- Female-owned businesses are less profitable than male-owned business
- Female business owners are less likely to get access to credit
- More female entrepreneurs means more jobs and economic growth
The best entrepreneurs have a set of 10 discrete talents that lead to business success, as Gallup has discovered. But most entrepreneurs also have an 11th trait in common: gender. In the U.S., for example, the number of female-owned firms is increasing rapidly, as is the number of new businesses started by women each day. But those businesses tend to be smaller, employing fewer people and generating less revenue than other firms.
That needs to change, says Sangeeta Bharadwaj Badal, Ph.D., Gallup senior consultant and lead researcher in entrepreneurship. She explains why in this interview.
Gallup: What types of businesses do female entrepreneurs start?
Dr. Badal: Female-owned businesses are smaller and less profitable than male-owned businesses. They're usually concentrated in industries and sectors that are crowded, less productive, and less profitable, such as personal services or healthcare. And there are several reasons for that.
First, women have different business goals from men. Women may feel differently about work versus family than men do, which leads to a different level of involvement in running the business. Second, the experience and skill level of a woman may be different from that of a man, affecting her chances of success in the business. Third, women have different social networks than men have, and our research shows that networks are vital for new businesses. Women's networks are more personal in nature, and women don't usually leverage them for business purposes the way men very easily do. Men also have wider networks than do women. All these factors affect their business outcomes.
What do you mean when you say women "may feel differently about work versus family than men do"?
Dr. Badal: Businesses and their owners are part of the social structure. Starting or managing a business is very important to women in personal terms, maybe more so than in business terms, because they are less likely to define success purely in terms of profitability.
Also, women want to balance their business objectives with other responsibilities in their lives, so their businesses are concentrated in sectors that allow them to do this. Having flexibility in their routine is important to managing their work and life, for example. Women, especially those with children at home, will start businesses in sectors that are related to their personal situation, such as daycare, the food industry or the service sector. Unfortunately, these sectors are intensely competitive and have lower productivity, which leads to lower earnings and lower profitability. How many female-owned businesses are personal care salons? How many own high-tech businesses?
Why don't women choose to start IT businesses?
Dr. Badal: There are inherent social and economic biases against women, which keep them behind in entrepreneurial activity. Gender queuing theory explains how women are more likely to be concentrated in industries that are least attractive to men owners. This is very similar to the pattern we see in waged labor: Men move out of jobs that have falling wages or experience loss of autonomy or lowered skill level, thus making way for women to move into those jobs. The same forces work in gender segregation in the world of business ownership. The result is that female-owned businesses are smaller, less established and in hugely crowded sectors.
In addition, female business owners are less likely to seek financing and less likely to receive it when they do. This hinders the growth of their businesses and keeps them small.
Dr. Badal: Studies indicate that individuals with more ownership experience are more likely to receive credit, and female business owners have less ownership experience. This makes them less likely to get access to credit. Most women also have less collateral to offer to banks, and banks consider women more of a risk.
Studies show that if a man and a woman with exactly the same qualifications and exactly the same experiences try to get funding from a financial institution, the man is more likely to walk away from the bank with the loan. And even if women do get financing, it tends to be much smaller than the loans men get. Again, it goes back to the historical and social reasons and biases against women in general, which extend to female entrepreneurs.
Purely from an economic point of view, does it matter if women don't start businesses?
Dr. Badal: Absolutely. Women are 50% of the U.S. population and should be creating 50% of new companies and new jobs. Currently, female-owned businesses account for approximately a million employer firms -- or businesses with at least one employee -- and they employ about 8 million people and add over a trillion dollars to the U.S .economy. Compare this to about 3 million employer businesses owned by men, employing about 41 million people and adding over 8 trillion dollars to the U.S. economy.
We have to erase this gender gap in business ownership. Increased rates of entrepreneurship would not only help women attain better livelihoods, but would also help them achieve more economic independence and greater personal autonomy. And more female entrepreneurs entering high-growth sectors will lead to new jobs and higher economic growth.
There is a business case to be made in favor of more female-owned businesses. Gender diversity in business ownership is a vehicle for accessing critically valuable resources for the success of the economy. Why shouldn't we leverage the diverse thinking, creativity, innovation capacity and diverse cognitive resources of 50% of our population? It would help create bigger, better and more socially relevant ventures. We need to have a level playing field for men and women, but right now, we don't.
Imagine a 22-year-old woman who just graduated with a business degree. Her Entrepreneurial Profile 10 (EP10) assessment shows that she has high talent, and she knows she wants to start a business. What would you recommend that she do?
Dr. Badal: My suggestion to her would be to understand what makes her different -- her specific talents that can drive business outcomes. She should identify her innate talents via ESF. She should understand her natural ability to process and think through information, how she makes decisions that affect her bottom line, how her decisions could be distorted by different kinds of biases, how she fosters strong partnerships, her ability to adapt to an ever-changing business environment or how she gets others to buy into her point of view.
Once she understands her strengths and vulnerabilities, she should create a road map to systematically and consistently nurture her innate ability and manage areas of lesser ability. This will yield extraordinary results. It will accelerate her personal development and positively influence the sustainability and growth of her venture. At the same time, she should develop the business idea, put it down on paper and create a business plan: here is what I'm going to offer, here is what it's going to take to create it, here is my customer base and here is the revenue stream that is going to start coming in.
Once she has these basics down, it would be good to tap into national and local development agencies. The U.S. Small Business Administration would be a great resource because it can help people through the paperwork and offers guidance on how to incorporate a business and how to deal with regulations and the requirements for a particular industry. Most chambers of commerce have entrepreneur support systems that can be helpful to a new startup. Many have specific advisers for female entrepreneurs and can connect them with other business owners in the region or in the city.
And remember, we talked about the importance of creating wide networks -- entrepreneurs need those networks. They need to have people who can help them figure out the ropes of starting a business.
Is that why talents like Relationship-Builder, Promoter, Determination and Confidence are all necessary for successful entrepreneurs to have?
Dr. Badal: Yes, that's what the research found. When Gallup worked with 111 small businesses in Nebraska, we found that highly talented entrepreneurs outperformed less-talented entrepreneurs by 22 percentage points in year-over-year profit growth. Those entrepreneurs were more likely to clearly articulate the competitive advantage of their companies to their clients, were more likely to make customer-centric decisions about pricing and development, spent more time planning for growth and were more likely to align employees with company goals and employees' strengths with their roles.
What should young female entrepreneurs watch out for?
Dr. Badal: Entrepreneurs face an immense number of challenges every day, from landing their first sale, growing their customer base and navigating government regulations to hiring the right employees, managing cash flow, creating the right culture in their companies, keeping up with innovation and getting access to funding. Entrepreneurs must deal with all of these and many more. However, the biggest challenge an entrepreneur faces is her own self-limiting or self-inflated view of her capabilities. Fear, self-doubt, inability to adapt and entrepreneurial myopia -- where the entrepreneur falls in love with her own creation -- are just some ways an entrepreneur can sabotage a business. Watch out for these inherent biases and blind spots because they can lead to venture failure.