This article also appeared in Finweek Magazine in their 29-Nov-2012 issue
Looking around the audience at a recent talk on entrepreneurship, I was amazed to see that I was the only female entrepreneur there. The speaker noticed this too, and posed the question, “Why are there so few female entrepreneurs, and more importantly, does it matter?” At the time I didn’t think gender differences were important in the entrepreneurship space. However, further research proved eye-opening.
Is it true that there are fewer female than male entrepreneurs in South Africa?
Only 38% of South Africa’s established businesses are women-owned (FNB 2011 White Paper on Female Entrepreneurship). Despite the potential contribution of women to economic development, South African women remain on the outskirts of the economy, dominating the informal economy. GEM data indicates that male entrepreneurial activity consistently exceeds women’s entrepreneurial activity: men in South Africa are 1.5 to 1.6 times more likely than women to be involved in early stage entrepreneurial ventures.
Why are there so few female entrepreneurs?
It turns out that female entrepreneurs encounter many more obstacles along their entrepreneurial journeys than their male counterparts. What specifically are these obstacles?
1. Gender Stereotypes and Acceptable Male vs. Female Behaviour
A significant barrier is society’s gender stereotype. Entrepreneurship is still seen as a male-dominated arena, and it may be difficult to overcome these traditional views, especially in third world countries.
Although the situation is slowly changing, in western business practices, it is not considered beneficial to show feminine traits. While eastern businesses tend to follow methods focused on mutual respect and understanding, western business practices expect business leaders to be more ruthless, headstrong and less sensitive or respectful, all primarily male traits. And yet, if a woman shows this behaviour, she is often considered aggressive, which has a negative connotation – think Hilary Clinton. The same behaviour in men is regarded as assertiveness, which has a positive connotation – think Obama.
To make matters worse, in some cultures such as the black culture, many men are intimidated by successful, assertive women. In the US, census figures indicate that 42% of successful, single black women have never married, as vs. 25% of the general female population.
2. Limited access to financial resources.
Women often have fewer personal financial assets than men and they control less capital. This means that, for a given opportunity and an equally capable person, women must secure more resources compared to men to seize an entrepreneurial opportunity. Do women have a harder time getting finance than men for the same business opportunity? In Africa, the answer is yes. This is according to Baharul Islam, Chairman and Chief Executive Officer of the South Asia Development Gateway. In a presentation at the 2009 African Economic Conference, he cited inadequate access to formal credit as one of the major challenges facing African women entrepreneurs. In South Africa, gender inequality also has a negative impact in this space: women in business often experience gender discrimination when seeking finance from traditional financial institutions.
Because of these factors, Muhammad Yunus, founder Managing Director of Grameen Bank, felt it was particularly important for the bank to focus on women. In fact in 2004, they represented less than 1% of borrowers from commercial banks. Women have less access to alternatives, such as conventional credit lines and earnings. This means they are more likely to be credit-constrained and they have less power in household decision-making. Lending to women also has significant secondary benefits, including empowerment of a marginalised section of society.
Microfinancing, invented by Yunus, is an innovative solution to address women’s difficulties getting financing. Microfinancing is the term for making small loans to the rural poor without needing collateral. It works on group-based credit: peer-pressure within the group makes the borrowers follow through and conduct their financial affairs with strict discipline. This ensures loans are eventually repaid and allows the borrowers to develop good credit standing. Microfinance also gives women a sense of purpose outside the home, builds friendships among community members, makes women more self-sufficient and enhances self-esteem. Microfinance has helped improve the status of women worldwide and has become very popular in developing economies.
3. Obstacles specific to growing their companies
An issue largely unique to women entrepreneurs is their difficulty achieving growth, especially sales growth. Although there are exceptions, in general women tend to start less ambitious firms. Why is this? It comes back to women often having a hard time getting external resources. It is easier for them to start less ambitious businesses because these can be financed to a greater extent by their own available resources. This also impacts the future growth of the firm. Start-ups with more resources have a greater chance of growing than start-ups with fewer resources. These resources include societal position, human resources and financial resources. The initial investment in the firm is vital for survival and for growth of the firm.
In South Africa it has also been found that women-owned businesses tend to operate primarily in the informal sector and their businesses must grow considerably to enter the mainstream economy. This means that involvement of women in value-adding activities is severely limited, as are their prospects for sustainable growth.
4. Female representation in top tier business
Female representation in the top echelons of business lags far behind men.
