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Navigating the AI challenges and opportunities facing entrepreneurs
On this week's episode of What's at Stake, Penta managing director Ylan Mui discusses the ways that AI is reshaping the landscape for small businesses with Imani Augustus, the director of the Alliance for Entrepreneurial Equity, a partnership between Third Way and the National Urban League.
Imani explains how entrepreneurs are harnessing the power of generative AI to improve customer service, marketing, and daily operations. They also tackle the ethical questions and operational hurdles surrounding AI, especially for minority-owned businesses.
Tune in to understand the benefits and risks of AI for small business owners and the steps they can take to navigate AI implementation responsibly.
Welcome to this week's episode of what's at Stake. I'm your host, ilan Mui, a Managing Director at Penta. I'm here today with Imani Augustus, director of the Alliance for Entrepreneurial Equity, which is a partnership between Third Way and the National Urban League. She and her team recently released a report on the impact that AI is having on small businesses, which is, of course, something that we've been thinking about a lot here at Penta, and I'm eager to dive into the issue with Amani on today's episode. So welcome, amani. Thanks so much for having me. Fantastic. Well, we know that AI can be an incredibly powerful tool that can help small businesses increase capacity, but we also know there are risks associated with it as well, especially related to privacy and bias. So can you just start by helping us understand the basics, which is how are you finding that small business owners are actually using AI?
Speaker 2:Absolutely. Thank you so much for the opportunity. Well, the term AI covers a multitude of advanced automotive processes. So when we talk about how small businesses are using AI, most often what I'm talking about is generative AI, which is specifically used to create new content. So images, text, music, music and what we found is businesses employ AI language models to understand a large data set, help them grasp a lot of information.
Speaker 2:And what we found in our research is small businesses are very interested in new technologies. There was a survey from our friends at the Bipartisan Policy Center that found one in three small businesses are early adopters of new technology and 58% of them plan to integrate AI in some form over the next year. So there's a lot of interest and that's very exciting. Have seen is for small businesses in their context. Across many different industries, small businesses are using AI for things like customer service, for communication, to support their marketing and facilities with their clients and customers, and around content creation, of course. So it's really interesting. It's a huge innovation in the space for small businesses and can potentially have a huge impact.
Speaker 1:I think it's so interesting that you say that small businesses are early adopters of technology overall, because you know, on one hand, you think about small businesses as needing to be scrappy and looking for any way possible in order to make their businesses more efficient, reduce their own personal workload because you know the small business owners work basically 24-7, right but also that this can be very complicated and maybe difficult for them to understand or understand how to apply it to their specific industry or to their specific company. So what are you finding in terms of just how small business owners think about the integration of technology into their business?
Speaker 2:Yeah, I think that many small business owners in particular are. There is some hesitation around it. I think, you know, with any kind of new, trending thing, there is a little bit of misunderstanding about how will this affect me, how does it apply, how can I use this in my everyday, with, you know, information being so readily available online and you're able to kind of discover different applications. I think businesses are finding their way through, but they are, you know, thinking about what are the larger concerns and is this a tool that I can rely on for my business? Is it something that I can rely on for my business? Is it something that I can make central to my business? And so there are a lot of different pros and cons which we'll, I'm sure, get into.
Speaker 1:Yeah, so let's dive into that now. What are some of the big benefits that you're hearing or seeing small business owners say, hey, this is how AI can really help me small business owners say, hey, this is how AI can really help me.
Speaker 2:Yeah, what we've heard is three main you know positives or benefits, first one being alleviating labor shortages. I think that you know, especially as we look at minority-owned firms, who you know. Nine in 10 minority-owned firms have under 20 employees, and so there can be a really big stretch for those entrepreneurs around supporting their everyday operations, having, you know, meeting hiring challenges. What we found is AI can be a substantial tool for addressing these issues by assisting business owners with administrative tasks, automating regular things like scheduling, document processing and research things that would take a lot of the owner's time.
Speaker 2:The second thing we found is around increasing competitiveness. We found is around increasing competitiveness. So, if you think about any technology can really increase efficiencies across a number of different operations in a business. What we found is, in a survey of small businesses, about 91% of them who are currently using AI said that it made their business more successful. So there's a lot of, I think, optimism around the potential that it could have. And lastly, what we found is small business owners have also told us that they are looking to AI to help reduce their costs. Ai can reduce costs by helping workers do more productive tasks, allowing greater value to be generated at lower costs, so businesses are producing more products at lower costs and with greater efficiency.
