What Philadelphia's Business Ecosystem Needs Next
From Compliance to Capacity: What Philadelphia’s Business Ecosystem Needs Next
Reflections after testifying before Philadelphia City Council on behalf of the Economy League of Greater Philadelphia, PAGE, and SupplyPHL.
On September 28, I testified before Philadelphia City Council’s Special Committee on City and Private Sector Diversity, Equity, and Inclusion Policies, about public-private partnerships and their impact on small, local, and diverse businesses.
The hearing made one point unmistakably clear: Philadelphia is not simply debating how to create new business opportunities. We are confronting the possibility of losing business capacity that took decades to build.
“We are confronting the possibility of losing business capacity that took decades to build.”
Several entrepreneurs testified that the retreat from race- and gender-conscious supplier-diversity policies is already reducing opportunities and revenue. Craig Williams reported that his electrical supply business experienced a 40% decline in local revenue over the past year, while Michael Brown warned that Black-owned firms are being pushed toward collapse. Both connected these losses to the movement away from intentional supplier-diversity programs.[1]
That warning should reshape the conversation. The question is not only whether Philadelphia can build a more inclusive economy in the future. It is whether the city and region will preserve the Black- and brown-owned businesses that exist today, and whether we will create the conditions for the next generation of firms to enter, grow, and reach scale.
A policy transition with real economic consequences
Philadelphia has moved away from its long-standing goal of awarding 35% of City contracts to minority-, women-, and disabled-owned businesses, as well as the participation ranges previously attached to publicly funded projects. The new framework prioritizes businesses certified as small and local. The Parker administration has cited the changing national legal landscape, and the Council committee endorsed moving toward a more legally defensible, race-neutral structure.[2]
Supporting small and local firms is important. But a race-neutral framework cannot be assumed to produce racially equitable outcomes, especially when it is introduced into a market shaped by decades of exclusion.
As Williams told the committee, the change removes intentional mechanisms that once provided predictable access for diverse businesses and may increase opportunities for non-diverse firms instead. Committee members also raised concerns about preserving demographic data and about whether the definition of “small” creates a ceiling that prevents diverse firms from graduating into the middle market. City officials acknowledged that a proposed middle-market program is not yet in place.[2]
This transition therefore needs to be evaluated by its actual results, not only its legal rationale or stated intent. Philadelphia should continue collecting demographic data, publicly report contract awards and payments, and examine whether Black- and brown-owned firms are retaining market share, winning repeat work, and progressing into larger contracts.
The existing disparities are already severe
Philadelphia is beginning this transition from a position of deep inequality. In 2022, the city had 17 employer firms and 94 nonemployer firms per 1,000 residents age 16 and older, a total business density of 111 firms per 1,000 residents. Although that was Philadelphia’s highest level in decades, it remained below Boston/Suffolk County at 118, Denver County at 153, and the national average of 129.[3]
Philadelphia’s Black-owned employer firms grew by 73% between 2012 and 2022, from roughly 1,150 to 1,990. That progress is real. Yet Black business density, counting businesses with and without employees—was 75 firms per 1,000 Black residents, only half the white business density of 150 per 1,000.[3]
Across Greater Philadelphia in 2021, white residents made up 64% of the population but owned 84% of employer firms. White-owned firms paid an average of about $60,000 per employee, compared with approximately $31,000 at Black-owned firms. Black- and Hispanic-owned businesses together employed less than 5% of the region’s workers and generated less than 3% of regional payroll.[4]
These gaps are too large to treat the removal of targeted mechanisms as a neutral administrative change. Without deliberate replacement strategies, Philadelphia risks deepening an already very unequal market.
THE DATA IN CONTEXT
Efficiency has come with a cost
Public policy is only part of the challenge. Institutional supply chains have also changed dramatically. Hospitals, universities, corporations, and other large buyers increasingly consolidate purchasing through national contracts and group purchasing organizations. These systems may lower transaction costs, but they also eliminate direct purchasing relationships and local entry points.
Institutions are larger and purchasing more, yet often buying from fewer vendors. Consolidation also reduces procurement staff, leaving fewer people available to identify, onboard, and develop new suppliers. A relationship built over years can disappear when an institution merges, changes leadership, or transfers purchasing authority to a national platform.
This pursuit of efficiency has come with an economic-development cost. It rewards incumbent vendors with scale, equipment, capital, and established relationships while making it harder for new firms to enter the market. It can also weaken supply-chain resilience by concentrating purchasing among fewer providers.
Personal networks remain central to who receives anchor-institution opportunities. One business owner summarized the private-sector barrier plainly during the hearing: “I don’t golf with them. I don’t eat at the same restaurants. I ain’t from the same neighborhood.”[1]
In a deeply segregated region, relationship-based sourcing does not operate neutrally. Black entrepreneurs are often excluded from the social and professional networks where information travels, trust is established, opportunities are shaped, and partners are selected—frequently before a solicitation becomes public. If institutions rely primarily on familiar networks, they will reproduce familiar outcomes.
