Why Women-Led Businesses Fare Better Following A Recession
Why is it that women-led businesses fare better following a recession? This is the second in a 5-part series I’m writing in August to help female founders lead their business confidently through the coming economic recession.
In Part 1 of this series, we learned that there’s a lack of good quality information about how women-led businesses are affected by recessions because the media typically ignores or trivialises female entrepreneurship. To find out how women-led businesses fare better after a recession, we need to look at research from the US. (I couldn’t find any for the UK).
In July 2020, the impact investing advisory firm Cornerstone Capital Group published a report which helps to shed light on how the Great Recession of 2007-09 affected women-led businesses. It found that although businesses owned by women or people of colour were more likely to shutter, they helped to stabilize the economy during the subsequent recovery.
Women And Minority Owned Businesses Are Massive Job Creators
It turns out that women and minority owned businesses were massive job creators and stabilizers of the US economy, adding 1.8 million jobs between 2007 and 2012. Meanwhile, companies owned by white men lost 800,000 jobs, and firms owned equally by white men and women lost another 1.6 million jobs over this period. Manufacturing and construction, both sectors with a high concentration of white male owners, were hit particularly hard.
The recovery was largely fuelled by growth in industries such as health care and food services which were in high demand once the economy returned to growth. These small businesses, which tend to have higher minority and women ownership, played an important role in helping pull the economy out of a recession by providing needed products, services, and jobs.
But being in the right industry was not the only reason why businesses owned by women or people of colour were foundational to economic recovery. It turns out that women business owners are more effective leaders and have a larger appetite for growth!
Women Business Owners Outperform Men
The evidence for this assertion comes from research by Fit Small Business which compiled data from the U.S. Census Bureau, Dow Jones, the Harvard Business Review, and 10 other private and public studies to compare female entrepreneurs to their male counterparts. The statistics showed that women business owners outperformed their male counterparts.
1. Women-owned Businesses Generate Higher Revenues
Womenable, a social enterprise firm focused on women’s entrepreneurship, analyzed the growth trends of male- and female-owned companies from 1997-2014. It found that businesses owned by women saw a 72.3% growth whereas male-owned firms grew by 45.1% over the same time period. When it comes to generating profits and growing a company, women do that better than men.
Revenue growth of firms owned by men and women
2. Female-Owned Firms Create More Jobs Than Their Male-Owned Peers
According to the Census Bureau, the number of U.S. employees who work at businesses owned by men grew from 41.05 million to 41.20 million from 2007-2015, a growth rate of 0.37%. Meanwhile, the number of employees at female-owned firms grew from 7.5 million in 2007 to 8.9 million in 2015, a growth rate of 18.39%.
Even though men run more businesses, women-owned companies created 1.24 million more jobs during that eight-year timespan. This is because the number of firms owned by women grew by almost 20% as compared to the growth rate of 4.86% of male-owned firms during the same time period.
3. Women Have a Larger Appetite for Growth
One of the key components of being an entrepreneur is the ability to grow a company. A BizWomen survey of 1,366 business owners revealed that 32% of female-owned businesses are in active expansion mode compared to 27% businesses owned by men. Not only are women more interested in expansion, but they are also keener than men to start new ventures. A Centre for Entrepreneurs study of over 400 entrepreneurs and executives found that close to half of women polled plan to start another business within the next three years, compared to just 18% of men.
What makes women more effective business leaders than men?
In 2012, Harvard Business Review conducted a survey which found that out of 16 leadership competencies, which included problem solving, driving for results, and collaborating with others, women scored higher than men in all but one.
Source: Harvard Business Review
You can see from this survey that women are more likely to take a strategic perspective than men. When it comes to navigating a difficult economic period, companies typically take one of two approaches. They either manage their way out of it or lead their way out of it:
In the approach where business owners manage their way through a difficult period, they typically react to market conditions by making widespread cuts in an attempt to maintain short-term profitability targets. These companies typically cut their marketing budgets leaving sales to do the heavy lifting. After the recession lifts, these companies will often need to rebuild their employee and customer relationships.
In the approach where business owners lead their way out of it, the owner intensifies their company’s focus on the long-term purpose of the firm and makes targeted cuts in areas that are not core to that purpose. These companies typically invest in strengthening their brand and make strategic decisions about marketing. Once the recession lifts, these firms are set for a quick shift into growth mode.
Companies which master the delicate balance between cost-cutting to survive today’s crisis and investment to grow tomorrow typically do well after a downturn. Taking a strategic perspective explains why women-led businesses outperform those led by men following an economic recession.
In the third article in this series, I’m going to look at the evidence in of support of leading through a crisis, rather than taking a more managerial, cost-cutting approach.
Meanwhile, whatever circumstances you find your business in, know that you’re not alone – and that I’m here to support you. An experienced and empathetic business advisor can make a massive difference to your business – as well as to your own sanity – so do consider getting in touch to book a friendly (and free) chat at any time. I’m always happy to talk you through how I could help. For examples of my work, check out my portfolio of case studies.