The time for hope and fundamental action has arrived

These times have tested our resilience and stamina.

The pandemic made our stark every day inequities drawn along racial, gender, and geography lines even more vivid. But we have also seen the magic of our resourcefulness, creativity, and regard for one another.

Now we have a rare opportunity to address the widening wealth and income gap by strategically deploying historic federal funding, and in that process, work to heal our communities and repair our nation.

Federal stimulus funds have been flowing across the country, with more broad-based infrastructure investments on the way. These dollars give us a chance to rebuild our economy. However, it will take more than physical infrastructure projects to rebuild the systems that support people.

The good news is there are ways to move Americans, who currently struggle with the daily economic choices forced by poverty and low incomes, onto paths of economic stability through good jobs and brighter futures.

The opportunity

Enabling more people to do better does not mean that others must do worse. Our economy is not a zero-sum game. When more people do better, we can see the positive ripple effects everywhere. Demand increases, lifting all our businesses and the people who work in them. More people start businesses of their own, creating jobs and growing the economy. This all means a bigger tax base for communities, more funding for neighborhood services and amenities, and more charitable giving.

While philanthropies and nonprofits will not have control of federal funds, we can look for ways to influence how it is spent. If most of the funding goes to temporary, stopgap fixes – or to uses that reinforce the imbalances in our economic system – then it’s going to be a once-in-a-lifetime opportunity missed.

The risk

Economic research finds that higher levels of inequality cut into overall economic growth and make it likely that growth cycles won’t last as long. Why does inequality undermine our competitive strength? In part, because people at the lower end of the scale – and we’re talking about many millions of Americans – are under-utilized. Their potential is stifled; working in an economy that does not work for them.

Many have pointed to the link between inequity and political polarization.

When people can neither earn what they feel they need, nor find fulfillment in their work, they are frustrated. They tend to be driven to extreme views. They don’t trust the government; they don’t trust other people. They lose the sense of being part of a unified society, because in so many ways, they really are not.

Which gives us the fractured society we now have … and a highly adversarial political system, in which meaningful government action to build the country’s future becomes more difficult.

When inequities reach today’s levels, we all lose. Even if you’re “winning” in the current system, the foundations of that system are growing weaker.

The time for both hope and fundamental action has arrived.

Our priorities

At the Kauffman Foundation we take a multi-pronged approach to confront the many faces of inequity – chief among them being racial inequity. We have launched pilot programs here in Kansas City, raised issues that need to be addressed, and advocated for regional and national reform.

Through a lens of racial equity, diversity, and inclusion, we’ve focused our Foundation on two priorities.

• Building a prepared workforce. The goal is to see that all young people in our region are equipped with the knowledge, skills, and real-world experience to excel in the careers they choose.
• Entrepreneur-focused economic development. By this, we mean economic development strategies that recognize and support the power of people starting their own businesses in their communities.

Entrepreneur-focused economic development

We need to focus our efforts on those too often overlooked. They live in small Midwestern towns, rural areas, and crowded neighborhoods in our major cities. They could potentially start new businesses, but conditions are such that the barriers to entrepreneurship are high. This might include a mechanic who fixes your car, or a salesclerk in a store where you shop. Or a 22-year-old who has amazing computer skills, with experience but no college degree, and lacks the connections and advice that can turn a bright idea into something big.

Helping people take their ideas and passions to the next level to start businesses benefits all of us. How? Here are two key points:

• Startup companies are essential to growth. Young companies bring new ideas and new efficiencies to market. At the beginning of the pandemic, Zoom and Moderna, two companies we relied heavily on, were less than 10 years old. On a local level, we’ve all seen a new service shop, or a small manufacturer get started and take hold by filling that niche better than anyone previously did.
• New businesses create jobs. We’ve supported research on jobs created versus jobs lost by age of the companies involved. On average, companies more than about 10 years old cut about as many jobs as they add, which explains why areas that rely on older, existing industries often struggle. Nearly all net job growth – meaning, more jobs added than lost – comes from younger companies in their startup or early growth phases.

Communities brimming with healthy entrepreneurs are healthy communities. Although we’ve seen an uptick in new businesses forming during the pandemic, those are offsetting the businesses we’ve lost. And, unfortunately, in the longer view, per capita rates of new business starts in the U.S. have been declining or flatlining during the past 40 years. Why?

Access to startup capital is an obstacle for many aspiring entrepreneurs who are not affluent or well connected. Today, Black-owned businesses are twice as likely to be rejected for loans and start with three times less in overall capital. Even more alarming, of the $69 trillion in global assets under the four major asset classes, less than 1.3% is invested in firms owned by women, Black Americans, and other people of color.

To address these inequities, we are focusing on the capital systems. Working through pilot programs like the Capital Access Lab, we created a fund of funds to test new models. The result? The Kauffman Foundation’s original investment of $3 million into six funds has catalyzed other investments totaling $177 million that has been raised by the funds. The funds have, to date, deployed more than $25 million in funding to diverse entrepreneurs across 40 companies. And we are going to continue our work in expanding fund managers of color, who in turn, will invest in more entrepreneurs of color.

We must also reimagine traditional lending and credit models. We do this through supporting locally trusted organizations, smaller, non-traditional lending partners, and institutions grounded in the historical and cultural implications of a community, such as Community Development Financial Institutions or CDFIs. During the pandemic, we supported a Kansas City-based CDFI, Alt-Cap, which deployed more than $5 million to 178 local small businesses. As of today, that fund has had zero defaults. We are expanding our investment in Alt-Cap, providing a $5.3 million grant to support more entrepreneurs overlooked by traditional lenders. 

