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Women-owned firms are growing at double the rate of men's

Jeanie Ahn
Senior Producer/Reporter

Women-owned businesses are on the rise, driven by growth in primarily fast-growing service sectors where women have traditionally made up a larger share of employees. According to the latest data from the Annual Survey of Entrepreneurs, the number of women-owned businesses increased 2.8% in 2016 — double the rate of men-owned businesses (1.4%).

The growth is focused in health care, education, real estate and other services, where women have traditionally made up a larger percentage of employees. Increasingly, many of these professionals are leveraging their expertise and experience to strike out on their own.

“If you look at where the economy is headed on a longer-term basis, women have the most experience in some of the steadier industries that have seen the most growth,” said Sarah House, senior analyst at Wells-Fargo who reported on the differences between women- and men-owned businesses.

Women now own 20% of all businesses, up from 16% in 2007, reflecting a long-term trend toward greater female ownership. The rise isn’t just good for female entrepreneurs, it’s driving more employment at these firms. House’s Wells Fargo report cites data that jobs at firms owned by women have grown 11% since 2012, compared to 3% among men-owned firms.

This data is in-line with the growth cited in American Express’s recent report on the State of Women-Owned Businesses. Women started new businesses at the rate of 1,821 a day between 2017 and 2018 — that’s a rise of nearly 3,000% over the past 48 years. Companies owned by women that generated revenues of more than $1 million, grew 46% versus 12% of all businesses.

Raising capital particularly hard for women

Despite the strides women are making, they face bigger financial hurdles when starting their own business.  More women rely on personal savings and higher cost forms of capital such as credit cards than men. But women perform better, with female-led firms increasing revenue 4.3% year over year compared to 0.9% for firms owned by men.

Part of the success is driven by the fact that women have more workplace experience than in years past. Unfortunately, while the overall pipeline of professional women has grown, it’s still more difficult for women to rise to more senior management positions resulting in less leadership experience overall. These traditional corporate hurdles, including a persistent wage gap, can be a driving force for more women to break out on their own. But that lack of leadership experience can hurt their chances of getting small business loans and access to capital, said House.

“We’re at a major tipping point and the opportunities are opening up, but the area that we will continue to have problems with is getting capital,” said Marsha Firestone, president and founder of the Women President’s Organization (WPO), a peer advisory network of 2,000 second-stage entrepreneurs. Women owners continue to lean on their friends, family and personal fortunes to raise money to get their companies started, while men tend to be able to tap bigger networks, said Firestone.

The rise in diversity and female entrepreneurship serves as a growth engine for the economy, as women bring their point of view and leadership styles to markets where there are inefficiencies and blind-spots of need that aren’t being met by more traditionally men-owned companies.

‘Money will find its way’

Shannon McLay, founder of Financial Gym, a financial services company targeting a diverse clientele, has experienced first-hand how difficult it is to raise money. To get her business started she went through all of her personal assets, including over $300,000 of her own money including all of her 401(k).

“It takes time to develop your market and business, your product, your followers and client base. To survive this lead time, you need money,” said McLay. After she was declined for a Small Business Association loan, her former manager came through as her angel investor. Now with over a thousand clients, McLay has been able to raise $1.8 million in 2017 and hopes to raise another $1.5 million this year.

“Don’t let the fear of money make a different decision around your business. If you are passionate about what you’re building and know there’s a real need, push through it,” said McLay. “The money will find its way to you.” 

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