Anchor institutions must therefore treat supplier discovery and development as active responsibilities. That means transparent opportunity pipelines, earlier notice of upcoming contracts, structured introductions to decision-makers, open supplier engagement, useful feedback, and accountability for reaching firms outside existing networks.
Capital must create ownership
Access to capital remains essential, but we need to be more precise about what capital should accomplish.
Many Black- and brown-owned businesses do not own the commercial property, specialized equipment, technology, or other productive assets that create lasting enterprise value. Without predictable contracts, purchasing these assets can be too risky. Firms rent equipment instead, increasing their project costs and making them less competitive against larger companies that already own what they need.
The scale gap is measurable. In 2022, Philadelphia’s Black-owned employer firms averaged approximately $792,500 in revenue; 30% below the median for Black-owned employer firms in Pew’s comparison localities. Hispanic-owned employer firms averaged about $921,100, 41% below their peer-locality median.[3]
Philadelphia needs targeted tools that help firms acquire capacity-building assets connected to real market demand. That could include grants or patient capital for equipment, support for commercial-property acquisition, working capital tied to awarded contracts, credit enhancement, bonding assistance, shared back-office services, and financing for entrepreneurs to purchase existing businesses.
Programs modeled on the PAGE Hurdle Fund - a nimble grant fund designed to overcome ‘hurdles’ in the form of equipment, insurance, bonding, etc to obtaining or retaining an institutional contract - demonstrate the potential of targeted interventions. The goal should not be to capitalize everything indiscriminately. It should be to identify the assets and systems that allow a promising business to compete, retain more value, and move to its next stage of growth.
Building a full economy, not a permanent small-business tier
Philadelphia’s challenge is not simply creating more small businesses. It is helping firms progress from small contracts to larger ones, from subcontracting to prime opportunities, and from owner-operated businesses to employers with durable assets and professional systems.
A small-and-local preference can create entry points, but it cannot become a permanent ceiling. Philadelphia also needs a strategy for producing locally headquartered middle-market firms that can compete in other regions, bring revenue back to the region, create family-sustaining jobs, and eventually reach hundreds of millions of dollars in annual revenue.
That progression requires predictable demand, appropriately sized scopes, prompt payment, working capital, bonding and insurance assistance, asset ownership, shared professional services, useful bid feedback, acquisition support, and mentorship connected to actual work. Publicly supported developments should track not only participation percentages but also which firms were paid, how quickly they were paid, whether they received repeat opportunities, and whether their revenue, employment, assets, and capacity grew. While there is some utility to measuring the ‘volume of spend’ with local and diverse businesses, it is far more important to measure business growth and development - which is the entire point of having these initiatives in the first place.
The stakes extend beyond Philadelphia. Nationally, Black Americans represented 14.4% of the population in 2021 but owned just 2.7% of employer businesses. Even if Black employer ownership continued growing at its 2021 pace, Brookings estimates that reaching parity would take another 80 years.[5]
In sum, we cannot wait for ordinary market forces to correct a gap of that magnitude. If we are to create opportunities for entrepreneurship for the imminent New Majority Americans, we must address this evident market failure now.
From compliance to capacity and from access to ownership
Philadelphia needs a coordinated business-growth strategy that recognizes that business-to-business firms require different supports than consumer-facing businesses. It must also reject the idea that a lack of capacity in a particular industry is a reason to stop looking for diverse suppliers. Capacity can be built through strategic purchasing, asset acquisition, succession and business acquisition, focused investment, and long-term institutional commitments.
Public-private partnerships provide an important starting point. When a project benefits from public land, subsidy, infrastructure, approvals, or convening power, the public sector should use that leverage early to create lasting economic value. Private anchor institutions must also recognize that their purchasing decisions are regional economic-development decisions, whether they treat them that way or not.
After every publicly supported development—and within every major institutional supply chain—we should ask: Which firms participated? Who got paid, and how long did payment take? Who gained assets? Who received repeat work? Who moved from subcontractor to prime? Who grew into the middle market? Were family-sustaining jobs created? Did the investment leave behind a stronger and more inclusive local economy?
Philadelphia has spent decades documenting disparities in business ownership and contracting, as well as producing glossy ‘impact reports’ that tout large volumes of institutional ‘diversity spend’; yet the facts are what they are and all of that ‘spend’ does not seem to have created a robust cohort of growing, local, diverse-owned firms. The testimony before the committee showed that the city now faces both a growth challenge and a preservation challenge. We must protect the capacity already built, open networks that remain closed, and invest deliberately in the ownership and scale needed for a full economy.
The goal cannot be participation alone. It must be durable businesses, productive assets, quality jobs, community wealth, and a regional economy in which Black and brown entrepreneurs can enter, compete, grow, and lead.
