Economic affirmative action…you’re on your own!

By Tomi Morris Johnson

Digital images by Kurk D. Johnson
©2002 WingcomLtd. All Rights Reserved.

August 8, 2002, Atlanta, GA…In the American Land-Of-Business, acting affirmatively is all about two things – whether you can make money or save somebody some money. Anything past that is all smoke and mirrors. It does not matter what your idea, dream, ethnicity, wardrobe, sex, group affiliation, education level or good intentions are.  The bottom line is – can you consistently deliver at a competitive, value-added price? If so, you still need a savvy cadre of relatives, associates, and netweavers to help you navigate the complex terrain of wealth building in the United States.

“Hope remains where company is true.”

The Lady of the Woods, Lord of the Rings, Fellowship of the Rings

 

(L to R) Forum Moderator Dr. Julianne Malveaux asked panelists Terrell Slayton, Leonard Clark, Thomas Dortch, Janice Mathis, Bill Campbell, and Sallie Daniel whether affirmative action was “hope or hype.”

Those were the messages acknowledged at the 2002 Economic Issues Summit “Affirmative Action: Hope or Hype” presented by the National Black MBA Association, Inc., Atlanta Chapter and the 100 Black Men of America. Sponsors of the event held at the Westin Peachtree Plaza Hotel included Procter & Gamble, Northwestern Mutual Financial Network, Bridgestone, National Minority Franchising Initiative, Marta, BellSouth, and Minority Professional Network.com. The turnout was light, with many corporate tables left unattended or half full.

Yes, I agree companies do seek minority contractors and are bound by federal law to offer an equal opportunity playing field when doing business. There are mandates, executive orders, and best practices policies urging equal opportunity. It still appears, though, that minorities are not getting their piece of the pie from a lopsided economic table, which makes appeals for affirmative action grow louder.

The number of minority-owned businesses grew more than four times as fast as U.S. firms overall between 1992 and 1997, increasing from 2.1 million to about 2.8 million firms, according to the Commerce Department's Census Bureau. In Georgia during 1997, minority owned businesses were 6.41% of the total businesses operating in the state (http://www.census.gov/epcd/mwb97/ga/GA.html). Minority firms, however, won less than 2% of total state contracts in 2001. That, my friends, is a pitiful example of fairness and a call to step aggressively for change.

Minorities are expected to represent 50% of the US population by 2050. “This will create opportunities for consumer and business sales in those communities where minority business, if correctly positioned, could have a competitive advantage,” according to The New Realities for Minority Business report released by the US Department of Commerce Minority Business Development Agency.

◄While the number of minority businesses are growing, those picked by big business is declining. The way some minority vendor programs are designed, a M/FBE almost has to be a successful, established business to meet corporate supplier guidelines or must collaborate with another firm with a track record of success.

The report further states the number of corporate suppliers are decreasing because “procurement is moving from a cost center to an activity of strategic importance…Large, merged companies usually streamline their operations by seeking larger, first-tier suppliers who can deliver high volumes at consistently high quality, provide rapid execution, and have substantial capitol resources.” (http://www.mbda.gov/documents/strategies.pdf).

The reports suggests that corporate business strategies have changed over the last 20 years. That means a change in minority/majority joint ventures, competition with technologically advanced e-commerce companies, enhanced customer service, anti-set aside rhetoric and increasing lawsuits, increased credit regulations and scoring,  and a dwindling of small contracts for 8a firms. If you are not big and highly capitilized, unable to acquire mezzanine financing, or have a fuzzy market niche, your abilitiy to do business on a large scale is nullified.

On top of all that, minorities and women still have this race and sex thing to contend with which is exacerbated by a legacy of poverty. While fraudulent Enron was loaned $250m as soon as bankruptcy papers were filed, disadvantaged business people are given rudimentary credit advice from financial advisers: a $15 delinquent account on a Rich’s charge card could jeopardize securing a line of credit. Loan officers look at what may seem trivial in today’s debtor economy, make decisions about your credit worthiness, and make judgments on your ethical and moral character based on a credit report.

▲Michael McGill Harris, president of Harris and Associates Consulting, says he is tired of all the talk surrounding Black business success and is ready to see some action. “We need to have a collaboration project with the major people in responsible roles – Oprah, Farrakhan, T. D. Jakes, Creflo Dollar, etc.- all minorities should sit down at the table. We need to get beyond meeting and talking and think about inclusion and netweaving,” Harris said.

▲Dr. Julianne Malveaux said she was surprised to learn that less than 2% of Georgia’s state contracts were awarded to minority-owned businesses. “Fixes to our plight are political participation, leveraging, youth involvement, and sometimes boycotting. We have to be committed to closing the wealth gap,” Malveaux said.

