MBE Study Results Combined Arizona, Nevada and Utah Findings | SUMMARY (2022)

MBE STUDY RESULTS COMBINED ARIZONA, NEVADA AND UTAH FINDINGS

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Minority Business Enterprise Study Report

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MBE STUDY RESULTS COMBINED ARIZONA, NEVADA AND UTAH FINDINGS

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Minority Business Enterprise Study Report P R E S E N T E D

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A r i z o n a Hi s pa ni c Cha m b e r o f C o m m e r c e F o u n d at i o n F U N D E D

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U . S . D e pa r t m e n t o f C o m m e r c e Min o r i t y B u s in e s s D e v e l o p m e n t A g e n c y C o r o n av iru s R e s p o n s e a n d R e l ie f F u n d R E S E A R C H

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We s t Group Re se arch

MINORITY BUSINESS ENTERPRISE REPORT

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ACKNOWLEDGMENTS

E N D O R S I N G

O R G A N I Z A T I O N S

A r i z o n a H i s pa n i c Cha m b e r o f C o m m e r c e FOUND ATION

R E S E A R C H

T E A M

G l e n n I wata Wes t Group Rese arch

K at y G a l l e r t Wes t Group Rese arch

Monica S. Vil l al obos A r i z o n a H i s pa n i c Cha m b e r o f C o m m e r c e

C ata l i n a P e r e z A r i z o n a H i s pa n i c Cha m b e r o f C o m m e r c e

Ceril a Gail liard O r c h e s t r at i n g Y o u r S u c c e s s

K a a r e n - Ly n G r av e s A I A NN H * P r o j e c t N A BEDC

P R O D U C T I O N

T E A M

Carmen G. Martinez A r i z o n a H i s pa n i c Cha m b e r o f C o m m e r c e *AMERICAN INDIAN, ALASKA NATIVE, & NATIVE HAWAIIAN (AIANNH)

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS

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STUDY HIGHLIGHTS

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STUDY FINDINGS I.

Challenges during the Pandemic

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II.

Strategies during the Pandemic

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III Challenges/Strategies being a Minority-Owned Business

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IV. Business Characteristics

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V.

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Owner Characteristics

VI. Rural and Economically Distressed Areas

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VII. Indigenous Community/Remote Tribal Communities

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CONTACT INFORMATION

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NOTE: INDIGENOUS AREAS INCLUDE RURAL AND/OR ECONOMICALLY DISTRESSED AREAS

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STUDY HIGHLIGHTS The Arizona Hispanic Chamber of Commerce designed this study to be a resource for businesses, organizations, educators, government agencies and individuals who want Minority Business Enterprises (MBEs) to succeed. This was funded by U.S. Department of Commerce, Minority Business Development Agency, Coronavirus Response and Relief Fund to assist with the following: a) identifying potential policy topics for MBDA to champion, b) comprehensive data collection which could be used in future MBE studies, c) information analysis on minority business enterprises, and d) information programming for business organizations. The MBE Study focused on providing insights regarding the challenges businesses faced during the pandemic and the strategies they used to overcome them. Other topics include challenges and strategies of being an MBE as well as gaining access to capital. Comparisons were also made with businesses located in Historically Underutilized Business Zones (“HUBZones”), (1) and businesses operating in Indigenous Communities.

A total of 1,983 telephone interviews were conducted with MBEs from January 15 through April 20, 2022. This was broken down into 870 MBEs and 1,113 non-MBEs. The original target was to contact 400+ MBEs in each state, but sample sources of minority businesses were significantly less in Nevada and Utah businesses because of the lower percentage of MBEs compared to Arizona. As a point of reference, the total number of MBEs with paid employees as defined by the 2018 U.S. Census by state were Arizona 16,438, Nevada 9,612, and Utah 4,866.

In addition, specific survey targets included economically disadvantaged businesses, especially those operating in rural areas (HUBZone locations – 699 interviews), and businesses with American Indians/those in Indigenous Communities (95 interviews).

