There is a $3 trillion opportunity for Black and other minority entrepreneurs to become business owners as part of the “Great Business Transfer,” according to a new report from McKinsey.
“This is the largest ownership transition in modern US history,” said Shelley Stewart, a co-author of the report, senior partner and Chair of the McKinsey Institute for Economic Mobility. “This is a huge opportunity but there is also a challenge, the issue is many viable businesses may not successfully transfer because the market to connect buyers, sellers and capital is not built at scale.”
Researchers forecast 6 million small- and medium-sized businesses, or SMBs, will be available for acquisition by 2035. If Black, Latino and women entrepreneurs can increase ownership in these transitioning businesses, it has the potential to unlock $3 trillion in new household wealth, the report found.
McKinsey said the contrast between the opportunity and the risk is especially stark for the Black community.
Only 3% of U.S. business owners are Black compared to 13% of the population. If current trends hold, Black entrepreneurs are expected gain $87 billion of the transferring enterprise value. However, if they increase their participation in the Great Business Transfer, the number could jump to more than $369 billion. Conversely, without greater participation, disparities in wealth would only be increased according to the report.
Stewart added, the ripple effect of the transfer goes far beyond underrepresented communities.
“The thing that is going to make this successful is having the broadest pool of entrepreneurs to buy these businesses, so that means you have to be inclusive,” said Stewart. “This is in the interest of all Americans. This has implications on employment, it has implications on local economic spend, it has implications on wealth creation.”
Funding and finding the business
According to McKinsey, the biggest challenges for potential acquirers in the Black and other minority communities will be financing, gaining access to deal flow and navigating the advisory process in an acquisition.
“We have more Black check writers at venture capital firms and buyout firms than ever before,” said Jacob Walthour of Blueprint Capital Advisors. “Also working inside other traditional financial institutions like banks, so the capital is there.”
But Walthour added it’s imperative for members of the Black and minority communities to understand the dynamics of acquiring a business compared to starting a new business.
“You can get people to put capital behind a business that already exists, one of the hardest things to do is raise capital to build that business,” said Walthour. “The basic principles of capitalism should always be in place and this includes return on investment. That’s how professional investors think about allocating capital.”
John Hope Bryant, founder and CEO of Operation Hope, also emphasized the need for Black entrepreneurs to look for opportunities in essential industries as opposed to personal interests.
“You don’t have to fall in love with this business,” said Bryant. “Business is not personal. Once that shift happens and you connect the hustle we have, the untapped ambition … that’s how you become a millionaire. This boring traditional approach we have never tried.”
The planning process
The McKinsey report highlights five stages of a successful ownership transfer: aspiration and preparation, search and sourcing, deal structuring and financing, ownership and value creation and succession and exit.
Sheena Gray, CEO of the African American Advisors Association, said the transfer highlights the need for Certified Financial Planners as potential acquirers will, in many cases, enter unfamiliar financial territory.
“The right planning infrastructure can be meaningful to expand minority business ownership,” said Gray. “Certified Financial Planners are better positioned to structure tax strategies that will help someone when they want to transition to ownership strategically. It’s an important component that most business owners don’t think about when they are in talks about acquiring a new opportunity.”
Gravy Wealth founder Brandon Jones is working with the National Black MBA Association to help professionals become business owners, a transition he calls going from an “earner” to an “owner.”
“It’s more urgent now than ever to be in control and capture the value you create,” said Jones. “The world is moving to a place where the workers, the knowledge workers specifically, are now becoming optional.”
AI impact
McKinsey’s Stewart said the potential for disruption from AI only increases the upside for business acquisition.
“What’s in the 6 million businesses? You’ve got retail, you’ve got restaurants, you’ve got construction, you’ve got healthcare. You’ve got small manufacturing. These will certainly be impacted by AI, but these are labor intensive businesses that will continue to need labor,” said Stewart, “AI will play a role in helping entrepreneurs get smart on different industries, AI is not likely to eliminate the need for these businesses.”
“It will be a question of whether we can create the market mechanism that connects businesses with entrepreneurs and capital. I actually think we could see an acceleration over the next decade if we can pull the infrastructure together that actually sets people up to buy these businesses.”
Jones also said AI can also be a key tool for narrowing wealth and ownership gaps: “If someone is AI forward, not only can they potentially acquire this business they can run the AI playbook to drive a lot more efficiency and value.”
