Which Women Get Big?
When it comes to building large businesses, women lag far behind men--but that's changing fast.
By Anne Fisher

(FORTUNE Small Business) – Hear the phrase "woman-owned business," and what pops into your mind? Chances are it's a tiny enterprise, probably a sole proprietorship, maybe even home-based, whose customers are strictly local--a real estate office, say, or a clothing store. That stereotype isn't entirely false: The Center for Women's Business Research (cwbr.org), a Washington, D.C., nonprofit, reports that only 6.6% of the U.S. businesses with more than $1 million in annual sales are owned by women. Ask yourself: How many women entrepreneurs have built Fortune 500 companies or created brands that are household names? There's Debbie Fields of Mrs. Fields cookies and Anita Roddick of the Body Shop, but the list dwindles pretty quickly. Why aren't there more women like Richard Branson, Michael Dell, and Bill Gates?

As it turns out, many women stay small because, well, they want to. The stress and demands of growing a baby business into a giant often conflicts with one's preferred lifestyle. Consider entrepreneur Wendy Newmeyer, who at one point had a chance to expand her firm, Maine Balsam Fir Products in West Paris, Maine, which makes stuffed pillows, to $2 million in annual sales but has kept it at $230,000 so she could spend more time with her husband and gardening. Another reason women stay small: Females traditionally have been underrepresented in academic fields, such as electronics, biotech, and engineering, that provide the intellectual capital for high-growth companies.

Clearly female entrepreneurs have some catching up to do. What's encouraging is that venture capitalists, academics, and well-connected entrepreneurs are seeing signs of a dramatic shift. Women now own some 10.6 million firms--nearly half of the privately held businesses in the country, according to the CWBR, up from 44% in 1997. And women's companies tend to be more profitable than those run by men. In many ways the playing field is beginning to level for women who want to take those small companies and turn them into giants. The experts cite at least four trends at work.

• Women seem to be able to take better business advantage of the Internet than men.

• Federal agencies may (thanks to a court order) start taking female contractors seriously.

• More and more women have been quietly starting the kinds of technology-driven businesses that attract venture capital.

• The rising number of female college graduates in engineering and computer science suggests that that trend will accelerate. (And in the interim, bands of angels--small groups of private investors and large women-only networks for raising seed money--are swooping in.)

Here's a curious fact: The CWBR's research shows that, among owners of firms with annual sales of $1 million or more, 58% of women say the Internet plays a "moderately or extremely important" role in their growth strategies, while only 35% of male business owners say the same. Likewise, 56% of the $1 million-plus businesses owned by women have websites that can fulfill transactions online, vs. 38% of such enterprises owned by men. So what, you say? Consider the arc of MarketExpo.com, an online hardware and housewares business based in Frisco, Texas, that brought in $600,000 in sales in 2004. On "cyber-Monday" (the Monday after Thanksgiving) in 2005, revenues for the year hit the $1 million mark and kept on climbing. Founder and owner Denise Houseberg is about to launch a new, bigger website. "I like to get out in front of the technology," she says, "instead of letting it get ahead of me."

After years of being cut off from the federal trough, women may soon be getting a helping hand from Uncle Sam. In 2000, Congress passed a law decreeing that 5% of federal government contracts were to be earmarked for woman-owned businesses. In case you haven't been following the comedy of errors that ensued, here's a quick synopsis: The Small Business Administration, which is responsible for writing regulations to enable other federal agencies to follow the law, took about five years to study the situation. Then, last May, the SBA announced its initial study was flawed and said that more study time would be needed. At that point the U.S. Women's Chamber of Commerce filed a lawsuit, and last November a federal judge ruled that the SBA must start implementing the law. Now, with just 3% of federal contracts going to woman-owned businesses, the SBA says it will be ready to issue guidelines in May.

"All this stalling has cost woman-owned businesses billions," says Barbara Kasoff, head of a lobbying group called Women Impacting Public Policy (wipp.org), which speaks up for female entrepreneurs in Washington. "Government contracts really should be the next big growth area for women." We shall see. It's worth noting that among the $1-million-plus-a-year businesses the CWBR studied, 15% identified the federal government as a primary customer--vs. just 3% of women business owners with annual revenues of less than $1 million. Once the SBA gets off the dime and federal contracts awarded to female entrepreneurs begin to approach 5% of total federal spending, more companies' revenues could take off.

