Women-Owned Businesses Are Growing in Importance

Women-Owned Businesses Are Growing in Importance

Since the 1970s, the role of women in the economy has been growing. The percentage of women in the labor force has grown from 37% in 1970, to 56.2% in 2021. Although the participation of women in the labor force reached a 33-year low in 2021 as women lost disproportionately jobs due to the pandemic, their role in the economy remains historically high. Women have also grown as entrepreneurs, but they have a much lower rate of business ownership than men, although this has been trending upward. According to Yahoo! News, nearly 20% of businesses are owned by women, with a total value of $1.8 trillion, and employing 11 million people.

How Ownership of Businesses by Women Has Evolved

Women also report having to take working hours into consideration when starting businesses. Historically women carry the bulk of the burden of taking care of children and doing household chores. Unlike men, women have to take their household activities into account. This means that they look for businesses that give them flexible work hours, or essentially allow them to achieve work-life balance. 

Men, on the other hand, tend to make decisions about the kinds of businesses they will invest in based on where they think they can make the most money, or because they want to be independent. 

The data also shows that women are more likely to remain with their first business, with 55% of women being in their first business, compared to 47% for men. Men tend to move on to new businesses, either selling their first business, or having seen that business fail. This suggests that businesses owned by women have a lower rate of failure than those run by men. There has not been much data on this, but work in 2011 did find that women-owned businesses had lower rates of failure. 

The share of women-owned businesses varies across states. Hawaii has the highest proportion of women-owned businesses, with 24.5%. Virginia, with 23.9%, and Colorado, with 23.8%, are the second and third states in this ranking. Colorado, for instance, has done a lot of work to make itself attractive to women business owners. You can learn more about starting a business in Colorado here. On the other hand, South Dakota has the lowest share of women-owned businesses with 13.6%, followed by North Dakota with 14.2% and Iowa with 15.9%. Metropolitan areas such as Holonolulu, Denver and Washington D.C. with high levels of women-owned businesses.

Characteristics of Business Owners

The demographic characteristics of women business owners follow the same pattern as that of men, with 82.8% of businesses owned by white women, 74.6% by non-minority and 92.45 by non-Hispanic and 98.9% by non-veteran women.

The Businesses Women Invest In

The growth in women’s ownership of businesses varies according to the industry that you’re looking at. Overall, according to the Annual Business Survey, 16.8% of women-owned businesses are in professional, scientific, and technical services. 

The employees of women-owned businesses are most present in healthcare and social assistance, with 19.4% of their employees working there. These also happen to be businesses with low paying jobs, and so, these businesses pay just over 30% less than the national average.

Women Still Earn Less than Men

Businesses owned by women have lower annual earnings than those owned by men, with women-owned businesses earning $38,238, compared to male-owned businesses, which earn $54,114.

Businesses owned by women had an average of $1.6 million in revenue, compared wot $3.2 million for male-owned businesses.

Women and Sole Proprietorships

Sole proprietorships are a common business structure in America. Essentially, if you run your business as a nonemployer, you’re a sole proprietor. In 2017, there were 10.7 million women operating as sole proprietorships, earning revenues of $286.1 billion.

The Funding Gap is Growing

Despite the growing role of women in business. There still remains a funding gap between women and men. According to D Magazine, funding by venture capitalists has actually declined in recent years. In 2019, women won just 3.4% of venture capital funding, which declined to 2% in 2021 despite venture capital funding rising to $330 million that year.

This is an astonishing finding considering that there is a lot of research showing that there are gains to be had if venture capitalists invest with women-owned businesses. In fact, businesses owned by women give venture capitalists faster exists at higher valuations compared to those run by men.

Venture capitalists have become more aware of the problem, but awareness has not translated into action. There are many reasons for this, but it is important to note that venture capitalists are mostly male, with 83.9% of venture capitalists being male. This translates toward a prejudice toward investing in male-owned businesses. 

This means that we have a chicken-and-egg problem: we need more female venture capitalists in order to get more venture capital into women-owned businesses. Many venture capitalists are former or even current founders, so this depends a lot on having women entrepreneurs becoming venture capitalists in future.

When venture capitalists do invest in women-owned businesses, they are more likely to get investment if their business is in retail and spaces dominated by women, rather than if they are in science, technology, engineering, and mathematics (STEM) domains. Many male venture capitalists are skeptical about the success of women in STEM, because there are relatively fewer levels of success. Again, this is a chicken and egg problem: without an increase in investment in women in STEM, there will continue to be a dearth of successful women in STEM.

Fortunately, there is evidence that the number of women venture capitalists is on the rise. Between 2019 and 2021, the share of women general partners in venture capital firms rose from 12% to 15%. Wealth management has seen a lower rate of growth, with women making up just 11.8% of managers in 2021. Women are, however, still far from the 50% they need to achieve parity with men.

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