Why isn't entrepreneurship more diverse?

Last year, I did a research project on the lack of diversity in entrepreneurship. The goal of the project was to identify why marginalized groups got involved in entrepreneurial activity on campus and how we could replicate those factors to make the pool of entrepreneurs more representative of the student body.

As I worked my way through the literature and dozens of interviews, the research question evolved. The final product was answering the question: “why don't students of color and low-income students take risks?"

I've published some of this before, but it's important enough to build on and give a stable internet home to.

Why isn't entrepreneurship more diverse?

You can't be what you can't see

First, young people are 20%+ more likely to start a business or organization when they have a *relatable* mentor who has done similar. If there is nobody who looks like you or who grew up in a similar environment who has opened a business, it’s far less likely you’ll take that path. That goes for women, people of color, and low-income students.

The crazy part? That’s a general statistic. It includes everyone. If you remove white people and the upper-half of the income bracket from that equation, the gap goes from 20% to almost 40%. Mentors matter, and historically disadvantaged populations just don’t have the mentorship in those spaces.

In fact, a Berkeley study published in 2014 found that mentorship doesn't really matter for students who come from "risk-friendly" backgrounds. It might be relevant to the magnitude of their success, but it has no effect on whether or not those students pursue an entrepreneurial career.

On the other hand, the impacts were massive for those disadvantaged groups. Students with entrepreneurial mentors started their own projects and companies at a 45.5% higher rate.

You can't be what you can't see.

"Entrepreneurship" is a learned personality trait

Second, we often see risk-taking actions like starting a business as functions of self-motivation, purpose, and passion. That’s true. But those aren’t just intrinsic personality traits — they’re learned. They’re developed from a young age.

Another study from the London School of Economics says that affluent white men are more willing to partake in “aggressive, risk-taking activities” than any other racial or gender demographic. It attributes that gap to “mindset inequality”: the idea that risk-takers grew up *thinking* like risk-takers.

More specifically, women see much of the same. Vishal Gupta of Binghamton University in New York argues that adopting that mindset is extremely difficult for women who, again, don't see female entrepreneurs as the rule rather than the exception.

In low-income and/or minority households, structural inequality has dramatically shifted mindsets to the point where people don’t really *believe* that those risky spaces are for them. It’s the “we’ve just gotta make it” mentality.

That concept of "mindset inequality" is key. Risk-taking behavior is learned, often across generations. Ricky Yean said it best:

Tangible inequalities —such as lack of money or lack of access to high-quality education– get the majority of our attention, and deservedly so. But the inequalities that live in your mind can keep the deck stacked against you even if you manage to make it out of the one-room apartment you shared with your dad. This is an insidious problem. It’s difficult to discuss, and takes a long essay to explain.

The London School of Economics backs up these claims. They found that “[disadvantaged groups] are less likely to take risks and more likely to conform to and value tradition. This is reflected in … career choices oriented towards job and financial security.”

A rebuttle to a common argument.

I want to address a common piece of criticism to the diversity in entrepreneurship argument. In response to this project, a lot of people told me "there are so many immigrants who start businesses! Many of them come poor! Many of them are minorities! None of this can be true!".

These people are correct in that a lot of immigrants do start successful businesses in America. In fact, while immigrants make up 13% of the U.S. population, they create 30% of all new businesses. That's awesome.

However, immigrants are a community that, inherently, are more likely to take risks. They immigrated! By definition, they moved their life, and often family, to an entirely different country. That's not exactly risk-averse behavior.

Not to mention, not all immigrants are minorities and/or of low SES. When we look at American minorities as a whole, the U.S. Senate Commission on Small Business and Entrepreneurship found that "though minorities make up 32 percent of our population, minority business ownership represents only 18 percent of the population."

So that's the field we're playing on. That's what we're trying to figure out.

Next steps

In short, much of the issue boils down to self-confidence and representation. But both are self-fulfilling prophecies — it's hard to gain the confidence to do something that you don't see people like you doing, but that won't happen until more people take the leap.

Diversity in entrepreneurship is inherently valuable because people are inherently valuable. But there are also tangible economic benefits for everyone. Some of those impacts are just a function of having more people become entrepreneurs. Entrepreneurship is always good for the economy.

But some of the benefits are more nuanced. For example, diversity drives innovation because of the new backgrounds and ideas that are brought to the table.

Part of PALACED's goal is to help people take that leap. In the future, we plan on exploring the economic and societal benefits of a diverse and equitable entrepreneurial ecosystem.