The Landscape of Women and Minority-Owned Businesses

The Small Business Administration defines most small businesses as those with fewer than 500 employees for manufacturers and those with less than $7.5 million in revenues for businesses in non-manufacturing industries.

Small businesses are the backbone of the United States economy.  

Small businesses account for well over 99% of all U.S. businesses and account for 47.3% of employment in the United States, adding 1.8 million net new jobs to the economy in 2019 alone. Microbusinesses, which include those with nine or fewer employees, contribute 75.3% of jobs into the private sector.

In addition, more Americans than ever are pursuing freelancing opportunities versus traditional W- wage employment as a way to earn a living.  35% of workers in the United States are now using freelancing as a way to generate income.

Now more than ever, entrepreneurship is a critical component of the U.S. economy.  According to the Small Business Administration, small businesses create an estimated two-thirds of the new job opportunities in America.  In addition, small businesses (those with 500 or fewer employees), contribute a whopping 44% to the nation’s gross domestic product (GDP).  Entrepreneurship as a whole has also been on the rise over the last few decades.

The composition of small businesses in America has rapidly changed over the course of the last few years.  More people than ever are taking a leap of faith as entrepreneurs to start their own businesses.

According to the State of Women-Owned Businesses Report, women-owned businesses make up nearly one-third of the total number of businesses in the United States, employing 7.9 million employees and generating $1.5 trillion in revenue.  The number of women-owned businesses increased by nearly 74% between 1997 and 2015.  

According to the U.S. Senate Committee on Small Business and Entrepreneurship, minority business institutions accounted for greater than 50 percent of the two million businesses started during the previous decade.  In addition, these businesses created 4.7 million jobs and generated nearly $700 billion in revenue.

However, even with this growth in entrepreneurship, minority businesses comprise only 18 percent of total business ownership while representing 32 percent of the population.  Women while being one half of the population, make up only one-third of the businesses in the country.

Regardless of the significant growth in women and minority businesses, the fact remains that these businesses face challenges in the current business landscape.  Let’s explore a few of these issues.

Access to Venture Capital and Traditional Lending

Women and minority business owners are far less likely to receive the funding necessary to support their businesses.  All women-owned businesses represented 2.8% of the $1.2 trillion total of venture capital funding provided by investors in 2019.  While this was a small fraction of the total amount of venture funding provided, this was the highest level ever funded.

Part of this lack of funding can be attributed to the absence of female decision-makers in venture capital funds. An Axios report estimates that fewer than 10% of venture capital investors are women.

According to a survey by Lendio, women were only 24% of the total capital funding during the past year.  Women reported being on the receiving end of gender bias when applying for business funding.  Investors were noted to ask more invasive personal questions than those directed towards their business idea.  In addition, data shows that women reportedly received smaller loan amounts than their male counterparts.

Minority business owners also experience a lack of access to financial capital for their businesses.  Issues such as lower net worth, lower loan amounts, and greater instances of being denied for loans.  According to the Brookings Institute, the typical white family has an almost ten times greater net worth than a typical Black family ($171,000 vs. $17,150).  Six in ten African American and American Indian business owners who needed additional funding avoided doing so due to the perception that their application would be denied businesses were excluded from access to PPP funding, meant to help businesses re-establish themselves.

Building a Support Network

A support network can be a helpful way for new and growing businesses to connect with other entrepreneurs with similar problems.  Additionally, support networks can help new business owners to build a customer and supplier base and provide increased access to debt and equity financing.

Women and minority businesses often find it more difficult to find this type of helpful support from other business owners.

Social Misconceptions of Women Business Owners

Perceptions about the way women and minorities operate in the business world can also hinder the success of a business.  Here are some of the common misconceptions of minority and female business owners.

·       Women with children will not have time to meet leadership obligations

Unfortunately, there is still an expectation that women will be the primary caretakers and more likely to be expected to take care of the home than men.  This lends itself to an unfounded belief that these obligations will prevent women from being able to be as dedicated to their business and workplace obligations than their male counterparts.

A study found that the challenges as a working parent help to prepare women even more for the obstacles they will face in their leadership positions.

·       Women lack the confidence to lead

Oftentimes, women are perceived to have a lack of confidence when engaging in their careers and business ventures.  This perception is not often grounded in an actual lack of confidence in female entrepreneurs.  Rather, research shows that women are afraid of experiencing backlash socially as a consequence of promoting themselves or asserting themselves in business.  This is a concern that their male counterparts do not experience.

·       Women are not made to be entrepreneurs

According to a study by American Express, businesses with female founders are growing at a rate of nearly 2 times the rate of businesses in general., boosted by both traditional start-up businesses and the rapidly growing “gig” or side hustle economy. 64% of women noted that there is a history of entrepreneurship in their family further inspiring them to start their own businesses.

·       Women and minority business are less profitable

A 2016 study by BNP Paribas Global Entrepreneur maintains that businesses with female CEOs earned 13% higher revenues than other businesses.

·       Women are less ambitious than men

In some circles, the myth that women are less ambitious than men is pervasive.  A BCG study of over 200,000 participants, however, dispels this myth.  Women begin their careers at a similar level to men.  Once women, have children, ambition does not slow down.  The study found that women with children noted leadership opportunities within 1% of women without children.

In reality, ambition is influenced by the culture created within the work environment.  Companies where men and women feel that gender diversity is improving, experience no ambition gap, while companies that feel that there is little to no progress, experience a more pronounced ambition gap.

Some additional myths that are discussed: 

  • Women are not natural salespeople
  • Women are not good with technology
  • Women are too emotional about business
Lack of Government Contracts Rewarded

Women and minority-owned businesses receive only a small fraction of the contracts awarded by government entities in 2017.  Women-owned businesses received an average of 5% ($25.4 out of $508.4 billion) of the total contracts awarded.  Minority business owners somewhat better, receiving 9.8% ($49.6 billion) of total contracts.

While women and minority-owned businesses are continuing to grow at a much faster rate than other businesses, there are still a number of issues that should be explored to continue towards more equitable treatment of women and minority businesses.

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Joy
Joy
26 days ago

Thank you for shining a light on some of the challenges that women entrepreneurs face. It’s important that women have an understanding of those challenges so that we don’t get discouraged along the way. Changing mindsets is a long journey. I am so thankful for the phenomenal support network I have that uplifts and encourages each other in the midst of these challenges.