Author Information : Maria Minniti (Whitman School of Management, Syracuse University)
Lois Shelton (California State University, Northridge)
Year of Publication : Small Business Economics Journal (2017)
Summary of Findings : Under the proper incentive system, government and commercial procurement programs may be an effective vehicle for some minority-owned ventures to become gazelles (new ventures with growth rates exceeding 20 percent annually).
Research Questions : How do preferential procurement programs influence the product market access of minority entrepreneurs?
What we know : Access to product markets is a key building block required for launching successfully a new venture. Preferential procurement programs were created to enhance the access of minority entrepreneurs to government and commercial markets. Unfortunately, extant research has shown that many of these programs do not yield the expected results.
Novel Findings : Looking at some recent programs, 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. This is done through the acquisition of minority business certifications. Reaching the critical market size is a necessary, albeit not sufficient condition allowing new ventures to achieve rapid growth and expansion. The existence of this critical market size had been ignored in previous research.
Novel Methodology : We used a qualitative approach and conducted semi-structured interviews in the Los Angeles metropolitan area with minority entrepreneurs and a control group.
Implications for Practice : Minority entrepreneurs should seriously consider acquiring minority business certifications.
Implications for Policy: The structure and incentive system set up by procurement program matters a great deal. Many of these programs do not work well because market discipline is absent. This creates distortions and the waste of scarce resources that, instead, can be effectively mobilized to allow deserving minority businesses to overcome poor networking and achieve the critical market size necessary for rapid growth.
Implications for Society: We contribute to our understanding of how to facilitate the emergence of gazelles. Gazelles are very important for economic growth, technological innovation and job creation. Unfortunately, only a very small percentage of all new firms (less than 5 percent) ever achieve that status.
Implications on Research: Our work points to the importance of considering the effects of non-linearities (critical market size) on social phenomena. It also shows that the study of principal-agent problems and incentive structures is far from being resolved.
Full Citations : Shelton, L.M., M. Minniti. 2017. Enhancing product market access: Minority entrepreneurship, status leveraging, and preferential procurement programs. Small Business Economics Journal.
Published Online May 27, 2017 - Printed edition to follow
Abstract : Access to product markets is a key barrier faced by minority entrepreneurs. Preferential procurement programs, which include government set-asides and commercial supplier diversity initiatives, are intended to aid these entrepreneurs in overcoming this barrier. Although the first programs resulted in minimal improvements due to design flaws and poor oversight, some recent initiatives have been redesigned to address these inadequacies. Using a qualitative approach, we examine the impact of these programs on product market access and present a conceptual model of their effect on the opportunity identification, evaluation and exploitation of Black and Hispanic entrepreneurs. Our analysis suggests that preferential procurement programs may expand product market access by improving the information available to entrepreneurs and by altering the incentives of key resource providers. As a result, these programs may actually enable some minority entrepreneurs to achieve rapid expansion (high-growth entrepreneurs) and others to overcome personal limitations and establish viable enterprises (lower growth entrepreneurs) by leveraging their minority status.
New entrepreneurship research finds that under the proper incentive system, government and commercial procurement programs may be an effective vehicle for some minority-owned ventures to become gazelles (new ventures with growth rates exceeding 20 percent annually). The paper, co-authored by Maria Minniti and Lois Shelton, was recently published in Small Business Economics Journal.
Prior to joining the Whitman School, Minniti was professor and Bobby B. Lyle Chair of Entrepreneurship in the Cox School of Business at Southern Methodist University. Minniti has previously taught at Babson College, Skidmore College and New York University, and has held visiting positions at the London Business School, the Max Planck Institute, Humboldt University, and the Copenhagen Business School.
Since 2015, Minniti is also Visiting Distinguished Professor in the Department of Management at Aalto University, Helsinki, Finland.