The day of reckoning for women in the workforce may be coming sooner than we think. While women account for almost half of all workforce participants, they continue to experience a gender pay gap, making between 49 and 82 cents for every dollar of their male counterparts‘ salaries. The statistics of women in top leadership positions are not much better. Women hold just 6 percent of CEO positions in companies on the S&P 500 and even though the Fortune 500 boasts the highest number of female CEOs ever, women still only account for 7.4% of the ranking business leaders. While changes are happening at the highest levels, if we maintain this glacier-like pace, white women can expect pay equality by 2054, Black women by 2130, and Hispanic women by 2224. This rate of change is prompting more women to turn inward, creating opportunities rather than waiting for the status quo to be disrupted.
US Women-Owned Businesses at a Glance
Statistics were taken from the 2019 State of Women-Owned Business Report.
- Between 2014 and 2019, the number of women-owned businesses accounted for nearly 13 million (12,943,400) businesses, a 21% increase. Employment grew to 9.4 million, up 8% and revenue rose to $1.9 trillion, up 21%.
- Total employment by women-owned businesses rose 8%. The employment increase for all businesses was 1.8%.
- Women-owned businesses generate $1.9 trillion in sales.
- From 2014-2019, the annual growth rate in women-owned firms has been more than doubling that of businesses as a whole.
- Women-owned businesses combined with firms equally owned by women and men account for 49% of all businesses, employing 14% of the workforce and generating 8% of revenue.
- Firms owned by women of color grew at double the overall growth rate (43%). African American/Black women-owned firms grew faster at 50%.
- Women of color account for 89% of the new women-owned businesses per day from 2018-2019.
- One in five firms earning $1 million or more is owned by a woman.
- A combination of necessity, flexibility, and opportunity entrepreneurship is driving the high 2019 numbers.
Necessity, Flexibility, Opportunity
The combination of three critical factors is behind the surge in women entrepreneurship over the last several years. Many women begin their firm out of necessity. Either they are underemployed or they cannot find employment in their target field. Their only viable option is to start their own business. Necessity entrepreneurs also include those who need a “side hustle” or supplementary income to their full-time job. For many women, their small business is the way to make up the wage gap they are experiencing in their full-time work.
Other entrepreneurs start their own business because their organization does not offer the flexibility or support they need to care for family members. While many companies have created flex-time policies with unlimited time off, the culture of the company does not match the policy forcing many women into entrepreneurship. This group, known as flexibility entrepreneurs, are among the most likely to return to the workforce should the right opportunity, with the appropriate amount and culture of flexibility arise.
Finally, some women see an opportunity in the market and seize it. These opportunity entrepreneurs have the highest rate of survival and growth prospects and are just as likely to enter the market in good years as bad. However, they are rare in female entrepreneurship due to the sectors in which women tend to operate, significant funding challenges, and limited access to networks of successful opportunity entrepreneurs.
Expanding Beyond the Three Wells
While women-owned businesses span all industries, there are three common wells female entrepreneurs tend to draw from.
- Personal Services (Hair & nail salons, pet care, etc.)
- Healthcare and Social Assistance (Child care, home healthcare, etc.)
- Professional/Technical Services (Lawyers, architects, bookkeepers, consultants, etc.)
More than half of all women-owned businesses fall into one of these three categories, meaning women are frequently in competition with each other for the same clients, resources, and funding dollars. What’s more, women who start firms, consult, or participate in the gig economy in these areas tend to earn less than their male counterparts, and less than women in other industries. Necessity and flexibility entrepreneurs are especially prevalent in these sectors, largely due to the childcare demands that are still disproportionately born by women in this country.
The sheer volume of women entrepreneurs in these areas also means women are less likely to fill a need in the market that has not yet been exploited. Combine this lack of adequate, affordable childcare with a well-documented wage gap, fewer available opportunities, and a lack of capital and women are less likely to find opportunities for long-term growth and success in their business ventures in personal services, health care, and social assistance, and professional/technical services. Conversely, opportunity entrepreneurs are much more likely to succeed in the tech and pharmaceutical industries, areas where men still dominate the landscape.
A study by PitchBook found that just 2.2 percent of all venture capital went to firms with female founders in 2017. Just 4.4 percent of all deals were for female-founded companies. It’s no wonder that fewer than 2 percent of all women-owned businesses will break the $1 million in revenue mark. Women-owned businesses are nearly 4 times less likely to make $1 million or more in revenue than their male-owned counterparts. So, why are women having such a hard time breaking that mark?
For many firm founders, the answer lies in the type of business in which they choose to engage. Duplicating the success of a local hair salon or child care business is neither feasible nor desirable for many firm founders. Even technical services business owners find it difficult to scale their operations beyond that of a sole-proprietorship or small business.
The second piece to the puzzle lies in the type of entrepreneurship in which women tend to engage. For necessity and flexibility entrepreneurs, providing a steady income with minimal interruptions to their general lifestyle is key. The idea of exchanging either of those for greater risk (and the resulting greater reward) defeats the purpose of becoming entrepreneurs in the first place.
However, for those who are opportunity entrepreneurs – who see a gap in the market and want to exploit it, the challenge of fundraising in a male-dominated venture capital world is real. While many venture capital firms are committed to funding female-owned businesses, women are producing these opportunities at an ever-diminishing rate. The combination of a great idea, funding, and timing is difficult to master for the most seasoned entrepreneur, and for many women, the challenge of scaling a business and raising money to do it is in direct conflict with their home life. Study after study shows that women participants in the workforce also bear the responsibilities of caregiving for spouses, children, and aging parents, devoting 21 hours per week of their time or more.
Social Networks and the Diversity of Women-Owned Businesses
In a time when diversity is no more a board-room phrase but a public demand, the number of women of color who are starting small businesses is on the rise. However, a disparity in revenue threatens to derail many start-ups. In 2014, businesses owned by women of color netted an average of $67,800 in revenue; by 2019 the average was $65,800. In 2014, businesses owned by caucasian women averaged $198,500 in revenue; by 2019, the average was $218,800. This disparity is not one to be taken lightly. Four million new jobs would be created if the average revenue of firms owned by BIPOC women matched that of businesses owned by white women.
Addressing the revenue disparity would also help enhance the social networks of successful women entrepreneurs. Research has shown that social networks are most critical during the planning phases of entrepreneurship and women are more likely to rely on non-owners for advice and input than men are. However, the entrepreneurship challenges faced by women are distinctly different from men. If women, particularly BIPOC women are to achieve long-term success, they must have female mentors who have already succeeded. This crucial piece of the entrepreneurship puzzle may solve both the continued wage gap between men and women entrepreneurs as well as the gap between white and BIPOC women entrepreneurs.
What We Can Do
Our first duty is to support women-owned businesses with our dollars, particularly those owned by BIPOC women. Whether it be professional services, retail stores, or personal services, every dollar spent in a woman-owned business translates into more jobs created, more women supported, and more entrepreneurship ventures started. If you are in a position to do so, mentoring a woman business owner can help her avoid costly mistakes while connecting her to other investors that can help her scale her business and increase her revenue. It is only when we lift, strengthen, and support one another that we can all truly succeed.