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May 18
2010

Women-owned businesses need more capital to grow

Posted by dbedell in small and medium-sized businessentrepreneursCashCapital

dbedell

The number of women-owned businesses has been skyrocketing for the past 30 years, and new enterprises now are twice as likely to be started by women as men. However, revenues for men-owned businesses continue to outstrip that of women-owned businesses by almost 75 percent, according to a report by Sharon Hadary, founding executive director of the Center for Women's Business Research and adjunct professor at the University of Maryland University College. 

Hadary’s report, which appeared in the WSJ on Sunday, cited Kaufman Foundation research, US Census of Women-Owned Business data, and Center for Women’s Business Research statistics showing the total number of women-owned private businesses in the US doubled between 1992 and 2006 – from 5.4 million to 10.4 million.

Women are outpacing men in starting up new businesses as well, although privately-held companies owned by men still account for 59 percent of the total 24.9 million privately-held enterprises in the US, compared with only 29 percent that are majority women-owned and 12 percent that have equal male and female ownership. 

But the figure that stands out the most from the report is that businesses that are majority-owned by women generate only 27 percent on average of the revenues generated by majority men-owned businesses, and women-owned businesses make up only 20 percent of all privately-held companies with revenues over $1 million.

There are many factors that contribute to this, of course, and Hadary points out some of the key reasons. The types of businesses that men and women generally start differ, as do the goals they hope to achieve with a new enterprise. Hadary notes in the report: “Men tend to start businesses to be the “boss” and their aim is for their businesses to grow as big as possible. Women start businesses to be personally challenged and to integrate work and family, and they want to stay at a size where they can personally oversee all aspects of the business.” 

Another big reason that women’s businesses are less likely to be on the same scale as men’s is that they often come into a new venture with less capital and have less access to further capital for growth. This is in part because women are less likely to want to take on debt, according to Hadary. She adds that part of the deficiency in access to capital comes from a perception in the banking community that women-owned businesses lack the capacity to grow and thus present a greater risk. Lack of access to new markets and to broad business networks also account for the discrepancy.

Hadary notes that in order for this to change, women need to alter their mindset on what they hope to accomplish or believe they can accomplish with a business venture; they need to look to existing female role models for inspiration; they need to network more and better measure their growth and opportunity. Plus, the banking community must stop just touting their resources for women and get behind their promises. 

The report says: “Banks need to understand that serving women business owners must be more than marketing and publicity. They need to expand continuing outreach to women business owners at the community level, providing coaching and mentoring for business growth.”

Comments (3)Add Comment
Patricia  Varga
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written by Patricia Varga, May 19, 2010
I found this to be a very interesting article, thank you for sharing it with the community. I recently met with one of the executives from Schwab Charitable who also suggested that women think small when they invest; while a woman may contribute $10,000 here and $10,000 there, a man of same means will give $500,000 to one organization.

The flip is when asking for help from an investor, to your point, women ask small, men ask big. Genetic encoding, pychological differences? Tolerance for risk?
Women may not want to take on more debt, but what does that say about their ability to take risks and grow, if anything?

Food for thought.

Would love to hear more from the financial community - both men and women.

pv


John Sane
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written by John Sane, May 20, 2010
I'm wondering if the difference in lending to minority owned and women owned businesses might point to a problem related to the nature of lending in general right now, and if women owned businesses are working with different lenders in general?
Denise Bedell
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written by Denise Bedell-Bleeker, June 23, 2010
To your point, John, Anne wrote a piece not too long ago on microfinance in the US. I could imagine that as with emerging economies, women in North America might find it easier to get financing through organizations focused on microfinancng than traditional lenders - although I have no figures on that.

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