Speaker 1:Yeah, it seems like that point, as well as the labor shortage, kind of go hand in hand, in that you know you may not be able to hire another worker in order to meet demand or to handle the processes that you need done, but if you can use AI to make the workers that you do have more productive and efficient, that seems like a good thing.
Speaker 2:Yeah, absolutely. I think we have found that AI has been a huge helpful tool for entry level workers and really helping them kind of meet the competitiveness of experienced talent in the workforce.
Speaker 1:Have you seen small business owners get creative with their use of AI In your research and maybe even just discussions with small business owners? Has there ever been an application or any time when someone has said, oh I've been using ChatGPT for this or I've been using Dolly for that, that you've been kind of surprised by that application.
Speaker 2:Well, I wish I had more opportunities to speak with business owners about how they're using this every day, but I have reviewed a number of surveys, and a survey from one of our partners found that, you know, 40% of small business owners, particularly black business owners, are using things like chat, gpt and AI to just for inspiration, to generate new ideas, to kind of help them, kind of be a sounding board for some of the things that they're already thinking about and dreaming up in their business, and so I think that all of that is coming. We're going to see it see AI much more widely adopted across industries, and I'm sure a lot of that is coming. We're going to see it see AI much more widely adopted across industries, and I'm sure a lot of that is coming.
Speaker 1:Yeah, one thing that I feel like I hear a lot from business owners is that it can be a little bit lonely right when you're going solo or when you're the one responsible for making all the decisions, and being able to have something that can act as a sounding board even could be useful. Yeah, absolutely Great. So those are some of the benefits, or maybe the pros, of AI, but certainly in your research, you've also delved into some of the challenges that AI presents for small businesses as well. What did you find there?
Speaker 2:One of the first things we found is adopting AI can be a huge cost burden, particularly on a small business. When we think about how AI is being used at large companies, it's really often been used for data analysis and understanding large data sets and information and that requires oftentimes access to analysts and statistical software and things like this, and that really kind of places it out of reach for small businesses. What we are seeing as AI develops is there are tools that are becoming available for small business owners to kind of meet that need. So one of the as a result of the development of kind of large scale enterprise style AI, it's still we're seeing it really concentrated at large businesses and businesses with a lot of capital on hand. So just having the resources to train yourself up and deploy this kind of technology in your business has been a really big barrier. We've also seen a lot of concerns, not just from businesses but from policymakers, around algorithmic bias and privacy issues, the collection of data and things like that.
Speaker 1:Yeah, so let's unpack those, because those are two really big concerns. So, in terms of the potential cost of AI, it sounds like what you all are finding is that if you can invest the time and the money in understanding it and in perhaps even tailored models for your business, then there can be a huge cost savings and efficiency and effectiveness. But you got to be able to invest the time and the money on the front end and that can be hard for businesses.
Speaker 2:Absolutely, and I think it can also be hard when you are hearing so much about AI and you want to find a way to make it work in your business. But not every business application is going to benefit from AI deployment, and so there are certain industries that use a lot of data, like finance or healthcare, that will be really well primed to adopt AI, and when you look at small businesses, and particularly minority-owned businesses, many of them are not in those industries, and so we're thinking about how can we provide AI resources and tools to industries that kind of are underrepresented when it comes to information and data collection. Do you?
Speaker 1:find that businesses owned by ethnic minorities are adopting AI in a different way or interested in different aspects of AI than other businesses.
Speaker 2:I have found that one of the primary concerns for businesses owned by people of color is meeting their operational needs. So one of the largest financial challenges that businesses will report is meeting operational costs, and it's also the number one reason firms of color apply for financing. So I think, as we are looking at small firms and minority-owned firms, they're really thinking about AI as a tool to help them meet their everyday operational demands.
Speaker 1:Interesting, you also brought up the issue of privacy, which has different implications for different sectors. Can you talk a little bit about what small business owners are, or should be, on the lookout for when they think about how privacy should be incorporated into their use of AI?
Speaker 2:Yeah, I think there are a lot of stakeholders that are concerned about the privacy and potential bias issues when it comes to AI. I was reading something from American Banker this morning that said 80% of bankers have concerns around potential bias when it comes to decision making in lending, and so, when it comes to privacy, one of the things I think about most is these AI tools are large language models. They collect a lot of information Oftentimes it's public information scraped from various online sources and one of the concerns that I have is around the quality of data that's informing the language models and also, you know, the training that the language models are receiving and whether there is potential for bias to be embedded as a result of being trained by human beings who are probably biased.
Speaker 1:So how can a small business owner navigate that, or what should they be thinking about?
