Social Enterprise & Nonprofit
Minnesota Business is proud to be a media sponsor for MEDA’s 45th Anniversary Gala on Saturday, November 19.
Minnesota Business is proud to be a media sponsor for MEDA’s 45th Anniversary Gala on Saturday, November 19.
The Metropolitan Economic Development Association (MEDA) was founded in 1971 by a handful of businessmen as a way to fight poverty and thereby reduce the attendant social ills and disparities. The idea was that economic development at a grassroots level can be an effective way to strengthen the quality of life. Minnesota Business talked with MEDA CEO and President Gary Cunningham for the current direction and goals of the organization.
MNBIZ: Can you tell me how MEDA nourishes minority-owned businesses?
GARY: MEDA supports minority entrepreneurs by providing business consulting services, access to capital and access to markets. We help businesses with their strategic planning, marketing, all kinds of back office things that businesses need to survive, and then we also help them with capital — meaning we provide short-term capital to businesses so that they can get to the next level, meet their payroll, buy equipment, those types of things. Then we finally help them get into networks for sales and build their revenues for the products and services that they offer.
MNBIZ: How would you assess the state of minority owned businesses in the Twin Cities region?
GARY: It's a tale of two different trajectories. One trajectory shows that from 2007 to 2012 minority businesses were the fastest growing businesses in the state. Minority businesses in that time period — and you have to remember that was during the recession — grew about 53% in the state and non-minority businesses grew by 3%. That's the great thing that's going on that minority businesses are exceeding but they're revenues and sales were significantly lower than non-minority businesses. The disparities and these are round numbers, because I don't have the figures in front of me. A little over six hundred thousand in average sales for a non-minority business in Minnesota. Something like a hundred and thirty, a hundred forty thousand sales for a minority business.
That gap is huge and then if you look at the issue of those minority businesses that employee and those majority businesses, the majority businesses are employing a lot more people than non-minority business, even if you equalize them. It's a tale of two different things going on within the state. If the fastest growing businesses are minorities and we don't really end the demographic shifts that's going on right now in the state of Minnesota, in the metro area in particular, if we don't begin to address that then we all suffer in part because this issue of making sure those businesses can get to the next level, that they can compete, is critical for Minnesota, it's ability not only to compete locally but to compete nationally and to compete internationally.
MNBIZ: That's part of the idea of a region looking at it holistically, the good parts bring it up and the weak parts bring it down. Everybody's in the same boat.
GARY: That's true. For minority businesses in particular, if you look at the universe of minority businesses, this is national data from the minority business development agency. I'm extrapolating for here but we think it's true from our data as well. If you look at the pie about 97% of the pie is businesses under a million in revenue, about 3% are businesses a million or more. MEDA is actually serving that three percent and there's forty-seven thousand businesses in 2012. That's the latest data. Then you have about 15 to 20%of that 97% that actually have the ability to grow. If they get the right supports those businesses will be in the million or more category and then we can actually start working on those that are at the other end of the spectrum. Every one of the businesses, whether you're Medtronic or Target or any of them, all started as small businesses and grew to something.
What we're trying to do is trying to figure out, first of all, are we doing a great job with those that are in that $1 million or more category, because those are the businesses that can drive employment and as I said earlier, people of color hire people of color at a greater rate than the majority businesses, and it creates a talent pool for those majority businesses as well if they're able to work and develop their talent at minority business. There's a connection here, but if we can work to do that better and then we can actually create the better pipeline across the business development life cycle from startup to acquisition and merger as an example of a pipeline, if we can build that pipeline and we can assist those businesses we can actually address the issue of the high failure rate, and the more we can address the high failure rate of small businesses and get those businesses established and their foundation established well then we can actually begin to grow businesses of scale that actually can compete and have access to capital and access to markets and access to consulting services.
MNBIZ: There is an entrepreneurial gap for people of color, but then we have host of other gaps. There's the academic achievement gap, the opportunity gap, the social justice gap. Is the economic gap somehow fundamental that it has the power to catalyze and maybe shrink some of those gaps?
