Start-ups run by people from ethnic minorities contribute over £25bn to the UK economy – yet funding barriers mean that half of new business ideas from ethnic minority entrepreneurs are scrapped before they get off the ground. That’s according to research by the British Business Bank.
Start Up Loans spoke to three Black-owned businesses about their start-up journey to success.
Innovation, hard work and creativity can power new start-ups, with brilliant ventures launched by a diverse group of new business owners – yet ethnic minority entrepreneurs have a lower success rate for starting a business than White entrepreneurs according to the research.
A further study by the Department for Business, Energy and Industrial Strategy found that the playing field is anything but level for ethnic minority-led start-ups, with just one in 20 small and medium-sized UK businesses run by ethnic minority owners.
While success rates for Black-owned start-ups are in line with the UK average, the 2020 British Business Bank report Alone together: Entrepreneurship and diversity in the UK says it’s a different story for businesses owned by Asian people or people from other ethnic groups. These start-ups have a significantly lower success rate, making up around 3.5% of business owners but more than 8% of those who wanted to start a business but failed.
A major barrier to start-up success is access to funding, according to research by the British Business Bank. The lack of external funding makes it difficult for ethnic minority entrepreneurs to realise their business ideas. Nearly four in 10 Black business owners and five in 10 business owners from other ethnic groups stopped working on their start-up idea due to lack of funding, the research found.
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Start-up success for the UK’s ethnic minorities
The good news is that start-ups run by ethnic minorities are not just open for business but are thriving – even during the Covid-19 pandemic. We spoke to three Black-owned businesses about their start-up journey, their business challenges, funding and plans for growth after lockdown.
Melissa Sinclair, Big Hair + Beauty
Melissa founded Big Hair + Beauty – a natural haircare brand for afro and curly hair – after being frustrated at the lack of natural products for Black women. Big Hair + Beauty has grown significantly since its launch in 2014, helped with a Start Up Loan, and has thrived in the recent Covid-19 lockdowns.
Melissa hadn’t initially set out to create a hair and beauty brand. “I took a sabbatical from my job and travelled, and on that journey, I realised there wasn’t a lot of clean beauty for Black women, especially haircare. It just didn’t exist in the UK,” Melissa says. “So I started making products for my own hair at home, and I saw there was a gap in the market. I was approaching the end of my sabbatical and I thought, I could do this.”
Market research was a vital part of Melissa’s pre-launch preparations. “When I started doing the research and saw how brands operated in the US, and the market projections and everything else, I thought hey, this is great, and it hasn’t been done here. I’m going to build a brand,” she explains.
Her initial plan was to source a manufacturer from the start, avoiding the ‘make it at home and sell at markets’ approach favoured by other natural beauty products start-ups. Melissa worked with a chemist to ensure her products were up to EU standards and found a manufacturer to create her haircare line.
But at the last minute, the manufacturer pulled out.
“I can’t believe how naive I was at the time because the market wasn’t ready for it. But it taught me a lot,” Melissa recalls. “So I had to do exactly what I didn’t want to do. I was making products at home and doing all of the events for the first year.”
At one point, she had 75kg of raw materials in storage, decanting them in smaller amounts to take home to make her products by hand. “I had fold-down tables at home, and I just made it work. Luckily, as the product is natural, it was easier than I thought to make it handmade,” she says.
It wasn’t until 2017 that Big Hair + Beauty started working with a contract manufacturer. Since then, the brand has expanded, with direct sales to the public and supplying salons and beauty businesses. With its foundations in celebrating the historical and cultural relevance of Black hair, Big Hair + Beauty has been actively involved in promoting Black History Month.
David O’Neal, ShortCuts
David O’Neal opened his first children’s hair salon in Milton Keynes in 2014 with a £15,000 Start Up Loan. Fast-forward seven years with plenty of ups and downs along the way, he now owns six salons across the UK.
After becoming a parent, David saw a gap in the market for a salon designed to make cutting children’s hair an easier and more enjoyable experience for both parent and child. The ShortCuts salons feature toys, entertainment, and a party room for children’s pamper, music and art parties.
