A new McKinsey report estimates that Black and other minority entrepreneurs will have $3 trillion in opportunities to become business owners as part of the “Great Business Transfer.”
“This is the largest ownership transition in modern U.S. history,” said Shelley Stewart, co-author of the report and senior partner and director of the McKinsey Institute for Economic Mobility. “This is a huge opportunity, but there are also challenges. The problem is that many viable businesses may not be able to successfully transfer because the market that connects buyers, sellers and capital is not built at scale.”
Researchers predict that by 2035, 6 million small and medium-sized businesses (SMBs) will be available for acquisition. If Black, Latinx, and women entrepreneurs can increase ownership of these transitional businesses, they could capture $3 trillion in new household wealth, the report found.
McKinsey said the contrast between opportunity and risk is particularly stark for Black communities.
Only 3% of business owners in the United States are black, compared to 13% of the population. If current trends hold, Black entrepreneurs are expected to capture $87 billion in transferred enterprise value. But if participation in large corporate relocation increases, that amount could jump to more than $369 billion. Conversely, without greater participation, the report says wealth inequality will only widen.
Stewart added that the repercussions of relocation go far beyond underrepresented communities.
“The key to making this successful is to have the broadest pool of entrepreneurs buying these businesses, which means it has to be inclusive,” Stewart said. “This is in the interest of all Americans. It affects jobs, it affects local economic spending, it affects wealth creation.”
Funding and business discovery
According to McKinsey, the biggest challenges for potential acquirers from Black and other minority communities are raising capital, gaining access to deal flow, and navigating the advisory process in acquisitions.
“There are more black check writers in venture capital and buyout firms than ever before,” said Jacob Walther of Blueprint Capital Advisors. “They also work in other traditional financial institutions such as banks, so the capital is there.”
However, Walsaw added that it is essential for members of black and minority communities to understand the dynamics of acquiring a business compared to starting a new business.
“You can get capital to go into an existing business, but one of the most difficult things is raising money to build that business,” Walsoe said. “The basic principles of capitalism should always be in place, and this includes return on investment. That’s how professional investors think about allocating capital.”
John Hope Bryant, founder and CEO of Operation Hope, also emphasized the need for Black entrepreneurs to seek opportunities in essential industries rather than personal gain.
“You don’t have to be obsessed with this business,” Bryant said. “Business is not personal. When that change happens and we combine the activities and untapped ambitions we have… that’s how we become millionaires. This boring, traditional approach is something we have never tried.”
planning process
The McKinsey report highlights five stages to a successful ownership transfer: desire and preparation, exploration and sourcing, deal structuring and financing, ownership and value creation, succession and exit.
Sheena Gray, CEO of the Association of African American Advisors, said the sale highlights the need for certified financial planners, as potential acquirers are often entering an unfamiliar financial field.
“Appropriate planning infrastructure makes sense to increase minority business ownership,” Gray said. “A certified financial planner is well-positioned to build a tax strategy that helps when someone wants to strategically transition into ownership. This is an important factor that most business owners don’t consider when talking about acquiring new opportunities.”
Gravy Wealth founder Brandon William Jones works with the National Black MBA Association to help professionals become business owners, a move he calls from “breadwinner” to “owner.”
“Now more than ever, we need to manage and capture the value we create,” Jones said. “The world is becoming increasingly selective about workers, especially knowledge workers.”
Impact on AI
McKinsey’s Stewart said the potential for AI disruption only increases the upside for acquisitions.
“What do those 6 million businesses include? Retail, restaurants, construction, healthcare, small manufacturing, etc. These will certainly be impacted by AI, but these are labor-intensive businesses that will continue to require labor. AI will play a role in helping entrepreneurs get smarter across a variety of industries. AI is unlikely to eliminate the need for these businesses,” Stewart said.
“It’s a question of whether we can create a market mechanism that connects businesses with entrepreneurs and capital. If we can put in place the infrastructure that actually triggers people to buy these businesses, I actually think it could accelerate over the next 10 years.”
Jones also said that AI could also be an important tool for closing the wealth and ownership gap: “If someone is pushing AI, not only can you potentially buy this business, but you can implement an AI strategy to significantly increase efficiency and value.”