Before trudging to a lending institution or a corporate client, you had better check your asset to debt ratio and balance sheet. Your “angel” network of friends and family better be in place. Your research on how the Jewish, Asian and Hispanic communities do business better be up to par as well as how the top rated companies in your field are doing. Your ability to market your product(s) or service(s) as the best out there better be documented and packaged. Your savings must be in a LARGE piggy bank, and it helps to have a personal banker. Your self-esteem has to be ready for rejection and poised for the next test. You have to be able to bring something to the business table of value and not afraid to ask for the moon. You have to find a niche.

Your system of doing business must be validated in case stress overcomes you, claiming your body and company. Your philosophy of building a business must override your ability to be self-employed. Your team of accountants, tax experts, lawyers, insurance providers as well as management team/employees better be well trained. Your technology tools must be executable. You must read, work, and prepare to be flexible.

◄Minority Business Development Center’s Clem Wilmot (l) said you must bring something to the table of entrepreneurship, including research.  Georgia Minority Supplier Development Council’s George Lottier says you must impress on clients that you have the best product.

Daniel McCoy, Jr., CEO of Star Relocation Systems, Inc., said knowing the right people is key. “One dilemma in becoming successful is wadding through paperwork and trying to find out who you need to talk to. Performance is a gimmee; what we need is exposure through networking and self-empowerment,” McCoy said.►

You also need to rationalize whether you want to “own” your own business, or have the lender/venture capitalist actually own everything you possess. You have to think past the ‘90’s when Dot.com economics paid off big but failed fast. Think twice about antiquated wife’s tales of paying in cash and owing no one, and heavily weigh advice from the brothers who say, “Use the white man’s money first.” All this must be done within a 25-hour day with you coming up with the extra 60 minutes.

The Minority Business Development Agency has these suggestions for increasing the success rate of minority firms:

  1. Stress the compelling importance of minority firms to the world’s economic infrastructure
  2. Encourage joint ventures, strategic alliances, mentor programs, consortiums and partnerships
  3. Explore new markets
  4. Develop new sources for capital
  5. Support new technology initiatives
  6. Leverage government resources

▲“We need to get away from a vision of doing things to a plan of action and implementation,” said Apostle Dr. Jamie Pleasant, pictured with wife, Kimberly, who are with Kingdom Builders Christian Center.

▲After the forum, attendees were invited to a reception sponsored by “Mac” McDonald, owner of Vision Cellars wines. “I sell fine pinot noir and have my own, personal banker,” McDonald said.

To be a successful entrepreneur, you have to do what you love AND do your financial homework. Most importantly, you must be willing to play the game. Relate to this story a friend, Maggye, emailed me:

A young boy, Bernie, moved to the country and bought a donkey from an old farmer for $100.00. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, “Sorry son, but I have some bad news. The donkey died.” Bernie replied, “Well then, just give me my money back.” The farmer said, “Can't do that. I went and spent it already.” Bernie said, “OK, then just unload the donkey.” The farmer asked, “What ya gonna do with him?” Bernie told him, “I'm going to raffle him off.” Said the Farmer, “You can't raffle off a dead donkey!”  Bernie answered, "Sure I can. Watch me. I just won't tell anybody he is dead.” A month later, the farmer met up with Bernie and asked, "What happened with that dead donkey?” Bernie said, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00.” The Farmer said, "Didn't anyone complain?”  Bernie said "Only the guy who won. So I gave him his two dollars back." Bernie grew up and eventually became the Chairman of WorldCom.

INTERVIEW with LONNIE SABOOR, Atlanta Development Authority and Reuben MCDANIEL, III, Jackson Securities

▲Workshop speakers Lonnie Saboor (holding the money) and Reuben McDaniel, III from Atlanta say do not expect financial institutions to change their rules, because they won’t. You have to find ways to claim capital from a myriad of sources to succeed in business. When borrowing money, “benefits have to outweigh the debt,” Saboor said. “You have to be careful not to over leverage,” McDaniel added.

Q:  Some older Black Americans have the business philosophy of paying for everything in cash. In today’s million dollar, competitive market, that may not work and you may need capital to run a business. What is your advice on building a business on credit?

Saboor:  The whole thing is leveraging – you want to position yourself to be able to leverage your operation by going to another level. You want to use a very systematic approach in which you can get access to a line of credit for $250,000 to $500,000. You have to ask yourself, “What are the benefits to me of borrowing money?” The benefits have to outweigh the debt.  Can you use this money, for instance, to hire a new marketing person who can bring in X number of dollars? Yes, you want to continue to pay your bills and be as liquid as you can, but at the same time, you want to be able to take advantage of opportunities to access capital for growth.