WHAT WERE KEY TAKEAWAYS FROM THE STUDY? PANDEMIC CHALLENGES/SOLUTIONS FOLLOWED A NATURAL PROGRESSION – MBEs followed the same patterns as non-MBEs regarding the challenges they faced during the pandemic and how they dealt with the problems. The problems and solutions that MBEs faced was a natural flow of problems and businesses responses.

WHAT HAPPENED?

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HOW WERE BUSINESSES AFFECTED?

WHAT DID BUSINESSES DO?

STAGE 1: Government shutdown businesses and mandates limiting operations

Immediate loss of revenue

Cut expenses, laid off workers, shutdowns

STAGE 2: Conflicts adhering to CDC guidelines

Conflicts with employees/ customers/suppliers deciding whether to follow guidelines

Most stayed within government requirements

STAGE 3: Return to business

Needing cash to replace lost business

Applied for government loans/ grants; increased marketing efforts (e.g., started new lines of business)

Trying to replace workers

Changed hiring practices

STAGE 4: Parts of economy more affected than others

Supply chain issues

Accepting longer wait times, Tried new lines of business.

STAGE 5: Pandemic continues

To be determined

To be determined

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STUDY HIGHLIGHTS

SIMILAR BUT WITH GREATER URGENCY – The challenges and strategies used during

the pandemic were generally consistent comparing MBEs vs. non-MBES, between states (Arizona, Nevada, and Utah), HUBZone vs. non-HUBZone and Indigenous Communities.

NOTE: Individual reports by each state have been written and highlight the similarity in survey results, themes storylines and conclusions.

The economic, technological, and operational business problems created by the pandemic generally did not differ by type of businesses or ownership. Similarly, the strategies and solutions used were also common to most businesses; however, there were differences, not by types of problems and solutions, but by the urgency and impact they had on MBEs and the various target groups. o

More aggressive strategies - The main difference in the pandemic impact is that MBEs and those in HUBZone and Indigenous Communities appeared to be more severely affected financially by the pandemic than non-MBEs. As a result, they had to be more aggressive in their efforts to address the pandemic challenges, especially by expanding their marketing efforts to make up for lost revenue (such as starting new business lines and/or increasing advertising) and applying for loans.

ACCESS TO CAPITAL WAS A CONSISTENT THEME – MBEs were more likely to feel this

was a significant challenge than non-MBEs, especially in HUBZone areas and for businesses in Indigenous areas. This is a critical focal point in trying to help these businesses. Because MBEs are often smaller in size than non-MBEs, many did not have as many financial resources to handle the pandemic. It was also clear that this issue is not just pandemic-related.

Respondents’ comments highlighted the ongoing nature of this issue even prior to COVID and the difficultly in trying to grow the business and pursue larger projects due to capital constraints.

EMBRACING THE MBE STATUS – While it is clear that MBEs continue to have to

overcome negative perceptions of being a minority-owned business, the top strategies they use are to embrace rather than hide their status by networking and promoting their minority foundation.

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STUDY FINDINGS I. CHALLENGES DURING THE PANDEMIC The top challenges mentioned by MBEs were consistent across all three states and the target groups. While there were some differences (see state comparisons below), none significantly changed the interpretation of the data.

