The changing nature of BLACK BUSINESS

To Charles James, the 1880 presidential campaign of James A. Garfield represented a business opportunity.

In the months preceding election day, the enterprising young James trudged from door to door in his hometown, Charleston, W.Va., peddling a line of assorted political souvenirs. The election passed and the bottom dropped out of the political-button-and-banner market, but James took his earnings and bought manufactured goods and bartered for fresh produce at surrounding farms.

From this humble beginning, James soon became the proud owner of a thriving food distributorship. Three generations later -- after prospering, failing, and reviving -- C. H. James & Co. employs 30 people, and last year it grossed $5 million selling food to supermarkets, restaurants, and hotels in the Charleston area. It is one of the oldest black-owned enterprises in the United States.

Near Tysons Corner, Va., in one of those low, unobtrusively modern buildings that all technology firms seem to occupy, Robert Quinichett runs one of the newest and fastest-growing of America's black-owned businesses.

An Ohio State University graduate with a degree in math, Mr. Quinichett worked for North American Aviation, Computer Sciences Corporation, and the Department of Agriculture before striking out on his own. In 1977, he founded Sterling Systems Inc., a company that sets up data-collecting computer systems. With 1981 receipts estimated at $17 million, Sterling ranks 27th on Black Enterprise magazine's list of the top 100 US black companies.

''I worked seven days a week, around the clock. I didn't think about not succeeding,'' he says. His hard work has carried him to a top-floor suite with that whisper of elegance that says ''chief executive officer.'' But Sterling Systems, like many other companies, now faces a challenging period of transition forced by cutbacks in government aid to minority businesses.m

Over the past 20 years, as the wall of racial discrimination has crumbled, black entrepreneurs have entered increasingly varied fields. If C. H. James represents a more traditional black firm -- family-run, seller of a basic commodity, oriented to a distinct geographic turf -- then Sterling Systems, with its high-technology products, could be seen as a symbol of many new black businesses.

The black economic community has made much progress since the 1960s. But, along with the problems faced by all small- and medium-size enterprises, black-owned businesses still face obstacles their white counterparts don't have to scale.

''These businesses have established that they are around, they are going to survive, they are going to be part of the free-enterprise system,'' says Earl Graves, publisher of Black Enterprise. But it's still ''a day-to-day effort to convince people that doing business with a minority firm is not some kind of adventure.''

From 1972 to 1977, the latest period for which Census Bureau data are available, the number of black businesses increased 22.9 percent, to 231,000.

From 1972 to last year, total sales of companies listed in the Black Enterprise 100 rose 81 percent after inflation, to $1.9 billion. These larger black-owned firms expanded three times as fast as the US gross national product.

But compared with the largest white-owned firms, black businesses are mostly small- and medium-size concerns. Motown Industries, first on the Black Enterprise list, with 1981 sales of $91.7 million, wouldn't even make Fortune magazine's second 500. And small business in general is suffering under the burden of high interest rates.

In addition, two-thirds of black companies are types of businesses highly vulnerable to the economic cycle. Thirty-nine percent of total receipts come from retail trade -- one of the first areas to go flat in a recession. Twenty-nine of the top 100 black concerns on the Black Enterprise list are auto dealers or garages. Many black businesses cater to black consumers, whose purchasing power, as a group, has been slashed by 18.7 percent unemployment.

Combined, these facts indicate that black businesses suffer disproportionately in any recession, black economists say.

''Even on the upswing, they won't feel a recovery as quickly,'' says Dr. William Bradford, professor of finance at the University of Maryland.

But the traditional black business is changing. The result could be a business sector more resistant to recession and better positioned for long-term growth.

''On balance, by the end of the decade I see stronger black-owned companies, '' says Dr. Alfred Osborne, head of the MBA program at the University of California, Los Angeles.

For one thing, the black consumer is becoming a less important market for these companies. In 1969, blacks spent 13.5 percent of their income at black-owned firms. By 1977, the figure had fallen to 9.9 percent.

