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MAY 3, 2000

Yes, Women Do Run Businesses Differently

Contained growth and work-family balance are hallmarks of their style


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O.K., so men are from Mars, and women are from Venus. Do they run companies differently -- and if so, does it matter to the bottom line? These questions are generating some serious interest because a significant percentage of entrepreneurs are now women, and recent research suggests they run their businesses differently from men.

Rigorous small-business studies are only just emerging, but here are some of the trends: Women entrepreneurs are fiscally more conservative, emphasizing profitability and quality over rapid growth, and their management policies seek to minimize work-family conflicts. Does that approach cut it in today's hotly competitive environment? The question is particularly germane as skepticism mounts toward the dot-com mantra that profits don't matter and as managers realize the toll that relentless growth takes on their families and those of their employees.

Positive and negative factors are behind the business-approach gender gap. Women tend to have less access to capital than men, which inhibits fast growth. Their motivations to go into business also come into play: To escape the corporate glass ceiling and balance work and family better.

Researchers offer this caveat with their findings: They may not give enough weight to women who have started businesses in the last decade, "the second wave" of women entrepreneurs. Those who started business previously tended to own small service businesses with low earnings and few assets. New entrepreneurs are better educated and more likely to enter the more lucrative fields of technology and finance.

One thing is clear: The entrepreneurial boom isn't just a guy thing. In the last 12 years, the number of women-owned businesses has doubled, while the total number of businesses increased by 62%. In the 35-to-46 age group, more women than men are starting businesses, according to the Entrepreneurial Research Consortium, 31 institutions collaborating on groundbreaking studies of 700 U.S. entrepreneurs.

As of 1999, the 9.1 million women-owned businesses in the U.S. employed 27.5 million people and generated $3.6 trillion in sales, according to the National Foundation for Women Business Owners, a Washington (D.C.) research organization. Women now own 38% of all businesses. (The numbers are projections based on data from the Census Bureau, Internal Revenue Service, and Small Business Administration.)

Here's a look at some of findings of the last few years:

Why women start businesses More than half of the women from corporate backgrounds in a 1998 poll sponsored by NFWBO and Catalyst, a women's business organization, cited flexibility to balance work and family as their reason for becoming entrepreneurs, and 29% cited the glass ceiling. "Researchers see a tendency in women entrepreneurs to have a combination of economic and social purposes -- they want to make money but also have a positive impact," says Candida Brush, director of research at the Entrepreneurial Management Institute of Boston University. "In men, the goals tend to be to fulfill a market opportunity and be wealthy at a personal level."

Slower growth. Numerous studies that track revenue and employee growth have found that women's businesses tend to grow more slowly than men's. They also tend to be smaller. A 1994 study commissioned by the SBA Office of Advocacy found that on average self-employed women -- sole proprietors and company owners -- earned about half of what self-employed men earned. What's not clear is whether the figures mean that women-owned companies are less profitable or simply smaller on average.

"We hear all the time that women are choosing to keep their businesses smaller," says Patricia Greene, professor of entrepreneurial studies at the University of Missouri at Kansas City. "It's probably for three reasons: So they can manage their family responsibilities better, because they aren't aware of the funding mechanisms available for growth, and because they're leery of giving up control out of concern over what's going to happen to the business then."

Many owners are reluctant to disclose profit figures. However, Radha Chaganti, professor of strategic management at Rider University, in Lawrenceville, N.J., recently studied 360 businesses and found (after controlling for such variables as industry sector and age of the business) that the return on assets for women-owned businesses was the same as for men's.

Less debt. Several studies have found that women entrepreneurs take fewer financial risks and are less likely to finance their companies with debt than men, though that seems to be changing. The share of women entrepreneurs with bank credit increased to 52% in 1998 (up from 46% two years earlier) compared to 57% of men, an NFWBO study showed. Still, only 34% of the women business owners with bank credit had more than $50,000 available; for men, the figure was 58%. Discrimination and the smaller size of women's companies may be factors.

Women certainly have less access to another key source of financing for small companies -- venture capital, or cash for equity. That may reflect their smaller presence in high tech. Last year, VCs handed out about $36 billion in the U.S. alone, but only 5% of VC-backed companies had women CEOs, according to Venture One, an industry research group.

Emphasis on quality. In surveys, more women than men repeatedly rank quality among their top objectives. Says Chaganti: "The women I've surveyed felt they had to compete on quality because they did not have the volume or connections to give them access to a large number of new contacts. Their best approach was to build on the customers they had." The preference for quality may also be a factor in the slower revenue growth of women-owned businesses. "A lot of women prefer to keep businesses at a certain size so they can control the way [they] unfold," says Brush.

Information-gatherers. Several studies suggest that women business owners are more likely than men business owners to seek advice from a variety of sources before making decisions. "They are more likely to be self-education-oriented, and they attend more seminars offered by small-business centers or agencies," says Chaganti. One possible reason: They're more likely to start a business in a field in which they have limited experience.

Flatter structures. "Women are much less focused on hierarchy and much less enamored at being at the top of the pyramid," says NFWBO research director Julie Weeks. Researchers say women are more inclined to describe themselves as the center of a hub rather than the top of a ladder, and their style tends to be more collaborative.

Client groups. A 1998 NFWBO study found that women's businesses are more likely to serve consumers than men's. Women are almost as likely as men to be selling to the federal government and to nonprofits, but are less likely to be selling to other businesses.

By Meg Lundstrom in New York


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