A $Three trillion alternative for Black entrepreneurs is rising

Black and other minority entrepreneurs have a $3 trillion opportunity to become entrepreneurs through the Great Business Transfer, according to a new report from McKinsey.

“This is the largest ownership transfer in modern U.S. history,” said report co-author Shelley Stewart, senior partner and chair of the McKinsey Institute for Economic Mobility. “This is a great opportunity, but there is also a challenge. The problem is that many viable businesses may not be successfully transferred because the market to connect buyers, sellers and capital is not built at scale.”

Researchers predict that 6 million small and medium-sized enterprises (SMEs) will be available for acquisition by 2035. If Black, Latino and women entrepreneurs can increase their stakes in these transforming companies, there is the potential to unlock $3 trillion in new household wealth, the report says.

McKinsey said the contrast between opportunity and risk is particularly stark for the black community.

Only 3% of U.S. entrepreneurs are Black, compared to 13% of the population. If current trends continue, Black entrepreneurs are expected to gain $87 billion in transferred business value. However, if they increase their participation in the Great Business Transfer, the figure could rise to over $369 billion. Conversely, without greater participation, wealth disparities would only widen, the report says.

Stewart added that the impact of transmission extends far beyond underrepresented communities.

“Success is achieved by having the broadest possible pool of entrepreneurs who can buy these companies. So that means you have to be inclusive,” Stewart said. “This is in the interest of all Americans. This impacts employment, it impacts local economic spending, it impacts wealth creation.”

Financing and business discovery

According to McKinsey, the biggest challenges for potential buyers in Black and other minority communities will be financing, accessing 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. “We also work in other traditional financial institutions like banks, so the capital is there.”

But Walthour added that it is imperative for members of the Black and minority communities to understand the dynamics of acquiring a business versus starting a new business.

“You can get people to put capital into a business that already exists. One of the hardest things is raising capital to build that business,” Walthour said. “The basic principles of capitalism should always be in place, and that includes return on capital. This is how professional investors think about capital allocation.”

John Hope Bryant, founder and CEO of Operation Hope, also emphasized the need for Black entrepreneurs to seek opportunities in key industries rather than personal interests.

“You don’t have to fall in love with this business,” Bryant said. “Business is not personal. Once that change happens and you combine the hustle we have with the untapped ambition, you become a millionaire. We’ve never tried this boring, traditional approach.”

The planning process

The McKinsey report highlights five phases of a successful ownership transition: 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 underscores the need for certified financial planners as, in many cases, potential buyers would be entering uncharted financial territory.

“The right planning infrastructure can be useful for expanding minority ownership in companies,” Gray said. “Certified financial planners are better able to structure tax strategies that will help someone when they want to strategically transition into ownership. It’s an important component that most business owners don’t think about when they talk about acquiring a new opportunity.”

Brandon William Jones, founder of Gravy Wealth, works with the National Black MBA Association to help professionals become entrepreneurs, a transition he calls from “earner” to “owner.”

“It’s more important now than ever to stay in control and capture the value you create,” Jones said. “The world is moving to a place where workers, especially knowledge workers, are now becoming optional.”

You have influence

McKinsey’s Stewart said the potential for disruption from AI only increases the potential for corporate acquisitions.

“What’s in the 6 million businesses? There’s retail, there’s restaurants, there’s construction, there’s healthcare. There’s small manufacturing businesses. Those will certainly be impacted by AI, but these are labor-intensive businesses that continue to need workers,” Stewart said. “AI will play a role in helping entrepreneurs become smart across various industries. AI is unlikely to make these companies obsolete.”

“It’s going to be a question of whether we can create the market mechanism that connects companies to entrepreneurs and capital. I actually think we could see an acceleration in the next decade if we can bring together the infrastructure that actually gets people to buy these companies.”

Jones also said that AI can also be an important tool for reducing wealth and ownership disparities: “If someone advances AI, not only can they potentially acquire that company, but they can also implement the AI ​​playbook to drive much more efficiency and value.”