Why Women Need Half as Much as Men to Start a Business
Women can do more with less.
That’s one takeaway from the most recent U.S. version of the Global Entrepreneurship Monitor, an annual survey that tracks entrepreneurial activity worldwide.
Last year, female entrepreneurs in the U.S. reported needing only half as much as their male counterparts to start a new business, according to the report by researchers at Babson College and Baruch College. The typical woman who had recently started a new business told survey takers she needed $10,000. The survey is based on responses in June and July of last year from 5,944 people in the U.S. between the ages of 18 and 74, said Donna Kelley, an entrepreneurship professor at Babson who co-authored the study.
Kelley said a variety of factors could explain why women needed less money than men to start new businesses. For example, perhaps women are more efficient when it comes to launching a new company. Or maybe they had less money to begin with.
The findings align with the latest survey on business ownership by the Census Bureau, which found that 42.9 percent of female business owners reported using less than $10,000 to start their ventures, compared with just 38.4 percent of men. The Census report also found that 12.1 percent of men who owned businesses said they needed at least $50,000 to launch their companies, more than double the 5.5 percent of women who reported needing at least that much.
Women are nearly twice as likely as men to rely on family members to fund their new businesses, according to the entrepreneurship survey.
Startup costs could be linked to the types of businesses that women are drawn to, Kelley said. Women tend to start consumer-oriented businesses, and these ventures—think retail and service businesses—are easier to start on a smaller budget. Etsy Inc., the online marketplace known for handmade goods, said last year that 86 percent of the sellers on its platform are women. Roughly three of every five new female entrepreneurs started businesses that catered to consumers, Kelley said, compared with just two in five men. Most men start businesses that cater to other businesses, which generally cost more to launch.
The entrepreneurship monitor contained other findings on female entrepreneurship that Kelley hopes will guide policymakers as they attempt to jump-start new business formation.
Take the age range of the most entrepreneurial women. Women between the ages of 35 and 44 are most likely to start new businesses, according to the Babson and Baruch researchers. Men are most entrepreneurial about a decade earlier, between the ages of 25 and 34. Kelley attributed the relative delay for women to possible career frustrations and a desire to leave the corporate world. Women may wish to start home-based businesses that allow them also to take care of their children, Kelley added. Female business owners are more likely than men to work from home, Census figures show.
Alarmingly, men between the ages of 18 and 24 are about twice as likely to start a new business than women of the same age. And the share of bachelor’s and master’s degrees in entrepreneurial and small business operations given to women has fallen by about five percentage points over the last dozen years, U.S. Department of Education data show. Kelly believes the discrepancy is worthy of policymakers’ attention. "Maybe we’re missing out on some ideas that could lead to viable businesses," Kelley said.