Taking his initial idea and running with it, David was already thinking of the business’s future scope. Being a children’s hairdresser working in just one salon was never the aim – his end goal was to run a chain of hairdressing salons.
“Getting to this level of business provides a lot of flexibility and offers me the lifestyle I wish to lead,” he explains. But driving him to succeed “was the desire to have my own business – and a business that made a difference”.
Growing his business wasn’t plain sailing. Two years after opening his first salon, David was approached by specialist retailer Mothercare and opened three in-store concessions across the UK. An overnight success, they generated around 70% of his total revenue.
But Mothercare slid into administration in 2019, and David had to shut the in-store salons practically overnight.
“I just had to start again,” he says. As a result, David reinvented how his businesses were structured, with a focus on doing right by his employees.
“I’m doing something very similar to franchising with the business, but just a bit cheaper and more flexible,” he explains. “I’m giving some of my staff shares in the company, which is like a small franchise.”
Michaela Alexander, Miles & Mia
Michaela Alexander is an award-winning children’s book writer who applied for a Start Up Loan after noticing a lack of ethnic diversity in the books her own children were reading. Michaela created a book with characters that black children could relate to, and since its publication, she now uses her time to champion diversity in literature.
Research played a huge role in building a solid business foundation before Michaela made the leap. Having left full-time employment and juggling childcare as a single mum, she admits that starting a business was nerve-wracking.
“I was scared. I’d left a job and had young kids, and I didn’t really know what I was going to do,” she says. “So, I thought ‘I’m going to do this book’, and I got to do it with my children, which was a blessing. I spent two years doing market research, which was really important.”
Michaela opted to self-publish her book, intent on creating a brand encompassing a series and animation. “From the get-go, my main dream was to have a cartoon,” she explains. “I started with a £10,000 loan from Start Up Loans, and I used this to self-publish – printing the book, working with a great illustrator. The biggest cost was protecting my IP and the brand, but this is hugely important for the long term.”
With Miles & Mia generating plenty of media interest and a rise in awareness in 2020 due to the Black Lives Matter movement, the book has completely sold out of its first print run.
The impact of Covid-19 on Black-owned businesses
“Covid has been such a double-edged sword,” says Melissa of Big Hair + Beauty. “Last year in lockdown was actually our best year. We really grew due to the pandemic because salons closed and customers were forced to do their hair at home. On the flip side, the beauty industry itself has struggled, and we do work directly with hairdressers.”
David is equally positive about his salon business bouncing back post-Covid: “At the end of every lockdown, we’ve been busy from day one because everyone has been waiting to get their hair cut. So from experience, I think it’ll be similar to the adult hair industry. As soon as barbershops and salons are open, we’ll be inundated again, so I’m not concerned about the business,” he says.
Michaela is optimistic about life after Covid, too. A second book is in the works, and she’s looking to crowdsourcing as a way to continue growing the brand and the business. “Look at how it’s been,” she says. “I’m a single mum in a low-income bracket and a Black woman. I don’t have a lot of capital. I tick all those boxes. But you really can’t give up.”
Black-owned businesses and funding
While initiatives such as Start Up Loans are helping level the playing field for ethnic minority businesses, there’s still a long way to go.
“I think there’s this expectation that Black-owned businesses only sell to the Black community and that they’re not as successful. The banks assume that Black-owned businesses are riskier,” Melissa explains.
“I know brand owners in the beauty industry that happen not to be Black-owned, and they were able to get their overdrafts extended by considerable amounts to buy extra stock during the Covid crisis. What the bank wanted from me to even review my application was crazy. We showed them emails from customers asking when things would be back in stock, and they wanted a three-year cash flow, and research to demonstrate that the market existed. This is for an existing business, and we’re growing!
“We didn’t get that funding or the extension of the overdraft at the time. But luckily, we were able to sell three months’ worth of stock in a short amount of time, which allowed us to fund everything else.”
Thinking of starting a business? Check out our free online courses in partnership with The Open University on being an entrepreneur. Our free Learn with Start Up Loans courses include:
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