Women Are Owning More and More Small Businesses

But don't celebrate just yet.

A fruit and vegetable stall owner uses a calculator to work out prices for a customer at a small market in central Beijing, China July 7, 2011.  (David Gray / Reuters)

Owning your own business is often touted as the ultimate coup in the working world. You set your own hours, pursue projects you're interested in, and maybe work in your pajamas. Obvious challenges aside, it sounds like a pretty nice gig. Such jobs are largely enjoyed by men, who make up an estimated 71 percent of business owners in the U.S. But that might slowly be changing.

A report from the Institute of Women’s Policy Research (IWPR) shows that women are steadily increasing their presence in the world of small-business ownership. About 29 percent of America's business owners are women, that’s up from 26 percent in 1997. The number of women-owned firms has grown 68 percent since 2007, compared with 47 percent for all businesses.

The progress for minority women has been particularly swift, with business ownership skyrocketing by 265 percent since 1997, the report says. And minorities now make up one in three female-owned businesses, up from only one in six less than two decades ago.

Why have minority women had such an apparent breakthrough in the world of entrepreneurship? It’s partially a numbers game—in 1997 minority women represented such a small number of owners—less than one million—that even moderate growth would have likely helped them outpace the growth of the broader field of women-owners. But Jessica Milli, a senior research associate at IWPR, says that the characteristics of minority women who opt to open businesses may also play a role in the runaway growth.

“Women of color are more likely to be younger when they first found their business,” says Milli. “Given today’s climate—when a lot of purchasing occurs online and social-media usage can really make or break a business—this can mean that those businesses might have a competitive advantage. Their owners are more in touch with their customers.” Growth has been particularly rapid among black and Hispanic women, who now make up about 14 and 11 percent of total women-owned businesses, respectively. Milli says that increasing educational attainment by these groups also likely plays a role in their ability, and desire, to choose entrepreneurship instead of other paths.

The growing prevalence of female entrepreneurs of all races didn’t happen by accident. Instead, it may be proof that legislation targeted at women and minority small-business owners are having an effect. The Small Business Jobs Act of 2010 and the Women’s Equity in Contracting Act, both of which seek to help businesses headed up by women win more government contracts, are just two examples of legislation that have likely helped spur growth says Milli. “Things like that really aim to put women-owned businesses and minority-owned businesses at a competitive advantage,” she says. “It restricts competition, which has really helped to boost revenues and help more businesses get into the industry.”

But such policies can’t, and haven't, solved all the challenges inherent to being a female business owner. Women business owners still face a significant wage gap and continually have smaller amounts of start-up capital than their male peers.

For one, women-owned businesses make only about 25 cents for every dollar their male counterparts earn. That’s a much larger gap than the one that exists in the overall labor market, where the median earnings of women were about 83 percent of men's, according to data from the Economic Policy Institute.

The revenue gap varies by industry. In areas like transportation and warehousing women’s businesses pull in about 84 cents on the dollar while those in industries such as retail earn only 15 cents for every dollar male-owned businesses in the same field earn. According to Milli, there could be a few reasons that earnings for women-business owners seem to be so out of whack. "Women-owned business are far less likely to have any start-up capital, and when they do they have much less than men-owned business," she says. In addition, women who own businesses may find themselves in a sort of vicious cycle when it comes to funding. Some women report a difficult time obtaining loans, and when they do succeed, sometimes the terms are less favorable. Milli says that because women's businesses are often smaller and concentrated in areas that bring in less income than their male counterparts, that might make them less attractive candidates to banks, who in turn give them smaller loans or more stringent terms.

That makes it even more critical that women break into fields that have long been populated almost entirely by men. That does seem to be happening. “The highest amount of growth in the number of women-owned businesses were actually very male dominated industries,” says Milli. Though still small in number, women are making strides when it comes to business ownership in areas like utilities and mining, which have typically dominated by male firms. In recent years these industries have seen rates of women-owned business grow by 82 and 39 percent, respectively.

And though challenges like access to capital and wage equality persist, having more women entrepreneurs may be helpful in and of itself when it comes to boosting the successfulness of female owners. Researchers who studied the effect of peer relationships on female entrepreneurs in India found that women who received business training with a friend were more likely to take out business loans, and more likely to report higher business activity and household income than peers who received training without a peer. And though equality on all fronts is still a long way off, the field of entrepreneurship is "moving toward equality in terms of representation, which is a great thing," Milli says. "Overall, the picture is optimistic."