TSE Quick Take: Why Women’s Businesses Remain Stubbornly Small

A new report from the SBA Office of Advocacy takes a stab at understanding the reasons why sales and employee numbers at women-owned businesses continue to lag those of men.

Maria Kleftodimou Smith By Maria Kleftodimou Smith

Why Women’s Businesses Remain Stubbornly Small

Bench Accounting, StockSnap

The industries women are attracted to and the youth of their ventures are major reasons why women-owned businesses remain stubbornly smaller than male-owned businesses, a new report from the U.S. Small Business Administration’s (SBA) Office of Advocacy shows.

The report on women’s business ownership takes a close look at the most recent Census Bureau’s Survey of Business Owners (SBO) — which dates to 2012 but is the most comprehensive data set available on U.S. businesses — and investigates the reasons why there are significant disparities in sales and employment rates generated by male and female entrepreneurs.

Businesses owned by women are an integral and growing part of the U.S, economy. Women-owned businesses made up 36 percent of small businesses in 2012, and these businesses contributed over $1.4 trillion in sales and employed 8.4 million people, the report notes.

Nevertheless, women entrepreneurs continue to lag behind men when it comes to revenue and employment rates. The SBO, which compares women-, male-, and equally-owned businesses throughout the nation, found that women-owned businesses accounted for 15 percent of all employment and 12 percent of all business revenue. Meanwhile, male-owned businesses, which make up 55 percent of small businesses, accounted for 73 percent of employment and 79 percent of sales.

Advocacy’s new report delves further into the SBO data to spotlight some of the key differences in female- and male-owned businesses, including industry focus, firms’ ages and minority communities’ participation in entrepreneurship — all of which, Advocacy says, may help explain disparities between genders.

Perhaps most significantly, many women start businesses in industries like child care that typically hire fewer employees and generate smaller annual revenue. Conversely, women are less likely to own businesses in industries that generate more money and hire larger numbers of employees, such as restaurants and healthcare, researchers found. In fact, 53 percent of women-owned businesses operate in the 20 industries that generate the lowest average sales, while 71 percent of male-owned businesses operate in the top 20 industries for sales.

Women’s industry preferences are not the only factors influencing the gap between their earnings and the earnings of male-owned businesses. The study found that even within the same industries women-owned businesses still experienced lower rates of employment and revenue.

Advocacy finds that an equally important characteristic in determining the cause of the gap between men’s and women’s ventures is firm age. On average, younger firms tend to have lower total revenues and employ fewer people than their older counterparts. Women-owned businesses are typically on the younger end, with a majority in operation for no more than 12 years, while men tend to own a majority of businesses operating for at least 13 years.

Also, a heavy presence of minority women in the female-entrepreneur population plays a role in the gender gap. That’s because, across the board, minority-owned businesses tend to generate lower sales and employ fewer people than their non-minority peers. And minority women own a larger percentage of the businesses within their communities than non-minority women do within theirs. For example, 59 percent of Black and African-American businesses are owned by women, while only 32 percent of non-minority businesses are owned by women.

Of course, it is to be celebrated that minority women are influential members of their business communities. They contributed greatly to a surge in minority-owned businesses between the years 2007 and 2012, and their enthusiastic entrepreneurship led to an increase in revenue and employment rates during the years of economic recession.

Despite the slow progress women in business are experiencing, many statistics illustrate the importance of women’s participation in the economy. Women control the majority of U.S. personal wealth and are the primary source of income in 40 percent of American homes. In addition, they are the founders of more than 12 million business, contributing $453 billion in payroll to around 15 million workers.

Women often choose to pursue projects that are more about impact than economic gain, which can affect the industries in which they choose to set up shop. But it is also true that women have faced barriers to entering some of the economy’s largest and most profitable industries, such as finance and technology.

There are many efforts to involve women and women’s businesses in key industries and help them grow, including the SBA’s continued effort to get more federal contract money in the hands of women entrepreneurs. These initiatives, along with others that aim to improve women’s access to startup and growth capital, are what’s needed to help female entrepreneurs catch up to their male counterparts.

To see more of the Advocacy’s findings and learn more about their research methods, you may read the report online.

Posted: June 2, 2017

Maria Kleftodimou SmithTSE Quick Take: Why Women’s Businesses Remain Stubbornly Small