By: Mick Acevedo Loayza, Research Analyst, Pacific Community Ventures
What would it look like if jobs at America’s small businesses (the ones who employ almost half of Americans) were not the domain of the “working poor,” but rather “Good Jobs” that supported economic mobility through intergenerational wealth building? Research presented in Pacific Community Ventures’ newly released Good Jobs Journeys report demonstrates that investment in Black, Indigenous, Latinx, Asian American Pacific Islander (AAPI), and entrepreneurs of color (BIPOC entrepreneurs) could be key. This mixed methods study revealed that BIPOC entrepreneurs expressed greater motivation to create quality jobs, and kept pace with their white peers in offering employee benefits – despite entering the PCV portfolio with lower median revenues, and experiencing flat revenue growth over the past three years.
So how do we support their hard working efforts and wealth building prospects, to ensure that we are building an inclusive economy, and bridging the racial and gender wealth gap, one good job at a time? By providing innovative and affordable capital, Philanthropy and impact investors can help CDFIs and community based organizations provide restorative capital to small businesses. These investments are the building blocks of improving job quality and can help to remove systemic barriers to economic development that supports thriving communities.
With over 46% of workers in the US employed by small businesses, it is impossible to develop effective solutions that prevent working poverty without empowering small businesses to build community-scale wealth by providing good jobs.1 Among BIPOC entrepreneurs in particular, access to capital remains the most challenging barrier, with 80% of employer borrowers of color in PCV’s FY2022 Annual Impact Survey citing insufficient budget as their biggest barrier to improving job quality.2
Yet, as the diverse entrepreneurs in PCV’s lending portfolio demonstrate, BIPOC-owned small businesses are highly motivated to create quality jobs for their employees and economic well being in their communities – despite lower revenues at the time of receiving a loan and experiencing flat revenue growth over the past three years.
PCV’s Good Job Journeys research leverages quantitative data from PCV’s Annual Impact Survey and loan portfolio, alongside qualitative insights surfaced through PCV’s participatory research cohort, the Good Jobs Entrepreneurs Fellowship. Through this lens, we examined clients’ Good Jobs Journeys with an eye toward how CDFIs, SMB-serving networks, and philanthropy can more effectively invest in their full wealth-building potential. Here are four key lessons learned:
- BIPOC business owners continue to express intrinsic motivations behind creating good quality jobs, despite facing uphill battles to access growth capital. The participants in PCV’s inaugural cohort of Good Jobs Entrepreneurs Fellows – borrowers who worked with PCV to surface insights around the journey toward Good Jobs that attract and retain top talent – shared some of their motivations for entrepreneurship, including experiencing disrespect in prior workplaces, leading to a desire to leverage their businesses as a “force for good” in their communities:
“What motivates me to provide good quality jobs would be seeing my employees happy and satisfied. I always try to be mindful of how I would like to be treated if I was an employee. Also, it motivates me when my employees take initiative and make executive decisions on their own or come up with an idea. I love seeing the end result and I genuinely get excited from their input.” – 2023 Good Jobs Entrepreneur Fellow.
- Unsurprisingly, financial performance is highly correlated with Good Jobs outcomes, with profitable businesses 3.7x more likely to take steps to improve job quality. Smaller employers in the dataset, often BIPOC-owned, who brought in less than $300k in annual revenue but were still earning a profit were just as likely, or more likely, to improve job quality than firms bringing in more than $500k but breaking even.
- Aligning incentives with the financial performance of the business created win-wins for employers and workers. As resource-constrained, BIPOC-owned businesses in PCV’s portfolio continued to weather the rippling effects of the COVID-19 pandemic and a surge in inflation in 2022, these businesses frequently turned to performance incentives and employee ownership models, job quality attributes directly aligned with the success of the business which nonetheless can create pathways for economic mobility. As observed by an employee of one Good Jobs Fellow:
“An ownership stake goes a long way for me. If part of my compensation is incentive stock options or a share of the company, then I am even more motivated to do everything I can to make it succeed. And when there are a lot of people that feel that way, I don’t know if that is the reason for a good feeling of teamwork, but everybody feeling like they have stock or everybody feeling like they are a piece of the company – All of that together creates really great teamwork that makes the entire work experience better.”
- Historically “Blue Collar” Production and Service industries are generating revenue, but face economic headwinds to job quality and profitability, including high overhead and more exposure to inflation-related shifts. As the federal government prepares to distribute economic stimulus in the form of the Greenhouse Gas Reduction Fund, construction and manufacturing businesses will need stabilizing support to employ the Workforce for the Future in “Good Jobs” over the long-term.
To meet this critical moment, SMB-serving organizations and funders need to evolve thinking “beyond the credit box” and “beyond the check” to ensure these wealth-building community assets are positioned to lift up workers. Developing technical assistance interventions along critical decision-making nodes such as: 1) utilizing technology-enabled entry points like Direct Deposit to unlock the adoption of additional attributes, 2) providing education around financial performance incentives like employee ownership at the time of loan, and 3) positioning support for sustainable growth, such as flexible capital aligned with revenue recognition, within procurement funnels are great starts to recognizing the full power and potential of BIPOC entrepreneurs and their workers.
To bridge the racial and gender wealth gaps and build an inclusive economy, we must expand access to resources for employers who are intrinsically motivated to provide good jobs – ensuring they have the capital needed to offer livable wages, benefits, and opportunities for advancement. Ultimately, to provide economic stability and mobility for their employees. As the Good Jobs Journeys Report outlines, BIPOC-owned small businesses are highly motivated to create quality jobs for their employees and economic well being in their communities. Additionally, with 46% of the workforce employed by small businesses, investment in small businesses to sustain good job creation are the building blocks for ending cycles of poverty in this country.