Why are Women so "Bad" at Business?

Updated: Dec 20, 2018

I've always been curious as to why women are often seen as "bad" businesspeople. How did we wound up with this infamous reputation of our (lack of) ability to start and sustain a business? Now, I became interested in this topic simply because even as a modern day, educated woman trying to start her own business, I often feel that it is not a level playing field for both men and women. Call it a woman's intuition, but I’ve lost count the number of times I have not been acknowledged in conversations with men only addressing other men in the room.


So first, let us understand why we should care about female entrepreneurs in the first place.


Female entrepreneurs play significant roles in both developing and developed country, especially in terms of economic development contributions (Ganesan et al., 2002). According to entrepreneur, Tory Burch, women in emerging markets put up to 90% of their profits back into their local economies. The World Bank's VP on Poverty Reduction and Economic Management Network has stated that this is a significantly higher percentage than men typically reinvest, as men are more likely to spend their earnings on personal consumables, such as tobacco or alcohol (Hakobyan, 2017).


However, in the UK, women still lag pronouncedly behind male entrepreneurs in terms of sheer number; Only 26% of the businesses are women-owned in the UK.


Source: Aston University

So why are women often seen as less successful business people? Here are 4 reasons why, and it appears to be due to very circumstantial reasons.


1. Female entrepreneurs start riskier businesses

Female entrepreneurs often start businesses in industries that they can relate to - retail and service. These “feminist” sectors are typically crowded with low returns and are actually more risky in business sense (Marlow & McAdam, 2013) due to the high inventory and management costs they require. Thus, women in these industries become more susceptible to business failings.


2. Female entrepreneurs receive less funding

Female entrepreneurs often have difficulty raising capital for their businesses. In fact, they start businesses with only about one-third of the resources accessible to male founders (Shaw et al., 2012). While lacking legitimacy in the eyes of stakeholders remains a prominent reason for the inability to attract investment (Zimmerman & Zeitz, 2002), there is substantial literature on women’s limited access to debt finance, with the attention placed on banks perpetuating gender-based differences in the approval of loans (Verheul & Thurik, 2001).


3. Lack of female investors

While female entrepreneurs often created products appealing to or more related to women, they typically pitch their businesses mainly to male investors (Smart et al., 2000). This has led to women receiving much less funding since males tend not to understand nor relate to the product. The fact that only 8% of business angels are women in the UK in 2009 (Mason & Botelho, 2014) has led to less alternative financing options for female entrepreneurs as well.


4. Lack of social networks

In terms of social networks for women, research suggests that ‘female dominated’ networks are restricted in density, range, tie strength and size (Coleman & Robb, 2009), a reason why women are less able to fully utilise their networks as sources of social capital (Greve & Salaff, 2003). Furthermore, social networks have been long established as fundamental entrepreneurial skills to access necessary resources, seek opportunities and grow ventures as they help to facilitate efficient resource flow (Hampton et al., 2009).


So what can women do to address this issue?

While female entrepreneurs should not be discouraged to enter women-target businesses, they would definitely need to tailor their pitches to help male investors understand the magnitude of the problem and business opportunity. This could be in the form of using family members related to male investors as references, using statistical evidence to quantify the problem and solution or telling past experiences that display positive entrepreneurial traits.

The art of bootstrapping

Female entrepreneurs can also consider bootstrapping as an alternative source of funding to investors.

Through bootstrapping, startups can decrease the dependence on investors through alternative funding sources (Ebben & Johnson, 2006) such as subsidies, owner-related and customer-related bootstrapping techniques (Vanacker et al., 2011). With initial traction and customers, the startup will be in a more competitive position to pitch for investments and negotiate for business agreements.


However, it is equally important on the part of the female entrepreneurs to fully utilise their social networks, as it appears to be the most effective way of reaching investors. Female entrepreneurs are highly encouraged to form professional contacts and more business-centric networks with investors, suppliers, bankers, customers and accountants to maximise their chances of attaining investments. Aside from meeting new potential investors, these contacts can help to form general impressions and insights for the content of the presentation pitch.


Lastly, as an industry consideration, it is essential to reinforce that the need to increase the supply of female investors. Since female investors would be more likely to relate and invest in women-targeted businesses, this would also increase the likelihood of female entrepreneurs receiving investments for women-targeted businesses. There could be governmental policies such as tax reliefs in place to incentive female investors to enter the business angel and venture capitalist markets. Ultimately, such economic activities would contribute greatly to the economy’s development.


To all my fellow female entrepreneurs out there, stay positive and keep hustling!




References

Coleman, S. and Robb, A.M., 2016. The Next Wave: Financing Women's Growth- oriented Firms. Stanford University Press.

Ebben, J. and Johnson, A., 2006. Bootstrapping in small firms: An empirical analysis of change over time. Journal of Business Venturing, 21(6), pp.851-865.

Ganesan, R., Kaur, D. and Maheshwari, R.C., 2002. Women entrepreneurs: Problems and prospects. The Journal of Entrepreneurship, 11(1), pp.75-93.

Greve, A. and Salaff, J.W., 2003. Social networks and entrepreneurship. Entrepreneurship theory and practice, 28(1), pp.1-22.

Hakobyan, M. (2017). Why The World Needs More Women Entrepreneurs. [online] Inc. Available at: https://www.inc.com/margarita-hakobyan/why-the-world-needs-more-women-entrepreneurs.html [Accessed 17 Dec. 2018].

Hampton, A., Cooper, S. and McGowan, P., 2009. Female entrepreneurial networks and networking activity in technology-based ventures: An exploratory study. International Small Business Journal, 27(2), pp.193-214.

Marlow, S. and McAdam, M., 2013. Gender and entrepreneurship: Advancing debate and challenging myths; exploring the mystery of the under-performing female entrepreneur. International Journal of Entrepreneurial Behavior & Research, 19(1), pp.114-124.

Mason, C. and Botelho, T., 2014. The 2014 survey of business angel investing in the UK: a changing market place. Adam Smith Business School, University of Glasgow.

Shaw, E., Carter, S. and Lam, W., 2012. 10. An integrated view of gender, finance

and entrepreneurial capital: theory, practice and policy.

Smart, G.H., Payne, S.N. and Yuzaki, H., 2000. What makes a successful venture

capitalist?. The Journal of Private Equity, pp.7-29.

Vanacker, T., Manigart, S., Meuleman, M. and Sels, L., 2011. Bootstrapping as a Resource Dependence Management Strategy and its Association with Startup Growth (No. 11/740). Ghent University, Faculty of Economics and Business Administration.

Verheul, I. and Thurik, R., 2001. Start-up capital:" does gender matter?". Small business economics, 16(4), pp.329-346.

Zimmerman, M.A. and Zeitz, G.J., 2002. Beyond survival: Achieving new venture growth by building legitimacy. Academy of management review, 27(3), pp.414-431.

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