In the US, females hold only 14% of executive officer jobs and 16% of directorships in Fortune 500 companies. In US VC-backed firms, female representation is even more dismal: out of the roughly 168,000 executives at companies in VentureSource’s 2012 research (discussed earlier), women made up less than 7%. And women still earn only 77 cents on the dollar to men. This is despite the following stats in support of women in business:
- women own 28% of all businesses,
- women make up 51% of the population,
- in 2010, the total US workforce comprised 47% women,
- the level of women who are sole breadwinners of US families reached a record high,
- women make up over 40% of all US entrepreneurs, and
- US women tend to be better educated than men, with women in the US earning more advanced degrees than men in 2010.
The situation is no better in Europe’s biggest companies. According to 2012 stats, only 15% of non-executive board members and only 9% of executive board members are women. The situation has not improved significantly: since 2003, the number of women on boards has increased by a mere 0.6 percentage points on average per year.
Are we seeing similar trends in South Africa? The evidence is mixed. Women make up 52% of our population and over 50% of the higher education workforce. However, the Businesswomen’s Association (BWA) Women in Leadership Census showed that women accounted for only 16% of all directors in South Africa in 2011. This is up from 7% in 2004, so there seems to be a slight increasing trend. In 2011, a higher percentage of women in South Africa held director- and executive manager jobs than in the US, Canada, the UK, Australia and New Zealand.
5. Other obstacles faced by women entrepreneurs
According to Baharul Islam of the South Asia Development Gateway, other obstacles facing African women entrepreneurs include vulnerability to adverse effects of trade reform, restraints with regards to assets such as land, lack of information to exploit opportunities and poor mobilisation of women entrepreneurs.
But it doesn’t end there. According to SEDA (Small Enterprise Development Agency), other issues include negative prevailing socio-cultural attitudes, and poor support specifically for women entrepreneurs. Basic life skills and lack of mentorship are also particular problem areas in South Africa. The success of women-owned businesses is affected by barriers ranging from poor basic life skills (self-confidence, assertiveness, self-motivation, achievement orientation, reliability and communication skills), to the absence of mentorship or training in marketing and sales, and lack of marketing.
So although female entrepreneurship and women business networks are steadily growing, women entrepreneurs come up against a number of unique, complex challenges which their male counterparts do not.
Does it matter that there are so few female entrepreneurs?
Female entrepreneurs make up roughly 1/3 of all entrepreneurs worldwide. But why is female entrepreneurship important?
This question may be partly answered by looking at Bangladesh’s Grameen Bank. An overwhelming 98% of its loans are given to women because studies and experience have shown that women are better at fighting poverty than men. Why? Because women are more likely to use the profits from their businesses to send their children to school, to improve their families’ living conditions and nutrition, and to expand their businesses. By using their profits to better the lives for their children, women help stop the generational cycle of poverty.
Also, a growing number of studies, including one by the Credit Suisse Research Institute, show that companies with more women on their boards perform better. The latest research, carried out in 2012 by Dow Jones (NWSA) VentureSource, found that successful start-ups have more women in senior positions than unsuccessful ones. VentureSource analysed over 20,000 venture-backed companies in the US between 1997 and 2011. The successful companies had more than twice as many women in top-tier positions such as C-suite managers, vice presidents and board members, than their unsuccessful counterparts (7.1% compared to 3.1%). So, the benefits of having senior women in the business are clear. Having more women in top jobs can create a more productive and innovative working environment and better company performance overall. This is mainly due to a more diverse and collective mind-set which incorporates a wider range of viewpoints and so reaches more balanced decisions.
A good example of a woman entrepreneur who brought fresh thinking to an all-male board in a male-dominated industry, is Jacqueline Gold, chief executive of Anne Summers and one of the UK’s most successful business women. In the 1970s Gold was working in her father’s chain of seedy sex shops. “It wasn’t a very nice atmosphere to work in,” Gold said. “It was all men, it was the sex industry as we all perceive it to be.” By chance she went to a Tupperware party in London in 1981, where someone suggested her father’s company allow women to get together in their homes to buy sexy lingerie and the latest sex toys. This was exactly the outlet she was craving, so she seized the opportunity. She tried organising a few parties before pitching the concept to the rather unwilling, all-male board. However, the idea didn’t sit well with their mental models about women and sex, so they dismissed it. One board member even asked her, “Well, women aren’t even interested in sex, so why would this idea work?”. She squeezed the idea through using her father’s casting vote, and it became the hugely successful Ann Summers Party Plan – giving women an excuse to get together and talk about sex, while deftly circumventing the laws limiting the presentation of sex toys in UK shops. This simple brainwave built Ann Summers from a struggling chain of 4 shops in the 1970s to a multimillion-pound organisation with 7,500 party organisers, more than 150 stores and revenue of over £150 million.
