Conditions for high-potential female entrepreneurship

Female entrepreneurial activity is an important phenomenon around the globe

One-third of the world’s entrepreneurs are women, although participation rates vary substantially. For example, male and female entrepreneurial activity is at near parity in Africa, but there is a vast gender gap in the Middle East and Asia [2]. Most female entrepreneurs have lower levels of initial financial capital than do men, and that capital is more likely to come from informal sources such as their own savings, or loans and gifts from family and friends, as opposed to bank, business angel, and venture capital financing. Moreover, women tend to be less concerned with expanding their firms and are over-represented in service industries [3]. Although female entrepreneurship is linked to economic growth [4], there are many different types of female entrepreneurial activity. This paper is concerned with high-potential female entrepreneurship—business ventures by women that have the potential to be high-growth, export-oriented, and innovative and that have the strongest prospects of contributing to economic growth and development.

Need to focus on high-potential female entrepreneurs

For policymakers and entrepreneurs alike, one of the most promising types of female entrepreneurial activities is high-potential entrepreneurship [5]. These female-led ventures contribute substantially to local and national economic development as well as to the women’s own economic welfare [5]. The women who start these ventures also serve as role models for potential female entrepreneurs.

Several examples of high-potential female entrepreneurs can give an idea of the range of these activities. Victoria Wills of the UK started NuBeginnings, a weight-loss bootcamp with physical locations in the UK and France, and more than 30 full- and part-time employees. Anne Wojcicki is the co-founder and chief executive officer of 23andme, a personal genomics and human genome research company that has received more than $270 million in venture capital financing. Weili Dai is the co-founder and president of Marvell Technology Group, one of the world’s top semiconductor firms, which is publicly traded and employs more than 7,000 people. Sarah Blakely invested her life savings of $5,000 to start Spanx, a woman’s undergarment company that has $250 million in annual revenues with 20% net profit margins. And Amanda Elam co-founded Galaxy Diagnostics, a company that developed an innovative test for Bartonella disease and that has more than 700 customers in ten countries. All five of these women’s businesses are fast-growing and adding value to their local and national ecosystems, as well as directly to their customers.

Conditions that support entrepreneurs vary by gender

There is growing awareness among both entrepreneurs and policymakers that many of the support mechanisms for entrepreneurship, including high-potential ventures, are not gender-blind [6], [7], [8], [9], [10]. Supporting female entrepreneurs requires attention to specific factors that are important to the development of women’s enterprises. Research in this area generally describes three main components: the entrepreneurial environment, ecosystem, and aspirations.

With respect to the entrepreneurial environment, there is substantial evidence of a positive association between the share of the population that perceives that entrepreneurial opportunities exist and the rate of company start-ups [11]. Women who believe that they possess the skills needed to start a business are more likely to start one [2], [11]. However, women perceive opportunities differently than men do, and they perceive their risk environment differently than men do too [3]. Fear of failure is a major obstacle to women starting a business [2], [3], [14]. Female entrepreneurs tend to be more highly educated than their male counterparts [2], [3]. Furthermore, women who start new ventures are more likely to possess strong networks to other entrepreneurs [11] and to potential financiers [2], [3]. Also associated with higher rates of female start-up activity are positive perceptions about female leaders and the presence of a wide array of sociocultural supports, such as access to childcare [7], [9].

Research on general entrepreneurial ecosystems suggests that higher-quality businesses results when entrepreneurs are motivated by opportunity rather than necessity [11]. Countries that restrict freedom for women have lower female labor market participation, including lower rates of female entrepreneurship [6], [7], [9]. Entrepreneurs who start high-growth businesses tend to be highly educated, while support and training for these founders of small businesses can strengthen skill development [12]. Innovation is usually associated with entrepreneurs’ active management of resources, including technology [12]. Entrepreneurial activity is stimulated by the presence of technology sectors and entrepreneurial role models [11]. A final consideration for ecosystems is that new business entry is thwarted by a high degree of monopolization of markets [13].

The third factor that is important to the development of women’s enterprises is entrepreneurial aspirations, which refers to current and future evaluations of growth and technology. New ventures frequently employ product innovations, and spillovers of technology knowledge can enable entrepreneurship [11]. There is also a link between the systematic development and use of new technology and overall entrepreneurial activity [11]. International ventures are more likely to grow than domestic ventures—and are more likely to grow faster [12]. A final consideration is the importance of access to first-tier and third-tier financing.

The Female Entrepreneurship Index

Comparative data are now publicly available that make it possible to examine conditions for female entrepreneurship across countries systematically. These cross-country data can be used to identify best practices for government programs designed to support high-potential entrepreneurs [10].

Since 2013, the Global Entrepreneurship and Development Institute has prepared an annual Female Entrepreneurship Index (FEI) that measures how favorable conditions are for high-potential female entrepreneurs. The index is grounded in the research described above and offers a comprehensive identification and analysis of conditions for female entrepreneurship, focusing on each country’s strengths and weaknesses. The most recent index, for 2015, covers 77 countries and includes 33 indicators as some of the 30 factors have more than one indicator, both individual and institutional. These indicators are identified under 15 pillars, which then roll up into three sub-indices, as shown in Figure 1. The data are publicly available from Eurobarometer, Global Entrepreneurship Monitor, the OECD, the UN World Development Programme, the World Bank, and other sources. Prior to development of the FEI, there was no substantive index of high-potential female entrepreneurship, although there were cross-country datasets of female entrepreneurship as measured, for example, by self-employment.

Occupational crowding by gender

Occupational crowding refers to whether sectors of the economy are dominated by a single gender, rather than balanced between genders. Dominance in a sector can benefit certain sub-groups by reducing competition for the most desirable occupations when prevailing gender ratios discourage members of other genders groups from entering the sector. Around the world, women compete in fewer sectors than men. For example, among OECD countries, women are over-represented in 11 occupational groups and under-represented in 15: 50% of women work in 11 or fewer occupational groups, while 50% of men work in 20 or more occupational groups [13].

To estimate the effects of occupational crowding, sector divisions are standardized across countries using gender-disaggregated data. A ratio between 4:6 and 6:4 is considered balanced, and only sectors that employ at least 1% of the total labor force are included. Figure 3 depicts occupational crowding by country. As shown, the countries with the most balanced distribution across sectors are the UK, Sweden, Brazil, France, and the US.

Occupational crowding leads to gender pay gaps because women are more likely than men to work in occupations that have lower pay [13]. Female entrepreneurs who cross over to male-dominated sectors make approximately the same income as male entrepreneurs in those sectors, which is substantially more than female entrepreneurs in other sectors.