CHALLENGES DURING PANDEMIC

By State

Challenges DuringBy Pandemic Challenges During Pandemic State By State

29% 29% 24% 24% 31% 31% 26% 26% NG EM KE E P I N GKEEEMPPI LOY E SP LOY E E S 20% 20% 21% 21% 11% 11% LY SGE H OS RTA S U P P LY SSUHPOPRTA / GES/ 13% 13% C RE VENTORY D E C RE ADS E D I NAVSEENDTOI NRY 15% 15% 10% 10% KE E P I N GKEEEMPPI LNOGYEEME SP L OY E E S 8% 8% I NSG V I R U S F RO M C AF RO TC HMI NCGA TC V IH RU 2% 2% I NG WI TH 7% COMMUNCOMMUN I CAT I NGI CAT WI TH 7% S TO C US TO MCEURS / E M PE LRS O /YEEME SP L OY E E S 8% 8% URIA N G NQU D U RI N G DQU RA TI NA ERA N T I N E 7% 7% 7% 7% ACC E SS ACC TO CE ASSP ITO TA LC A P I TA L 9% 9% 5% 5% 6% 6% GE VS EI RN N GO CHA N GECSHIANNGO M EVNETRN ME N T 5% 5% RE GU L ARE TI OGU N SL A T I O N S 5% 5% 5% 5% RI S I N G COSTS 6% 6% IN F LATI IONNF/LATI RI S IONNG/COSTS 6% 6% 4% 4% N LOE PMRO CH NO P RO B S / CBHL EAM L LSE/ N GEA SL L E N G E S 8% 8% 11% 11% D E C RE ADS E CI RE N SAASLEE ISN/ S A L E S / S S IONFE SBSU S I N E S S L O S S O FLO BU

0%

0%

20%

20%

ARIZONA NEVADA NEVADA UTAHUTAH ARIZONA

ack - Significantly different at 95% confidence level between states Note: comments Top individual comments were listed tly different at 95% confidence level between states Note: Top individual were listed AT CIRCLED IN BLACK – SIGNIFICANTLY DIFFERENT 95% CONFIDENCE

NOTE: TOP INDIVIDUAL COMMENTS WERE LISTED

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LEVEL BETWEEN STATES

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40%

40%

STUDY FINDINGS

I. CHALLENGES DURING THE PANDEMIC

LOSS OF SALES –

27% of all MBE respondents (all three states combined) - The pandemic was not only a medical crisis, but for many of the businesses surveyed, COVID resulted in a financial emergency at multiple levels. For each problem and solution mentioned throughout the survey, the respondents’ comments often ended up at the economic impact. The loss of customers/sales/cash flow all placed pressure on these MBEs. In addition, those that responded to the survey were the ones that have so far stayed in business. MBEs were significantly more likely to mention loss of sales than non-MBEs (20%).

KEEPING EMPLOYEES –

21% of MBE respondents (all three states combined) - The second most often mentioned challenge was how to rebuild the business. After the initial layoffs and return to work recovery, MBEs found themselves struggling to keep their operations staffed.

SUPPLY CHAIN ISSUES – 13% of MBE respondents (all three states combined) - An issue that followed along the pandemic progression was the shortage of supplies and inventory. Supply chains were directly and indirectly affected by the pandemic and have slowed down the ability to recover.

KEY THEMES 1. FOLLOWED THE PANDEMIC PROGRESSION – Most businesses tended to follow a natural

progression through the pandemic. 1. Businesses experienced lost revenues when COVID shutdown much of the economy and resulted in lost revenues. 2. As businesses started to return, the workforce shortages surfaced as a being a major challenge. 3. Further into the recovery, the supply chain problems became more prevalent as workforce issues and shifts in the economy (not all pandemic related) resulted in supply shortages which slowed down the business recovery.

2. GREATER URGENCY – While the top challenges mentioned during the pandemic were similar across the business groups and states, MBEs were more likely to have been negatively affected from decreased sales/loss of business than non-MBEs.

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STUDY FINDINGS

II. STRATEGIES DURING THE PANDEMIC The top strategies used by MBEs during the pandemic were also consistent across all three states, and each of the groups that were tested. NOTE: Responses were top-of-mind answers. When directly asked if they tried some of these solutions, a significantly higher percentage of the respondents recalled taking these steps.

STRATEGIES/SOLUTIONS TO CHALLENGES DURING PANDEMIC Strategies/Solutions to Challenges During Pandemic Minority vs. Non-Minority

Minority vs. Non-Minority 19%

C H A NGED M A R KETING STRATEGIES

14% 11%

A PPLIED FOR LOA NS

5% 11% 13% 10% 15% 9% 8% 8% 11% 7% 11%

DID NOTHING FOLLOWED CDC GU I DEL I NES, MASKS , VACC I NE S CHA NGED O PERATIONS CHA NGED STA FFING/ HIR ING PR A CTICES SWI TCH ED TO R EM OTE WO R K FO R CE 0%

