New entrepreneurship research from Professor Maria Minniti of Syracuse University’s Martin J. Whitman School of Management and Professor Lois M. Shelton of California State University, finds that government and commercial procurement programs may be a means for some minority-owned ventures to achieve a critical threshold level of sales and establish themselves as gazelles, new ventures with annual growth rates exceeding 20 percent. Less than four percent of all newly created firms achieve such growth rates.
The research, forthcoming in Small Business Economics Journal, primarily addressed two questions: (1) How do preferential procurement programs influence the product market access of minority entrepreneurs? (2) Does the influence of these programs on product market access differ for high growth and lower growth entrepreneurs?
According to Professors Minniti and Shelton, access to product markets is a key barrier faced by minority entrepreneurs. Preferential procurement programs, such as government set-asides, were created to assist entrepreneurs in conquering this barrier. However, the examination of past programs illustrated that many of these programs did not yield the expected results because they failed to align private and public incentives and market discipline was absent.
“The absence of market discipline creates distortions and the waste of scarce resources that, instead, can be effectively mobilized to allow high-quality minority businesses to overcome resource constraints and achieve the critical market size necessary for rapid growth,” Professor Minniti said.
The researchers explored the impact of recent and incentive compatible programs on product market access. Specifically, they used a qualitative approach and conducted semi-structured interviews with minority entrepreneurs, as well as a control group, in the Los Angeles metropolitan area.
“We found that some minority entrepreneurs are able to leverage their status and participate in programs which give them access to a critical market size otherwise unavailable to them,” said Professor Minniti. “This is done through the acquisition of minority business certifications which allow them to participate in government set asides and commercial supplier diversity programs.”
The research confirms that all new businesses are particularly vulnerable in the first few years of their existence but shows that reaching a critical market size is necessary to achieve rapid growth and expansion for venture with scalable business models.