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Busting The Myths About Female-Led Businesses

By November 25, 2013 No Comments
Busting The Myths About Female-Led Businesses

Female business owner helping staffA group of female digital entrepreneurs gathered earlier last week to share stories of how they grew their technology businesses, as well as swapping ideas about how to raise capital. The event was part of Global Entrepreneurship Week and, as various women talked about how they’d sold their tech enterprises for sizeable sums and were embarking on their second or even third start-up, few expressed a fear of risk or being put off by the prospect of failure.

Yet, such comments are made about women in business all the time. They’re overly cautious. For them, being in business is about lifestyle, not making money. When it comes to funding, they’re scared of borrowing and never ask for enough when they do seek growth capital. But are these clichés based on fact or prejudice?

It is true that there are still fewer women running their own companies than men. Women are about half as likely as their male peers to be engaged in entrepreneurial activity, according to policy advisory group The Women’s Business Council (WBC). It also calculates that there would be a million more female entrepreneurs if women were setting up and running enterprises at the same rate as men. But things are improving and numbers are significantly up on a decade ago. About 19 per cent of the UK’s businesses are majority-led by women, equating to roughly 860,000 SMEs, according the Department of Business, Skills and Innovation’s latest small business survey. Last year, companies run by women contributed about £75 billion to the UK economy.

Female-run firms do tend to be smaller. Those recent Government figures show that 86 per cent of SMEs run by women are micro-businesses, with between one and nine employees, plus women-led companies have a lower average turnover than SMEs as a whole. But some of the ‘truisms’ otherwise repeated about female business owners’ attitudes and approaches to funding are beginning to look a little tired, since the actual evidence suggests that women-run businesses are rather different in nature to what is often assumed.

Common assertions include:

  • Women are less likely to seek external finance.

    Four out of ten women who set up their own businesses required no outside investment to do so, according to the ‘Everyday Entrepreneur’ report by Professor Julie Logan of Cass Business School. But what you don’t often hear is that the women who do apply for funding are more successful than their male peers at securing it. Research conducted for the British Banking Association has found that seven out of ten loan applications by women business owners are successful, versus just 56 per cent of those made by men. Government research also suggests that women tend to benefit from financial support offered alongside business advice, rather than in isolation, and that lump-sum grants are more beneficial to them than a trickle of funding.

  • Women lack the business experience to run companies and attract outside investment.

    There’s no hard evidence to show that women are less likely to have the skills and nous to go into business, though self perception may be a barrier. Women more often think they don’t have what it takes to start a business than men, the Global Entrepreneurship Monitor shows. When it comes to attracting funding, the now defunct Women’s Enterprise Taskforce (WETF) not long ago found that 17 per cent of women business owners claimed that they didn’t know how to access equity finance, compared with just four per cent of male bosses. Recent research estimated that about 13 per cent of all venture capital deals in the US in the first half of this year involved female-led firms, but this comparatively small figure may be partially due to the paucity of women working in venture capital itself. More women making funding decisions has been suggested elsewhere as being influential on whether female business owners borrow. The WETF study recommended that more high-net-worth women become angel investors, as its data indicated that female investors were marginally more likely to invest in companies run by other women.

  • Women tend to set up firms in sectors that are less attractive for investment or run lifestyle businesses that are limited in their capacity for growth.

    We’ve already established that women’s businesses tend to be smaller, and it is the case that they do have some bias towards sectors such as hospitality, health, and social and personal activities. Just five per cent of female-established firms are in the technology sector, for example, which has great potential for fast growth, compared with 11 per cent of men. Again, this is changing, as seen by our gathering of female pioneers for Global Entrepreneurship Week. And when the WETF scrutinised why business owners, both male and female, failed to gain finance, it found that nine per cent more men than women stated that it was because of the nature of their business. In other words, more male-run firms were deemed unappealing by lenders than those run by their female counterparts.

So, misconceptions abound when considering women in business and not all the evidence is as it appears at first glance. But what is undeniable is that money and access to it really does affect whether women decide to be their own boss. The Federation of Small Businesses has conducted research that indicates that more women could be encouraged to set up their own companies through the promotion of alternative sources of funding. The WBC also recommends that the Government promote other funding sources, such as angel investors and crowd funding, specifically to women, and financial institutions should be encouraged to market their services more consciously to women with business ambitions. In truth, alternative funders are proving increasingly relevant to smaller businesses run by both genders, given current restrictions on conventional lending. The fact is that whether a business owner has the Y chromosome or not, everyone must be more imaginative today when thinking about how to finance and grow their enterprise.
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