More And More Women Are Starting Their Own Businesses — But It’s Not All Good News

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More And More Women Are Starting Their Own Businesses — But It’s Not All Good News

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The complicated factors driving women out of traditional jobs, and why we need to do better

Reporting on the experiences of women in the workplace can be depressing. Every time I share a story from a woman who lost a job offer after trying to negotiate, or who got passed over for a promotion despite taking on additional responsibilities and asking for more, I get comments and messages saying, “This happened to me” or “I’m going through this now.”

And often the conclusion is, “It’s time to start my own business.”

These readers aren’t alone. In the five years before the pandemic, the annual growth rate of women-owned businesses in the US was more than double that of all businesses — with the number of women-owned businesses increasing by 21%, compared to just 9% for all businesses, according to the 2019 State of Women-Owned Businesses Report.

Sounds like good news, right? But a closer look at the data suggests that this growth in women-owned businesses is not necessarily a sign that entrepreneurship is becoming more accessible to women so much as it is an indicator of how traditional employment in the United States continues to fail women.

In the words of one Too Ambitious reader, “I started working for myself so I don’t have to ask.”

That is, asking for more (whether it’s more pay, more responsibility, more opportunity, more flexibility) is still so fraught — especially for women, people of color and other historically marginalized groups — that self-employment becomes a way to avoid the familiar pitfalls and penalties of the traditional workplace. When I think of all the women who’ve reached out to me to share their stories of being gaslit, demeaned and denied by their bosses, hiring managers, and employers, it’s a wonder more of them haven’t gone out on their own.

There’s a term for individuals who start a business out of these needs: necessity entrepreneurs. Those who pursue self-employment because traditional workforce policies do not accommodate their responsibilities outside of work (like caregiving), or because they need to supplement their existing income, or because they can’t find a safe work environment.

It’s not the Silicon Valley-like daydream of entrepreneurship, where starting a business is driven by some kind of desire to change the world (or convince venture capitalists to fork over tons of funding, even if your pinprick blood tests don’t actually work or your co-working space isn’t actually a magical cash cow). Or, less cynically, a game-changing business opportunity with real growth potential.

That model, where small business ownership is pursued in order to maximize some kind of market opportunity, is what the 2019 State of Women-Owned Businesses report dubs “opportunity entrepreneurship.”

The report found that opportunity entrepreneurs tend to have better growth prospects and a higher rate of business survival than their necessity and flexibility counterparts — with most necessity and flexibility entrepreneurs returning to the traditional labor force if and when they can.

So what is it about the workplace that disproportionately drives women into necessity and flexibility entrepreneurship in the first place?

According to recent data from the National Women’s Law Center, women working full time, year-round, still make only 83 cents for every dollar made by a man. Black women earn just 64 cents and Latina women earn only 57 cents for every dollar paid to white men.

These persistent pay inequities in the workplace may be contributors to the dramatically higher growth rates of women-owned, and specifically, minority women-owned firms. While the total number of women-owned businesses grew 58% from 2007 to 2018, firms owned by women of color grew at nearly three times that rate (163%).

Wage gaps can also represent inequities beyond pay that disproportionately drive women, and particularly women of color, into necessity entrepreneurship.

A 2018 survey from PayScale found that workers of all genders and races were equally likely to ask for a raise, but women of color were 19% less likely to receive a raise than a white man — even when controlling for other factors like tenure and job level.

Additionally, a 2017 Pew Research Center survey found that 42% of working women reported gender discrimination at work compared with 22% of men who said the same.

These structural barriers make women, and particularly women of color, less likely to hold high-level, high-paying jobs compared to their male counterparts — and thus, more likely to pursue opportunity and advancement through entrepreneurship.

Along with the structural barriers of gender discrimination are the realities of sexual harassment, which can also compromise women’s ability to succeed in the workplace. According to a 2016 report by the Equal Employment Opportunity Commission, up to 85% of women report being sexually harassed at work, and a 2017 report found that 80% of women who experienced severe sexual harassment left their job within two years. These women were more likely to move to different industries and reduce their work hours following incidents of harassment — shifts that can have immediate economic consequences as well as long-term implications on their career advancement.

Perhaps the most notable interruptions to women’s careers, however, are those created by the disproportionate share of unpaid labor and caregiving responsibilities still undertaken by women.

According to the National Compensation Survey, just 14% of civilian workers had access to paid family leave in 2016. And a lack of access to affordable childcare makes it exceptionally difficult for women to rejoin the workforce.

Not only do these career interruptions create gaps in income, they can also limit women’s career development, as they lose out on experience and networking opportunities that hinder their potential for advancement and higher earnings.

All of these factors — from the gender and motherhood pay gaps to sexual harassment and gender discrimination — are likely contributors to the outsized growth in entrepreneurship among women.

And while entrepreneurship can seem to offer more opportunities, protection and flexibility to women who struggle to find these things in the traditional workplace, entrepreneurship can also contribute to economic insecurity.

Small business ownership often means less income security. Twenty percent of small businesses fail in their first year and 50% don’t survive past five years. Not to mention the structural barriers faced by female entrepreneurs, who are less likely to receive support and financing in their entrepreneurial ventures, limiting their growth, and reducing their likelihood of business success.

What’s striking is women’s willingness to accept these potentially negative economic consequences in order to escape the circumstances of the traditional work environment.

So while growth in the rates of entrepreneurship among women may be worth celebrating, these findings should also serve as a call to action to create policies that reflect the reality of the 21st century workforce and better serve the needs of today’s working women — be they employees or business owners.


I’d love to hear from you: If you’ve gone out on your own, what were some of the motivating factors? What advice do you have for other women entrepreneurs?

Let me know in the comments.

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