Speaker 2:I would say for business owners who are thinking about AI and are hesitant, I would have folks be careful of the bandwagon Because, as I said, it's not a tool that is going to be applicable for every use case, and so there's still a lot to unpack about AI and how it can be deployed. And it's going to be around for a while and it's going to be growing and the use cases for small business owners will just become more plentiful, and so you know if business owners are having to make financial decisions around whether to dive into a new tool, you know a wait and see approach isn't that terrible.
Speaker 1:So, in terms of the privacy concern, do you think that you know? I mean, obviously one would not recommend, you know, putting your financial statements into chat GPT and asking for an output. Statements into chat GPT and asking for an output, You're predicting what are my revenues going to be, you know, next quarter, because that information is then being fed into the model and you know you sort of lose your control over it, right? But what are some of the guardrails that small business owners should think about as they do use it?
Speaker 2:Yeah, I think a lot of the guardrails are first going to have to come from the top down. There's going to have to be some very clear guidelines from policymakers around where can we use AI and how can it be deployed in a way that protects consumer data and protects privacy. So that's going to be a really big step, and you know, the policymakers are already thinking about this on both sides of the aisle and they're really emphasizing the importance of ensuring there are controls in place and controls around data quality, around security and around privacy. And so, for small business owners, I think the things that they should keep in mind will really be around what kind of information are they holding on to, what kind of information are they willing to feed into a model to kind of see how it might work for their unique business? Those are going to have to be handled with a lot of, you know, care.
Speaker 1:And then we've been talking a lot about the inputs that go into an AI model. But you know, the outputs are also obviously extremely important and you kind of alluded to this earlier in discussing the potential for, you know, bias in the results due to, you know, an uneven level of information being included in the inputs into AI models. So you know, how should small business owners be thinking about? Can I trust what I'm getting out of the AI model?
Speaker 2:Yeah, I think one of the areas we talk about bias when it comes to small businesses and AI is in credit determinations, and it's really a kind of financial infrastructure conversation.
Speaker 1:So this is not even their own use of AI. This is maybe other institutions using AI to make certain decisions that could impact them.
Speaker 2:Absolutely. I think about all of the data that goes into our generating our personal credit scores and for many small business owners, many of them are sole proprietorships and their initial capital into their business may be through a personal credit score and that's coming into play. And so, thinking about from a policymaking standpoint, thinking about the data that we feed into these algorithms and giving consumers more control over their data you know, perhaps there are some new and alternative forms of data that can feed into the credit scoring models and do we give, you know, consumers the ability to opt in or opt out of some of those opportunities?
Speaker 1:It sounds like there is a lot of room for a broader look at both the impact and the use of AI. You mentioned that there is bipartisan really support for trying to that. There is bipartisan really support for trying to increase and help small businesses understand how to effectively implement AI into their businesses. Can you talk a little bit about what some of those recent efforts might look like and what you think it's important for lawmakers and policymakers to understand?
Speaker 2:Absolutely. There was just last month the House Financial Services Committee released a report that was kind of the collection of their work on their AI task force, and it was a bipartisan report from the whole committee. One of the things that members are really interested in is the potential for AI to increase economic growth and increase American competitiveness when it comes to businesses. There's a lot in there around the concerns as well some of the ones that we've discussed but one of the things that you know the committee is really interested in is ensuring that there are, that all the stakeholders are at the table when it comes to developing. You know whatever guidelines are going to kind of guide the course of this next piece of technology.
Speaker 1:So we want to ensure that small businesses essentially have a seat at the table as lawmakers and regulators discuss the next phase of AI potential legislation. I think it's important, though, to recognize that small business owners are incredibly diverse demographically, geographically. Are you seeing any differences in their interest in AI or even their implementation of AI, depending on what type of industry they're working in or where they come from?
Speaker 2:Yeah, one thing that has been interesting to see is, especially among minority-owned firms, there is a lot of as you mentioned earlier our understanding around trust. And do we trust this new technology? Do we trust the financial institutions that are employing AI and new ways of making determinations? And I think for minority communities, there is some hesitance around that. There's excitement, but there's hesitation too, and so, as we are looking at kind of the more generative AI, the things that are really accessible to people on the internet, we're seeing particularly black-owned firms, as I mentioned, look to AI for inspiration and things to kind of amplify their ideas. They're also very interested in, you know, consumer support and communicating with their clients, their recruitment and their hiring practices, in automating business processes and sales and marketing. So what I think is really interesting is business owners from across geographies are struggling with a lot of the same problems hiring, meeting their capital needs and business owners are hoping that this will be a tool to support them in that, and so that is kind of a common thread that we're seeing.
