The Trillion-Dollar Opportunity in Supporting Female Entrepreneurs

HBR | Shalini Unnikrishnan and Roy Hanna | Oct 31, 2019

female entrepreneur - The Trillion-Dollar Opportunity in Supporting Female EntrepreneursThere is much discussion and debate about how to support female entrepreneurs — and rightly so. Currently, women-led businesses are less likely to survive, despite evidence that their startups are often highly successful. New analysis by Boston Consulting Group (BCG) shows that if women and men around the world participated equally as entrepreneurs, global GDP could ultimately rise by approximately 3% to 6%, boosting the global economy by $2.5 trillion to $5 trillion.

So how do we support female entrepreneurs? The focus is often on improving access to credit (financial capital) or providing training to help women build new skills (human capital) — two areas critical for improving the success of women-led businesses. However, another key factor in the success of these businesses tends to be overlooked: access to networks.

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Working with public, private, and social sector clients around the world, we have seen first-hand how potent such networks can be. And we have also come to understand that these supportive mechanisms are in short supply.

The good news is that action in all sectors can address this gap.

The Gender Gap in Entrepreneurship

To better understand the entrepreneurial gender gap we analyzed 2014-2016 data from the Global Entrepreneurship Monitor (GEM), breaking down entrepreneurship and business sustainability rates by gender and across 100 countries. Among the findings:

  • Across all six global regions, the percentage of working-age men who start a new business exceeds the corresponding percentage of working-age women who do by roughly 4 to 6 percentage points.
  • Four countries — Vietnam, Mexico, Indonesia, and the Philippines — have managed to buck the global norm; more women than men launched new businesses in these countries in 2016.
  • In 50 of the 100 countries studied, the gender gap in founding startups (the percent of men versus women who start a new business) narrowed from 2014 through 2016, with the biggest gains occurring in Turkey, South Korea, and Slovakia.
  • In 40 countries, however — most notably in Switzerland, Uruguay, and South Africa — the gender startup gap is widening.

Although the gender gap in startup activity is fairly consistent across most countries, the gap in long-term business success varies more widely. In all regions except North America, women-led companies have lower sustainability levels than companies led by men. In the Middle East and North Africa, for example, women’s businesses are about 50%  as likely as men’s to remain in operation 3.5 years after creation, while in Latin America, the women’s businesses are 82% as likely.

Drivers of the Gender Gap

Our research indicates that there are many reasons for these deficits, including differences in access to financial support. According to a BCG analysis of 2018 data from MassChallenge, a US-based global network of accelerators, investments in companies founded or cofounded by women averaged $935,000, which is less than half the average of $2.1 million invested in companies founded by male entrepreneurs. This disparity exists despite the fact that startups founded and cofounded by women actually performed better over time, generating 10% higher cumulative revenue over a five-year period: $730,000 for women compared with $662,000 for men.

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This funding challenge is well documented, but our work also identified another, underappreciated challenge — women’s relatively limited access to “social capital” in the form of robust support networks.

Again and again we find that networks are a critical factor for small business success. In low- and middle-income countries, for example, we studied how knowing at least one other entrepreneur (a proxy for entrepreneurial networks) impacted women-led businesses. We found that stronger and broader networks are linked to smaller gender gaps in business sustainability and improved access to a variety of funding sources. Research by other groups, including the Asia Foundation, has found that peer-to-peer networks encourage women to set higher aspirations for their businesses, plan for growth, and embrace innovation.

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