Entrepreneurs ready to grow need ‘second stage’ help

With concerted e ort in recent years, the region has built an ecosystem of early-stage support for Black entrepreneurs.

But there are hurdles.

“ ere is money out there. It is getting Black entrepreneurs access to that money that has been the challenge,” said Wafa Dinaro, executive director of the New Economy Initiative, a foundation-led economic development initiative that’s honed in on small business growth for much of its 16-year history.

ere’s also a gap in next-level support for Black and other under-served entrepreneurs looking to scale up the small businesses they have started.

“We lled the early-stage needs and now it’s looking at how do we support those businesses that are ready to grow and expand,” she said. “... ere’s a lack of providers that have this expertise.”

Black entrepreneurs in the region have been historically excluded from traditional nancial institutions and organizations, Ken Harris, president and CEO of the National Business League, said in an emailed statement.

“All funding programs and initiatives that work directly with Black-led business organizations are nding that there is not enough money in the marketplace to help the more than 62,000 Black-owned businesses (2019 Census) throughout the region,” he said.

“Because non-Black-led nancial institutions, systems and structures have failed for decades to connect with Black-owned businesses, Black entrepreneurs have just given up entirely.”

Black-owned businesses in the region need all the resources and technical assistance support they can get, he said.

“Intentional development of Black business is the biggest need currently, where most non-Black-led business organizations and philanthropic initiatives have failed to accomplish or produce results for an overwhelming need in the Black community.”

Historically, there has been lack of capital, Dinaro said. But more money is coming to community development institutions and other nonpro t lenders in recent years. And more support is on the way.

In August, the state announced $72 million in initial funding through the U.S. Department of Treasury State Small Business Credit Initiative. e funding is part of $10 million in American Rescue Plan Act money. It is supporting loans and equity investments for early-stage, technology-based businesses in Michigan as part of the Small Business Venture Capital Program, the state said. As part of that, support is going for loans of $250,000 or less for small businesses, with a focus on businesses owned by socially and economically disadvantaged individuals or businesses with fewer than 10 employees.

“Right now the ecosystem does a really good job of providing the resources for early-stage, startups and existing businesses that are small and need that one-on-one support,” Dinaro said.

“We see the gap as making sure these businesses know this funding is coming, connecting them and making sure they have all of their ducks in a row ... to be able to access these funds.”

NEI is in the middle of an evaluation to assess what is and isn’t working to get more people ready for nancial help and applying for it, she said.

It has created community events and websites and hired “trusted connectors” to help entrepreneurs in neighborhoods get resources that include education, training, mentorship programs and funding.

“A lot of business owners are so busy trying to run day-to-day operations, they may just not be interested in taking an hour to talk to a coach or may think the way they are running things is just ne,” she said.

“It’s getting them to trust the trusted connector and connecting to the resources that are available. ... It’s been very di cult to get the resources that are available into the hands of those who need it.”

Mistrust is a big part of the reason they are not accessing available support, said Dwan Dandridge, founder and CEO of Black Leaders Detroit, a nonpro t providing zero-interest loans to Black entrepreneurs in Detroit with donations and funding from NEI and other foundations.

“ ere is still a huge trust issue as it relates to Black entrepreneurs and funding sources. Often times, some of the Black entrepreneurs will not even apply for funding, even if they know it’s available, because of the horror stories,” he said.

“When we talk about there being systemic issues and barriers that have historically prevented Black entrepreneurs from gaining access to resources, it’s real, lived experience. When they hear about funding, many of them are still reluctant to apply.”

When they don’t get funding, they walk away wondering if it was because they weren’t quali ed or “because the deck is still stacked ... because I’m Black,” Dandridge said.

If the funding is targeted toward Black entrepreneurs, it should just say so, he said, as opposed to saying it’s for BIPOC or minority entrepreneurs.

“Everyone else might hear Black when you say that, but for Black entrepreneurs, we’re coming to right the wrongs of the past,” he said.

“We don’t trust that funding is really set up for us. If you want to build trust and get more of us to apply and to use the other support that’s out there ... we have to be able to say this funding is set up for Black entrepreneurs in Detroit. at will help create the trust that’s missing in this space.”

Black Leaders Detroit is seeing a rush of applicants, he said. Just under 500 Black entrepreneurs applied for loans of up to $20,000 last year. Of those, 42 received one.

“ ere were de nitely some businesses that were not ready for funding just yet,” Dandridge said.

