U.S. Markets closed

Only 10% of female-owned firms have employees

Melody Hahm
Senior Writer
Female entrepreneur

Only 10% of female-owned firms have employees. Hold up. How does a company function without workers? Well, the vast majority of women are forced to run their companies solo or with unpaid help because they simply don’t have the capital to hire people to help build their businesses.

That’s according to a new report by the U.S. Women’s Chamber of Commerce, a non-profit with 500,000 members across the United States. The report is based on data from the 2012 U.S. Census Survey of Business Owners that was released in December. For comparison, 22% of firms owned by men have paid workers, according to the report.

There’s actually no shortage of female entrepreneurs in the U.S.; women own 9.9 million private firms -- or 35.7% of all companies. The surprising statistic is that firms owned by women generate just 4.2% of revenues of all privately owned companies. (The USWCC report did not include publicly traded companies.)

Still, a whopping 70% of women-owned firms have less than $25,000 in revenues annually, compared with 48% of firms owned by men. In other words, women business owners are failing to make financial headway on par with their male peers.

Why aren’t women generating more revenue?
What might explain the disparity? Colleen DeBaise, a freelance journalist and author of “The Wall Street Journal Complete Small Business Guidebook,” says it’s because “women just haven’t been in the game all that long.” She points out that it’s only been 28 years since women legally needed a male co-signer to get a loan. Prior to the Women’s Business Ownership Act of 1988, women were essentially barred from accessing the funds to start a business.

“A lot of women, just like minorities, have started building businesses recently,” says Daymond John, “Shark Tank” judge and founder of fashion line FUBU.

The USWCC report further illuminates the stratification: Women of color own 28% of all women-owned firms but generate only 14% of the revenues.

Despite the lifted legal barriers, DeBaise says there remains quite a bit of discrimination -- sometimes subtle, sometimes blatant. “Some women say they're dogged by stereotypes that they don't have financial savvy or that they don't have what it takes to build successful companies,” she says.

Margot Dorfman, CEO of the USWCC tells Yahoo Finance that discrimination is the primary hurdle that stands in the way of women-owned businesses from generating more revenue. She says women begin their firms with 23% less overall capital compared to men. Launching a business with a weaker foundation could be a reason women are making less money than their male counterparts.

And the implications are far graver than bringing in a few thousand dollars less a year or having a business go bust. “Women are forced to use their retirement savings, credit cards with high interest rates and personal assets -- all of which put them in financial risk later down the road,” Dorfman says.

Riva Richmond, the director of digital media at The Story Exchange, a nonprofit that promotes women business owners, says these challenges may prevent women from finding the capital they need to build up their businesses. “There are serious structural issues that are hampering women,” she says. “Even for those who are running their own companies, are they unable to build the kinds of businesses that they actually want to build?”

The need for a new VC paradigm
Women-led startups fare worse unless they’re funded by a venture capital group with a woman partner, according to research from University of Michigan Ross School of Business.

Overall, women-led startups that receive venture capital have a 37% lower rate of exit (defined as going through an initial public offering or getting sold) than startups with men at the helm.

“It seems that women-led venture capital firms are either better at selecting women-led projects, or they’re better at advising them. At least one of those two things is at play in the VC industry,” the report’s author, Sahil Raina, wrote.

The current state of venture capital remains heavily dominated by men. “Most of the people who control the money, particularly in the venture capital arena, are men. They often invest, quite naturally, in people who look like them, who they ‘get,’ whose products or services they understand. That's usually other men. So female entrepreneurs often can't get the financing they need to truly grow their companies,” says DeBaise.

Never mind grow their companies -- female entrepreneurs often feel like they’re up against a brick wall when it comes to workplace equality. Silicon Valley has also been the epicenter of the workplace diversity and gender gap issues. This month, inspired by Pao’s gender-discrimination lawsuit against venture firm Kleiner Perkins Caufield & Byers, a group of women published a survey called “Elephant in the Valley,” which asked women in the Bay Area about unconscious biases, motherhood, and inclusion at work. It found 88% of women have experienced clients and/or colleagues address questions to male peers that should be addressed to them, and 47% of women have been asked to do lower-level tasks, like taking notes and ordering food, that men are not asked to.

Shows like “Shark Tank” shake up the notion that it’s only men behind the money by showcasing female investors like Barbara Corcoran and Lori Greiner, who (unsurprisingly) are the two sharks who have invested the most with women entrepreneurs -- 48% of Corcoran’s deals on the show have been with females; 29% for Greiner.

The show also brings women entrepreneurs into the limelight. However, dishearteningly, women participants have received an average valuation of around $782,000 for their business ideas while men got an average valuation of $1.7 million. For mixed teams the average valuation was around $1 million, according to Halle Tecco, founder of digital health venture fund Rock Health and “Shark Tank” data cruncher.

Of course, dollar signs aren’t the only measure of success. The Story Exchange recently launched a campaign called “1,000 Stories,” which profiles 1,000 female entrepreneurs from 50 countries. The main takeaway, says Richmond, is that “revenue and profit have long been established markers of success. But our definition of success is constantly evolving. Women told us they started businesses in order to make a difference or pursue a passion. It’s not that they don’t care about money; they’re looking for other types of success.”