Scaling Up Female Entrepreneurship

America needs all the talent it can get at home to spur job creation and economic growth. Recently, we have given a lot of attention to the untapped potential of immigrant entrepreneurs. Today, I take a look at other data and ask what we can do to enable more women in America to achieve their full potential as entrepreneurs.

According to the latest report from the Kauffman Index of Entrepreneurial Activity (KIEA), in the U.S., men are twice as likely to open a business each month than are women. The average rate of entrepreneurial activity for men over the 1996-2012 period was 0.37 percent, while for women it was substantially lower at 0.23 percent. This study of almost two decades of entrepreneurship in America shows that the gender gap in entrepreneurship remains stubbornly persistent, and out of proportion compared to women’s share of the general population, college degrees and the labor force.

Beyond all the inequalities underlying the statistics, the data signal that America has a missed economic opportunity with such untapped potential of women entrepreneurs. Just consider the current landscape where:

Further, according to the second annual State of Women-Owned Businesses report from American Express OPEN, women entrepreneurs are the fastest-growing group of small-business owners. Organizations like Astia and Women 2.0, as well as companies like Dell, are working hard to cater to this untapped potential pool of high-growth entrepreneurs. For example, the Dell Women’s Entrepreneur Network, or DWEN, has been mobilizing successful businesswomen to give of their time or financial support to other women. Created in 2010, Dell has since extended that network worldwide, convening annually in Shanghai, Rio de Janeiro, Delhi, Istanbul (most recently) and next year in Austin to explore the obstacles to closing the gender gap in entrepreneurship worldwide. For example, DWEN recently released a diagnostic tool to help countries expand opportunities for women entrepreneurs and the Gender GEDI (Global Entrepreneurship and Development Index) reaches some interesting conclusions:

  • Being strong in key areas such as legal rights, education and access to finance is not enough in terms of fostering high-potential female entrepreneurship. Social and cultural norms may still be less conducive for women to become entrepreneurs.
  • Access to entrepreneurial finance remains crucial.
  • Effective networking can open doors. Without access to networks, it is hard to enter the circles of angel finance and venture capital.
  • Technology enables business growth. Technology has also made it cheaper than ever to start a business and removes many of the social and physical barriers women must overcome to start their own businesses and connect with the resources they need. Entrepreneurs need scalable technology solutions that enable them to accelerate the growth of their business to succeed.
  • The U.S. needs to prepare a larger pool of tech savvy high-potential female entrepreneurs.

In terms of government help, policymakers can’t “top-down organize” the entrepreneurship ecosystem to “pick” women entrepreneurs just as they cannot pick winners using any other criteria. As Dan Isenberg of the Babson Entrepreneurship Ecosystem Project pointed out, for entrepreneurship to flourish, social mobility in an entrepreneurial economy has to be based on merit, not birth characteristics (e.g. gender, social status, ethnic background). But that doesn’t mean policymakers are powerless to help unleash more women entrepreneurs. Education and support for initiatives that create cultural capital can all contribute to narrowing the gap. And greater access to entrepreneurship curricula and programs would also help provide a larger, more educated and better skilled pool of women from which high-impact female entrepreneurs can emerge.

While there are some programs (from the government and private sector alike) that assist female entrepreneurs, they are largely geared toward women with prior business experience. Unfortunately, the gender gap in high-growth entrepreneurship starts widening much earlier in life. Public policy can support initiatives that teach about the new business relationships that drive our economy, where women are a key part of the workforce. As Sharon Vosmek, CEO of Astia notes, it is a hard task to change the societal structure where men and women are still by-and-large in separate business networks. Entrepreneurship education can help change this.

From a legislative and regulatory perspective, the doors of entrepreneurial opportunity are largely as open for women as are for men in U.S. (although the Global Entrepreneurship Monitor 2012 Women's Report does mention "covert barriers” in the U.S in gaining access to capital or winning government contracts), but there is still a gap in entrepreneurial aspirations and training. More women than men have earned college degrees since the 1980s, but many still struggle to reach leadership roles that allow them to gain the experience, skills and networks that facilitate entrepreneurial success. As a Kauffman Foundation infographic on female entrepreneurship shows, in 2012, only 10% of Inc. 500 companies and 13% of Ernst & Young Entrepreneur Of The Year finalists are women-led companies.

Data suggests that this reality not only affects female startup rates but also startup success. The Dow Jones report found that companies have a greater chance of going public, operating profitably or being sold for more money than they’ve raised, when they have females in senior leadership roles (founders, board members, C-level officers, vice presidents and/or directors). At successful companies in the sample studied for the report, the median proportion of female executives was 7.1 percent; at unsuccessful companies, 3.1 percent. This is likely why Astia recently created its own network of angel investors, called Astia Angel, to invest directly in companies that feature women in top jobs.

It is also important to narrow the gender gap in entrepreneurial funding because, as many women entrepreneurs gain success, they become investors too, increasing the pool of capital and mentorship. According to the Gender GEDI report, other nontraditional forms of funding such as crowdfunding may provide high-potential female entrepreneurs with an alternative source of startup and growth capital as crowdfunding becomes a democratizing force for entrepreneurship. The SEC is working to adapt regulations to unblock this financial innovation following legislative action on Capitol Hill.

We need more entrepreneurs, and to achieve that, we should encourage, educate and support women of all ages and backgrounds to start and grow their own firms. As Lesa Mitchell at the Kauffman Foundation commented in the context of her research on women entrepreneurs and inventors, “Women’s entrepreneurship is an economic issue, not a gender-equity issue” (see "Overcoming the Gender Gap: Women Entrepreneurs as Economic Drivers). As more women engage as entrepreneurs, new jobs and economic prosperity will follow. For now, we have yet to feel the full impact of women high-growth entrepreneurs. We should all help do something about that.

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