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Theory to Practice: You’ve heard about the pay gap for women – but what about the entrepreneurship gap?

June 19, 2019 / Jamie McCall / Community Development, Economic Development, Small Business, Theory to Practice, WWBC

Theory to Practice is an occasional CSBDF blog series which explores the intersection of economic development research and current issues of debate within the practitioner community. In this post, CSBDF’s Vice President of Research Jamie McCall and Development Associate Emily Stallings assess the evidence for an “entrepreneurship gap” in women-owned enterprises.  For more information about CSBDF’s research and policy analysis program, click here

The Women Entrepreneurship Gap is Persistent

At Carolina Small Business Development Fund (CSBDF) we want to engage in activities that implement evidence-based research on how to promote community economic development. As we gear up for the Western Women’s Business Center’s annual conference on women-owned small businesses, we wanted to take a moment to examine research and data on women entrepreneurship. But first, a point of reference. Most people have heard that women are compensated less than men.[1] And although the pay gap between men and women workers has lessened over time, the convergence towards pay equity has been slowing since at least the 1990s.[2] Perhaps less known is the “entrepreneurship gap” – or the tendency of women to be less likely to start firms compared to men.[3] In the past few decades, the difference in rates at which women and men become entrepreneurs has been remarkably consistent. And unlike the pay gap, it shows little signs of convergence.

Source: Kauffman Indicators of Startup Activity, 2017

The reasons for this phenomena are complex and multifaceted. Of note, in terms of access to capital, there does not appear to be a disparity between women and men. Unlike other underserved populations, research shows women-owned small firms are about as likely to be approved for business loans as men-owned firms. This is supported by public data. The Census Bureau’s Annual Survey of Entrepreneurs in 2016 showed women-owned firms are only slightly less likely to use business loans for startup capital (14.3%) compared to men-owned firms (16.6%). But importantly, women-owned firms are far more likely to receive business capital on unfavorable terms – including substantially higher interest rates.[4]

Beyond Starting a Business, Other Barriers Remain  

Scholarship has shown that the challenges women face in this area extend far beyond simply starting a business. For example, the entrepreneurial social networks women owners participate in are less likely to be of the type and quality that are known to promote business growth.[5] And once they begin their journey as business owners, women-owned firms are less likely to be as economically prosperous as other types of firms. Based on their share of the overall business population, women firms on average employ less and pay less than firms owned by men.

Note: Women-owned and men-owned will not sum to 100%, see endnote 6 for details.
Source: Annual Survey of Entrepreneurs, 2016

While we cite national-level statistics to give an overview of this phenomena, there is material variation in the data at the state level. In North Carolina, women-owned employer firms proportionally contribute to 4.8% of all payrolls, less than the national average. And while such differences are minor in percentage terms – the difference between 5.2% (United States) and 4.8% (North Carolina) is small – the aggregate economic impact from this kind of state level disparity can be substantial. On the bright side, state-level data for North Carolina also highlight some positive trends. In particular, though the state underperforms in terms of payroll impact, it actually outperforms in terms of proportional women ownership (22.2% in the state versus 20.0% nationally) and employee share (8.0% in the state versus 7.7% nationally). North Carolina’s women-owned firms make up a large portion of the underserved business community. Our state is home to 32,547 women businesses that employ 262,251, which has an annual payroll impact of $7.8 billion dollars.

How we’re Helping to Close the Gap  

CSBDF has long been aware of the unique and complex barriers faced by this population. We’ve made a long-term commitment to providing affordable capital for women-owned small businesses. Since beginning lending operations, CSBDF has issued over $19.2M in affordable loans to businesses owned by women. Last year, 35% of our lending activity was to women-owned firms, totaling over $4.1M in capital deployment. Women business owners reported these loans helped them create or save almost 190 full-time equivalent jobs. More than half of loans to women by CSBDF are for microenterprise. Guided by flexible and character-based underwriting guidelines, CSBDF’s women borrowers enjoy lower interest rates on average. This is despite the fact that, on average, women borrowers in CSBDF’s lending portfolio tend to have lower FICO credit scores.