GARY: I think economics sits at the core. I would argue that you change people's lives by giving them economic opportunity and you help them participate in our community in a way, both as citizens and as caregivers, as breadwinners, as all of these things you transform communities. If you look at people that actually get opportunity to be employed or to work as an entrepreneur those folks are better off than folks that are not. I actually think if in fact we are able to address the economic gap all of these things are interrelated, they're not separate. But what do people need? They need a good job and a good job could be working for yourself or working for someone else and they need stable housing. With those two factors you transform peoples’ lives. All the data says that. There's no data that says give me a crappy job and a crappy house and I'm going to do well in society. It just doesn't work that way.
Partly what we're trying to do at MEDA is grow employment for minority people. We do that through entrepreneurship because small businesses are where the jobs get created. Government only is going to create so many jobs. The private sector is where the jobs are getting created. We need to be able to compete and be a part of the market base solutions to the problem. I don't think the market-based solutions have really been tried. Over a period of time we've worked on some rights legislation that was important, we worked on trying to address some of the other issues, but if we can't address this issue of economic opportunity — that I can actually as a young person or person in this community that I can actually compete and live and have the return for my labor in a way that actually gives me something, a living proposition — then I'm not going to feel like I'm a part of this society in any way. I'm going to have a lot of grievances around that. That doesn't mean there aren't other structures that need to be worked on, but you've got to start with the basics and that is having a place to stay, having a great job and a great opportunity and that's what minority businesses do within our community. They establish that base. If we go in and we look at the lives that got changed because Thor construction built the US Bank stadium, that's huge, that's great, but look also at all the small businesses that contributed to the building of the US Bank stadium. If you walked outside there when that stadium was getting built and you looked at that population of people that were coming out of that stadium, you saw that you were changing lives. These are people that live here. That's just one example. There are hundreds of examples that we have in MEDA of this going on.
In our loan fund, we have about a $13 million loan fund. Soon, hopefully, it'll be $15 million soon, and when you look at the employment of the people of the firms that we've made loans to, the average wage is over $22.50 an hour, and a majority of them are getting health care benefits. It's not like you go to a minority firm and you have to take less money and all of those things. Actually, those minority firms are competing at a high level and they're competent and they're capable and if we could actually grow that we'll be a better community and a better society. The economic income gap that the governor responded to a couple of years ago or last year is just a symptom of some deeper problems. Part of that is that we're not competing as part of the economic system in Minnesota. Part of this is actually to get us to be engaged. It's not just a government solution. It has to be a private sector solution to the problem if we're going to solve it.
MNBIZ: You're not in this alone. Who are some of your partners?
GARY: MEDA has had the support of the corporate community for many years. On our board are US Bank, Wells Fargo, Medtronic, Target, Capella University. I could go on. You get the picture. We are represented on the board, General Mills, all have high level staff that actually contribute to MEDA. Accenture, for example, did our whole analysis on the business ecosystem and did our strategic planning work for free. Wells Fargo just gave us a major contribution to our loan fund and annual support that will last the next three years. Basically we have that partnership, but we also have a number of other partnerships. We've entered into memorandums of agreement with the other players in the minority business ecosystem. I mentioned that earlier. Part of those memorandums of understanding is so that we actually work together better for minority entrepreneurs.
Latino economic development center, Asian economic development center, African economic development center. We're reaching agreements with the Latino chamber, with the African chamber, so that we actually are all working together in alignment but if you don't have an agreement with somebody to do anything or principles on how you're working together, this is the first time we've ventured into this space of having partnership. Neon, which is a minority business development group that serves north Minneapolis, we ventured into a partnership so that we actually share clients. They're doing some of the work with us and we have an agreement to that effect. We're actually getting deeply involved in having interlocking relationships with the partners in the system.
