According to the Small Business Administration (SBA), the number of women-owned businesses (WOBs) grew to 42 percent — nearly 13 million — of all U.S. businesses in 2019. Given that 50 years ago there were only 406,000 WOBs — 4.6 percent of the total — this is an amazing achievement. Yes, the overwhelming majority of these businesses are classified as self-employed or non-employer firms. However, successful self-employed firms make enough money to pay their owners a living wage and help women contribute significantly to their family’s financial wherewithal and independence.
In this article, we explore how far women have come in the business ownership realm, the impacts they have made, the challenges still faced and the solutions being enacted.
- Growth in the number of women-owned businesses
- Industries with high percentages of WOBs
- Women’s access to capital
- Reasons for growth in WOBs
- Entrée into entrepreneurship
- Remaining challenges — and solutions
Growth in the number of women-owned businesses
While the growth in the number of women-owned businesses and their impact has been continuous, the percentage of the overall has surged and waned over the years. Following are a few statistics of note:
- WOBs represented 26 percent of total small businesses in 1997, a major increase from 1972.
- The number of woman-owned employer firms now number approximately 1.2 million — 21 percent of the total.
- Employer WOBs generated $1.8 trillion in sales and employed over 10 million workers in 2018. (“Non-employer” refers to businesses that have no W-2 employees.)
- Between 1997 and 2007, most privately held companies lost employees, but WOBs added approximately 500,000 jobs.
These statistics show that more women are starting and buying businesses as well as growing their existing businesses and positively impacting their communities.
Industries with high percentages of WOBs
Although women are getting close to parity in business ownership with men, the average financial contribution of WOBs still lags. One huge driver of these differences is the industries that women enter.
- According to a study commissioned by the SBA’s Office of Advocacy, women typically operate in lower-growth industries with smaller businesses.
- In particular, women tend to cluster in retail, personal services and professional services. The “Professional, Scientific and Technical Services” NAICS category is the most popular among women employer firms, comprising nearly 17 percent.
The number of woman-owned employer firms now number approximately 1.2 million — 21 percent of the total.
The industry choices women pursue should not be a surprise. Women, like men, typically enter industries they have experience with or are familiar with. In college, women often major in social work, sociology, education, nursing and language, so it makes sense that they then enter fields such as healthcare, education and social work after school and operate businesses in similar fields.
These industries change for firms equally owned by men and women. Attorneys do not typically recommend 50/50 ownership (who is responsible for final decisions in the event of disagreements?), but such arrangements continue to exist anyway. The industry popularity differs from that of wholly or majority-owned women firms:
- In rental and leasing, nearly 19 percent are equally owned.
- In mining, quarrying and oil leasing and in accommodation and food services, 17 percent are equally owned.
Women’s access to capital
In the last few years, much has been written about the paltry percentage of angel and venture capital funding that flows to women founders and their businesses each year, such as the following:
- According to Forbes, “since 2011, the amount of VC dollars granted to teams of only women has ranged from 1.8% to 2.7%.” After peaking at 2.7 percent in 2021, the amount dropped to 2.3 percent in 2020 and 2.0 percent in 2021 — roughly $6.4 billion out of $330 billion total.
- In 2021, an additional 15.6 percent went to women co-founded, but not majority-controlled, firms.
The deal value more than doubled between 2020 and 2021 for deals that featured women as part of the founding team.
This data shows that the recent focus on the dearth of venture capital for women has not led to appreciable relative increases in funding for women. However, there is good news.
- According to Pitchbook, the $6.4 billion was “83% higher than the total raised in 2020.”
- Furthermore, the deal value more than doubled between 2020 and 2021 for deals that featured women as part of the founding team.
This appears to show that, while women alone are not garnering a larger piece of the venture funding pie, when co-founding with men, they are. However, 2020 and 2021 were high funding years where later stage ventures received huge investments and special purpose acquisition companies (SPACs) ruled. Unfortunately, many SPACs and some of the late stage ventures went public and lost significant value over the ensuing one to 1.5 years. The fact that the overwhelming majority of SPACs and hyped ventures were run by men is likely a major contributor to the percentage drop.
