There is enough data to show that female entrepreneurs outperform their male counterparts. Even though men have a significant advantage in raising funds, companies founded or co-founded by women do better along several dimensions than companies started by men. Women founders tend to build businesses that generate more revenues, create higher job growth, dream bigger, and execute better.
Research by BCG shows that the average investment in companies founded or co-founded by women was half that of what is raised by only male-founded companies. Despite the funding disadvantage, these women-owned businesses generated higher revenues than their male counterparts, and the average return on investment for women-owned companies was double that of men-owned businesses. According to the World Bank, women-owned firms in the US are growing at more than double the rate of all other firms and contributing almost $3 trillion to the economy.
Yet, investors continue to invest predominantly in male-owned companies. Women face more gender-based barriers to fundraising from both investors and banks. Venture funds, which, one might believe, optimize their investments solely for maximizing returns, allow their innate biases to prevent them from making the best bets objectively. As a result, they tend to favor companies started by men, particularly those founded by good-looking men.
Why Women are Hesitant to Start Businesses:
By most measures, it appears that women entrepreneurs, as a whole, are doing quite well. However, there are a few reasons women are less likely than men to become entrepreneurial. First, women who want to pursue entrepreneurship are less likely to get the funding required to start a company, which naturally inhibits them from chasing their dreams.
Another reason women tend to start fewer companies than men is that they often lack the “overconfidence” of most male startup founders. While overconfidence is not a predictor of business success, it is a strong predictor of wanting to become an entrepreneur; that is, people who decide to start a company tend to be overconfident in their abilities to succeed. A high degree of self-belief is sometimes required for someone to want to quit a job and start a company.
Psychologically, men tend to have more hubris, encouraging them to start a business. On the other hand, women generally have more humility, which prevents them from starting a business, but when they do, they tend to be more successful than their male counterparts.
Why Women Entrepreneurs Outperform:
First, since women are less likely to get funded by venture capital, whenever a female founder presents an opportunity, the bar is often set higher, and the idea, the team, or the prospects need to be superior to the average business plan to get funded. These businesses are naturally more likely to succeed. Also, since female founders generally raise less money than their male counterparts, they tend to focus more on unit economics and efficiency, leading them to become better business managers.
Other gender-based reasons also indicate why women entrepreneurs are likely to outperform male founders. For example, women rank higher than men in communal tendencies, which include openness and collaboration, which are essential traits for successful entrepreneurs.
And while the risk-taking tendencies of men and women entrepreneurs are no different, research shows that women have a higher level of loss aversion. This means that women founders are happy to take risks when necessary but are more sensitive to the pain of losses than men. This aversion to loss helps them become better managers of risk and, therefore, more likely to lead their companies to success.
Another reason women tend to outperform men as entrepreneurs is because they tend to place lower emphasis on external motivations, like solely making money, than their male counterparts. Most female founders are motivated by intrinsic factors like autonomy and making a difference, and they appear to have a stronger desire to contribute to society than men. While external rewards are important, they are not the sole motivator for performance. And as we have seen, the most successful companies are the ones that make a difference.
There seems to be a common misperception that female founders succeed because they outwork male founders, but that is untrue. While some data shows that women are more productive than men in the workplace, no evidence indicates that women entrepreneurs work harder than their male counterparts. Entrepreneurial success is difficult for everyone and requires hard work, and both genders are capable of working equally hard.
Implications:
The above discussion has implications for women in entrepreneurship and investors who keep the entrepreneurial wheels humming. If you are a woman who believes you can build a company that makes a difference, you likely have a better chance at success than you think. Leap into entrepreneurship, and you might find it rewarding professionally and personally. If you feel the entrepreneurial itch, don’t pass up on it, or you may regret it later.
The message is simple for investors who feed the entrepreneurial ecosystem: just because you are male (95% of VC partners are men), don’t invest only in people who look and sound like you (90% of VC investments are to male founders). The people who participated in your fund are looking for you to find the most promising startups, so don’t let an implicit gender bias prevent you from making the right investments. There is never a reason to have any bias in business, but if gender ever plays a role in an investment decision, these studies show why a preference toward female founders might be a better option.
Article Credit: Forbes