McDaniel:  Paying for everything in cash is an antiquated mentality. If you have 100% credit, it means you have an infinite return on your equity. You want to try to leverage your business as much as possible so that the actual capital you put in gets the highest return. On the flipside of that, credit is dangerous. From covenant and credit perspectives, you have to be careful not to over leverage. If you plan to pay cash for everything and never borrow, the ability to grow your business will be hamstrung. In today’s environment, credit is just another tool that can be used to do business.

Q:  I get very shaky when I hear people talking about empowerment zones and the use of government money to start minority businesses. There are examples of Black people signing away everything to get some business locations on Main Street, who wind up going out of business in two to three years. Sometimes Blacks get guaranteed government loans but don’t have the business background or enough capital to be successful. How can minorities keep from falling into this type of trap?

“The history books are filled with example after example of statues – local, state, and federal – designed to keep Blacks from participating in the economy.  If you can’t participate in the economy, you are not part of the culture.”Arthur A. Fletcher, Nixon’s Assistant Secretary of Labor for Employment Standards, 1969

Saboor: The key is treating government money like any other kind of money. The key still is accessibility. Just because you are able to get in a business with 10% equity does not mean that is a good thing because with that comes 90% debt.  There may be some low interest money, but you have to treat that debt as any other debt.  It is not a grant that does not have to be paid back. With loans come responsibility, restrictions, and requirements which may include signing away your home, personal guarantees, and liens on all your assets. This is very serious. You must be prepared to take advantage of opportunities, but don’t do anything financially unless you know you’ll be able to get out of it.

McDaniel:  The empowerment zone is just a tool. No one should go into business because of the empowerment zone. They should go into business because it’s something they’re good at, enjoy, and something they can make a profit. Unless you have a fundamental business opportunity, you should not be in an empowerment zone or anywhere else. The empowerment zone has such good economic features that people who had not thought of starting a business try to get into something they never should have tried in the first place. We can’t get overly exuberant about the empowerment zone, but must really try to find businesses and business owners who can fit into that zone and can make it work.

People will go to good quality businesses. The empowerment zone in Atlanta has an excellent location. One thing about real estate is location, location, location, but if it is not filled with good, quality proprietors, it’s not going to work. My advice is find something that you love to do. Once you figure that out, find out the best vehicle to use – whether that is working for a small business or major corporation. Too many times in the past, you see someone or groups who understand the economic advantages of the empowerment zone and sort of force some businesses into it. That’s how you come up with failures.

SIDEBAR: FROM A CORPORATE PERSPECTIVE:  How do minority-owned companies do business with the big guys?

 Ron Frieson, VP, Chief Diversity Officer, BellSouth Corporation

“You must understand and be aware of existing opportunities. A number of corporations have policies in place that allow a tremendous amount of minority participation in getting contracts. Diversity, or inclusion, is a big part of our business.

“Most companies who come to us are experts in their business, but they must have a strong infrastructure, the ability to manage their cash flows, access to capital so they can carry inventories, and the ability to be around long-term. Obviously, if you are a supplier to a company as large as BellSouth, we are very concerned about how long you are going to be in business.

“You must do business throughout our operating region. Many small businesses do not like the idea of growing as fast as we would like them to grow.  There is a fear that they will depend on us too much as being their largest customer. We do not want to be your only or largest business customer and encourage multiple customers. We want to be a partner in the network of businesses that do business with you.”

Credit Card Users Beware!

(Things aren’t always what they appear.)

Ever wonder why some people can get introductory, credit card rates as low as 0%, fixed rates, and then find themselves facing 19.9% rates within a few months?  According to many credit card companies, “fixed rate” does not mean permanent or unchanging, for they can raise your interest rate depending on their evaluation of you as an unsecured customer, even if you pay all your bills on time!  Credit card companies have instituted policies to make the poor stay they way if they use credit too much.  Do not fall into this trap! If you do not need it, do not buy it – you’re only making the credit card company rich!  If you always pay on time, creditors probably know you will continue to pay on time, even if the interest rate goes up! If you have a credit card, make sure you read your entire statement and any bill inserts because it may contain information regarding rate changes.

IMPORTANT: Predatory Lending and You!  - Georgia’s new Predatory Lending Law involves home mortgages and does not necessarily pertain to credit card rates. To report issues regarding your credit card rates, you should contact the Georgia Department of Banking and Finance at http://www.state.ga.us/dbf/dbf.html.

The information in this article is the opinion of the author and, therefore, should not be construed as libelous.

Send comments or remarks on this subject to:  tomij@wingcomltd.com.