Furthermore, women’s economic involvement adds positively to economic growth. The World Economic Forum published an annual Gender Gap Report, which measures the equality of men and women in four areas: access to education, health survivability, economic participation and political participation. Based on this analysis, where the gap is smallest – where men and women are more equal – countries are more economically competitive and prosperous. World Bank research showed that gender inequality restricts economic growth, and when gender-based obstacles are lifted, economies can better flourish. For this reason the World Bank focuses on gender equality as smart economics. Also, research done by Goldman Sachs shows women-run small and medium-sized businesses accelerate growth.
Understanding the challenges, the relative shortage and the importance of women entrepreneurs worldwide, especially in male-dominated industries like IT, there is a strong business case for giving support to female entrepreneurs.
What business support is available for female entrepreneurs in South Africa?
In South Africa, the number of women entrepreneurship support mechanisms is growing.
For example, the IDC (Industrial Development Corporation) has established the Women Entrepreneurial Fund (WEF) for the DTI (Department of Trade and Industry). This fund applies to start-ups or expanding businesses, provided:
- women have a minimum stake of at least 50% or more,
- female shareholders have a total net asset base of less than R15 million, and
- women are in operations and management roles in the business.
Entrepreneurial women can get a Real After Tax Internal Rate of Return (RATIRR) of 3% for this financing. Financing can be in the form of equity, quasi-equity or loans. In addition, business support takes the form of a partial grant, where the IDC helps with business plans, training and mentorship. Through these mechanisms the chances of success of such businesses are improved, says Meryl Mamathuba, head of Development Funds Department at the IDC. The WEF aims to increase access to entrepreneurial finance for marginalised groups in South Africa, since population group and gender are still key factors hampering the ability of entrepreneurs to get finance. The fund, which falls under the R1 billion IDC Transformation and Entrepreneurship Scheme (TES), has set aside R400 million for women-owned businesses until 2015.
SEDA’s work in the area of women entrepreneurship was particularly noteworthy. SEDA’s Special Projects and Programmes Unit (SPP) of the DTI has a directive which places special emphasis on projects for women. SEDA plays an important role in the following key government interventions that have been recommended to help promote women-owned businesses:
- Entrepreneurial capacity building and training for women, especially on the factors that improve sustainability.
- Women Entrepreneurs call centre that gives basic telephonic support to women when starting and running businesses.
- Women Enterprise Programmes e.g. Women-owned Business Incentive schemes, mentorship programmes, etc.
- Promote private sector procurement for women, plus procurement training to help women entrepreneurs understand the entry criteria when applying for work or procuring contracts.
- Export and Import Training programmes for South African female entrepreneurs to help them grow their businesses into foreign markets.
The SEDA’s Women-Owned Enterprise Development Information Booklet is very helpful, with numerous examples of support initiatives for women entrepreneurs in South Africa or in Africa as a whole, and across a range of industries. These include the national Women at Work organisation, Business Partner’s Women’s Fund, Women’s Development Business (WDB), Women in IT, the Nozala Trust, Deloitte’s Succeed Campaign, NEPAD (the New Partnership for Africa’s Development) Spanish Fund for African Women Empowerment, the DTI’s Technology for Women in Business Programme, the Isivande Women’s Fund, plus many more.
In South Africa the number of female-only networks is also growing, including the BWA and Women in Finance. These allow women to connect with other women entrepreneurs, and to share issues common to women in business.
What are other countries doing to support women entrepreneurs?
In India, income tax rules provide a higher tax exemption limit for women, leaving more money in their hands. Some banks like Dena Bank of India have special incentives for women entrepreneurs such as a 5% reduction in the interest rate, no processing fee, easy payment options and no penalty for repayment.
In the US, government and big business have “setaside” programmes for female- and minority-owned small businesses. In other words, some of their work contracts are specifically set aside for these diversity suppliers. The goal is to boost diversity in business ownership. These “setaside” programmes put women-owned businesses in a stronger position to bid for work for major corporations and government agencies, despite bidding against bigger competitors with more staff. Women business owners can apply to have their company certified as a woman-owned small business (WOSB) if 51% of the business is owned by at least one woman. Also, the woman/women must take part in the business’ operations, and must have expertise in the activities of the business. WOSB certification ensures that a women-owned business qualifies for funding opportunities earmarked for female business owners.
These are initiatives which we could look at adopting in South Africa as well.
I started out being unaware of women support initiatives in South Africa. Having done this research, it was an eye-opener to discover just how many there are on offer in South Africa. We’re definitely moving in the right direction. However, what seems to be missing is more effective marketing, in order to make women countrywide aware of these programmes. We know the old adage “Build a website and they will come” is false. In the same way, “Provide a support programme and they will use it” also doesn’t hold true. Without awareness, all the support programmes are wasted. However, with solid marketing behind this, these programmes could have a hugely positive impact on growth of female entrepreneurship and the development of more sustainable women-owned businesses in our country.