The Financing of Small Business

A Comparative Study of Male and Female Small Business Owners

Lauren Helena Read

• Publisher: Routledge
• Year: 2002
• ISBN:
  9781134700943
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

A detailed empirical study of how small business owners finance their enterprises, this volume compares the experiences of women with those of men. The author redresses an over-reliance on subjective and anecdotal evidence of discrimination in this area with a controlled study of forty matched pairs of male/female owners and their strategies for raising finances. The research reveals the importance of adopting a theoretical framework in which the role of gender in the financing of small businesses is considered, and the practical implications for female entrepreneurs, banks and policy-makers.

1 The growth and characteristics of female entrepreneurship

1.1 INCREASING NUMBERS OF WOMEN-OWNED BUSINESSES

Since the late 1970s, most developed countries have experienced a significant increase in the number of new businesses ¹ started by women. In Great Britain, between 1979 and 1995, the number of self-employed women rose from 292,000 to 801,000 (Barclays Bank, 1992; Employment Gazette, 1995) ( Table 1.1 ). It is estimated that approximately one-third of all new, small businesses in the UK are started by women (Barclays Bank, 1992; Guardian, 1992a). A similar pattern of growth in the number of women-owned businesses can be seen in other developed countries, including the USA (Clark and James, 1992), Canada (Atlantic Canada Opportunities Agency, 1992), Australia (Department of Industry, Technology and Commerce, 1991) and the Netherlands (Koper, 1993). In the USA, between 1977 and 1988, the number of non-farm sole proprietorships owned by women increased from 1.9 million to over 4.6 million (USSBA, 1990; 1991). It is estimated that by the year 2000, 50 per cent of all businesses in the USA will be owned and run by women (House of Representatives Report, 1988: p. 2). In former West Germany, 40 per cent of all new business start-ups are by women (Guardian, 1992a: p. 14).

Curran et al. (1987), however, warn researchers not to overstate the growth in numbers of female self-employed (p. 13). In particular, it is important not to overlook the fact that growth has taken place from a much lower baseline than for men. While the number of women-owned businesses has increased dramatically, there are still considerably fewer than men-owned businesses (Rees, 1992). The relative gender ‘mix’ therefore remains fairly stable in favour of the male business owner with a ratio of around three men to one woman (Allen and Truman, 1991: p. 115; Goss, 1991: p. 36). However, according to a National Opinion Polls (NOP) survey for Barclays Bank, the proportion of women starting their own businesses has been falling during the early 1990s from around 33 per cent of start-ups in 1988 to about 25 per cent in 1994 (Sunday Times, 1994: p. 13). The NOP survey attribute this, in part, to the more flexible working practices of larger organisations which have been creating more opportunities for women’s employment in the labour market.

Table 1.1 Self-employment (Great Britain, winter 1994/5)

1.2 EXPLAINING THE GROWTH OF FEMALE ENTREPRENEURSHIP

1.2.1 Introduction

Every new firm formation decision begins with the decision by an individual or group of individuals to make a major change to the life path they are following. Their decision will be influenced by a number of factors. First, there are ‘push’ factors or negative displacements which might force an individual to consider business ownership. Second, there are ‘pull’ factors or positive displacements which might attract an individual towards business ownership. Third, there are factors associated with the external ‘environment’ which facilitate or inhibit small business start-up (e.g. the availability of resources, Government policy towards small businesses and the credibility of entrepreneurship). While most factors are applicable to both male and female business owners, there are a number which are specific to women or which have a gender dimension. In an attempt to explain the rise in the number of female business owners, the remainder of this section examines the importance of various ‘push’, ‘pull’ and ‘environmental’ factors from the perspective of a female business owner, recognising that in most cases an entrepreneurial event is caused by a complex interaction of factors.

1.2.2 A reaction to problems in the labour market

The background to women’s participation in the labour market

It has been recognised that the rise in the number of self-employed women and women owner-managers parallels, but with a time-lag, the increasing participation of women, particularly married women, in the labour market (Carter and Cannon, 1992: p. 2). Since World War II, labour force participation by women in OECD countries has increased by at least one-third (OECD, 1990: p. 21). In Great Britain since 1977, the female share of total employment has risen in all occupational groups, with the exception of operatives and labourers (Equal Opportunities Commission, 1989). By Winter 1994/5, there was a total of 11.3 million women in employment, 45 per cent of the total population in employment (Employment Gazette, 1995: p. LFS33).

