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Women-Owned Firms Underperforming

Mark Marich

Last week, we highlighted an effort to promote entrepreneurship among women. According to new research from the Kauffman Foundation, women owned 6.5 million privately-held firms that generated $940 billion in sales and employed 7.1 million people in 2002. 

And they also underperformed relative to male-owned firms in a number of measures.

While they grew 19.8 percent (compared with a 10.3percent growth rate in U.S. firms overall), women-owned firms recorded lower survival numbers, as well aslower numbers for size, growth, earnings and profits. The data suggestthat women-owned firms are smaller and less growth-oriented thanmen-owned firms.

So what is to blame? One measure in the KFS revealed that women-owned firms tended to startwith less capital. Nearly 62 percent of women started their firms withless than $25,000, compared with 55.9 percent of men. A higherpercentage of women had “low” credit scores (38.1 percent) compared tomen (31.6 percent). This distinction in credit quality could haveimplications for women owners’ ability to secure financing,particularly in the form of debt, for their firms. Multivariate resultsprovided a positive link between startup capital inputs and performanceoutputs in terms of assets, revenue and employment.

The research paper, "Characteristics of New Firms: A Comparison by Gender," is third in a series of Kauffman Firm Survey (KFS) studies.

“The KFS is an essential research study because it assists us in continuing to gain greater insights into all aspects of entrepreneurial success,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation. “Such study is important, particularly now, because entrepreneurship is a critical ingredient in the country’s economic recovery.”

Other key findings in the Gender Comparison report include:

  • On average, both women and men firm owners were 44 years old, but men had more years of prior industry experience and devoted more time to the business.
  • More women owners than men owners attended college, but men were more likely to graduate.
  • Women were more likely to operate home-based businesses and were more likely to be organized as sole proprietorships, whereas men-owned firms tended to be LLCs or corporations.
  • A higher percentage of women than men felt they had some comparative advantage.
  • Approximately one-fifth of both women- and men-owned firms owned companies that had some type of intellectual property (patents, trademarks and/or copyrights) in their first year of operation.
  • Women are more heavily represented in retail and “other services,” while men-owned firms are more heavily represented in construction.
  • On average, men-owned firms had assets of $104,313, compared with $57,338 for women-owned firms.

A follow-up to the KFS study, which will examine the first four years of these young firms, will be available in spring 2009.

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