MBES

10%

20%

N o n -M i n o r i t y

CIRCLED IN BLACK – SIGNIFICANTLY DIFFERENT AT 95% CONFIDENCE LEVEL BETWEEN MBEs AND NON-MBEs NOTE: TOP INDIVIDUAL COMMENTS WERE LISTED

CHANGING MARKETING AND COMMUNICATION EFFORTS – 19% of MBEs top-of-

Circled in black - Significantly different at 95% confidence level between MBEs and non-MBEs Note: Top individual comments were listed

mind– The focus of many of the businesses at this stage of the pandemic was recovering lost revenues through changing marketing and communication strategies – e.g., starting new products/services, increased advertising/social media, networking.

APPLIED FOR LOANS – 11% of MBEs top-of-mind – This was the second highest top-ofmind mention regarding how MBEs addressed the pandemic. o

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When asked directly later in the survey, 42% mentioned receiving aid through the Paycheck Protection Plan (PPP).

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STUDY FINDINGS

II. STRATEGIES DURING THE PANDEMIC o

In all three states, MBEs were either as likely or more likely to apply for/receive PPP loans than non-MBEs; however, non-MBEs received an average of almost twice as much funding (average $70,000) as MBEs received ($39,000).

o

Access to capital was a significant challenge mentioned by MBEs and especially those in HUBZones and businesses in Indigenous areas. More than half of the MBEs (55%) had challenges obtaining access to capital. Most self-fund their businesses or finance through their operations (70%).

FOLLOWED CDC GUIDELINES – 10% of MBEs top-of-mind. This involved adhering to

mask, sanitation and other CDC protocols for the safety of MBEs’ customers, employees and suppliers. The controversies surrounding conflicting opinions of the value associated with the CDC guidelines made this step especially difficult.

Other strategies that were mentioned included: Saving money by moving their business from in-person to online.

Closing down bricks and mortar locations and moving back to home-based businesses; 39% of the MBEs were home-based businesses at the time of the survey; one-third of those businesses were not home-based before the pandemic (a 12% point shift).

KEY THEMES 1. ACCESS TO CAPITAL WAS A MAJOR THEME – Concerns about the availability and

assistance needed in applying/receiving loans were mentioned throughout the survey, especially since most of the businesses are self-funded (e.g., out of the owner’s savings) or funded through the business.

2. PROGRESSION OF RESPONDING TO THE PANDEMIC ISSUES – Just as the

pandemic challenges followed a natural progression, the strategies MBEs used also took a path responding to the pandemic changes. 1. MBEs began their response to the pandemic by cutting expenses/laying off employees/beginning working from home. Cutting back was a natural first step, especially in light of the uncertainty at the start of the pandemic. 2.

As PPP and EIDL loans became available, some MBEs used these options to address the revenue losses and help stay in business. 3. Increasing marketing efforts – As the pandemic continued, MBEs needed to develop longer-term strategies to replace the lost business/ slow recovery. Businesses mentioned strategies such as starting new lines of businesses, increasing advertising, targeting new customer markets, expanding social media efforts, networking, and promoting MBE status.

3. MORE AGGRESSIVE EFFORTS – MBEs were more likely to try new marketing strategies and

apply for loans than non-MBEs, especially since they were affected by decreases in revenue during the pandemic.

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STUDY FINDINGS

III. CHALLENGES/STRATEGIES BEING A MINORITY-OWNED BUSINESS Almost half of MBEs mentioned having to overcome negative perceptions of being a minority-owned business (46%).

Sometimes the problems were cultural differences (33%) and/or the feeling that they were treated differently (32%).

INCREASING VISIBILITY – MBEs significantly increased their efforts to promote their minority status as a way to Agreement With Agreement Statements WithUnique Statements to Minority UniqueBusinesses to Minority Enterprises BusinessesMBEs Enterprises (All Three MBEs States) (All Three States) overcome their challenges. In a series of aided responses questions, businesses were asked how strongly they agree with statements about specific promotion strategies. Networking the MBE visibility/brand was the top response.

