Our Black Year
Page 27
7. Buy in bulk. When you go to the one Black-owned dollar store in your city, buy five containers of lotion, ten bars of soap, three containers of dishwashing liquid, five boxes of pasta, and three bottles of veggie oil!
8. Consult your local Black Chamber of Commerce and Urban League. They know the best-quality local entrepreneurs, and they want to hear from you. (Go to http://usbci.org/, http://www.nationalbcc.org/, and http://www.nul.org/.) If they don’t have the answer to your question, they know how to find it.
9. Buy or Die. When you buy Black, you are not just buying bananas, shoes, coffee, or a laptop; rather, you are making an investment in our collective well-being. So buy Black as if our future depends on it—because it does.
10. Black businesses are not charities. Do not think you are doing someone a favor by buying Black. Yes, it is our duty. But when you start thinking that this is an extra thing you gotta do, it transforms what should be a natural and voluntary act into a burden, which ultimately has an impact on your spending habits.
11. Black is better. You have to work from the paradigm that our businesses, entrepreneurs, goods, and services are the best. And they are the key to your community’s future. That truth is priceless and better than anything else.
12. Share your great finds with The Empowerment Experiment. We are out there preaching about how Black businesses and professionals are the best in the world. We need to back that up. If you own a business, register it on the EE website (www.EEforTomorrow.com). If you find a great Black business, let us know so we can spread the word. Every time you do you make it easier for the next family or business to buy Black, and it improves the strength and credibility of our movement.
13. Save your receipts. Get a big envelope and put your receipt in it every time you make a purchase. Soon this action will become second nature. And when you look at these little pieces of paper at the end of the week or month, you will smile, recommit to this effort, and think about the future you’re creating.
14. Join with us. We get asked all the time, “Have you been able to inspire others?” The movement will die if it’s just the Andersons. From the start we envisioned a national campaign in which Americans would pledge to support Black businesses and the mainstream corporations that do business with Black businesses via substantive supplier, vendor, and franchisee diversity, and The Empowerment Experiment would facilitate and monitor the fulfillment of the pledges. We are building partnerships with several historic, activist, and professional organizations like Frasernet, civic groups, corporations, and academic institutions to do this. The money you spend is your EET (EE Total). This is what the EE Campaign—which we’re calling the “What If?” Campaign—is all about. The cumulative spending will be tracked in real time and showcased on our website. So please make your purchases and investments really count by keeping track of your spending and passing that information along to us at www.EEforTomorrow.com.
The EE Foundation needs your support. Please send your donation to:The Empowerment Experiment Foundation, Inc.
PO Box 464
Berwyn, IL 60402
Appendix 2
The Empowerment Experiment
The Findings and Potential Impact on Black-Owned Businesses
Dwetri Addy KSM ’10,
Ajamu Baker KSM ’11,
Arielle Deane KSM ’11,
Stephanie Dorsey KSM ’11,
Susan Edwards KSM ’10
3/19/2010
This paper was completed by Kellogg students as an independent study project under the supervision of Steven Rogers, a Kellogg professor and director of the Levy Institute for Entrepreneurial Practice. Professor Rogers was an economic sponsor of The Empowerment Experiment and an advisor to John and Maggie Anderson as they complete this project.
BACKGROUND
The Empowerment Experiment
The Empowerment Experiment (EE) is a creation of John and Maggie Anderson in which they, along with their two children, publicly committed to purchase solely from Black-owned businesses for one year beginning in 2009. The Andersons maintained a detailed account of the project by documenting the search for products and services, a log of purchases or investments made, and records of quality and pricing relative to a “typical” expenditure. The Empowerment Experiment researchers have used the data from the Andersons’ reports and other supplementary sources to track the impact the study could have on black businesses if replicated in the United States.
The Andersons
John C. Anderson is cofounder and president of The Empowerment Experiment. John is currently president of In Sight Financial Management, a financial services firm that provides wealth protection strategies, asset management, and financial and estate planning to individuals and businesses. Prior to this role, John was a manager with Cap Gemini and Ernst & Young, and a finance director with Ameritech. John holds an AB in economics from Harvard University and an MBA from Northwestern University’s Kellogg Graduate School of Management.
Maggie Anderson is CEO and cofounder of The Empowerment Experiment. Maggie is an accomplished strategy professional with twelve years of legal, research, communications, and business strategy experience with a JD and an MBA from the University of Chicago.
John and Maggie Anderson live in Oak Park, IL, with their two daughters.