A number of factors have contributed to the increasing number of women entering the labour market. According to McDowell (1991), these are best explored within the wider context of social and economic change which has occurred in contemporary industrial societies this century— the shift from ‘Fordism’ (or ‘Organised Capitalism’) to ‘Post-Fordism’ (or ‘Disorganised Capitalism’ or ‘Flexible Specialisa-tion/ Accumulation’) (Aglietta, 1979; 1982; Piore and Sabel, 1984; Lash and Urry, 1987; 1994; Harvey, 1989; Lawton Smith et al., 1991; Cooke, 1992; Malecki, 1995).

From the early 1900s, the dominant economic form in industrialised economies was Fordism, an era of ‘intensive accumulation’ characterised by ‘mass production, reduced working hours, relatively high wages (at least for the labour aristocracy), mass consumption based on the “family” wage of the male breadwinner and the commodifica-tion of social life’ (McDowell, 1991: p. 402).

In Britain, as in other advanced industrial economies, many women entered the labour market to help meet the cost of lifestyles based around consumption. Their entry was facilitated by the provision of care for the elderly and young children from the welfare state (McDowell, 1991). These services themselves created more employment opportunities for women and an increase in the provision of education and training allowed many women to improve their positions within the labour market.

Since around the 1970s, in response to increasing macro-scale disorganisation at national and international levels, firms have moved towards a more flexible approach in the organisation of production, the utilisation of labour and the organisation of relationships with other firms (Atkinson, 1984; 1985; Shutt and Whittington, 1987; Gertler, 1992; Miles and Snow, 1992; Imrie, 1994; Malecki, 1995). It has been argued that Post-Fordist business organisation involves substantial dependence on networks of suppliers, a high degree of production flexibility, more decentralised and less bureaucratic management structures, higher skill densities in workforces, more flexible working practices and an increased tendency towards inter-firm collaboration (Cooke, 1992). These changes have been facilitated by new technologies which have helped to accommodate the new style of production (Rothwell, 1992).

The increased need for part-time, flexible labour has therefore increased the number of opportunities for women to enter the labour market (McDowell, 1991). Corporate restructuring has also meant that many large companies now subcontract out services that were previously ‘in-house’ such as catering and cleaning and also white collar services such as public relations, marketing and computer support services (Keeble et al., 1991). Furthermore, rising consumer affluence and the increase in numbers of dual income households has created a need for ‘quasi-domestic’ services (McDowell, 1991: p. 416). There has therefore been an increase in the number of jobs available in those types of occupations and industries that have traditionally employed women (Massey, 1984). While such factors are important in explaining the growth of women’s participation in the labour market, it is important to remember that such a growth has been an ‘integral rather than a coincidental part of the restructuring process’ (McDowell, 1991: p. 406).

Another factor which has led to an increase in the number of women entering the labour market is the break-up of the nuclear family (Moore, 1993: p. 11). There are now more single-parent mothers having to go out to work. Within the two-parent family, economic stagnation, the lowering of wages and the threat of unemployment, particularly during the 1990s, has meant that the concept of a family supported by a sole male breadwinner is declining in pre-valence. In many cases, the woman’s income is needed to keep the family above the poverty line (West, 1982). In other cases, the woman’s salary may be used in order to sustain a particular lifestyle. This might include private education, foreign holidays or luxury cars.

Demographic factors have also meant that women are living longer and having fewer children, often later in their lives. This has enabled many women to take up full-time paid employment. Furthermore, the psychological expectations of women have changed so that their identities are now more frequently related to their experiences in the workplace, rather than to their role as a wife and/or mother. Women have been entering the workforce to exercise their rights to an equal role with men in the world economy. Facilitating factors have included an increase in women’s access to education, particularly higher education, and the introduction of laws addressing inequalities in access to employment opportunities (Malveaux, 1990).

The question is, how has the growth in the number of women entering the labour market had an impact on the growth of small business ownership among women?

The problems faced by women in the labour market

Despite their increased participation in the labour market, waged labour entry has not had a widespread emancipatory impact on women generally (McDowell, 1991: p. 401). As highlighted by Carter and Cannon (1992), research on labour market segmentation indicates that there are sexual divisions in the organisational distribution of the workforce which mean that women tend to remain at the bottom of the occupational hierarchy in four main ways.

First, women tend to be concentrated in part-time jobs. Indeed, in Spring 1993, 45 per cent of female employees were working part-time, compared to only 6 per cent of male employees (Employment Gazette, 1993: p. LFS2). However, 81 per cent of the part-time female employees said that this was by their own choice. While only 10 per cent said that they were forced to take part-time work because they could not find full-time work, it is quite likely that many of the 81 per cent who had ‘chosen’ part-time work also had domestic responsibilities which would have made it very difficult for them to have taken full-time employment (see section 1.2.6 ).

