Dr Samuel Mwaura is lecturer and National Co-lead of the Global Entrepreneurship Monitor, Scotland at the Hunter Centre for Entrepreneurship, University of Strathclyde Business School. Here, he shares the business trends for 2023 to have on your radar. Plus, he shares how The Gender Index can help drive the change needed to grow female entrepreneurship across the UK.
What is the current landscape for female entrepreneurs?
A lot of policy work has gone into female entrepreneurship over the last 2 years, but we haven’t seen much change. The needle just hasn’t moved. But now we’ve got more work happening, including The Rose Review, and we’re seeing a lot of advocacy. Women in industry aren’t sitting back waiting for the government to do something. They are taking the initiative themselves which is why we’re seeing more angel syndicates and female enterprise groups lobbying the government directly. I’d define the current landscape as one characterised by a lot of frustration with the way things have been, but at the same time there’s a lot of hope and activity to bring about change.
What are the main barriers for women starting their own businesses?
In the Global Entrepreneurship Monitor (GEM) Scotland report we see clear gender differences in terms of some of the drivers for going into business. We see a lot more women going into business because they can’t find work that works for them or they’d like to make a difference in the world. You see a lot more men going into it for the money. Another barrier is that a lot of female-founded businesses are built around the household routine whereas men’s’ isn’t so you see differences in the amount of time in the day actually devoted to the business. There’s been some interesting work on home based businesses. Men are able to compartmentalise it – this is work, this is home. The same is not true for women.
What else have you noticed around the gender differences?
One of the classic barriers has been female entrepreneurship not being very well understood. How we define entrepreneurialism itself is problematic. If you take this to mean “We want entrepreneurship for profit, scaling and growth”, then female entrepreneurs are always going to do worse because they are generally not driven by the exact same factors as men.
What are the main barriers to investment for female founders?
There’s a lot of research surrounding the financing of female enterprise and there are a few issues at play here. For women in tech for example, recently there’s been some successful women and they get funded because they are standing out and investors want to be associated with these female trailblazers. However when it comes to everyone else, biases tend to appear. They are competing directly with men in tech who are seen as ‘more competent’. On the other side of the table there are more men as investors so they’re looking at things from their perspective. If you’re pitching for tech targeting the female market then they don’t understand it so they don’t invest in it. They don’t have a grasp of the gap and how large the market is so there’s a friction there. This end result is, if you’re a female going head to head with men then you’re at a disadvantage. If you’re doing something men won’t do then you’re also at a disadvantage as investors won’t invest in something they do not understand.
How many women are setting up their own businesses?
In terms of the number of women coming into entrepreneurship it’s encouraging. But in other ways, it’s still disappointing. There are more women in most countries than men. There are more women coming out of university as graduates. Yet this hasn’t been translating into the same rates of entrepreneurial activity. We also see differences in the age men and women start businesses. Men choose that career from early on whereas women tend to come into it a lot later. We can speculate that they start thinking more seriously about having a business when children come into the equation and are looking for that flexibility.
What about the pipeline of new start-ups?
There’s a lot more happening in terms of women wanting to go into business but there’s a problem with the pipeline. There are some trends we can observe within the GEM research. We look at people actually trying to set up a business: the ones who have an idea but they don’t have a business yet. The rates are very high there for women and have been growing. In terms of actual incorporation and the business surviving beyond three years, there’s a major drop off. If you look further back you’ll observe people in the population who have an interest: they’re not trying to set up a business just now, but can perceive potential business ideas they could pursue. However, here you see more fear of failure among females. This means they’re not following through with their idea, and we don’t see that then going into startup and incorporation.
What’s the solution?
If we supported the pipeline and reduced that fear of failure in those early stages of thinking about a business, that could make a big difference in helping those potential businesses materialise, then survive, thrive and grow. That support would also need to be there when the business is set up, incorporated and beyond so they don’t fall by the wayside as has been the case with many.
Why is there a three-year drop off for female-led businesses?
We don’t have enough data to explain properly but we know a lot of women don’t want to grow their businesses. That’s because if it’s a small business they can maintain control and it doesn’t get out of hand. Small businesses do have some advantages of remaining nimble but they have disadvantages of not being able to withstand major shocks, especially when you don’t have resources to put into it – including time. We also see a lot of women going back into employment when children get to a certain age. That suggests some don’t want to be long term entrepreneurs, but are looking for work that fits around the household routine. All this means the rates of established business for women and men are very different.
What changes are needed In terms of policy and funding to support women in business?
The current criteria is too rigid and is all about scaling. If you're not growing and scaling at crazy rates you’re seen as not worth investing in. Perhaps that needs to change as there are other things that are important from a funding perspective. Female-led businesses are not as risky as male-led businesses and that should make them attractive to investors: they’re not going to lose me money but may not make me millions in the short term. We need to change those old fashioned male based ideas about what kind of businesses are worth your investment. Also, diversity is a major issue and female underrepresentation in enterprise financing must be addressed.
How useful is The Gender Index data?
The data is incredibly useful: we’re using it to support the Scottish Government’s Women in Enterprise Review, also known as the Ana Stewart Review, going on now. It means we can look at incorporated businesses and get a clearer picture of what the landscape is like. TGI data means we can look at funding, performance, and so on. Some of the things we’ve discovered are quite staggering. For example if you look at outliers, that’s a really interesting story. We weren’t able to previously see the type of moneys superstar male entrepreneurs get compared to what you would get if you were a superstar female. The difference is night and day. You have those male-led businesses getting millions of pounds in multiple rounds and females aren’t getting a thing. If you look at the average, up to 16 times more funding goes to male-led businesses. You can then dig a bit deeper to see what the distribution is at the lower side of the scale.
What does this mean for upcoming female founders?
It comes down to the role modelling effect. Young men will look at the funding landscape and think, “I can attempt that”. Meanwhile female-led businesses aren’t getting that type of money so it’s another damper on ambition. Instead they’ll think, “I might as well keep running these small businesses I can control because I’m never going to be able to get that big money.” We’re able to see that now with TGI data which we couldn’t previously. Work is ongoing to see if there’s a major take off point for male business and where female-led businesses get left behind so that should be really interesting.