The phenomenal growth of businesses owned by women has made headlines for almost three decades. Women have constantly been launching new ventures at twice the rate of men, and their growth rates of revenue and employment have outpaced the economy.
Despite all this progress, it's dismaying to see that on an average, women-owned businesses are still small as compared to businesses owned by men. The revenues of majority women-owned businesses are less then major men-owned businesses. There are those people who will say that this substantiates the thing they always knew – Women just don't know what it takes to start and run a growing business. Is it really so?
There are many women who have capacity, vision and determination to build thriving companies. More than a quarter of million women in the United States own and lead businesses with high annual revenue and many of these businesses are multimillion-dollar enterprises. So, what's holding back so many women entrepreneurs?
There are many factors responsible for preventing many business women from fulfilling their potential. Women often start entrepreneurship with fewer resources available to them than men. And the result is that they go into industries such as personal or retail services where the cost of entry is low. They are not only more likely to set up their businesses on a shoestring, but are also more likely to run on a shoestring.
A study examined the question that why women use less finance than men while starting a business when business performance is related resource endowments and initial capitalization. It has been shown that when it comes to financing the business, women entrepreneurs are more cautious than men. In fact, there are only few women that turn to a financing institution. They take less debt because they tend to view debt as a "bad thing" that should be avoided. Women tend to use more of informal finance resources and personal savings and have almost no venture capital or business angel investment. And for expansion capital, they turn to business earnings that usually limit growth potential.
The research also supports the idea that relationship building is one of women's strengths, yet women seldom focus on building relationships with bankers. Limited knowledge about financial products and services, and lack of relationship with bankers explain to a great degree why more women don't seek more sophisticated forms of financial products and services.
Other studies show that women operate more retail and service establishments then men. This might explain their difficulty in getting finance for business since these two sectors are often considered more risky by financial institutions. One more thing is that when women start a business, it often doesn't have the sole purpose of generating wealth. Men's major motivation for starting a business is financial gain, whilst women tend to cite freedom, flexibility and financial gain as the main reasons for setting up on their own.
Because women-owned businesses are under-capitalized at start-up, they tend to underperform in terms of employment, sales, growth and profitability. These same results can be seen in women-owned businesses around the world. Some research shows that many women entrepreneurs, especially those of color, believe that they wouldn't get credit even if they applied. Hence, they don't even bother to try. And somehow if they apply, they are often cautious and hence, ask for as little as possible. This feeds the perception that women are not serious about the business growth.
But it's also true that women entrepreneurs' perception that they are not welcome at banks is not without reason. Despite the highly publicized bank initiatives to attract women entrepreneurs, many bankers still operate with the insight that women-owned businesses are not good credit risks and they do not have the capacity to grow. Some banks treat women entrepreneurs less favorably than they do men.
However, because their businesses are often small, women entrepreneurs also have more limited financial needs. Although, there are generally less inclined to apply for financing than men, when they do, they are more likely to get it.