Second, the jobs taken by women in the labour market tend to be less skilled than those taken by men. Women are more highly represented in clerical work and other service-related jobs and less so in managerial or technical jobs. A study of employees by occupation shows that 76 per cent of all clerical and secretarial employees in Great Britain are women (Employment Gazette, 1993: p. LFS2).

Third, women often find it much more difficult than men to develop their careers in larger organisations because of stereotyped ideas about their ability to succeed in a business environment (Chaganti, 1986) and because many men perceive women to lack managerial attributes (Cromie and Hayes, 1988). While women comprise 34 per cent of all managers, they are still concentrated in traditionally ‘female’ occupations such as the ‘caring professions’ (Employment Gazette, 1993: p. LFS2). Furthermore, for those women who achieve upward career mobility, advancement past the ranks of middle management is very often blocked by a ‘glass ceiling’ (Hymounts, 1986). This has been described as

an invisible but very real barrier, through which women can see the senior positions for which they have the potential, experience and qualifications, but which for a variety of reasons, including prejudice, they often do not achieve.

(Guardian, 1992a: p. 14)

According to Belcourt (1991), less than 3 per cent of the senior positions in Canadian corporations are occupied by women. A Government report ² in the UK also points out the fact that although today’s women are better educated and harder working, their jobs are still lowlier than men’s and less well paid. The report shows that even in industries that mainly employ women, for example teaching, while women account for more than 80 per cent of all nursery and primary teachers, only 57 per cent are employed as school heads or deputy heads.

Fourth, it is well documented that women earn less than men (Cromie and Hayes, 1988: p. 88). Not only are women concentrated in the lower paid jobs, but the Northern Ireland New Earning Survey (1985) found that, even in the same jobs as men, women are paid less. For example, in clerical jobs, male clerks were paid 30 per cent more than female clerks. A Labour Research Department report recently estimated that working women will have to wait more than fifty years before they earn the same as men. At present, women’s gross hourly earnings are 79 per cent of men’s (Wilkins, 1995). In summary therefore, many women in the labour market lack job security, have poor career prospects and few occupational rights and benefits (Carter and Cannon, 1992).

Research indicates that dissatisfaction in paid employment causes many men to start their own businesses (Scase and Goffee, 1980). It is therefore likely that the experiences of women in the labour market will have a similar effect (Goffee and Scase, 1985: p. 7). Business ownership is often seen as an important way for women to avoid ‘a labour market which confines them to insecure and low-paid occupations’ (Goffee and Scase, 1983: p. 635). Self-employment and business ownership offer the potential for career progression (Batchelor, 1987; Hertz, 1987; Rees, 1992) without the ‘supervisory controls of formal employment’ (Goffee and Scase, 1983: p. 635). It is perceived as being free from the formal employment selection criteria which often lead to systematic discrimination against women (Hertz, 1987; Belcourt, 1991), chauvinistic recruitment officers (Belcourt, 1991), stereotyped perceptions of women and their abilities (Cromie and Hayes, 1988), and ‘male imposed identities which are allocated to women via established societal institutions’ (Goffee and Scase, 1983: p. 625). Recent studies confirm that many new businesses are started by women seeking to escape discrimination as employees (The Independent, 1991; Reuber et al., 1991; Patel, 1994). Other women, especially single parent mothers, are forced to consider starting their own businesses because of financial burdens which cannot be met through formal employment (Patel, 1994) and because as employees women tend to earn less, they face lower opportunity costs when giving up paid employment to start a business than men (O’Hare and Larson, 1991).

1.2.3 An outcome of the Women’s Movement

The growth in women’s involvement in the labour market has coin-cided with the rise of the Women’s Movement and feminist awareness. According to Goffee and Scase (1983), the Women’s Movement represents a ‘collective response to gender-related experiences of subordina-tion and deprivation’ (p. 625). The emphasis has been on collective action to eliminate gender-based inequalities by breaking down male-dominated institutions and patriarchal structures. Women, like many ethnic minority groups and immigrants, are often denied access to ‘positions of power and authority’ (Devine and Clutterbuck, 1985: p. 65). This ‘social marginality’, as defined by Stanworth and Curran (1976), is where there is an ‘incongruity between the individual’s personal attributes or self-image and the role he or she holds in society’ (Goss, 1991: p. 61). Women in a predominantly masculine capitalist world are also a minority group (Hertz, 1987). Business ownership is therefore seen as a way of providing women with the personal autonomy and self-determination needed to undermine or at least query these structures.

