Sunday, November 10, 2019

The Trillion-Dollar Opportunity in Supporting Female Entrepreneurs


There is much discussion and debate about how to support female entrepreneurs — and rightly so. Currently, women-led businesses are less likely to survive, despite evidence that their startups are often highly successful. New analysis by Boston Consulting Group (BCG) shows that if women and men around the world participated equally as entrepreneurs, global GDP could ultimately rise by approximately 3% to 6%, boosting the global economy by $2.5 trillion to $5 trillion.

So how do we support female entrepreneurs? The focus is often on improving access to credit (financial capital) or providing training to help women build new skills (human capital) — two areas critical for improving the success of women-led businesses. However, another key factor in the success of these businesses tends to be overlooked: access to networks.

Working with public, private, and social sector clients around the world, we have seen first-hand how potent such networks can be. And we have also come to understand that these supportive mechanisms are in short supply.

The good news is that action in all sectors can address this gap.

The Gender Gap in Entrepreneurship

To better understand the entrepreneurial gender gap we analyzed 2014-2016 data from the Global Entrepreneurship Monitor (GEM), breaking down entrepreneurship and business sustainability rates by gender and across 100 countries. Among the findings:

  • Across all six global regions, the percentage of working-age men who start a new business exceeds the corresponding percentage of working-age women who do by roughly 4 to 6 percentage points.
  • Four countries — Vietnam, Mexico, Indonesia, and the Philippines — have managed to buck the global norm; more women than men launched new businesses in these countries in 2016.
  • In 50 of the 100 countries studied, the gender gap in founding startups (the percent of men versus women who start a new business) narrowed from 2014 through 2016, with the biggest gains occurring in Turkey, South Korea, and Slovakia.
  • In 40 countries, however — most notably in Switzerland, Uruguay, and South Africa — the gender startup gap is widening.

Although the gender gap in startup activity is fairly consistent across most countries, the gap in long-term business success varies more widely. In all regions except North America, women-led companies have lower sustainability levels than companies led by men. In the Middle East and North Africa, for example, women’s businesses are about 50% as likely as men’s to remain in operation 3.5 years after creation, while in Latin America, the women’s businesses are 82% as likely.

Drivers of the Gender Gap

Our research indicates that there are many reasons for these deficits, including differences in access to financial support. According to a BCG analysis of 2018 data from MassChallenge, a US-based global network of accelerators, investments in companies founded or cofounded by women averaged $935,000, which is less than half the average of $2.1 million invested in companies founded by male entrepreneurs. This disparity exists despite the fact that startups founded and cofounded by women actually performed better over time, generating 10% higher cumulative revenue over a five-year period: $730,000 for women compared with $662,000 for men.

This funding challenge is well documented, but our work also identified another, underappreciated challenge — women’s relatively limited access to “social capital” in the form of robust support networks.

Again and again we find that networks are a critical factor for small business success. In low- and middle-income countries, for example, we studied how knowing at least one other entrepreneur (a proxy for entrepreneurial networks) impacted women-led businesses. We found that stronger and broader networks are linked to smaller gender gaps in business sustainability and improved access to a variety of funding sources. Research by other groups, including the Asia Foundation, has found that peer-to-peer networks encourage women to set higher aspirations for their businesses, plan for growth, and embrace innovation.

Building a Better Network

Large corporations can play a big role in cultivating networks. In many parts of the world, women-led small businesses are a significant element in global supply chains, whether as distributors, retailers, or suppliers. Companies can foster networks that help those female entrepreneurs gain insight and advice on everything from how to finance their operations to how to manage inventory. Consumer-packaged goods, for example, can partner with non-profits, trade associations, or local chambers of commerce, to bring together women who run small shops that distribute the company’s products.

Supporting women-led businesses in this way is good business. If they do it well, companies can build a more diverse and reliable supply chain. BCG research has found this is one of many opportunities that companies have to advance societal goals while boosting returns for shareholders.

All organizations that support female entrepreneurs — including companies, international donor groups and governments — can magnify their impact by creating and building out networks for women. In our experience, the best networks are built on the principles of intent, inclusion, and interaction:

Intent: From the start, a network must have a clearly defined purpose. Networks should be much more than a glorified Rolodex. What can women gain by joining the network? Will they get access to human and financial capital, as well as social capital? How can the network help women achieve tangible business goals? Endeavor, for example, has a clear mission with its mentor and investor network to select and mentor high-impact entrepreneurs from around the world and accelerate the growth of their ventures, providing business advice and better access to financial capital. (Full disclosure: BCG has supported, and continues to partner with, Endeavor.)

Inclusion: Next, choose participants carefully. The best networks have a highly dedicated founder, whether that is an individual, an NGO, a corporation, or another organization with a long-term interest and presence in the community. They also have an active membership, and a diverse membership base, including a mix of new entrepreneurs and more established business owners, ideally with varied cultural backgrounds. To drive engagement and commitment, network founders can consider charging membership fees, instituting mandatory attendance requirements, and requiring interviews or references for new members.

Interaction: Structure the network to facilitate both formal and informal interactions. Formal training has its place, but informal, peer-to-peer interactions are crucial to building trust and ensuring that the network stays relevant over time. Online platforms can be critical to success in this area. Nigeria’s Cherie Blair Foundation for Women, for example, has formal mentoring programs, but it also encourages informal relationships, idea exchanges, and collaboration through its online forum which members and alumni can access on demand, whenever they have an internet connection.

It is no exaggeration to say that female entrepreneurs have the power to change the world. Closing the gender gap in entrepreneurship and fueling the growth of women-owned enterprises will unleash new ideas, services, and products into markets around the world. In order for that to happen, we need to ensure women have access to all forms of capital, particularly social capital in the form of powerful networks.

Shalini Unnikrishnan is the Global Lead for Societal Impact in the Consumer and Social Impact practices at Boston Consulting Group.

Roy Hanna is a principal at Boston Consulting Group’s Philadelphia office and is an expert on large-scale change and social impact.

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