The population of Memphis, Tennessee is 63% black. Over half of the local businesses are black-owned; if you’re a black entrepreneur, it regularly tops the list of best places to start a businesses. But a 2012 study found that black-owned businesses take in less than 1% of all the money spent in the city. Women-owned businesses–particularly those owned by women of color–also struggle.
Part of the issue, says Joann Massey, a businesses consultant who now heads up the Memphis Office of Business Diversity and Compliance, is how Memphis spends its money. Cities contract with vendors for everything from paper and pencils to construction work and technology services. In Memphis, as in most cities, those vendors are typically run by white men.
In 2017, through their City Accelerator program, the racial equity nonprofit Living Cities, the Citi Foundation, and Governing magazine launched program to help cities shift how they procure goods and services to benefit smaller, minority- and women-owned business enterprises (MWBEs, for short). Memphis, whose new mayor, Jim Strickland, made doing just that his goal in taking office in 2016, participated, as did Chicago, Los Angeles, Milwaukee, and Charlotte.
City Accelerator, says Elizabeth Reynoso, Living Cities’ associate director of public sector innovation, has worked on programming around various “pain points” for cities, like government transparency, since 2014. “The issue that kept coming up over and over was city procurement,” she says. “A lot of places are hesitant to tackle it because it’s so big and entrenched, but if you think of a lever you can pull in local government to change economic outcomes for people–especially entrepreneurs of color–that’s it.”
If cities spend money with local, historically disadvantaged businesses, “these dollars and their residual benefits, including greater local tax revenue and higher employment rates (by hiring locally and creating additional levels of economic impact) offer the potential to change communities and families for the better,” the City Accelerator cohort writes in a report on the program.
In publishing the findings, City Accelerator hopes other cities can begin to adopt some of the strategies the five cohort cities developed. Chief among them, Massey says, is collecting good data around the number of MWBEs and what share of city contracts they receive. Not only is that good practice, it’s required by law: A 1989 Supreme Court ruling established that cities may only overtly work to support minority-owned businesses if they can prove a history of discrimination in city contracts.
In most cities, that’s not difficult to do. In Memphis, for instance, MWBEs received just around 12% of the city’s contracts in 2016 (it’s now doubled that to nearly 24%). In Charlotte, 66% of contracts went to firms owned by white men.
Working to undo this disparity is more difficult. Cities often default to renewing old contracts (often those with white-male-owned firms) because doing so is faster than setting up a working relationship with a new vendor. The accelerator program aimed to move away from that default. Cities like Los Angeles and Chicago set up portals where new contracting opportunities could be posted well in advance, so smaller firms could know to bid on them. Also, rather than issuing a single contract to a large firm, the accelerator cities are breaking up contracts into smaller projects that a cohort of local businesses could tackle. Smaller contracts help the city establish relationships with more diverse vendors, who can use the revenue stream to grow their business.
Memphis also doubled down on the idea that the city should proactively support MWBEs through programming and partnerships. “We recognize the value in helping minority-owned businesses build capacity,” Massey says. Through the accelerator program, Memphis built out a regional strategy called the 800 Initiative. Through a combination of technical support from the city and a loan fund sponsored by FedEx, the program aims to help around 800 black-owned local businesses increase their collective revenue to $50 million by 2023; it’s already helped one local entrepreneur, Jason Gillum, grow his employment platform Millennium Search, and begin contracting with Memphis. The city also introduced a new web portal, Buy901, which aggregates all MWBEs so private companies can also look to contract more with local firms.
“Cities also need to think about how they form connections and relationships between private-sector businesses,” Reynoso says. “That’s another way of supporting their local economy and businesses that’s not dependent on the government.”