AGREEMENT WITH STATEMENTS UNIQUE TO MINORITY BUSINESSES ENTERPRISES MBEs (All Three States)

27% 27% 40%40%67%

I TWO RY RK T O WIT N ETHWORK WIT H OT S H ER MB E S I TRY T O NET OT H ER M BE

21% 21%33% 33%54%

I T RY ROM OT EU SM BE STATUS I T RY TO P ROM OTTO E MPBE STAT

19% 19%32% 32%51%

I U SSET AMTYU M T UUSE T O P U R S UE I USE MY MBE S BE T O SPTUARS BUPSORT IN ESUSN IT OPIES P ORT U NI TI E S B US IN ES S OP 0%

0%20%

20%40%

40%60%

60%80%

STRONGLY STRONGLY AGREE AGREE AGREE AGREE The top strategies focused on increasing the business’ visibility (networking and reaching out to the community) as well as applying for contracts that encourage minority-owned businesses.

KEY THEMES EMBRACING MBE STATUS – MBE owners have typically spent their lifetime addressing challenges being a

minority and have relied on that toughness in starting and running their businesses. From a business strategy standpoint, most MBEs seem to have embraced this status and have addressed their challenges by promoting their minority position, through networking with other MBEs and gaining government contracts with their minority business certification.

MBEs also leverage the DBE, SBE, WBE, WOSB, EDWOSB, HUBZone, 8a, etc. certifications, because most government entities in our tri-state area do not allow the MBE certification because it is used mainly in private sectors like working with Macys, Starbucks, Walmart, MGM, etc.; those with a supplier diversity programs.

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MINORITY BUSINESS ENTERPRISE REPORT

80%

STUDY FINDINGS

IV. BUSINESS CHARACTERISTICS The overall business characteristics of MBEs were similar between the three states. The biggest difference was that those surveyed in Arizona had higher average revenues than the Nevada and Utah.

KEY THEMES One the main differences between MBEs and non-MBEs that surfaced was how well businesses were prepared to handle something like a pandemic. Financially, non-MBEs seemed to have a stronger foundation before the pandemic began than MBEs. MBEs had lower revenue, were more likely to be family-owned and home-based compared to non-MBEs.

AZ/NV/UT MBEs

AZ/NV/UT Non-MBEs

ARIZONA MBEs

NEVADA MBEs

UTAH MBEs

MEDIAN REVENUE

870 $196,984

1113 $369,653

403 $279,000

288 $156,000

179 $182,142

MEDIAN NUMBER OF EMPLOYEES

4

5

5

3

4

MEDIAN AGE OF COMPANY

7 years

19 years

9 years

6 years

9 years

WOMAN-OWNED

53% 39% 50%

44% 21% 30%

51% 35% 30%

49% 41% 28%

58% 41% 32%

CUSTOMER DE S CRIP TIONS

288

179

403

288

179

RETAIL CONSUMERS

52%

60%

50%

50%

56%

BUSINESS GOVERNMENT

53% 36%

42% 25%

55% 40%

56% 37%

48% 31%

GEOGR APHIC SCOPE

288

179

403

288

179

CONDUCTS BUSINESS INTERNATIONALLY

16%

18%

13%

20%

16%

CONDUCTS BUSINESS NATIONALLY

39%

39%

40%

41%

35%

SAMPLE SIZE

BUSINE S S DE S CRIP TIONS FAMILY-OWNED HOME-BASED

BOLDED FIGURES ARE SIGNIFICANTLY DIFFERENT (Median differences use Mann-Whitney test)

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STUDY FINDINGS

V. OWNER CHARACTERISTICS MBE owners in all three states had similar profiles. The main differences by state were that Utah MBEs were more likely to be born outside the U.S and Arizona MBEs were slightly older than the other states.

The main differences between MBE and non-MBE owners were MBEs were younger, have slightly lower median income, more likely to speak a second language, and have stronger Democrat and less Republican affiliations than non-MBEs.