The results from our efforts only continue to underscore the systemic inequity faced by too many small business owners. Issues with direct funding are just the tip of the iceberg, however. If you want to take the big step to leave your job to start a business, what will you do for health insurance? Or childcare? These two issues alone are major contributors to “job lock,” the forces that keep people tied to their present employment rather than venturing out to build anew.

Furthermore – and this is a huge factor – many would-be entrepreneurs in non-affluent areas lack what we call an entrepreneurial ecosystem to support them. They don’t have networks of mentors, potential business partners, advisors, or champions, as most startup founders do in more connected communities. 

Geographic inequities also increase barriers for many entrepreneurs. Business owners and founders in Missouri, Iowa, Nebraska, and Kansas are fighting to survive. The global pandemic and existing systemic inequities are hurting our Heartland economies. The Trends in Entrepreneurship report brief highlights the many barriers facing Heartland entrepreneurs, including additional challenges due to race, ethnicity, gender, and income. At the Kauffman Foundation, we are working to support organizations and community-based leadership to co-create solutions and interventions that support those businesses and their communities.

Our collective work in entrepreneurship – our policies, practices, and programs – aim to break through those barriers. This year, the Foundation will continue our focus on capital access, America’s New Business Plan, actionable research for communities, and local and national organizations to help level the playing field and allow more people to start and grow businesses.

A prepared workforce

Now, let’s look at education. When we consider changes that could be made in our K-12 system, we must think beyond special programs to catalyze future entrepreneurs, because the truth is: not everyone will be an entrepreneur. Many people just want a good career path that will pay them a living wage. They’d also like to have their work be meaningful to them, allow them to express themselves, and contribute.

Unfortunately, too many fights in education center on the needs of adults instead of the needs of our students. And, when we put the needs of students first, we find a gap that exists across nearly all demographics. It’s the gap between the world of schooling and the real world that awaits young people after they leave school. 

These worlds operate by different rules and methods. The experience of being in school is not like the experience of being out in the world of work.

Our Real World Learning initiative involves having school districts link up with businesses and other organizations outside of the classroom, in order to offer high school students a curriculum that’s built around real-world learning experiences.

What does this look like in practice? Here’s just one example.

Center High School students in Kansas City helped an early learning center during the pandemic when field trips were canceled. The Yellowjacket Early Learning Center wanted to provide young students the opportunity to experience a “field trip” in a safe environment. The high school students worked with early childhood teachers from two school districts and created virtual and augmented reality experiences for the preschoolers based on the units teachers were covering in class or what they thought the preschoolers might be interested in viewing. The experience gave high school student a real-world problem to solve and expanded the horizons for a group of early learners.

We have dozens of those stories from urban, rural, and suburban districts. We continue to prioritize this work in 2022.

Beyond our Real World Learning Initiative, we’re working to ensure that the Kansas City region can better coordinate its education and workforce development initiatives to achieve positive results for people. The Kauffman Foundation is working with programs to support a talent pipeline of thousands of diverse individuals during the next 10 years as they earn degrees, certifications, and other credentials positioning them for the lives and careers they want and deserve.

One fast-growing program is KC Scholars. Since 2016, KC Scholars has provided scholarships and coaching support for more than 3,500 traditional and adult learners in pursuit of degrees and other workforce credentials. Conservatively, the expected number of regional KC Scholars college graduates during the next 10 years is at least 6,000, providing a reliable and diverse pipeline of young talent. One hundred percent of KC Scholars students are low/modest income, 80% are students of color, and 77% are first-generation college students.

Enhancing the Kansas City workforce, and our understanding of providing a workplace that encourages belonging, has been a learning opportunity for one of the Foundation’s longest-running programs – Kauffman Scholars. As its last students wrap up their college experience, Kauffman Scholars is exploring how valuable lessons and stories provided by hundreds of racially diverse young professional alums can be applied to ensuring employers and communities are prepared for the diverse talent and perspectives they want and need. Kauffman Scholars currently has an alumni network of more than 700 college graduates that will grow to more than 800 by 2023, offering a strong and accessible network of young racially diverse professionals building lives and careers in the KC region during the coming years.

In addition to those programs, the Kauffman Foundation will continue working with our area community colleges and industry leaders to support increased credentialing opportunities.

To sustain and fortify all these workforce initiatives, the Foundation will support ongoing collaboration to continue bringing systemic thinking to workforce and education barriers and opportunities. We’ll also continue ongoing education and learning opportunities related to racial equity, diversity, and inclusion – building upon the participation of more than 1,000 business and community leaders during the last three years in programming facilitated by the Racial Equity Institute and the Kauffman Foundation’s pilot REDI (Racial Equity Diversity and Inclusion) KC Community of Practice.

Rebuild Better

The bottom line: We must all do better. We can no longer be willing to live with an economy that works well for some people while it leaves millions more scratching, fighting, or forgotten.

We know that’s not sustainable. We know that it’s simply not right.

We’ve all recognized, the roots of this crisis are not simple.

Therefore, we take the need to rebuild better very seriously. We are working step-by-step, strategically, and fundamentally, to open the way for everyone to succeed.

I see so many people who want the same thing. We may not be the loudest. But we are working together, every day, to meet this moment.

It’s times like these that I focus on one of my favorite quotes from Mr. Kauffman, “All the money in the world cannot solve problems unless we work together. And, if we work together, there is no problem in the world that can stop us, as we seek to develop people to their highest and best potential.”