Start-ups? It's a sex thing

Why don’t women seize the same business start-up opportunities as men? asks Michelle Perry

By 2006 the British Government hopes to have increased the number of women-owned small businesses to 20%, up from 15%. With one of the lowest proportions of women working for themselves in the developed world, ministers have their work cut out.

Over half the UK population of working age are women, but they remain under-represented in business, particularly in business ownership. The latest studies show that although female-owned businesses have grown, barriers remain. Research into the best ways to further engage women in business has unveiled some truths about what is holding back women from owning their own businesses.

A glance at the evidence doesn’t add up to the status quo on female-owned enterprises: women are innovative, resourceful, good with money and industrious. But men are still twice as likely as women to set up in business.

The statistical gaps between the genders raises more questions than answers. When you consider that women contribute between £50bn to £70bn annually, it makes good sense for ministers to foster female entrepreneurship.

It’s not just the obvious financial gains for which women-owned business should be encouraged. Women often set up their own business after a period of unemployment, shifting a lot of people out of the unemployment figures that governments the world over always prefer reduced. Around one in five women come into self employment from unemployment, compared to around one in 15 for men.

Then there are the jobs they create. Recent statistics show every 100 businesses started up leads to the creation of 260 jobs in the economy.

Women-owned businesses in the US employ around 19m people. That’s a significant one-seventh of those in employment. Indeed, there would be an extra 750,000 businesses in the UK if we followed the US model, explains Stephen Alambritis of the Federation of Small Businesses.

So why aren’t more women setting up in business? Current lifestyle trends suggest that self employment would suit women’s lives much better than full-time employment. According to research by the Government’s Small Business Service, 54% of women start a business so they can choose what hours they work, compared to only 35% of men, while 21% of women state family commitments as a reason for becoming self employed compared to only 2% of men.

Women want to have the independence and responsibility that comes with owning a business. Their experience of childcare enhances their ability to juggle tasks - a vital skill in running your own business.

Sue Botterill (“your average Midlands mum who loves her family and would rather spend time with them than anything else”) gave up work around 10 years ago when her first child was born. She now has three under the age of 10.

Despite enjoying motherhood, Botterill decided she needed to contribute to the family income. She came up with a plan to develop free local magazines. The money comes through local businesses buying advertising space.

On average she spends about 10 hours a week on her business - www.my-mag-uk.com - and now earns a substantial income without a huge initial investment, and it leaves her enough time for her family as well.

But it’s not always so easy. A growing body of research indicates that one of the main, and probably most important, barriers to setting up in business for women is access to finance.

Key findings in research carried out by ACCA among small and medium sized male and female business owners in the UK show women own smaller businesses in terms of employment and turnover than men. Empirical evidence hints that there’s a direct link with this finding and women’s access to finance.

Higher margins

Perhaps more worryingly, research by the Warwick Business School in the UK found that the majority of women in business pay significantly higher margins on term loans than male-owned businesses - up to 1% more than men.

ACCA research found that women spent less time engaged in researching finance sources and started up with lower investment. They are also more likely to use credit card debt as a source of start-up capital.

Victoria Jonson, senior policy adviser in ACCA’s Public Policy Unit, says: “Our research showed that there’s no indication of market failure, it’s just that women ask for less. When you unpick the facts you see that women have less personal finances than men, and so they tend to simply match the amounts that they own.”

But there are suggestions that it could be the way women go about starting a business that doesn’t fit with the lenders’ criteria.

Women’s business ideas are often borne of them having to juggle myriad other responsibilities, so are usually based around being able to work from home. This also affects the size of business they run.

“Women are twice as likely as men to set up from home and they have caring responsibilities, which then affects the size of business they then go on to grow,” explains Jonson.

Interestingly, the study found that women were less likely than men to seek advice on access to finance. Jonson says: “This throws up lots of issues for banks, accountants and government. It requires a different policy approach.

“This could be a way to deal with the problem by ensuring access to accountants for women’s businesses.”

She added that banks say that women were good customers, “but a plan backed by an accountant fitted better in to their requirements on due diligence”.

There are, however, many success stories of female entrepreneurs who have managed to grow their businesses into globally recognised brands. Take Linda Bennett, shoe designer and founder of LK Bennett, clothes designer Donna Karan, and Michelle Mone, inventor of the Ultimo gel-filled bra.

Over the years, independent womens’ business networks have spawned around the country thanks to successful businesswomen who have wanted to share their experiences to help others. But government help remains limited. Seemingly, however, the tide is turning. In November, the UK celebrated it’s first National Women in Enterprise Day, created by the Government to draw attention to the issue.

Prowess - an umbrella body which brings together organisations to support women in business, aims to raise awareness, share best practice, advocacy and information - is a helpful resource.

New research published by Prowess found that the traditional language of enterprise fails to appeal to women. The organisation said the findings were significant for banks and other funders in creating effective promotional materials and support packages for women. Getting the language right is crucial if the Government’s desire to encourage more women start-ups is to be successful.

Erika Watson, executive director of Prowess, says: “The Government has shown its commitment to women’s enterprise by increasing and improving the type of business support available, but in order to grab the female interest we must get the marketing and communications right. Our research has brought to light the terms and phrases that women find most appealing, the type of business support that they want, and the places that they would go to find that support.”

Other than a significantly higher margin on finance repayments, research has shown there are few other constraints. But the issue must be resolved.

“All women have the same aspirations for growth and challenges. We have to get better at encouraging women into business, like the Americans. The Government is thinking about setting up a woman’s business council, but it’s about talking to the City,” says Alambritis.

Sadly, many prejudices remain. Successful female entrepreneurs are doing a lot to banish such foolish discriminations, but more needs to be done, particularly in the area of communicating what finance options are available. In the long term everyone wins from sustainable, profitable and well-run businesses.

Michelle Perry is associate editor of Finance Week.