Entrepreneurs who’ve gone through technical assistance training and applied have noted that what is set up to help may end up hurting them when they are considered high risk and o ered loans at higher interest rates than traditional loans, he said. “If we’re charging those who are most vulnerable higher interest, but communicating it in a way that we’re doing a favor for them…the system just has aws that need to be repaired.”

As businesses grow, a new need has been identi ed.

“Now it’s time to look a little long term and look at how do we help these businesses grow and scale and continue to thrive,” Dinaro said.

Once a business has gured out how to run the day-to-day business and expand, “We don’t have the resource providers to be able to connect them with the Targets or the Meijers to be able to get their products into a mass distribution,” Dinaro said.

“ ere’s a lack of providers that have this expertise.” e company, which has a sta of 25 and plans additional hires, also became a franchiser in 2021 and is ond-stage support for local entrepreneurs could also require recruiting organizations from other states, Dinaro said.

Skinphorea Facial Bar & Acne Clinic is at that point, founder and CEO Jessie Hayes-Stallings said.

She started the company in 2014 with an online blog and medical treatment facials at her home. Two years later, she opened a location in Royal Oak and, in 2021, a agship site in Detroit’s Corktown neighborhood with an investment of $800,000.

“Five years ago, we needed to focus on startups because there were not been-ups,” said Carolyn Cassin, president and CEO of Michigan Women Forward.

You could have counted African American-women-owned companies that needed advice to grow on one hand ve years ago, she said. At least half of the 355 companies Michigan Women Forward has invested in are now looking to grow.

“Right now we’re doing the rudimentary, rst-stage support,” making sure they’re producing nancials, have solid cash ow and a business plan for the next two to three years.

For second-stage, “we try, but we don’t have a comprehensive program put together.” ere’s a gap in capital available to those companies, Cassin said. “We’re trying to get them ready for bank funding because that’s where the exible, long-term capital comes from… 15-year loans that are larger.” talking with potential franchisees in Ann Arbor and Grand Rapids, she said. And it’s opening another company-owned location in Dallas.

Last year, Skinphorea’s revenue hit $1.5 million.

As a startup, Hayes-Stallings said she went through the Ernst & Young, Michigan Women and Goldman Sachs programs. She subsequently got nancial support to help expand to Corktown and to become a franchiser from Rocket Mortgage Detroit Demo Day, the city’s Motor City Match program and nonpro t Invest Detroit, she said, and additional mentoring from Goldman Sachs.

“I received a lot of assistance with startup, but I feel so alone as a business owner trying to scale in Michigan ... there’s no one who can help me to take it to the next level.”

Financial assistance for scaling the company and o setting revenue shortfalls at the Detroit site tied to product shortages would de nitely help, Hayes-Stallings, 40, said. But the main thing she needs at this point is guidance in best practices for operating at a larger scale in areas like staing and human resources, supplies, and shortages and logistics.

“I am working on creating an advisory board for Skinphorea ... to help me with that. But it would be great if there was some type of assistance or training from someone that is experienced with this type of growth that could help and guide Skinphorea so we aren’t making mistakes (we) shouldn’t make.” e new state funding coming this year could help fund some advanced planning, she said. NEI is talking with two small business support organizations, Michigan Women Forward and TechTown Detroit, about expanding second-stage services.

NEI is planning now to push second-stage funding / support for under-served, Black entrepreneurs and other entrepreneurs of color, Dinaro said. It’s looking to bring more second-stage support online in 2024.

Building a strong ecosystem of sec- e second thing is getting them the skill set and the infrastructure to grow, including things like marketing, robust technology, human resources and nancial expertise.

“ e secret to building second-stage companies is to be on the ground and to make sure you know what they need and what they are weak in. No one calls you up and says, ‘I don’t know what I’m doing here.’”

TechTown is providing a level of strategy and technical assistance and coaching for entrepreneurs ready to scale their companies as part of a suite of services it provides to small and tech-based businesses, said Dawn Batts, director of growth capital.

It’s also providing limited funding for small businesses seeking to grow with support from the Gilbert Family Foundation, she said.

Still, “We do see a need for more support… nancial support as well as some mentoring… we really need some more connection to corporate partners and things like that, as well,” she said.

TechTown is preparing to pilot a new, 12-week program to help established, revenue-generating service companies grow. “Scale Studio” will identify ways those companies can use technology to generate additional reliable, recurring revenue and create more jobs in Detroit, Batts said.

“Positioning these companies for growth will not only include integration of technology but also may require additional coaching and infusion of capital,” she said.

Contact: swelch@crain.com; (313) 446-1694; @SherriWelch