ANALYSIS OF THE RESULTS
Businesses and Sectors
Over the course of 2009, the Andersons made 513 purchases and spent approximately $48,943. These purchases spanned approximately 23 sectors as described in Exhibit 1.1 Child care, automotive, restaurants, and food merchandise expenses accounted for over 74% of the dollars spent with Black businesses or on Black products, which totals $36,373.71. While the Andersons were able to spend approximately 68% of their after-tax income with Black businesses, there were numerous products and industries that the Andersons were unable to find. As described in Exhibit 2, the luxury and higher-end clothing merchandise, food retail such as grocery stores (after the only Black-owned grocery store closed), and general home merchandise were some of the products the Andersons were unable to find in the Chicago metropolitan area. The Andersons often relied on Black-owned dollar stores to purchase products they would traditionally purchase at specialty retail stores.
EXHIBIT 1 Industry Sectors Represented
EXHIBIT 2 Sector Gaps in The Empowerment Experiment
Quality and Service
The Andersons logged quality and service ratings for each of the businesses they patronized. The ratings were coded on a scale from 1 to 6, with the following qualitative ratings attributed: 1–Fair/Below Average; 2–Average/Satisfactory; 3–Good; 4–Great; 5–Excellent; 6–Outstanding. The top five sectors with consistently high quality and service were: Health Service, Appliance Repair Service, Security, Leisure/Hair/Spa, and Shipping Service (Exhibit 3). These services on average ranked 5.6 out of 6. In contrast, the sectors with the lowest ratings for both quality and service were Banking/Financial, Dry Cleaning, Real Estate, and Transportation (Exhibit 4). In aggregate, 45% of the industries represented scored a 5 or above. Other sectors, such as Restaurants, were widely utilized, but represented only average ratings for both quality and service.
EXHIBIT 3 Highest Quality and Service Ratings by Sector
EXHIBIT 4 Lowest Quality and Service Ratings by Sector
Marketing and Sources
Finding Black-owned businesses that could meet the Andersons’ product and service needs was a challenge. The main channels utilized were web research, personal referrals, and organizational referrals (Exhibit 5). These three channels accounted for a purchase total of $37,530.62 (~77% of the purchases). Black-owned business web directories FindmeChicago.com and Blackpages.com were significant web research sources for the Andersons, while the Chicago Urban League was the dominant source for organizational referrals.
EXHIBIT 5 Sources as % of Dollars Spent
Geography
Assumptions
Over the course of the experiment, the Ander
sons’ purchases were made primarily but not exclusively in the Chicago metropolitan area. In this paper, we focused on purchases made from Black-owned businesses within the Chicago metropolitan area. Additionally, products that were manufactured by Black-owned firms but not purchased in Black-owned establishments were not included (example: Sean John shirt purchased at Carson Pirie Scott).
Analysis
The majority of Black-owned businesses from which the Andersons purchased were located in the city of Chicago versus its surrounding suburbs (Exhibit 6). The majority of the businesses (73%) were located in the city and 27% in the suburbs. Also, a large portion of the purchases were from businesses located on the city’s South Side and Chicago’s western suburbs (Exhibit 7). This observation is consistent with the fact that the Andersons live in a western Chicago suburb (Exhibit 7).
EXHIBIT 6 Proportion of Businesses by Location (Chicago vs. Suburbs)
EXHIBIT 7 Number of Black-Owned Businesses per Region
In terms of the frequency of purchases, the purchases were more likely to be made in the city rather than the suburbs (see Exhibit 8), however the total dollars spent were significantly higher in the suburbs.
EXHIBIT 8
Number of Purchases Made at Black-Owned Businesses and Dollars Spent (Chicago vs. Suburbs)
EXHIBIT 9
Number of Purchases Made at Black-Owned Businesses by Region
Following the city vs. suburbs analysis was an exploration of purchase locations within Chicago (i.e. north, south, west, downtown, northwest, and southwest). Per Exhibit 9, the majority of purchases made in the city were made in communities on the South and West sides of the city (65% and 31%), which are predominantly African American.
In contrast to number of purchases, Exhibit 10 shows that the highest amount of dollars spent was on the city’s South Side rather than the West Side ($9,199.78 versus $3,651). For purchases made in the suburbs, the highest quantity of dollars spent was in the western suburbs ($21,725).
EXHIBIT 10
Dollars Spent with Black-Owned Businesses by Region
These data on the number of Black-owned businesses patronized by the Andersons and the quantity of dollars spent are not representative of the total Black-owned businesses across the Chicago metropolitan area. The Andersons’ purchases are a single data point and are representative solely of the family’s needs and purchases, not of the typical Black household. However, this data does show that for the Andersons’ purchases, they needed to travel extensively across the Chicago metropolitan area to obtain products or services they needed.
THE POTENTIAL BENEFITS OF SELF-HELP ECONOMICS
Analysis of The Empowerment Experiment data has demonstrated that in a metropolitan area, namely Chicago, Black families have the power to impact Black businesses by purposefully spending their disposable income. It is important to note that as a one-family sample, the findings cannot be perfectly statistically generalized to the US population as a whole. However, the experiment provides an illustration of what may be possible.
