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These success stories are still distinctly in the minority. The more usual plight of black "start-up" businesses is exemplified by the fate of Robert Musgrove of Chicago. Four years ago, he got an SBA loan to open the city's only photographic lab owned by a black. Today he is trapped between an inadequate cash flow and the desire to expand. He is working mostly to pay off the SBA. Beset by similar problems, as well as by undercapitalization and bad management, many other blacks simply close their doors. A recent survey in Chicago showed that 80% of the black-owned firms that were founded in 1972 folded by the end of the year.
Part of the difficulty is that the Government effort has emphasized small businesses—grocery stores, haberdasheries, restaurants. The new black firms are so small and vulnerable to failure, says Robert S. Browne, director of Manhattan's Black Economic Research Center, that "it is not likely that the 'action' will ever be significantly shared by those who do not already control it."
Another difficulty, as OMBE's new director, Alex Armendaris concedes, is that the Government's thrust was poorly thought out and badly implemented at its start. "We may have funded too many programs too quickly," he says. "There was a general desire to throw the money out, to get things going." Only now is OMBE setting up a computerized evaluation system to monitor the performance of the 160 semi-autonomous Business Development Organizations in 40 states that carry out the bulk of its work. With the new system. OMBE officials will be able to decide which BDOs have been effective in creating new businesses, and which have failed to measure up.
Troubles have also hit the so-called MESBIC (for Minority Enterprise Small Business Investment Company) program since its inception in 1969. An individual or company can form a MESBIC by putting up at least $150,000 in private capital; after investing most of this sum in nonwhite companies, the MESBIC can increase its original capital 15-fold through a combination of Government and private funding. There are now 62 MESBlCs, and they have the potential for investing millions. But Government regulations restrict the sum that a MESBIC can put into any one company.
This provision, says Frank Savage, president of the MESBIC owned by the Equitable Life Assurance Society, means that many of these otherwise promising ventures are largely limited to "mom-and-pop" businesses. Some of the first MESBlCs, such as the Arcata Investment Co. of Palo Alto, Calif., seem to have been confused about the difference between an investment loan and a charitable donation. Arcata folded in 1972, after nearly half of the businesses it had funded—including such risky ventures as a posh restaurant in the East Palo Alto ghetto—closed down.