Since the 1960s, white companies have discovered the black market, says Andrew F. Brimmer, president of Brimmer & Co., an economic consulting firm, and a former governor of the Federal Reserve. Black consumers have moved away from the inner-city neighborhoods where black-owned businesses are traditionally located, he adds.

''Discrimination cuts both ways. It served as a kind of protective barrier for black professionals,'' says Mr. Brimmer. For black businesses to prosper, they must ''look to markets beyond the black community,'' he says.

Some black leaders have a different view of the situation. Black consumers should band together and actively support black businesses, they say. The Rev. Jesse Jackson, president of the Chicago-based Operation PUSH, is taking such an approach.

''Black Americans must trade with each other,'' says Rev. Frank Watkins, a PUSH spokesman.

More black entrepreneurs now have high-level technical and managerial training. In 1965, only 25 blacks were enrolled in accredited MBA programs in the US, according to a study by the Consortium for Graduate Study in Management. In the fall of 1980, 7,521 blacks were studying for MBAs or PhDs in management, according to the National Center for Education Statistics.

Many blacks have percolated through the ranks of large corporations, gained valuable business experience, and struck out on their own.

''Black business leaders have had the opportunity to get in business and simply experience it. That in itself has been a tremendous help,'' says Mr. Quinichett of Sterling Systems.

Slowly, the black business community is weaving a web of networks to provide support, advice, and role models for those who want to start a business. Quinichett himself says he receives daily requests for help.

''I take the time to give whatever advice I can,'' he says.

Perhaps most important, a cutting edge of black businesses is entering high-growth fields and expanding their opportunities through joint ventures with white companies. In 1978, there were two firms on the Black Enterprise 100 list that could be classified as high-technology. Last year there were nine.

Two firms in the Washington, D.C., area alone are attempting to form national black-oriented TV networks. And black-owned firms are bidding on cable TV contracts across the country. At least one black company has applied at the Federal Communications Commission for a license to operate the cheap, plentiful mobile-phone service known as cellular radio.

But it takes a lot of money to open a business at the forefront of technology. Very few black concerns can afford the cost of stringing cable TV wire across a major metropolitan area, for instance. Many minority cable companies are thus joint ventures with white firms.

''While there may not be that much outright ownership by blacks[in areas of complex technology], we'll probably see a number of businesses with a high percentage of minority ownership,'' says Herb Wilkins, head of Syncom, a venture-capital firm specializing in minority-owned communications.

In general, black businessmen say obtaining adequate capital is their thorniest problem. Along with the financing problems faced by all small business owners, blacks say they often undergo extra-careful scrutiny by banks and venture-capital companies.

Black business experts are also concerned about impending changes in government aid. Washington bought $4.1 billion in goods and services from minority contractors last year, with purchases prompted under Section 8(a) of the Small Business Act accounting for almost half the total. The 8(a) program sets aside small contracts to be awarded on a noncompetitive basis to minority companies The Reagan administration says it will tighten the eligibility rules, forcing many concerns now on the program to graduate into the open market.

Seventy-five percent of Sterling Systems' business, for example, comes from the federal government - with much of that accounted for by 8(a) set-asides. Without the government's help ''we would not have grown as fast, though I would certainly still be in business,'' Mr. Quinichett says.

The administration is also proposing to eliminate the Small Business Administration's appropriation for direct loans. Some fear that the cutbacks could freeze businesses not ready for the cold winds of the free marketplace.

''If the cutbacks continue, six of the firms at the top of the BE 100 won't even be there next year,'' says Earl Graves of Black Enterprise.

But critics say the 8(a) program doesn't breed strong businesses.

And, for now, the most compelling concern of all businessmen - black and white - remains the recession.

''It's a tough period for anybody in any business,'' says Herb Wilkins of Syncom.

of 5 stories this month > Get unlimited stories
You've read 5 of 5 free stories

Only $1 for your first month.

Get unlimited Monitor journalism.