While the Andersons directed approximately 68% of their after-tax income to Black businesses, this large percentage may not be attainable for many Black families who cannot or will not devote an extraordinary amount of time searching for, traveling to, and repeatedly purchasing from Black-owned businesses. Accordingly, we ran a number of scenarios, from 2% to 68%, to identify the aggregate impact that Black households with an annual income of $75,000 or higher can have on Black businesses. By spending 10% of their income on Black businesses, these households can theoretically transfer over $17.5 billion in revenue for said businesses.
Current Self-Help Economics in the Black Community
Statistics detailing exactly how much Black consumers currently spend with Black businesses are hard to find. Black-business-owners.com claims that African Americans currently spend 6–8% of their disposable income with Black businesses, but the origins of the data are unclear. In his book PowerNomics, Claud Anderson cites: “We spend approximately 95% of our income outside of our communities. Only two percent remains in Black hands inside the Black community.”2 Based on these two sources, we will assume Black consumers recycle between 2% (conservatively) and 5% of their after-tax income within the Black community.
EXHIBIT 11 Current Dollars Recycled in Black Community (assuming after-tax income percentages)
With these assumptions, it is clear that the Black community is forgoing potential benefits of group economics by not spending and/or reinvesting more money within the Black community. The numbers are striking: In 2008, Black buying power was estimated to be approximately $913 billion; in 2013, it is expected to reach $1.2 trillion.3 Unfortunately, even with liberal estimates, only pennies on the Black dollar are staying within the Black community (Exhibit 11).
This demonstrates that as much as $894 billion are being left on the table. While 100% of those dollars may not enter the Black community, a larger percentage than 2–5% should be feasible.
Expanding The Empowerment Experiment: Quantifying the Impact
The Andersons’ expenditures (to both Black and non-Black owned businesses) totaled approximately $135,000 in 2009. Based on that figure, they are in the top 6% of all Black households in terms of disposable income.4 Under the assumption that higher income individuals have more resources to devote to methodically patronizing Black businesses, we found that the aggregate of Black households with at least $75,000 of after-tax income reveals incredible potential for “Black” dollars, even with small increases (Exhibit 12).
EXHIBIT 12 Financial Impact of Self-Help Economics Based on Black Households with After-Tax Income of $75,000 or More
While the 68% mark is ambitious, if Black households with substantial disposable income increased their spending from the conservative estimate of 2% ($3.6B) to 10% ($17.8B) with Black businesses, more than $14 billion5 would be contributed to Black entrepreneurs or owner/operators’ revenues. If this logic were simply applied to all income levels, the impact would be substantial (Exhibit 13).
As previously mentioned, the analysis focused on families that are economically similar to the Andersons because they are more likely to have the financial means and overall capacity to divert their resources to Black businesses. Accordingly, in order to scale The Empowerment Experiment, we suggest that the movement start with higher-income individuals who can attract and patronize a diverse set of businesses in Black communities, followed closely by middle- and lower-income individuals. The added dollars from Black consumers should encourage would-be entrepreneurs to enter the market and capture the value of the Black consumer.
EXHIBIT 13 Financial Impact of Self-Help Economics Based on All Black Households
Expanding The Empowerment Experiment: Impact on Black Business Owners
Black Business Owner Realities
One of the challenges Black consumers face is that there simply are not enough Black-owned businesses that would make it convenient for local residents to “buy Black.” According to the US Census Bureau, while African Americans comprise 12.8% of the total population (2008 projections), 2002 data demonstrated that only 5.2% of all firms were Black-owned. This is a striking comparison to Asians who, in the same years, comprised 4.5% of the population but owned a proportionate 4.8% of firms.
If Black entrepreneurs saw more viable, sustainable opportunities for launching businesses in the Black community, these numbers could change drastically. Right now, there seems to be a vicious cycle that discourages potential entrepreneurs from realizing the revenue opportunity in Black communities (Exhibit 14).
EXHIBIT 14 Vicious Cycle for Black Entrepreneurs
Black Business Owner Potential
Notwithstanding this cycle that Black entrepreneurs face, $14 billion, even as a conservative estimate, is a considerable value that is left on the table. To illustrate the power of the $14B, we calculated the number of Subway franchises that could be opened in Black communities if that revenue was generated for Black businesses
. In the realm of entrepreneurship, franchises are often simpler and less risky to launch than a start-up; additionally the costs are known, which provides for a straightforward analysis. While Subway is not intended to represent the need for quality Black-owned businesses in all industries (as discovered by the Andersons), it will serve as a proxy for potential opportunity.6
EXHIBIT 15 Potential Impact on Black Business Owners