We're also attempting to develop standards by which we interact with minority entrepreneurs together. Clifton Larson Allen has put up some pro bono support to help facilitate this ecosystem work that we're doing, which I'm really excited about. CRF, the community reinvestment fund, Frank Altman is also partnering with us in that. They're a national lending intermediary that is actually going to bring more capital to the table for us. I'm really excited about the future of partnerships and I think I mentioned the Minnesota chamber of commerce and Bill Blazer sits on our board. They've come to us and actually have been helping us match make minority firms with mid-level firms in terms of contracting and RFP and other opportunities that exist or needs that they have. I think everybody's really moving in the direction of doing something different. There are hiccups and growing pains and all those kind of things. I'm excited.
MNBIZ: Your excitement comes across along with a sense of optimism. What are the hiccups that you fear? Are there challenges? It all sounds good.
GARY: Some of the things that get in the way are how the minority business ecosystem is funded because the incentives are misaligned for how funding occurs for this whole system of minority business development.
MNBIZ: How's that?
GARY: The incentives create a dynamic where we each have to differentiate ourselves from each other in the marketplace in order to go for funding from the nonprofit organizations. It doesn't align us around the customer, it aligns us around our differences. That really needs to change. I think that the funding community, the philanthropic needs to think about this a system and what are they funding together. You also have the issue of funders doing their own thing. Everybody's doing their own thing and they're not funding base operations. They're just funding programmatic outcomes. People go after different grant RFPs, etc., and then don't have the capacity of their base to do the work. Rather than funding us to do what we do, there's always a new flavor, a new brand. We need to think about how do we build the whole system together and how do we do it for the long term.
If we're spending a certain percentage of our time and resources and effort raising money, then that takes us away from serving minority entrepreneurs. I'm not saying that we shouldn't have fundraising or marketing or any of these things, but I do think the funding community could think about how it does this together. They've been funding the same system for 30 to 40 years. We need to get at different results. We're 96% deployed, meaning, of the $13 million I talked about earlier, 96% of those dollars are out the door. We have about 10-15 million good deals that we can't make for minority entrepreneurs because we don't have the money. Then, we're 98% performance — meaning that 98% of the people that we're giving loans to are paying them back and we have a 2% loss rate. I see bankers that would drool for the numbers that we have, meaning, we actually are performing at high risk loans, in part because we provide technical assistance and support. That is our secret sauce — meaning, if you come to us you don't just come in and get a loan. You actually get a lot of help and then when you're really in a position to get loan, we give you a loan at or below market rate. It's below if you went to Wells Fargo or any other bank.
Given that we've been able to demonstrate over a period of time that you can do business with minority businesses and it actually pays off, those dollars recirculate. The dollars we get paid back goes back to help another minority entrepreneur. It's not like you're giving money to something and then it goes into a black hole. You're actually giving money and you're getting a return on your investment, and that return is that money will used to build more minority entrepreneurs. This is a revolving system that actually has the potential of going viral — if we could get enough resources to meet demand. Right now we have all of these folks waiting in the wings that can't get access to resources. What we need to be able to do is grow our loan fund. That's one of our strategic goals is to grow our loan fund to $20 million dollars. We believe that the demand for minorities in this area is about a $100 million.
Meaning — the demand that they could actually absorb, keeping our rate of loss the same, we could give $100 million. It's not just us. There are other loan funds that are out there that we're now starting to work together — the African Development Center and MEDA just did $200,000 dollars in loans to minorities, small businesses. That's a first step. We need to keep taking those steps so that we multiply their resources. We help provide them with some technical expertise, they help us with our cultural competence in working with African communities, working with Asian Economic Development Center. We're never going to have all of that competence that they bring to the table around working with Asians of different identities. We're better off working with them, so that we're all actually working together instead of competing with each other. Then the Twin Cities actually could be the place where people talk about where it really works instead of talking about where it doesn't work.
MNBIZ: Part of this is an attitudinal shift for the major institutions, and for people with a banker mentality, nothing works better than numbers, showing them the numbers.