We know that small businesses are most likely to succeed with a comprehensive, relationship-based approach where we can both be supporters and cheerleaders for success. Part of putting that into action is the use of technical assistance that allows women (and other underserved populations) to reach their small business dreams. We’re proud to work on these issues every day through both our Western Women’s Business Center (WWBC) in Asheville and the Eastern Women’s Entrepreneurship Center (EWEC) in Elizabeth City. These regional centers are committed to serving women with one-on-one assistance, business coaching, and access to capital. Though they focus on working with disadvantaged women entrepreneurs, their services are available to anyone who wants to start a business.

Best Practices: How the WWBC Leverages Social Capital  

Emerging research shows women are more likely to start a business (and more likely to succeed in their business) when they participate in entrepreneurial social networks.[7] The Western Women’s Business Center (WWBC) is gearing up to foster these kind of networks with its 5th Annual Western Women’s Business Center Conference on June 20, 2019. The theme of this year’s conference is Building Your Tribe to Build your Business. In partnership with the A-B Tech Community College Small Business Center, the event will provide a day of inspiration, learning and networking. Participants will gather with business experts, artists, and nationally renowned speakers to learn more about women entrepreneurship. Now in its fifth year, the conference continues to build a powerful network of leaders that are shaping the future of western North Carolina’s local economy.

Quantitative data can be used to define the scope and challenge that women-owned businesses are facing. But to truly understand the difference places like the WWBC can make, consider the opinions of entrepreneurs who use these services. One example is Laura McCann, CEO & Co-founder of Adoratherapy in Asheville. According to Laura, having a trusted resource in the community for business assistance made a world of difference. “The WWBC has supported us with open hearts” she says. “They have listened to what we need and have stepped up to bring us closer to our greatness. Their singular focus on women in business and the unique needs of this community makes them the partner to go to for support when I need to ask for help.”

“Through the ups and down of building her aromatherapy business, Laura has been able to grow her beauty brand” says Sharon Oxendine, Director of the WWBC. “She demonstrates what a woman small business owner needs daily to protect her passion – tenacity and creativity to overcome any challenge that comes her way in order to succeed. That is why we are thrilled to celebrate the tenacity, creativity and success experienced on her journey in small business.” Both Laura’s innovative vision for natural beauty products and determination to grow as a business has paid off. Among Aromatherapy’s many accolades and awards, they received the WWBC Small Business Award of the Year during this year’s Small Business Week.

Leveraging social capital happens both at the individual and organizational level. As a program of CSBDF, the WWBC’s efforts in this area are supported by a robust array of networks and partnerships that support and fund this type of work. Whether through event sponsorships, individual donations, or  collaborative programs such as the Wisdom Fund (a program of CNote) and the Tory Burch Foundation Capital Program (powered by Bank of America); CSBDF’s generous supporters are important allies of our mission-based work towards closing the entrepreneurship gap.

References 

[1] Auspurg, K., Hinz, T., & Sauer, C. (2017). Why should women get less? Evidence on the gender pay gap from multifactorial survey experiments. American Sociology Review, 82(1), 179-210.

[2] Blau, F., & Kahn, L. (2003). The U.S. gender pay gap in the 1990s: Slowing convergence. ILR Review, 60(1), 45-66.

[3] Mitchell, L. (2011). Overcoming the gender gap: Women entrepreneurs as economic drivers [White Paper]. Kauffman Foundation.

[4] Coleman, S. (2000). Access to capital and terms of credit: A comparison of men- and women- owned small businesses. Journal of Small Business Management, 38(3), 37-52.

[5] Neumeyer, X., Santos, S., Caetano, A., & Kalbfleish, P. (2018). Entrepreneurship ecosystems and women entrepreneur’s: A social capital and network approach. Small Business Economics, 53, 1-15.

[6] Ownership and share percentages are out of total reporting businesses. Sums do not add to 100% because respondent businesses could also be classified as equally men/women owned, publicly held firms, or otherwise have a structure where the gender of the owner(s) cannot be determined.

[7] McGowan, P., Cooper, S., Durkin, M., & O’Kane, C. (2015). The influence of social and human capital in developing young women as entrepreneurial business leaders. Journal of Small Business Management: Special Issue on Entrepreneurial Leadership and Gender, 53(3), 645-661.