FINDINGS
Other strategies that were mentioned included: Saving money by moving their business from in-person to online. Closing down bricks and mortar locations and moving back to home-based businesses; 39% of the MBEs were home-based businesses at the time of the survey; one-third of those businesses were not home-based before the pandemic (a 12% point shift).
1. ACCESS TO CAPITAL WAS A MAJOR THEME – Concerns about the availability and assistance needed in applying/receiving loans were mentioned throughout the survey, especially since most of the businesses are self-funded (e.g., out of the owner’s savings) or funded through the business.
3. MORE AGGRESSIVE EFFORTS – MBEs were more likely to try new marketing strategies and apply for loans than non-MBEs, especially since they were affected by decreases in revenue during the pandemic.
FOLLOWED CDC GUIDELINES – 10% of MBEs top-of-mind. This involved adhering to mask, sanitation and other CDC protocols for the safety of MBEs’ customers, employees and suppliers. The controversies surrounding conflicting opinions of the value associated with the CDC guidelines made this step especially difficult.
KEY THEMES
o Access to capital was a significant challenge mentioned by MBEs and especially those in HUBZones and businesses in Indigenous areas. More than half of the MBEs (55%) had challenges obtaining access to capital. Most self-fund their businesses or finance through their operations (70%).
2. PROGRESSION OF RESPONDING TO THE PANDEMIC ISSUES – Just as the pandemic challenges followed a natural progression, the strategies MBEs used also took a path responding to the pandemic changes. 1. MBEs began their response to the pandemic by cutting expenses/laying off employees/beginning working from home. Cutting back was a natural first step, especially in light of the uncertainty at the start of the pandemic. 2. As PPP and EIDL loans became available, some MBEs used these options to address the revenue losses and help stay in business. 3. Increasing marketing efforts – As the pandemic continued, MBEs needed to develop longer-term strategies to replace the lost business/ slow recovery. Businesses mentioned strategies such as starting new lines of businesses, increasing advertising, targeting new customer markets, expanding social media efforts, networking, and promoting MBE status.
II. STRATEGIES DURING THE PANDEMIC
19% 21% 27% 32% 33% 40% 0% 20% 40% 60% 80% I USE MY MBE STATUS TO PURSUE BUSINESS OPPORTUNITIES I TRY TO PROMOTE MBE STATUS I TRY TO NETWORK WITH OTHER MBE S STRONGLY AGREE AGREE 67% 54% 51% Agreement With Statements Unique to Minority Businesses Enterprises MBEs (All Three States) 19% 21% 27% 32% 33% 40% 0% 20% 40% 60% 80% I USE MY MBE STATUS TO PURSUE BUSINESS OPPORTUNITIES I TRY TO PROMOTE MBE STATUS I TRY TO NETWORK WITH OTHER MBE S STRONGLY AGREE AGREE MINORITY BUSINESS ENTERPRISE REPORT STUDY FINDINGS III. CHALLENGES/STRATEGIES BEING A MINORITY-OWNED BUSINESS AGREEMENT WITH STATEMENTS UNIQUE TO MINORITY BUSINESSES ENTERPRISES MBEs (All Three States)
KEY THEMES
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The top strategies focused on increasing the business’ visibility (networking and reaching out to the community) as well as applying for contracts that encourage minority-owned businesses.
EMBRACING MBE STATUS – MBE owners have typically spent their lifetime addressing challenges being a minority and have relied on that toughness in starting and running their businesses. From a business strategy standpoint, most MBEs seem to have embraced this status and have addressed their challenges by promoting their minority position, through networking with other MBEs and gaining government contracts with their minority business certification.
Agreement With Statements Unique to Minority Businesses Enterprises MBEs (All Three States)
INCREASING VISIBILITY – MBEs significantly increased their efforts to promote their minority status as a way to overcome their challenges. In a series of aided responses questions, businesses were asked how strongly they agree with statements about specific promotion strategies. Networking the MBE visibility/brand was the top response.
MBEs also leverage the DBE, SBE, WBE, WOSB, EDWOSB, HUBZone, 8a, etc. certifications, because most government entities in our tri-state area do not allow the MBE certification because it is used mainly in private sectors like working with Macys, Starbucks, Walmart, MGM, etc.; those with a supplier diversity programs.
Almost half of MBEs mentioned having to overcome negative perceptions of being a minority-owned business (46%). Sometimes the problems were cultural differences (33%) and/or the feeling that they were treated differently (32%).
