Starbucks and the Magic Touch
Starbucks is expected to donate $100 million to community-development financial institutions (CDFIs) around the country to help improve minority business development. Will this have an impact or is this one more band-aid from corporate America to assuage its guilt?
What is the goal of this capital? If it is to help economic development, the money amounts to about $2 million per state. Will $2 million per state have an impact when billions have been spent trying to develop minority businesses. Is this supposed to be one of many projects, in which case, where is the coordination to make sure that there is an impact. Or is this a PR stunt?
Is Starbucks one of the causes of this problem? This is an unfair question because the economic issues in minority communities have many causes and have been festering for a long time. But Starbucks has contributed to the problem, along with all its chain restaurants and businesses in minority communities.
Businesses like Starbucks, McDonald’s or Burger King in a minority community may employ workers from the community. But often managers live outside the community, along with the franchisee if there is one. The owners of the real estate are also likely outside the community along with the professionals serving the business such as the accountants and attorneys. A very small portion of the revenues stays in the community while the national chain benefits handsomely from the profits, and its size and marketing savvy contributes to the demise of the small, locally owned coffee shop. Locally owned businesses, on the other hand, are likely to buy more from the community and spend more in the community than the national chains. Like Starbucks.
Who will get the money? Spending an average of $2 million per state means that each state gets very little. This means each business that is financed by the CDFIs gets very little. Unless the entrepreneur has the skills to grow more with less, the business is likely to stay small and be at the mercies of changing trends and bigger, national chains like Starbucks. So will Starbucks train any recipients to grow more with less – because they will have to.
What this means? If history is a guide, Starbucks will get a lot of publicity for its noble gesture. But the problem will not be solved.
If Starbucks really wants to help solve the problem, it should do the following:
MY TAKE: The first step in developing minority communities is to understand that the best economic-development strategy is not small-business development. Small businesses mainly circulate money already brought into the community. To make the community richer, it needs businesses that import wealth into the community. This requires more sophisticated entrepreneurs – globally competitive entrepreneurs.
The second step is to stop the patronizing band aids and address the real issue. It would be great if all the well-wishers study history. Minority communities need skilled entrepreneurs who can build businesses that can export from the communities to regional, national and global markets – and import wealth. Without that, the $100 million will be one more band aid in a long line of guilt-ridden band aids.
I was a venture financier. I am the author of Finance Secrets of Billion-Dollar Entrepreneurs (https://amzn.to/3imv0XZ) (FIU Business Press, November 2020) and teach