However, the role of business ownership in the Women’s Movement has been contested. One of the main areas of contention is the fact that entrepreneurs tend to operate as individuals. Supporters of the role of business ownership in the Women’s Movement, particularly US feminists, believe that an ‘individual’ approach can be a good ‘alternative, or supplement, to collective action’ (Goffee and Scase, 1983: p. 626) and has more radical potential because it rejects ‘the exploitative nature of the capitalist work process and labour market’ (p. 627). Furthermore, female business owners who succeed in ‘male’ sectors of the economy have the potential to undermine ‘conventional and stereotyped notions of a woman’s place’ (the traditionally defined, gender-based divisions of labour—Goffee and Scase, 1983: p. 627). It is seen by many as a chance for women to ‘beat men at their own game’. According to one of the businesswomen interviewed by Goffee and Scase (1985), the reason she had started her own business was because she enjoyed ‘achieving the things men want to achieve— and doing it better than them’ (p. 43).

The counter-argument, particularly from British feminists, has been that female business owners may actually be fostering the capitalist values and institutions which ‘sustain the domination of men over women’, while ignoring the ‘collective nature of sisterhood’ (Goffee and Scase, 1983: p. 627). Furthermore, it has been pointed out that there is frequently a lack of choice underlying the decision to enter self-employment for women (Allen and Truman, 1991) and that many women are not necessarily better off out of the labour market (Belcourt, 1991). For example, female homeworkers often continue to be subjected to patriarchal divisions of labour and experience very little economic independence or improved working conditions (Allen et al., 1992). It has also been found that businesswomen earn less than their male counterparts (Allen and Truman, 1991; Clark and James, 1992). White (1984) suggested that female business owners earn one-third less than male business owners. This may simply reflect the fact that businesswomen take a smaller salary from their businesses compared to men or that their businesses are smaller, younger, or less profitable. However, another theory is that the same factors which contribute to women in the labour market earning one-third less than men also apply to small business ownership. These include sex-linked differences in ability, socialisation processes, systematic discrimination and differences in education and work patterns (Belcourt, 1991).

Nevertheless, it has been shown that the independence which many women gain through business ownership can be channelled back into collective action. For example, ‘radical’ women business owners, that is, women who have a low commitment to both conventional entrepreneurial ideals and traditional gender roles, tend to ‘regard their business activities as part of a collective struggle which offers services to other women in ways compatible with feminist ideology’ (Goffee and Scase, 1985: p. 139). Many such businesses are co-owned and collectively organised as co-operative enterprises, providing spheres of autonomy which free their owners from male domination. Co-operative businesses are particularly popular with women (Rees, 1992) but are difficult to set up in the UK as financial organisations are suspicious of non-traditionally managed business ventures.

1.2.4 Increasing numbers of female role models

As the number of female business owners has grown, so has the number of role models on whom would-be female business owners can model themselves (Batchelor, 1987; Allen and Truman, 1991). The growing presence and visibility of female business owners has had a two-fold effect. First, successful businesswomen demonstrate to other women that they have a choice in the labour market. In particular, they do not have to suffer the ‘glass ceiling’ or the poor conditions often associated with employment in the formal labour market (Godfrey, 1992). Second, they provide a potentially important pool of mentors. As mentors, existing female business owners can offer advice and encouragement to newcomers and introduce them to established networks of useful contacts which are vital for business survival and growth. Women generally prefer to use other women for information and advice (Smeltzer and Fann, 1989) and often create their own business networks (Hisrich and Brush, 1985) offering different kinds of support compared to men—social support as well as practical (Smeltzer and Fann, 1989). UK examples of female entrepreneurs’ networking organisations are The British Association of Women Entrepreneurs, The UK Federation of Business and Professional Women and the parliamentary lobby group (Women Into Business).

Recent years have witnessed the meteoric rise of businesswomen such as Anita Roddick of the Body Shop, Debbie Moore (Pineapple) and Sophie Mirmam (Sock Shop). In the latter two cases, they have also received public attention over their failure in business. Nevertheless, the visibility and profile of such role models depends largely on the country in question. American women entrepreneurs, as with their male counterparts, tend to enjoy a much higher profile coverage and more energetic public lives compared with their British equival-ents (Hertz, 1987). This has much to do with the respective busines...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Figures
• Tables
• Preface
• Acknowledgements
• 1 The growth and characteristics of female entrepreneurship
• 2 The financing of women-owned businesses
• 3 Research into the financing of women-owned businesses
• 4 Raising finance
• 5 The characteristics of the banking relationship
• 6 The role of networking in the financing of male and female-owned businesses
• 7 Conclusions, implications and an agenda for future research
• Notes
• Bibliography