The Paradox of Women Business Owners
Experts explain why female entrepreneurs aren’t growing their businesses as fast as they’re starting them and how to overcome the challenges
It’s National Small Business Week, which makes this an ideal time for me to explain the paradox surrounding women-owned businesses in America and offer some smart advice from a female entrepreneur who successfully launched her company after age 60.
The Paradox of Women Business Owners
Here’s the good and not-so-good news about women business owners, based on the recently-released 2013 Women-Owned Business Report, published by American Express OPEN, a payment card issuer for small businesses:
The good news: between 1997 and 2013, the number of women-owned businesses increased by 59 percent – 1½ times the rate of U.S. businesses overall. What’s more, over the past 16 years, employment by companies owned by female entrepreneurs was up by 10 percent and their revenues grew by 63 percent. Both of those increases exceed those of all but the largest, publicly traded firms.
Today, more than 8.6 million U.S. businesses are owned by women. They generate more than $1.3 trillion in revenues and employ nearly 7.8 million people.
The not-so-good news: The American Express report also noted, however, that a woman-owned business employs, on average, just one person in addition to the owner; the typical privately held business (where the gender of its owner or owners isn't broken out and the company's shares are neither traded on public exchanges nor issued through an initial public offering) employs two people apart from the owner. And, the study said, women-owned businesses have average annual revenues of just under $155,000, far less than the $400,000 figure of the typical privately held business.
The researchers have also found that women-owned businesses frequently face difficulties growing when they have five to nine employees and their annual revenue is in the $250,000 to $499,999 range.
What’s going on here?
Three Experts Offer Explanations
Determined to get to the root of this paradox, I spoke with three women’s business development experts: Susan Sobbott, president of American Express OPEN; Lesa Mitchell, vice president of innovation and networks at the Ewing Marion Kauffman Foundation (the largest foundation dedicated to entrepreneurship in the United States); and Nell Merlino, founder of Count Me In for Women’s Economic Independence, an advisory nonprofit for female entrepreneurs, and the Make Mine a Million $ Business program, which aims to help women turn their ventures into million-dollar enterprises.
Choosing Lower-Growth Industries
Sobbott says a significant reason for the lower employment and revenues is that women tend to run businesses in different industries than men and these fields don't garner the same level of financial support from banks and investors.
Mitchell agrees and says that women are much more likely to be in retail, for example. Banks are less apt to approve loans and credit lines for that field than other industries. That, in turn, inhibits the retail businesses' hiring and expansion.
Geri Stengel, president of Ventureneer.com, an education and training firm for small businesses, backs up Sobbott’s view in her Forbes.com blog, “The Real Reason Women Entrepreneurs Aren’t Getting Loans.”
Stengel looked into findings by Biz2Credit, an online credit marketplace, that women business owners were 15 to 20 percent less likely than men to receive approval on their small business loan applications. “It turns out that the lower percentages has less to do with the women’s performance, and more to do with their choice of industry,” Stengel writes.
Women are 32 percent more likely to be in retail than men, she adds, citing Biz2Credit chief executive Rohit Ahora’s analysis that retailers have lower revenues, higher expenses, and lower profit margins than businesses in other industries.
Sobbott thinks it’s also important to note, however, that American Express’ data shows that the revenues of women-owned businesses in construction and transportation stand toe-to-toe with those of male-owned companies in the same fields. And the number of women-owned businesses with at least $10 million in revenues has grown by 57 percent, far more than the 38 percent increase among all $10 million-plus companies.
Help for Entrepreneurs in Need of Financing
Mitchell echoes Sobbott’s view that a lack of access to capital is a key reason for the muted growth of women-owned businesses.
Women seeking first-year financing to get their companies off the ground receive about 80 percent less capital than men, Mitchell notes.
One way to increase the chances of getting financing is by putting together a solid business plan. The 12,000 volunteer experts around the country at SCORE, the small business advisory nonprofit supported by the U.S. Small Business Administration, can provide critical support.
You can find local SCORE mentors through Score.org. (Next Avenue has many articles from SCORE with advice for entrepreneurs.)
Cultural Norms Build Barriers
Nell Merlino believes that cultural norms are just as big a barrier to women's business growth as industry-specific choices and lack of access to capital. She says the “culture blocks” include these four:
- Many women see themselves as butchers, bakers and candlestick makers – not as chief executives.
- Even though women are OK with providing an income stream, many aren’t comfortable identifying themselves as primary breadwinners or with building a business.
- Women don’t like to negotiate with vendors and suppliers to lower their overhead costs. This resistance, then, cuts into their profits and revenues.
- It is common for women to fear that having too much money will change them. Some of Merlino's successful "Count Me In" women don’t join her "Make Mine a Million" program because they don't want to be millionaires.
3 Tips From a Successful Female Entrepreneur
That's a daunting number of barriers to overcome, so I thought it might be a good idea to ask a highly successful female entrepreneur – Conchy Bretos, founder of MIA Senior Living Services in Miami – how she conquered the challenges and grew her business so effectively.
Bretos won the Encore.org Purpose Prize in 2006, an award given to people over 60 who are changing the world. But she had never thought of herself as an entrepreneur. She began MIA as a consulting firm, with a goal to fix the injustice she calls: "Older and Invisible: The State of Ethnic Seniors in the United States."
But when Bretos realized government could not provide the services needed to let low-income elderly and disabled adults stay in their homes, she decided to tackle the problem herself. She bought a building from the city of Miami, rehabbed it and created the Helen Sawyer Plaza, an affordable assisted living center. Over the years, her business of helping public housing projects bring assisted living services to their residents expanded to 21 states and continues to grow.
Bretos' advice for female entrepreneurs:
1. Seek out strategic financial help, which may mean looking beyond banks and traditional sources of financing. I reached out to the Ashoka organization, whose mission is to create positive social change by investing in social entrepreneurs. Ashoka then connected me to investors and put together a board of directors, all of whom were powerful entrepreneurs who contributed their time and expertise and brought other major investors to my door.
2. Don’t be afraid to partner with people who can be useful in other ways. You don’t have to go it alone. I’ve partnered with a variety of people interested in the health and well-being of seniors: their family members, health care workers, educators, community planners, public policy advocates and, of course, the senior-living residents themselves.
3. Never stop innovating and evolving. Be disruptive, disciplined and deliberate and don't let yourself feel blocked by cultural norms.
It’s never enough just to create a product. Entrepreneurs must continually strive to make their product better, more unique and to increase the value for their customers. That's essential.