Clearing the Hurdles

by Patricia Greene, Babson College

Women-owned businesses tend to be smaller than those owned by men whether you measure size by the number of employees or the amount of revenues. In 1998, our team of five business school professors created the Diana Project, a research program dedicated to investigating why these differences exist. We wanted to understand the underlying reasons and to provide sound guidance on how to change the situation. We set out to develop tools for women who wanted to grow their businesses - focusing particularly on the knowledge and skills that drive the business growth process. We were not advocating that all women should grow their businesses. Rather, we were intent on providing women with a clear understanding of the growth process from beginning to end, starting with the ability to recognize and evaluate the full scope of the opportunity, so that they could make informed choices about their own strategic direction.

Women entrepreneurs have made substantial progress in terms of business education, corporate experience, and technical expertise. More and more are starting businesses in rapidly growing industries including financial services, biotechnology and software. But lingering concerns about women's commitment to their enterprises, their qualifications for leadership of high growth businesses, and their ability to garner crucial resources continue to be limiting factors that can slow or curtail the growth of their enterprises. Growth capital - debt, angel investments, and venture capital - has proven to be invaluable in the expansion and development of high potential companies. However, for women, lack of growth capital, particularly private equity, has starved many promising ventures. In 2004, women were majority shareholders of 30% percent of all privately owned businesses in the United States and they claimed a 50 percent share in another 18 percent. Yet they received only 5 percent of all venture capital investments.

This funding gap represents a major market failure and offers some explanation for why so few women have attained the highest level of entrepreneurial achievement. The two primary questions that we studied were: 1) why this gap exists and 2) how it can be bridged. Our team drew upon years of collaborative research to explore the many challenges that women entrepreneurs encounter in growing businesses. We defined a series of hurdles that women have to clear in order to grow a business. We acknowledge that all entrepreneurs must clear those hurdles, but provide evidence that for women the bar is often set somewhat higher than for men. Examples of those hurdles include:

1. Motives, Aspirations, and Commitment
   The decision to start a business is stirred by a complex set of motives or drives and is determined by personal priorities. Women tend to have a more holistic blend of motives and aspirations for their business, often combining professional and personal (family) goals. A realistic assessment of the fit between your commitment to your business and the demands of the business itself will result in a more healthy entrepreneurial approach.
   
   
2. Human Capital
   The capabilities of the entrepreneur and her management team can make or break a deal. The human capital she brings (education, work experience, acquired skills, and developed capabilities) should provide evidence that you are a skilled manager who already knows how to manage the fundamental business operations of the venture, and is familiar with the processes and people in your chosen industry. Entrepreneurial experience will demonstrate that you understand how to create something from nothing - in other words, how to launch the new business. Our suggested paths to enhancing your human capital include formal education, professional training, work experience, the use of a network of advisors, and affiliation with relevant associations.
   
   
3. Financial Knowledge and Business Savvy
   Financial capital does not ensure a new venture's success, but lack of funding can sound the death knell for even the most brilliant business concept. Many providers of capital assume that a) women don't invest sufficient personal capital in their own businesses, b) women lack fundamental business skills and experience appropriate to the enterprise, and c) women are bad business risks because they are risk averse and can't make tough decisions. These are assumptions that may or may not hold true in individual situations. However, they have become stereotypes that are applied with a broad brush to all women. Because they do exist, these assumptions are real barriers that you must understand and be prepared to counter. Understanding various sources of capital, industry requirements, and the motives of lenders or growth capital providers will provide the basis for a more effective campaign.
   
   
4. Growth Orientation and Strategies
   Growth is a choice. Your growth strategy should be tailored to fit with the venture concept, industry, market niche, and the potential scalability of the business model. The pace, direction, and funding of growth must be built from a combination of your individual aspirations and commitment levels and the resources you acquire and organize to create your venture. If you chose to raise external capital, whatever strategy you select, it needs to match the interests of any potential investors.
   
   
5. Building a Management Team
   There is strong evidence that businesses run by competent teams consistently perform better. The ability to share leadership and responsibility is a strong signal to potential investors that you are positioning your enterprise for growth. The team approach allows you to create a broader base of knowledge, experience, skills, and contacts than you could develop individually. A management team with a positive reputation will also serve as a magnet to attract other great people to the business.

Business growth is a choice. It requires a different approach, skill set, and resources than most lifestyle types of business. As we close Clearing the Hurdles, we note that, "In a world where intellectual rather than physical strength is the basis of power, women are now gaining equal footing. There is no reason to believe that women should not have equal opportunity in the entrepreneurial arena." Good luck.

The Diana Project is a research group dedicated to investigating issues relevant to women growing businesses. The members are Candida Brush, Boston University; Nancy Carter; University of St. Thomas; Elizabeth Gatewood, Wake Forest University; Patricia Greene, Babson College; and Myra Hart, Harvard Business School. The Diana Project's most recent book, Clearing the Hurdles: Women Building High-Growth Businesses, describes the unique challenges that women entrepreneurs must overcome in their search for growth capital and provides guidance for those committed to building high potential ventures. For more info visit www.esbri.se/Diana.asp.
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The above article was written by Patricia Greene, co-author of Clearing the Hurdles: Women Building High-Growth Businesses, and Dean, Undergraduate School, President's Endowed Chair in Entrepreneurship, Babson College.Patricia G. Greene, President's Endowed Chair in Entrepreneurship, may be reached at this address: Hollister Hall, Babson College, Babson Park, MA 02457. Office phone: (781) 239-5008, greene@babson.edu, www.babson.edu