Invisible Capital: How Unseen Forces Shape Entrepreneurial Opportunity
Posted on May 23, 2012 by Nicole E. Kenney, Economic Program Specialist and Isabel Lorenzo, Economic Program Intern
In Invisible Capital: How Unseen Forces Shape Entrepreneurial Opportunity, author Chris Rabb explores the hidden factors that influence business viability when hard work, a great idea, and a good attitude are simply not enough. The NAACP Economic Department's Nicole Kenney and Isabel Lorenzo interviewed Mr. Rabb about invisible capital and how to leverage it to democratize entrepreneurial opportunity towards greater social inclusion, economic sustainability and community wealth-building.
NAAACPEcon: Why did you decide to write the book, Invisible Capital?
CR: I wanted to write a book that was accessible to Americans who did not have an economics degree, who are not into high finance or corporate executives, etc. I want the everyday entrepreneur to understand how and why business fail, succeed and grow and what is necessary as a society, and individuals, to improve our chances of creating business that add value in our communities.
NAACPEcon: Please define invisible capital and explain why you think it is critical for entrepreneurial success.
CR: We are taught that hard work, a great idea and a good attitude are enough to have a successful business; but that is a myth. How much and what kind of invisible capital an entrepreneur has is what impacts business viability the most. Invisible capital has three parts: human capital, social capital, and cultural capital. Human capital is our skills and knowledge; social capital is our networks—who we know and more importantly, who knows us. Cultural capital represents the embodied value of what we learn through navigating different social settings. All these forces, which make up invisible capital, impact the success of one’s business particularly because they build platform of meaningful access—including access to financial capital.
NAACPEcon: If invisible capital is so important, why don’t people know that we have it?
CR: We don’t know we have it because it is hidden in plain view and goes against the prevailing narrative of hard work. This is the reason I wrote the book. I want people to better understand the real reasons businesses fail and succeed and what we need to do as a society, and as individuals, to improve our chances of creating businesses that will add value in our communities.
NAACPEcon: Many argue that African Americans and other underserved groups cannot establish and/or grow their businesses because there is an unlevel playing field due to factors they cannot change (e.g., race, gender, class, etc.). Do you agree?
CR: The fact of the matter is that women represent 51% of the US population but represent only 28% of business owners. Similarly, African Americans constitute 15% of the U.S. population and yet only make up around 7% of business owners. These disparities are symptomatic of something and indicative that there’s not a level playing field. But, what can help level the playing field is how people leverage invisible capital.
NAACPEcon: You disagree with the argument that allocating more funds to start up small businesses improves the economy. Why?
CR: We don’t need more entrepreneurs, we need better trained entrepreneurs. We do not lack the entrepreneurial vigor and creativity in this country; it’s abundant. But, the ones that have the greatest energy and orientation to pursue full time entrepreneurship are not properly prepared. And unfortunately, that is particularly more likely the case for entrepreneurs who do not hail from broadly privileged backgrounds.
NAACPEcon: What about minority business assistance programs? Have they helped alleviate some of the economic and social challenges African American communities are facing?
CR: I don’t think so. We have had minority business assistance programs for “minority business enterprises” for over forty years; and yet the wealth gap has quadrupled in the last twenty-five years. For every nickel of wealth a black person owns a white person has a dollar of wealth. Minority business assistance programs may have worked for specific individuals who have risen to great wealth; but there is no evidence that creating black millionaires has alleviated black joblessness, black poverty, black mass incarceration, and so on. We’ve had many decades to make that case and there is none. These programs must be overhauled to address communal impact versus individual economic advancement.
NAACPEcon: Well let’s talk about preparation. In your book, you discuss the importance of reframing entrepreneurial success. Let’s talk about the African American community in particular, why do we need to redefine entrepreneurial success?
CR: Before discussing starting up more black-owned business, securing contracts with governments, and supplier diversity, we need to ask ourselves to what end do we want more black owned businesses? When thinking about entrepreneurial success, I suggest that we not think primarily about how much wealth we can amass individually; but instead how to build community assets and shared prosperity for and by black communities. We have to define success more broadly and complexly because ultimately what is the benefit of creating great wealth for an individual at the expense of the community that creates it?
NAACPEcon: Can you speak a bit more about this popular argument that programs creating black millionaires benefit the black community?
CR: I call this investment strategy “Afro- Reaganomics”, a trickledown theory that Reagan popularized. Only this strategy suggest that if we create enough super rich black people that they will give enough of their money to poor black folk and then all of our problems will be wiped away. I think that’s a silly, cynical and high-risk strategy to employ for our people in this day and age, or in any age, frankly. It is also a leap to assume that the most economically wealthy within our community are our best or brightest leaders or the ones who know best what it takes to address the structural inequality that has hobbled all meaningful attempts to democratize true economic opportunity for all Americans. What is also so problematic with such arguments is that they create false hope for millions of people, Their adherents make the exceptions to the rule proxies for success, when the reality is that the pathways to such success are far too narrow and obscure for the majority of bright and hard working Black people to navigate. These gaping disparities will continue to widen until we embrace strategies that create substantive, long-term incentives that reward individuals and enterprises who build or bolster community assets over short-sighted personal gain. It is the distinction between collective abundance versus individual enrichment fueled by an obsession on scarcity. The former has a much greater track record than the latter; our efforts as a community -- and society-wide -- should be to adapt our policies and programs accordingly.
NAACPEcon: So you are suggesting entrepreneurs need to aspire towards what you termed “commonwealth entrepreneurship”. Please speak a little bit more about commonwealth entrepreneurship and how it connects to economic and social justice?
CR: Commonwealth entrepreneurship is the process of building self-sustaining enterprises that create community assets, which in turn, fosters greater capacity-building potential and collective well-being. These businesses, also called commonwealth enterprises, can help us work towards economic and social justice because they improve the broad sustainability of a community.
NAACPEcon: Since we are on the conversation of community resources, what type of agencies and institutions at the local level have information on entrepreneurship?
CR: Small business development centers (SBDCs), which are under the auspices of the Small Business Administration (SBA), are located all over urban and rural areas. They are often associated with universities and most of the services are free or very affordable. There are also community development financial institutions (CDFI) such as federal credit unions, community development corporations, and even private enterprises that are designed to help finance and build institutions and opportunities that help economically distressed communities.
NAACPEcon: Well that is all the time we have today. Thank you Mr. Rabb for speaking with us and providing us with your insights on entrepreneurism. We wish you much success.
CR: You’re welcome.
Chris Rabb is an adjunct professor at the Fox School of Business at Temple University and Philadelphia University. He is a graduate of Yale College and the University of Pennsylvania’s Master’s Program in Organizational Dynamics. He is a 2001 American Marshall Memorial Fellowship recipient awarded by the German Marshall Fund of the U.S. and is also a fellow at Demos, a national research and advocacy center based in New York City. He lives in Philadelphia with his two sons.