Speaker 1:This is a good opportunity to maybe take a little step back, because I know you guys do a lot of work at your organization just trying to understand small businesses and the role that they play in the economy. Tell us a little more about what the Alliance for Entrepreneurial Equity does, and then maybe we can talk a little bit about the state of small business overall.
Speaker 2:Absolutely so.
Speaker 2:The Alliance for Entrepreneurial Equity was formed about two years ago, in 2021, as a partnership between the think tank third way and the national urban league, and we are focused on helping policymakers build a comprehensive agenda to support women and people of color and disadvantaged entrepreneurs start scale successful businesses.
Speaker 2:So much of our work has included convenings and bringing stakeholders together to have conversations around the top issues and challenges and barriers facing people of color and minorities as they start businesses. We also, you know, produce a lot of white paper and research, making it really accessible for policymakers to grab a quick understanding of the small business landscape and what are some of the challenges and barriers that folks are finding on their entrepreneurial journey. And what we've turned to this year has been building out our policy agenda. So we're building a comprehensive agenda that focuses on access to markets, access to capital and entrepreneurial support and development, and so we're really excited about that. We're excited for, you know, the interest that we're seeing among policymakers to provide resources and to meet underserved entrepreneurs where they are, and so AI is just one piece of that puzzle.
Speaker 1:I mean, maybe it's the next chapter for small businesses, but it's one of many things that they're grappling with.
Speaker 2:Absolutely. I think, when we are talking about entrepreneurial development and support, there's a lot of areas where AI can plug into that.
Speaker 1:How are small businesses doing? I know that there's been a lot of renewed fears of, you know, the US economy, perhaps you know in a slowdown, if not perhaps headed for an outright recession, and we know that small businesses are just the backbone of our economy. How are they doing in today's environment?
Speaker 2:Yeah, well, coming out of the pandemic, we saw the number of applications for new businesses just really blow through the roof and there is a lot of optimism and a lot of resurgence to kind of produce more economic growth and to pursue, you know, entrepreneurship as a pathway and a career for many people, and so we're excited to see that kind of dream taking hold.
Speaker 2:But there are a lot of challenges, as you mentioned, in this current economic environment, many businesses, you know underserved businesses, but just across the board they're really stretched for capital. That's the topic of one of our policy reports that is coming out in the next month. So we have found that, particularly for minority-owned firms, they are twice as likely to be completely denied financing when they apply compared to their white counterparts, and they are also more likely to be low in revenue and have challenges meeting their operational costs and needs. So tools like AI really have the potential to play a huge role in not only on the lending side, helping potentially new businesses access the capital they need, but also on the operational side, meeting some of the kind of hiring challenges and the labor shortages that businesses are experiencing across the country.
Speaker 1:And I can imagine, in the recent environment of interest rates, you know, staying higher for longer, that has an impact on small business owners as well. What have you heard in terms of hiring or the outlook for them to be able to, I guess, to add more people to their roles, even if maybe it's difficult to access the financing they need? Or maybe those two are inextricably linked.
Speaker 2:Yeah, what we've found is and what was surprising for me to learn as I stepped into this role is particularly for black-owned firms 99% of them are sole proprietorships. Really, yeah, they are working really hard every day in their business, and one of our policy objectives at AEE is to help businesses scale. And so how can we get businesses who are sole proprietors to add that first employee and to really become the job engines that we know they can be across our country? And so we're thinking about that. We're thinking about how we can help business owners who it's just them meet the demands that they're facing when it's, you know, just one person in the business.
Speaker 1:Great. Well, I guess the final thing that I'll ask you and hopefully we can end in an optimistic note is you know, what would your advice be for a small business owner who is, you know, grappling with all of the dynamics that you just laid out, but still you know out, but still committed, interested and energized in helping their business find the path forward and using and implementing some of the new technologies that might be at their disposal now?
Speaker 2:Absolutely. I think, as we've mentioned today, there is absolutely going to have to be wisdom when you're looking at new technologies and making them central to your business. But that's the fun of being an entrepreneur, you know you get to explore and test new things, test new strategies, and so I would encourage businesses to explore, to use whatever resources are available in their community through whether it's the Small Business Administration and their resource partners. There is a lot of training and a lot of education that is available for business owners out there right now on this technology, and so would encourage those folks to seek that out and to see if it might be a good fit for them.
Speaker 1:Fantastic. Well, imani, thank you so much for joining me on today's episode, for being here in person. It's so nice to see you and to have this conversation To our listeners. Remember to like and subscribe wherever you listen to your podcasts. You can also follow us on Twitter or X at PentaGRP, as well as on LinkedIn. At PentaGroup, I'm your host, ilan, and, as always, thanks for listening to what's At State.