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A RISING TIDE

Stanford University Press

Contents

Preface and Acknowledgments.......................................................................................ix1 Introduction: What's the "Scoop" on Women Entrepreneurs?........................................................12 Laying the Groundwork: What Do We Know About the Financing Strategies of Women-Owned Firms?.....................253 One Size Does Not Fit All.......................................................................................514 New Kid on the Block: The Nascent Firm..........................................................................705 There's No Place Like Home: The Risks and Rewards of a Home-Based Business......................................946 All in the Family: One for All and All for One..................................................................1167 The Race Is to the Swift: Financing High-Growth Firms...........................................................1328 Brave New World: Women and Technology-Based Firms...............................................................1609 Our Piece of the Pie: Financing Minority-Owned Firms............................................................18610 It's a Small World After All: A Global Perspective.............................................................20811 It's a Wrap! What Have We Learned?.............................................................................230References........................................................................................................251Index.............................................................................................................265

Chapter One

What's the "Scoop" on Women Entrepreneurs?

In recent years interest in the role of women's entrepreneurship in providing opportunities for women, economic growth, and jobs in the United States has been expanding. In A Rising Tide: Financing Strategies for Women-Owned Firms, we trace the increase in women's entrepreneurship and explore the financial issues and strategies that are pertinent for entrepreneurial success. We also explore the ways in which the motivations of women entrepreneurs are intertwined with the financial strategies and sources they use. Our findings suggest that women entrepreneurs have complex and distinct motivations and that growth and profits are not always the top priority. Not surprisingly, women entrepreneurs' varied motivations give rise to different types of financial strategies.

In A Rising Tide we build upon the findings of prior research and draw conclusions from data provided by the Kauffman Firm Survey, a longitudinal survey of over 4,000 new firms in the United States. The KFS provides detailed information on both firm and owner characteristics, as well as financing sources and amounts. We also share the experiences and insights of women entrepreneurs in a broad range of industries to illustrate the connections among motivation, the resource endowments of the entrepreneurs, and financial strategies. We take a "life cycle" approach to examining the issues and challenges that the different types of women-owned firms face by starting with nascent and home-based firms and working our way up to growth-oriented and technology-based enterprises. Finally, in each chapter we provide insights into what our findings mean for you as an entrepreneur or an aspiring entrepreneur, as well as recommendations for public policy. It is our hope that our findings will engage and inspire you as they have us.

What Do We Know About Women Entrepreneurs?

Women entrepreneurs have been growing in both number and economic importance in recent years. Table 1.1 provides data from the 2007 Survey of Business Owners conducted by the U.S. Census Bureau. It reveals that in 2007 there were 7.8 million women-owned firms in the United States, generating $1.2 trillion in revenues. This number represented an increase of 20 percent from 2002 to 2007 compared to an increase of 18 percent for all firms, indicating that the number of women-owned firms grew faster than the number of firms overall for that time period. During the same time frame, the growth rate in revenues for women-owned firms grew by 27 percent compared to a growth rate of 33 percent for all firms. Thus, although the number of women-owned firms grew more rapidly, their growth rate in revenues lagged those of firms overall for the five-year period. This same pattern held true for the ten-year period spanning 1997 to 2007. During those years, the number of women-owned firms increased by 44 percent compared to an increase of 30 percent for firms overall. Although women-owned firms also increased their revenues by 46 percent during this period, firms overall saw an increase of 68 percent, suggesting that the firms launched by women tended to be smaller than those started by men.

As shown in Figures 1.1 and 1.2, women are vastly underrepresented in business ownership and business receipts in the United States. Figure 1.1 shows that women represent less than one-third of all firms in each of the survey years, and Figure 1.2 shows that women-owned firms represent only a tiny percentage of total receipts.

Firm Size and Numbers

Despite gains by women-owned firms in both number and revenues, their representation continues to be smaller than might be expected given the percentage of women in the population. Although the percentage of women-owned firms increased from 26.5 to 29 percent from 1997 to 2007, women-owned firms still constitute less than 30 percent of all firms, suggesting both challenges and opportunities for aspiring women entrepreneurs. Table 1.1 also reveals that women-owned firms generated only 4 percent of total firm receipts in 2007, a decline from 1997. This finding reveals that the majority of women-owned firms are very small. Table 1.2 sheds additional light on this issue.

Table 1.2 presents data on only firms that included paid employees in 1997, 2002, and 2007. A comparison of Tables 1.1 and 1.2 reveals that the vast majority of women-owned firms (88 percent in 2007) were sole proprietorships with no paid employees. Further, the number of women-owned firms with paid employees actually declined relative to all firms during the 2002–2007 period. Table 1.2 also shows that the growth rates for women-owned firms in terms of revenues, employment, and payroll lagged behind those of firms overall for both the five-year period of 2002–2007 and the ten-year period of 1997–2007. Table 1.2 provides evidence of the relatively small size of women-owned firms that had employees. In 2007 they accounted for only 3.5 percent of total sales, 6.4 percent of total employment, and 4.5 percent of annual payroll.

Figure 1.3 provides clear evidence of the relatively small size of women-owned firms that had paid employees. In 2007 they accounted for only 16 percent of firms, 3.5 percent of total sales, 6.4 percent of total employment, and 4.5 percent of annual payroll.

Clearly, although women-owned firms have begun to make an impact in terms of numbers, they are still in the early stages of making an economic impact on a larger scale. This is not to suggest, however, that the sole proprietorships or small firms owned by women do not have a significant economic impact on both individual households and local communities. A study...