Regarding business bank loans, women also often have more difficulty obtaining these than men do. Women-owned businesses have lower loan approval rates than their male counterparts and are less likely to receive the full amount requested.
Reasons for growth in WOBs
In the past ten years, the growth in minority-owned businesses, particularly Black female-owned businesses, has helped fuel the continued growth in the number of WOBs.
- According to the Small Business Trends 2022 report by Guidant, going into 2022, the percentage of white female owners is approximately 83 percent, Black women were about 8.5 percent, and Hispanic, Asian and Native American women were each approximately 2.3 percent.
- According to the SBA, “between 2014 and 2016, the number of employer firms owned by women grew six percent, twice the growth rate of employer firms owned by men.”
- An increase in minority women-owned employer businesses — which grew 14 percent during this period — primarily drove this stellar growth rate.
Motivations to start a business, in order of importance, are listed as a readiness to be your own boss, dissatisfaction with corporate culture, and wanting to pursue a passion. These motivations are typically combined, as in a new business started because a woman wanted to have more control over her work and/or finances (i.e., be her own boss) and an opportunity presented itself.
An increase in minority women-owned employer businesses primarily drove this stellar growth rate.
During the Great Recession and the pandemic, more women were motivated by necessity, either due to being laid off, needing more flexible child or elder care options or needing to make more money to contribute more to the family finances.
Per SBA, “between 2014 and 2016, the number of employer firms owned by women grew six percent, twice the growth rate of employer firms owned by men. This exponential growth was mainly driven by an increase in employer businesses owned by minority women, which grew 14 percent in that time.”
Entrée into entrepreneurship
Although the majority of WOBs are pure startups, women also enter business ownership by other means, mainly by purchasing either an existing business, starting a new franchise or buying an existing franchise.
These three options can be attractive means to becoming a business owner because a support system typically already exists. In addition, financing tends to be much easier as long as the following factors apply:
- The previous enterprise has full, accurate financial records.
- The owner-to-be purchases from a franchiser that assists with financing through arrangements or partnerships they have with local banks or other entities.
- Seller financing is available to bridge the gap.
Due to the longevity and the operational support, the business learning is well-supported and the success rate is typically higher. These can be vital for those with an industry or service delivery background but no actual experience running a business.
Remaining challenges — and solutions
As noted above, women continue to face challenges accessing capital, which impacts the businesses they start and their growth trajectories. In addition, women encounter more adverse judgment regarding raising children and often receive little help in this area, which leads many women to choose lower-growth industries that better accommodate their schedules. The latter is a greater societal issue that also affects women in corporate, nonprofit and government leadership positions.
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The good news is that more women are realizing their power and sphere of influence and taking action. For example, the CEO of Nasdaq, a woman, with SEC approval instituted requirements for female participation on the boards of listed companies. In the ensuing period, the number of women board members has been growing rapidly. In the last few years, the SBA — with internal advocating by several female leaders — has increased the funding for its Women’s Business Enterprise National Council (WBENC) and has subsequently seen a noticeable rise in the number of businesses served and the revenues and profits they produce.
The good news is that more women are realizing their power and sphere of influence and taking action.
More women are founding venture firms. The growing number of female billionaires and millionaires in the U.S. are leading others to step up and invest in women-led angel and venture firms. Women-led venture firms are more than twice as likely to fund WOBs than venture firms headed by men. Furthermore, more women professionals with significant business experience are directly targeting their services to women business owners to help them strengthen and grow more rapidly.
Due to external pressure, often by women, certain national and regional lenders are now directly providing or partnering with nonprofits and WOBs to provide resources, including funding, to WOB startups and young firms. Finally, the number of women-targeted business grants has exploded for similar reasons. Most are for all women but some focus on minority-owned or Black-owned firms. These amounts typically fall into the micro category of $5,000 to $50,000, so they are best suited for startups or those with low revenue.
Women-owned businesses have made their mark on the lives of their owners and their families, on employees, on those that work with them and on the communities they operate in. This impact continues to grow and will likely drive more impact as female business owners and their advocates push for greater access to business mentoring and coaching, grants and federal contracts. Furthermore, other women leveraging their leadership capabilities to increasingly step in and step up from other areas such as venture funding and business mentoring will help.
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