Research Shows Women Entrepreneurs Are Key to Inclusive Economic Growth
When it comes to new products and new solutions, the world would suffer if not for the tens of millions of women around the globe making an economic and social impact as entrepreneurs.
According to a new report from the Global Entrepreneurship Monitor (GEM), women entrepreneurs represent about one in three growth-oriented entrepreneurs active in the world today. Globally, 30.2% of the surveyed women entrepreneurs said they expect to hire six or more employees in the next five years, compared with just 18.7% among those surveyed for the 2019 report.
The 2020/21 Women’s Entrepreneurship Report, released today and authored by Amanda Elam, research fellow at Babson’s Diana International Research Institute, also found that women globally represent one in three established business owners, which are defined by GEM as individuals running a business that has paid wages for more than 42 months.
“Women’s entrepreneurship is a fundamental promoting factor of inclusive economic growth, particularly in developing economies,” says Smaiyra Million P’21, executive director of The Arthur M. Blank Center for Entrepreneurship at Babson College, which co-sponsors GEM.
The new GEM report reveals that in low- and middle-income countries, 17 percent of women are entrepreneurs and 35 percent aspire to become entrepreneurs.
“Taken together, this implies that more than half of women in developing countries see entrepreneurship as a path to a better future,” Million says. “This is despite them often facing persistent cultural and structural barriers limiting their growth opportunities. These findings should urge us all to explore how we can better support these women.”
Pandemic Setbacks
GEM, a global consortium of academic researchers co-founded by Babson in 1999, studies entrepreneurial motivation and activity around the world. Its latest report provides the first real look at women’s entrepreneurship in two years, including the earliest months of the pandemic.
“We’re just getting the first snapshot of COVID impacts,” says Elam.
“The pandemic has set women back generations, with the triple threat of small business size, heavy industry sector impacts, and the additional burden of family care in addition to work demands,” notes the report, which focuses specifically on women-owned businesses and provides data for 43 countries, based on research conducted between April and August 2020.
“More than half of women in developing countries see entrepreneurship as a path to a better future, despite often facing persistent cultural and structural barriers.”
Smaiyra Million P'21, executive director of the Arthur M. Blank Center for Entrepreneurship
Women in North America were 50% more likely than men to report closing a business due to the pandemic. And, women worldwide were 10% more likely than men to report that starting a business was more difficult during that time.
The pandemic impacted male- and female-owned businesses differently around the world, with the largest gender gap reported in North America and Europe.
In the United States, almost half of women cited the pandemic as the reason for discontinuing their business, higher than the global average and twice the rate reported by women in Canada, the report found. Conversely, women in low-income countries were slightly less likely to report closing a business than men (35.6% vs. 38.5%, respectively).
Women entrepreneurs in high-income countries also viewed government response to the pandemic less favorably than men did (43.9% vs 47.9%). This statistic trended in the opposite direction in low-income and middle-income countries, where women entrepreneurs were roughly 10% more likely to give the government response high marks.
Elam says these trends could be due to the fact that North American families rely more on paid family care services outside the home than on family arrangements, such as a grandparent who can watch the children. Another possible explanation is that these countries did not experience significant disease spread until after the survey period in mid-2020, she says. “Future surveys will fill out the picture at different stages of the global pandemic,” Elam says.
Women continue to trail men in both startup participation rates and business size. While women were 20% less likely to start a business than men in most countries, that number shrank to 10% in the Middle East and Africa. However, in the Middle East and Africa, women were twice as likely to start businesses with no employees (“solopreneurs”) compared with men.
Some of the findings were consistent with previous years and point to an important area for improvement, Elam says. In 2020, only 5.8% of women reported informal business investments compared with 8.2% of men globally. And, when women invest, they mobilize about half the median investment amount compared with men, on average. Elam says this is because women generally have lower levels of personal savings and less influence over family spending.
“Men often chase big unicorns but have bigger losses,” she says. “In contrast, women converge somewhere around the mean. Women tend to follow standard business practices and calculate risks more. In my experience as an educator and entrepreneur, men lean toward bold and women toward smart. The best entrepreneurs are both bold and smart. How do we pull those two things together?”
Bridging the Gender Gap
Globally, although one out of three growth-oriented startups are led by women founders, “this fact gets lost in the top-line numbers,” Elam says. This suggests that women trail men in participation rates and tend to run smaller, less growth-oriented businesses, she says. “These structural patterns, unfortunately, reinforce negative stereotypes about women’s leadership and contribute to bias against the competence of women entrepreneurs.”
Women and men were at parity in reporting that the pandemic provided new business opportunities (40.6% vs 42.2%). And, worldwide, women were 10% less likely to close a business than men. In fact, the GEM data suggest that women entrepreneurs “have high intentions, but have a harder time turning those aspirations into actual businesses in many countries,” Elam says.
MORE: Register to attend the GEM Women’s Entrepreneurship Report Launch Webinar: Thriving Through Crisis on Wednesday, November 18.
Controlled studies of business performance show that similar women and men founders perform similarly. So, why do women founders consistently receive less funding than men founders?
Elam attributes the funding problem, in part, to persistent stereotypes in equity investment that “women will underperform” when put in leadership positions. She says venture capitalists are missing out on lucrative investment opportunities when they are swayed by gender stereotypes.
The report makes several recommendations, including developing public policies that support family care and schooling, as well as supporting women business owners and encouraging women investors. Industries also should support women’s high-growth business activity and women business owners in male-dominated sectors.
“Time and time again, GEM research has cast a revealing spotlight on women entrepreneurs, producing data that is testament to the increasing resourcefulness, creativity, and capabilities of women when it comes to building companies that grow and prosper,” GEM Executive Director Aileen Ionescu-Somers said in a press release.
“If we support high-potential women entrepreneurs,” Elam says, “that’s a sure path to social change and advancing gender equality.”