AZ/NV/UT MBEs

AZ/NV/UT Non-MBEs

ARIZONA

NEVADA

UTAH

DEMOGRAPHIC

870

1113

403

288

179

AVERAGE AGE

49 years

55 years

50 years

48 years

47 years

PERCENTAGE WITH COLLEGE DEGREE OR MORE EDUCATION

61%

62%

63%

62%

57%

MEDIAN HOUSEHOLD INCOME

$90,288

$95,200

$92,300

$90,476

$88,750

BORN IN U.S.

71%

78%

76%

77%

66%

SPEAK ANOTHER LANGUAGE BESIDES ENGLISH

56%

22%

62%

48%

61%

INDEPENDENT

29%

23%

28%

30%

30%

REPUBLICAN

20%

30%

22%

20%

24%

DEMOCRAT

20%

11%

18%

18%

17%

OTHER/ NO PREFERENCE

8%

7%

7%

7%

10%

REFUSED

23%

30%

24%

25%

19%

C U LT U R E / L ANGUAGE

POLITIC AL A F F I L I AT I O N

BOLDED FIGURES ARE SIGNIFICANTLY DIFFERENT

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STUDY FINDINGS

VI: RURAL AND ECONOMICALLY DISTRESSED AREAS One of the focuses of the research was to listen to challenges and strategies of businesses in rural and economically distressed areas as defined by their location via “HUBZones.” The Small Business Administration defines HUBZones as “... small business in historically underutilized business zones.” HUBZone business from both urban and rural locations were used in this research, but rural areas were targeted when possible. A HUBZone company both operates and employs (mandatory 35%) people who are in HUBZones.

Overall, HUBZone MBEs appear to have been more severely affected by the pandemic financially (28%) than non-HUBZone businesses (23%) at least in part due to their smaller size ($200,000 median annual revenue vs. $281,000 median) and more limited access to capital.

HUBZone MBEs more likely than non-HUBZone businesses to:

HUBZone MBEs

Non-HUBZone

APPLY/RECEIVE PPP FUNDING

44%

37%

ADVERTISE MORE AS A STRATEGY DURING THE PANDEMIC

12%

6%

START NEW LINES OF BUSINESS DURING THE PANDEMIC

13%

8%

BE SIGNIFICANTLY CHALLENGED GAINING ACCESS TO CAPITAL

38%

22%

TARGET THEIR BUSINESS TO GOVERNMENT CUSTOMERS

41%

28%

SPECIFICALLY TARGET GOVERNMENT OR PRIVATE CONTRACTS

47%

36%

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STUDY FINDINGS

VII – INDIGENOUS COMMUNITY/REMOTE TRIBAL COMMUNITIES WestGroup conducted 95 interviews with businesses owned by American Indians, Tribal Business Enterprises, other Indigenous business owners, and remote Tribal Communities to provide some insights into their needs and strategies. Some of the businesses were located close to urban areas, but most were in rural areas.

One of the top challenges mentioned throughout the study with businesses in Indigenous Communities was gaining access to capital (mentioned by 53% as a significant/somewhat of a challenge compared to 30% of nonminority businesses).

Other differences with MBEs in Tribal Communities compared to MBEs overall included: Experienced supply shortages (21% vs. 13% MBEs overall), but less likely to have challenges keeping employees (13% vs. 21% MBEs overall). The impact of many of these businesses being in more isolated, rural areas appeared to have a greater impact on supply chain issues, but less on workforce challenges (e.g., fewer job options in rural areas limited job switching to this workforce) Changed their operations as strategy during the pandemic (17% vs. 9% MBEs overall). Cutting expenses was typically the first steps taken by businesses during the pandemic because it was something that could be done quickly and easier than other options, especially with the uncertainty of the pandemic.

Focus on conducting business with government (45% vs. 36%) and less on business-tobusiness (37% vs. 53% MBEs overall).

CONTACT INFORMATION For more information about the research, please email your questions or requests to: A R I Z O N A H I S PA N I C C H A M B E R O F C O M M E R C E

Ms. Monica S. Villalobos MonicaV@azhcc.com

WESTGROUP RESEARCH

Mr. Glenn Iwata

glenn@westgroupresearch.com

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NOTES

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