Investing in Ecosystems to Change the Entrepreneurial Status Quo
Written by Kim Zeuli and Nicole Dolcimascolo, EEP
While individual entrepreneurial support organizations (ESOs) provide critical support for underrepresented entrepreneurs (entrepreneurs of color, women, and military veterans), their impact becomes amplified when they are integrated into local ecosystems. JPMorgan Chase recognizes that directing their philanthropic capital towards strengthening the support of small business ecosystems for underrepresented entrepreneurs is the long-term play needed to address the historic, systemic barriers that have led to their business ownership and performance inequities.
In 2017, the Ascend program was launched by the University of Washington Foster School of Business’ Consulting and Business Development Center, in partnership with JPMorgan Chase, to address critical ecosystem gaps facing underrepresented entrepreneurs in U.S. cities. Ascend offers a comprehensive “Three- M” model that leverages local partners to simultaneously provide management education, access to money, and access to markets—the three fundamentals all entrepreneurs need to start and grow a business. Providing the “three-Ms” through one program should lead to better outcomes for the businesses than addressing each in isolation.
Now operating in 13 cities, in 2020 we evaluated the impact of the first Ascend programs on underrepresented entrepreneurs and local ecosystems in six cities.
Supporting the Growth of Diverse Businesses
In 2020, the seven Ascend programs (there are two in Chicago) supported 197 small businesses that raised $24 million in capital, generated $360 million in revenue, created 2,615 jobs (including 36 percent in local neighborhoods) and paid $196 million in wages. Most of the businesses (85 percent) were owned by people of color, 45 percent were owned by women, and seven percent were owned by veterans.
Ascend differs from other programs in one other unique way—the focus is on growth-oriented businesses, moving $1 million companies to $10 million companies. As a result, the average business supported by Ascend (13 years in business with 44 FTEs) is more established than the younger start-ups supported by most ESOs. The Ascend businesses are already earning significant revenue—only 12 percent on average are pre-revenue and the average revenue in 2019 was $8.14 million. The majority of Ascend businesses are also already profitable (68 percent) and 78 percent of the debt they secured in 2019 was from traditional banks, suggesting they are already “capital ready.” Indeed, 84 percent of the businesses that tried to obtain loans (from any source) were successful.
Ascend has already tapped into a pipeline of successful, diverse entrepreneurs, and brought them into the fold of their local small business ecosystems, which is one marker of success. However, choosing to support established businesses also ups the ante so to speak for Ascend programs. The bigger the business, the bigger the challenges. Over the next 5-10 years, 76 percent of the Ascend businesses, on average, reported that they planned to double or more in size. Ascend programs will need to concentrate on helping these businesses obtain larger loans and growth equity, which may be even harder for diverse businesses than accessing their first capital and requires more advanced, tailored programming and networks. A recent Crunchbase study finds that nationally, in 2020, Black and Latinx-owned businesses received only 2.6 percent of all venture capital funding. In comparison, of the Ascend businesses that tried to raise equity in 2019, 60 percent, on average, were successful. While Ascend would like to see a 100 percent success rate, and perhaps more importantly encourage all entrepreneurs who need equity capital to pursue it, the program is clearly making headway on this critical issue.
Even more critical is the need to help the businesses secure contracts and expand their markets (including export markets). While, on average, Ascend businesses are already performing better than the typical small business on both fronts (38 percent have contracts with anchor organizations and government agencies and nine percent export), the programs need to further develop the infrastructure, capacity building and connections to ensure all of the businesses successfully break through these growth barriers. Nationally, a small share of businesses win anchor and government contracts, while the SBA estimates that far fewer still—only one percent of all small businesses—export.
Strengthening Ecosystems to Support Underrepresented Entrepreneurs
Although some of the Ascend programs we evaluated are now in their third year, they felt the burden of navigating unchartered waters as the Ascend model was still being developed. In many ways it is too early to see local ecosystem impact in these cities. It takes time to fully develop strong partnerships.
Each program has had to learn what is needed from each partner to more effectively integrate the “three M’s.” For example, the “money” partners have informed business management content to ensure the businesses are receiving the proper technical assistance and financial knowledge.
Gains also have been made in terms of market access. Every program has a designated market access partner or advisory group/council that has established relationships with anchor organizations. There have been some early wins in terms of market access, with significant contracts for cohort participants in Seattle, New Orleans and Columbus. Ascend is also working on leveraging national anchors, such as Kroger and UPS, to create contracting opportunities in multiple Ascend cities. They are exploring creating a procurement database allowing cohort businesses to take advantage of contracts in all Ascend cities.
However, while relationships with anchor organizations have at least been seeded, they will take years to fully develop. As one partner stated, “you cannot walk before you can crawl.” Although the anchors might indicate a willingness to work with new vendors, actually getting them to change can be difficult and takes time (especially with staff turnover). Further, even though the Ascend program supports larger businesses, they often are too small, or in the wrong industries, to meet contract requirements.
The Ascend programs have had to adjust their recruiting processes and selection criteria to ensure the businesses they support better match local contracting opportunities. Several programs were also working on unbundling contracts to create smaller contracting opportunities that would be more accessible to their cohort businesses. This will help the businesses start to establish a reputation and work towards larger contracts. Businesses need pathways to get to larger contracting opportunities and Ascend partners need to connect with other programs outside of Ascend to serve businesses throughout their life cycle.
Each program is laying a strong foundation for long-term program sustainability. As programs progress they report that the partnerships are strengthening both inside and outside of their work with Ascend. As one partner shared, “Since we are tied together through Ascend, we are involved in different initiatives outside of Ascend boundaries, which strengthens our relationships.” The Ascend program has already helped set new tables for collaboration, to identify new gaps in the ecosystem and consider new models to fill them.