Why Women Rule The latest numbers show that they are starting more new businesses than men and growing them faster. What's going on?
(FORTUNE Small Business) – Let's say you're reading this while relaxing poolside in Las Vegas (lucky you). There's a good chance that whatever you're lounging on was made by Debbi Somers's company. As the name says, Somers Convention Furniture Rental rents chairs, tables, and sofas to hotels hosting huge trade shows. In the '90s Debbi Somers built it into a multimillion-dollar enterprise, with a 57,000-square-foot warehouse five minutes from the Strip and a fleet of trucks that includes seven 48-foot semis. Then, after 9/11, the bottom fell out of the convention business. "So I spent two years trying to pursue 'diversity' contracts, but nothing happened--not even with one major hotel here that has a reputation for hiring more female contractors than anyone else," says Somers, 50. "I'm government-certified as a woman-owned business, but after all the paperwork, I haven't gotten one single bit of business from it."
Instead, although her husband and friends urged her to muddle through the recession by shrinking the company, Somers started a new division, designing and manufacturing custom furniture for pool areas and terraces. (Her latest project: tangerine chaise lounges and curved modular seating around the pool at the Treasure Island casino.) Launched in June 2003, the division is growing like mad and now accounts for 50% of the firm's revenues. "If I had cut back and laid people off, I'd probably still be doing okay now," she says. "But who wants to do just okay?"
By almost any measure, businesses owned by women are doing way better than okay. A new study by the Center for Women's Business Research, a nonprofit research group in Washington, D.C., says that women now own a 50% or greater stake in 48% of privately held U.S. companies, up from 44% in 1997. Women start 424 new enterprises every day, more than twice as many as men do. And those businesses are taking off:
-- The study says that employment at woman-owned firms has risen 24% over the past seven years, twice the 12% rate for private companies overall.
-- Revenues in the same period climbed at an average annual rate of 5.6%, vs. 4.8% for all firms.
-- Last year the FSB 100 (see page 61) listed six companies that were founded and run by women or whose chairman, CEO, president, or CFO were female. This year there are 14.
-- The Women Presidents Organization, an association of female entrepreneurs whose firms average about $10 million in annual revenues and 80 employees, recently surveyed its members and found that 75% say their businesses are growing, 70% plan to hire new employees in the next six months, and 71% expect to spend more than ever on technology, office space, equipment, and new marketing campaigns.
Why the surge in female entrepreneurship? Women have always started businesses, of course, but the pace has picked up lately because women are better educated and have more corporate experience than before. For instance, they now hold 45% of all professional degrees, up from 4% in 1965. That's another trend that looks likely to continue: Women enrolled in college now outnumber men. As for experience, the Center for Women's Business Research reports that 65% of the women who have started businesses in the past decade learned the ropes as managers in big corporations. The squeaky-tight job market of the past couple of years has led lots of big companies to do away with "family friendly" policies such as flexible schedules, and the center's report says that nearly half (46%) of new female business owners fled corporate America for the freedom to set their own hours. Another 23% left out of frustration at limited opportunities for promotion. Says Julia Klein, 42, who owns a wholesale distribution company, C.H. Briggs Hardware, in Reading, Pa.: "The way lots of women think about this is, Instead of complaining about the 'glass ceiling,' I'm just going to build my own house."
Of course, plenty of women start companies for the same reasons men do. The center's research shows that roughly one-fourth of female business owners simply saw a potentially lucrative market niche going begging, as Nina McLemore did. A former executive at May Department Stores and Liz Claiborne Accessories, with an MBA from Columbia, McLemore launched the New York City clothing company that bears her name in March 2003. "I kept hearing executive and professional women say that they had a terrible time finding the right clothes," says McLemore, 59. "The stuff you see in fashion magazines is a joke. So here you had this large group of successful baby-boom-generation women, investment bankers and lawyers with lots of disposable income, and no one in the industry was focused on designing anything they could wear to the office. I decided to do something about that." She designed a line of clothing made with "unusual fabrics that a larger company wouldn't use, in simple styles that can be dressed up or down." Her customers seem pleased. The company racked up $1.5 million in revenues in its first year and has gone from one employee--McLemore--to 13.
Once launched, why are women's businesses growing faster than men's? Ask a dozen female entrepreneurs, and you'll get 12 theories. "I think women have a natural advantage in tough economic times such as we've seen in the past two or three years," says Margaret Smith. "We're tenacious." A lawyer, Smith, 58, ditched her practice eight years ago and bought a kitchen-accessories and housewares store called Domus Contempo in Los Gatos, Calif. She has since added two more stores, in Pleasanton and Palo Alto. Before that, Smith had put herself through college and law school at night while working full-time and raising two sons as a single mom. So what's a little recession now and then?