It's a cliché by now, in any discussion of woman-owned businesses, to say that they might grow much faster--or at least a lot of them would--if only they had access to venture capital. According to Growthink Research of Venice, Calif., woman-run firms received only 4%, or $784 million, of the more than $19 billion in venture funds invested in 2003 (the latest numbers available). That, however, oversimplifies what's going on. For one thing, women entrepreneurs seem ambivalent about working with venture capitalists. In one CWBR study, only 21% of female business owners expressed a willingness to give up control in return for capital. Says Victoria Colligan, founder of an online network for women entrepreneurs called Ladies Who Launch (ladieswholaunch.com): "Men invented venture capital as a vehicle for growth. But VCs want to see an exit strategy in three to five years--and many women don't want to commit to cashing out that soon. They want the creativity and the passion to go on and on."

Moreover, many women just don't speak the language that venture capitalists want to hear. "We are discouraged from an early age from using the word 'I' too often," observes Amy Millman, head of a nonprofit called Springboard Enterprises (see box on page 32), which helps match up women and venture money. "That's a problem, because VCs are most interested in hearing the word 'I,' with dollar signs attached. Women will talk about the great team effort, which is a cue to investors that the women are not really the ones in charge or are not the ones who execute." Adds Julie Garella, senior VP and director of business development for Citigroup Capital Strategies in New York City: "Women don't receive equity, and there's a reason for that. There's a formula, and if you're not willing to run your business like a business and you don't have the kind of business that can scale in a way that produces a meaningful return, then you're not going to be of interest to the private-equity people."

That's not to say that women never obtain venture funding. Of course they do: Witness Anu Shukla, 46, of Redwood City, Calif., whose e-commerce software company, RubiconSoft, has garnered $8 million in venture funds since it launched last year. Shukla sold a previous business, called Rubric, for $360 million in 2000, amply rewarding the investors, who had put $13.6 million into it. "Women have to work harder to get funding. The bar is higher," she says. "It helps to research the venture firms to understand what they're looking for. Don't pitch a consumer-marketing idea to a telecom guy."

While the vast majority of venture capitalists remain male, many old prejudices against investing in women entrepreneurs seem to be falling. After all, many of the new generation of male venture capitalists have worked side by side with talented women in professional schools and in corporate America. (For more on that trend, please see the roundtable discussion that follows.) Then there's the hard evidence. Since 2000, Springboard Enterprises has matched up a couple hundred women business owners with venture capitalists who have anted up $3.4 billion. Says Springboard's Millman: "Women are finally successful raising significant amounts of capital." (For a tale of two women who used venture capital to build a fast-growing business, please see the following story.)

One more reason for optimism: Women seem poised to start more of the kinds of technology-driven, capital-intensive businesses that venture capitalists see as eventual Goliaths. Over the past ten years the number of women earning degrees in computer science, engineering, and related fields has risen by almost 30%. As women get comfortable in nontraditional disciplines, more of them will enter nontraditional industries as well--and several studies show that women in nontraditional industries (think manufacturing, construction, and wholesale distribution) already are reporting faster-growing revenues than female-owned businesses overall.

Consider Saundra Charles, a chemical engineer who quit a career with Fortune 500 oil companies to start a metal-fabricating and welding company called BI Group in Irvington, N.J. Revenues last year were about $300,000, "but I don't see any reason we couldn't eventually be a $20 million company," says Charles, 47. Doesn't she run into skepticism from big industrial customers who aren't expecting someone named Saundra to be running the show? "Sure, but once they see that you understand their business, it's no problem," she says. "Be yourself. Have a thick skin. Be true to what you're trying to accomplish. And just do it."

73% of women who own firms with $1 million-plus in annual sales founded their businesses, as opposed to buying or inheriting (vs. 60% for men).

Source: Center for Women's Business Research

Share of SBA 7(a) loans that go to women: 22%

Source: Center for Women's Business Research

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.