Better Ways to Boost Women-Owned Businesses

The performance gap between women-owned businesses and their male counterparts is well-documented. Yet the Obama Administration would rather spout rhetoric about how it is helping female entrepreneurs than develop policies to address what its own research shows are the causes of the problem. At least that's what a recent Commerce Dept. report seems to indicate. Created as part of an effort to show how the Administration is helping women business owners, the 35-page report details the latest data on the gap and summarizes leading researchers' main explanations for it. An insert sent out with the report summarizing what the Administration has done to help women entrepreneurs, however, shows nothing that will actually help fix the problem.

Size of the Gap

Let's start with the facts. As the report clearly shows, a large and persistent gap exists between the sexes. Consider the following numbers:

Only 66 percent of women-owned businesses tracked from 2002 to 2006 survived, compared with 72 percent of companies owned by men, and only about 70 percent of women-led new businesses started in 2004 survived three years, compared with 75 percent of those led by men.

In 2007, the sales of the average women-owned business were only $153,000, a quarter of the $612,000 of the average business owned by men.

Only 13 percent of women-owned businesses generate more than $100,000 per year in sales, compared with 30 percent of businesses owned by men.

Self-employed women earn only 55 percent of what self-employed men earn.

In 2007, 30 percent of private companies were owned by women, but they accounted for only 13 percent of employment and 11 percent of sales.

Only 12 percent of women-owned businesses have employees in comparison with 23 percent of businesses owned by men. In 2007, companies owned by women had an average of 8 employees, while their male counterparts had 13.

Jobs in businesses run by women pay less than those led by men, with women-owned businesses paying an average of 78 percent of men-owned businesses, a figure that has shifted little in the past decade.

Cause of the Gap

Researchers cited in the report identified several likely explanations for the gap and ruled out several others. Despite the common assertion that women business owners face discrimination, the report explains that researchers have no evidence that discrimination is the cause of the performance gap. As the report states, "Statistics showing disparate outcomes by gender … do not provide evidence for or against discrimination."

Second, the report makes clear that the performance gap does not result from differences in educational attainment and work experience between men and women. As the report explains, men and women differ little on these dimensions. In fact, despite the greater performance of male business owners, self-employed women have more schooling than self-employed men. The report shows that 68 percent of women who work for themselves have at least some college education, vs. 62 percent of self-employed men.

If discrimination, education, and experience aren't the reasons why women-owned businesses have poorer performance than their male counterparts, then what's the explanation? The answer—the research summarized in the report shows—is threefold.

First, the report explains, women start businesses in less desirable industries, favoring those in which the average company has lower sales and employment.

Second, female business owners work less, with the average self-employed woman working 40 hours per week vs. 46 hours for the average self-employed man, according to the report.

Third, the report states: "female business owners hold different attitudes and behave differently than male business owners. … Women who start businesses appear to be pursuing a somewhat different set of goals than men. … [They] expect lower levels of business growth in terms of sales and employment." These differences influence everything from the way that women design their businesses to how they finance them.

Misdirected Policy Response

Despite all this, there is a clear disconnect between the evidence for, and explanation of, the performance gap and the policies enacted by the politicians. Most of the report's three-page handout devoted to showing what the Administration is doing is a cop-out. To start, it summarizes the provisions in recent laws, such as The Recovery Act and The Small Business Jobs Act, that aren't relevant to the performance gap between male and female business owners. Leaving aside the question of whether these laws benefit small business owners as the Administration claims, they aren't a solution to the gap because they treat male and female business owners similarly.

Then the handout introduces solutions to problems that weren't ever identified as problems in the report. For instance, it discusses the importance of "a new comprehensive women's contracting rule." Yet nowhere in the discussion of the causes of the performance gap was the underrepresentation of women-owned businesses in federal contracting identified as a problem.

Finally, the handout explains that a cornerstone of the Administration's effort to help women business owners is the effort to open more "Women's Business Centers to train and counsel women on how to start and grow their own businesses." As a professor, I'm all for more education and training, but how will more centers help close the performance gap between male and female business owners? The report explains that the performance gap results largely from things that training can't easily address—differences in preferences and goals for their businesses, the number of hours worked, and the lesser performance of companies in industries that women entrepreneurs favor.

The Administration would do more to counteract the lagging performance of women-led small businesses if it actually pursued policies that address the causes of the gap. Granted, I'm responding here to one three-page handout, but I haven't seen anything else from the Administration that indicates it is addressing the problem.

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