MINORITY BUSINESS ENTERPRISE REPORT 11 288 179 403 288 179 288 179 403 288 179 The overall business characteristics of MBEs were similar between the three states. The biggest difference was that those surveyed in Arizona had higher average revenues than the Nevada and Utah. KEY THEMES One the main differences between MBEs and non-MBEs that surfaced was how well businesses were prepared to handle something like a pandemic. Financially, non-MBEs seemed to have a stronger foundation before the pandemic began than MBEs. MBEs had lower revenue, were more likely to be family-owned and home-based compared to non-MBEs. 53% 42% 55% 56% 48% 36% 25% 40% 37% 31% 870 1113 403 288 179 7 years 19 years 9 years 6 years 9 years 4 5 5 3 4 $196,984 $369,653 $279,000 $156,000 $182,142 53% 44% 51% 49% 58% 39% 21% 35% 41% 41% 50% 30% 30% 28% 32% 52% 60% 50% 50% 56% 16% 18% 13% 20% 16% 39% 39% 40% 41% 35% ARIZONAMBEs NEVADAMBEs UTAHMBEsAZ/NV/UTMBEs AZ/NV/UTNon-MBEs SAMPLE SIZE MEDIAN REVENUE MEDIAN NUMBER OFOFMEDIANEMPLOYEESAGECOMPANY DESCRIPTIONSBUSINESS WOMAN-OWNEDFAMILY-OWNEDHOME-BASED DESCRIPTIONSCUSTOMER GOVERNMENTCONSUMERSRETAILBUSINESS GEOGRAPHICSCOPE INTERNATIONALLYCONDUCTSBUSINESSCONDUCTSBUSINESSNATIONALLY BOLDED FIGURES ARE SIGNIFICANTLY DIFFERENT (Median differences use Mann-Whitney test) STUDY FINDINGS IV. BUSINESS CHARACTERISTICS
12 MINORITY BUSINESS ENTERPRISE REPORT MBE owners in all three states had similar profiles. The main differences by state were that Utah MBEs were more likely to be born outside the U.S and Arizona MBEs were slightly older than the other states. The main differences between MBE and non-MBE owners were MBEs were younger, have slightly lower median income, more likely to speak a second language, and have stronger Democrat and less Republican affiliations than non-MBEs. ARIZONA NEVADA UTAHAZ/NV/UTMBEs AZ/NV/UTNon-MBEs BOLDED FIGURES ARE SIGNIFICANTLY DIFFERENT 1113 403 288 179870DEMOGRAPHIC AVERAGE DEGREEWITHPERCENTAGEAGECOLLEGEORMOREEDUCATIONMEDIANHOUSEHOLDINCOME LANGUAGECULTURE/ BORN IN U.S. NOAFFILIATIONPOLITICALLANGUAGEANOTHERSPEAKBESIDESENGLISHINDEPENDENTREPUBLICANDEMOCRATOTHER/PREFERENCEREFUSED 55 years 50 years 48 years 47 years49 years 62% 63% 62% 57%61% $95,200$90,288 $90,476 $88,750$92,300 78% 76% 77% 66%71% 22% 62% 48% 61%56% 23% 28% 30% 30%29% 30% 22% 20% 24%20% 11% 18% 18% 17%20% 7% 7% 7% 10%8% 30% 24% 25% 19%23% STUDY FINDINGS V. OWNER CHARACTERISTICS
have been more severely affected by
pandemic financially
due to their smaller size ($200,000 median annual revenue vs.
The Small Business Administration defines HUBZones as “... small business in historically underutilized business zones.” HUBZone business from both urban and rural locations were used in this research, but rural areas were targeted when possible. A HUBZone company both operates and employs (mandatory 35%) people who are in HUBZones. to the (28%) than non-HUBZone businesses (23%) at least part $281,000 more
One of the focuses of the research was to listen to challenges and strategies of businesses in rural and economically distressed areas as defined by their location via “HUBZones.”
median) and
MINORITY BUSINESS ENTERPRISE REPORT 13
Overall, HUBZone MBEs appear
in
limited access to capital. STUDY FINDINGS VI: RURAL AND ECONOMICALLY DISTRESSED AREAS HUBZone MBEs Non-HUBZone 44% 37% 12% 6% 13% 8% 38% 22% 41% 28% 47% 36% APPLY/RECEIVE PPP FUNDING ADVERTISE MORE AS A STRATEGY DURING THE PANDEMIC START NEW LINES OF BUSINESS DURING THE PANDEMIC BE SIGNIFICANTLY CHALLENGED GAINING ACCESS TO CAPITAL TARGET THEIR BUSINESS TO GOVERNMENT CUSTOMERS SPECIFICALLY TARGET GOVERNMENT OR PRIVATE CONTRACTS HUBZone MBEs more likely than non-HUBZone businesses to:
WestGroup conducted 95 interviews with businesses owned by American Indians, Tribal Business Enterprises, other Indigenous business owners, and remote Tribal Communities to provide some insights into their needs and strategies. Some of the businesses were located close to urban areas, but most were in rural areas.
please email your questions or requests to: ARIZONA HISPANIC CHAMBER OF COMMERCE Ms. Monica S. Villalobos MonicaV@azhcc.com WESTGROUP RESEARCH Mr. Glenn Iwata glenn@westgroupresearch.com CONTACT INFORMATION
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Focus on conducting business with government (45% vs. 36%) and less on business-tobusiness (37% vs. 53% MBEs overall). research,
MINORITY BUSINESS ENTERPRISE REPORT STUDY FINDINGS VII – INDIGENOUS COMMUNITY/REMOTE TRIBAL COMMUNITIES For more information about the
One of the top challenges mentioned throughout the study with businesses in Indigenous Communities was gaining access to capital (mentioned by 53% as a significant/somewhat of a challenge compared to 30% of nonminority businesses).
as strategy during the pandemic (17% vs. 9% MBEs overall). Cutting expenses was typically the first steps taken by businesses during the pandemic because it was something that could be done quickly and easier than other options, especially with the uncertainty of the pandemic.
Other differences with MBEs in Tribal Communities compared to MBEs overall included: Experienced supply shortages (21% vs. 13% MBEs overall), but less likely to have challenges keeping employees (13% vs. 21% MBEs overall). The impact of many of these businesses being in more isolated, rural areas appeared to have a greater impact on supply chain issues, but less on workforce challenges (e.g., fewer job options in rural areas limited job switching to this Changedworkforce)theiroperations
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