Thomas J. Stanley, author of a new book called Millionaire Women Next Door: The Many Journeys of Successful American Businesswomen, thinks Smith has a point. Having studied 1,165 self-made female millionaires over a three-year span, he says, "Their defining characteristic is perseverance. Women have had to work harder than men. They're also more goal-oriented, more fastidious budgeters, and more frugal."
Helen Hodges, 55, who owns a Houston environmental consulting company called Separations Systems Consultants that has grown fourfold since 1989, thinks technology has helped level the playing field for women. "Business now is so much more global, and the Internet has opened up the world to such a degree, you really don't need to be in the 'old boys' club' anymore to succeed," she says. "It changes everything. People who are skilled at building new relationships--and that includes most women--naturally have an edge."
Relationship building comes up again and again when women describe their success. Now that woman-owned businesses are so numerous and so robust, female entrepreneurs are helping one another the way men always have. Says Sheila Brooks, 47, an African American and a former TV newscaster who owns a fast-growing video production and Internet-streaming company called SRB Productions in Washington, D.C.: "I've always been a joiner of professional groups, starting back when I was in TV news, partly because as both a woman and a minority I really feel we have to band together to get anywhere. Men have always known how to do this, how to maneuver, whom to play golf with. But women are learning now too--and some of us have excelled at it."
Consider Trish Monteforte's experience. Her company, Pharmaceutical Resources in Hatboro, Pa., designs and runs clinical trials of new drugs for pharmaceutical companies. The firm doubled its revenues last year, to $12 million, and Monteforte expects another doubling this year. The number of employees has doubled too, to 75. Monteforte credits advice from other businesswomen. "Last year we had so much new business coming in that I made the decision to stop accepting new proposals for six months until I could get the right people in place and come up with a coherent strategy for growth," says the 43-year-old. "It was the smartest thing I've ever done, but also the hardest--and I wouldn't have done it without mentors who urged me to."
None of that would mean much if it weren't for another big driving force: access to cash. It's startling to realize that until 1988 it was legal for banks to refuse to lend money to women entrepreneurs unless they got a man to co-sign the paperwork. Then Congress passed the Women's Business Ownership Act, which outlawed such discrimination. Four years later the National Association of Women Business Owners (NAWBO) issued a much-publicized report noting that woman-owned businesses employ more workers than the Fortune 500. "Suddenly lenders realized that this phenomenon is real," says Suzanne Pease, NAWBO's current president. "Banks sat up and took notice of us as a huge potential market they had overlooked before. That generated startup capital for a lot of new businesses."
At the same time, women have risen in the banking world, and they're more receptive to female entrepreneurs than many of their male counterparts have been. Margaret Smith financed her company's threefold expansion with loans from local banks, where, she says, "both of the [woman] lending officers I've dealt with have been promoted a few times and now run their banks."
What about special government programs designed to give female business owners a leg up? Have they really made much difference? Apparently not. In 1994 the Federal Acquisition Streamlining Act set a 5% goal for government procurement from woman-owned businesses. But as of 2002, the latest year for which figures are available, only 2.9% of Uncle Sam's dollars went to female-owned firms. Charlotte Westbrook, 47, who last year started a company called Digital Frames in Lakeland, Fla., says, "The system is designed to offer us opportunities as subcontractors to larger companies with government contracts. But often you can be a subcontractor on paper and just never hear from that bigger firm. They aren't held accountable."
As for SBA-guaranteed loans, they tend to be relatively small--$25,000 or less--and in Sheila Brooks's words, "they want everything but your firstborn child as collateral." Some years ago she paid off a five-year SBA loan in two years and moved on to bank credit with fewer strings attached. A study by the Center for Women's Business Research of woman-owned businesses suggests that Brooks's experience is typical; 11.7% of those entrepreneurs have taken out SBA loans, while 62.3% use non-SBA bank credit. An overwhelming majority (86.3%) finance growth out of their businesses' earnings.
The last frontier in financing for woman-owned businesses is venture capital, which still goes mostly to men. That's mainly because there are so few female VCs. A new study by the Kauffman Foundation found that in 1995 women represented only 10% of management-track venture capitalists, and that the number dropped to 9% in 2000 despite significant growth in the industry. In other words, women are out of the loop. "Ask any venture capitalists, and they'll tell you they don't fund proposals that come in over the transom," says Sharon Hadary, executive director of the Center for Women's Business Research. "Rather, they listen to people they trust. You need visibility in the right circles. The fact is that women have not yet achieved that in significant numbers."
Nina McLemore, who worked briefly as a VC after getting her MBA, recently called on those old contacts to get private-equity backing for her clothing company. "Having been in that business myself, I knew people, and I knew as well how to put together a strong proposal and what needed to be in it," she says. "It's only a matter of time before a lot more women get the necessary skills. I believe that, when it comes to women's economic power, we're now seeing only the beginning of the trend."