GARY: Bremer Bank has come to the table last year and provided us with a $1 million for our loan fund. As I said, Wells Fargo, $2 million for our loan fund. We're having discussions with other banks in the community. We're also having conversations with some of the corporations to make social impact investments in MEDA in what they call program-related investments in MEDA, so that we can grow our loan fund and we can share a little bit of that return with them. I think the potential is huge and people are starting to wake up that this isn't just a little cute thing to do, that this really affects our bottom line. If you think about a bank, they used to do this primarily for their Community Reinvestment Act credits. They do it because then we can say to the Feds — or whoever monitors that — that we're doing a good job. Now they're waking up to the fact that these are their future customers.
These are their future business customers, because the demographics are shifting. Then, it's in their interest to develop these minority businesses because as the demographic shifts they have a vested interest in insuring that their next batch of customers are all ready for them. That's what MEDA helps them to do. We level the playing field. We're a value. We're added to their value proposition. It's not just fun being an altruistic thing to do. It's in their vested interest to help us grow and to help us grow minority businesses because 10 years from now a lot of businesses won't think in that way because of quarterly earnings, etc., but many of the civic leaders that I've been talking to that are also in corporate leaders are starting to think about, what is this community going to look like in ten years? The head of General Mills or the head of Bremer Financial or the head of Accenture are all thinking about what the future of the Twin Cities going to look like.
They're facing the same issues all over the country. If we can solve the problem here we can actually begin to think about a template that could be helpful throughout the country. Yesterday I spent a day with the SBA in Washington, D.C. talking about how we provide technical assistance and support to minority businesses. Part of the reason we got asked to talk about that is because we're being successful here in the Twin Cities in doing that. We didn't just get asked because they looked at a map and pointed a finger. The investments that the Twin Cities corporate community made 40 years ago are starting to really pay off now. This is the long view. That's how we have to think about the future. If we just think about what's going to happen today or tomorrow within our community we get discouraged, we throw up our hands, we blame people.
These are the kind of reactions that you get but when you're thinking about five years down the road. Where is MEDA going to be? How many people is it going to be serving? How do we actually transform the system that we're in, as opposed to just incremental change? Incremental change? There’s a report that just came out that says at our current incremental rate of change, it would take African Americans 237 years to equal their assets with whites.
MNBIZ: That's a long time.
GARY: Yeah, that's a long time. We actually have to think about doing things way differently in terms of how we get there. You asked about education. Education is key, I would argue, to addressing some of this as well. If you're a minority business and you're trying to get to scale, all of a sudden you have to go for equity capital. If you're going for equity capital you don't need a degree, but you do need to understand business because somebody's going to look at you and do a risk assessment of your business based on how much you know. If you don't have the right education it's going to be difficult for you to convince somebody to take a risk in their equity in you.
This issue of education sits as a key to address some of the issues — even though you don't think about that right away when you think about entrepreneurs — but a lot of the entrepreneurs that are movers and shakers who actually know what a business supply chain is. They understand what leadership is. They get how HR systems work. They understand their value proposition. They understand how to get their products and services in a quality way to their customer. All of those things have to be part of the knowledge base of minority entrepreneurs in order for them to succeed.
MNBIZ: There is one short term thing we're looking forward to. That's the MEDA gala and I think it serves multiple purposes. It's a time to celebrate, come together, but also maybe raise some money and put a spotlight on people.
GARY: I am so excited about the gala. We are celebrating our forty-fifth year at the gala, our sapphire anniversary. Everybody who has come to our gala in the past says it's the best party in the Twin Cities. It's an opportunity for you to dress up, to be with your partners, to enjoy that experience, and to bid on some great auction items. We have one of the biggest silent auctions out here. I always almost go broke at the MEDA gala because there are so many good opportunities to choose from stuff to buy.
MNBIZ: Then you invite other people to go broke?
GARY: Yes. We are inviting you to spend all your money and it goes to a good cause, and you can be with what Minnesota looks like. It's a great party. We've got a great band that's going to play until late in the evening. It's at the depot. It's on November 19 and we are looking forward to having a great crowd there and we really need to support folks that really think that entrepreneurship, giving people the opportunity to work for themselves, to take responsibility for their future, that this is the way of the future. If you want to support that effort that people lifting themselves up, come out to MEDA gala. We really will have a great time.
MNBIZ: See you there.
GARY: Thank you.