Four trends shaping female entrepreneurship

| March 9, 2023

Research shows that business investment is still dominated by gendered class structures. In supporting Australia’s women entrepreneurs break through the glass ceiling, the Australian government has the opportunity to build a new generation of world-class, women-led businesses.

Over the last decade, there has been a significant rise in the number of women entrepreneurs. Women-owned businesses have grown by 21 percent to approximately 13 million from 2014 to 2020, accounting for 42 percent of all businesses in the United States.

In 2022, entrepreneurs had to navigate a volatile global environment, marked by high inflation, declining investor confidence, and employee burnout. In 2023, enterprises will face several significant challenges, including competing in a crowded marketplace, managing costs amid a looming economic downturn, and maintaining a work-life balance.

The successful entrepreneurs in dealing with these challenges may determine the future of their organisations. Scholars specialising in gender studies in the workplace have identified four predictions that will shape the female entrepreneurship landscape.

A focus on higher education

The percentage of women enrolled in Masters of Business Administration (MBA) programs has been increasing steadily in recent years, and some top programs are now approaching gender parity. For instance, in 2021, the Wharton School of the University of Pennsylvania was the first school to admit more women than men for its MBA class of 2023, and this gender balance persisted in the following year.

At the 56 leading U.S. business schools that are members of the Forté Foundation, women comprised more than 41 percent of full-time MBA enrolments, a significant rise from the 27 percent recorded by the organisation two decades earlier. Elissa Sangster, the CEO of the Forté Foundation, explains that while gender parity may not yet have been fully achieved, the progress made is considerable, and female MBA students are no longer isolated as a minority in the classroom.

The highest proportions of female MBA students were found at the George Washington University (59 percent), Johns Hopkins University (52 percent), and Wharton (50 percent), according to each schools’ reported data.

Marketing and customer relationships

Companies in advanced economies are cutting back on expenses. Late-stage startups in particular are shifting their focus on profitability and scaling back their spending on marketing, advertising, and entertainment, according to Michael Tannenbaum, CFO and COO of the financial company Brex. “Earlier stage companies generally have had flat spending for the past six months, while later stage companies are becoming more conservative, and I think that reflects the funding data,” Tannenbaum says.

While no one likes uncertainty in the market, some entrepreneurs have turned their attention to building stronger relationships with customers. According to a recent study, women leaders tend to prioritise customer relationships more than their male counterparts do, leading to better long-term business outcomes.

The researchers assessed the female influence on stakeholders and measured the long-term financial performance using Tobin’s q (the market value of a firm divided by the replacement value of its assets).

The study suggests that women generally have an “interdependent self-construal,” meaning they tend to think in terms of connections and consider others’ perspectives more often than men. Thus, when they hold positions of power, they tend to make strategic decisions that emphasise a customer focus, which previous studies have associated with higher Tobin’s q.

A customer-centric strategy is not new to businesses, however the ones with patience and discipline will gain greater advantages in achieving the end-game: higher customer satisfaction, greater customer loyalty, reduced costs of customer acquisition, and improved employee engagement.

To prepare for the post-pandemic future, startup founders in Australian and beyond need to revaluate how they operate and how they grow. The success of Netflix serves a case in point – having evolved from a small DVD-by-mail service to a global streaming platform and content creator. A significant factor in Netflix’s growth was its utilisation of user data to develop algorithms that power its recommendation engine. Currently, the recommender system accounts for 80 percent of the time customers spend streaming Netflix content.

To capitalise on data-driven approaches, startup leaders must develop new capabilities, empower their workforce, and fuel their talent engine. Companies that prioritise learning and development initiatives will stand out in the next round of competition. It is a great time for companies to “show rather than tell that they have an expressed commitment to the lives, future, and success of their employees.”

Success comes at a cost

Raising capital is a challenging process for startup founders, and women-owned businesses face an additional barrier while seeking investment from venture capitalists (VCs).

Bonnie Crater, president and CEO of Full Circle Insights, asserts VCs are more likely to invest in startups run by people of their own “tribe.” This means “VCs are more comfortable betting on someone who looks like them, talks like them, went to the same schools, eats the same food, goes to the same restaurant, drinks the same wine, goes to the same country club, all these little things.”

Due to this, current investors (majority male) are more likely to invest in male-led startups, resulting in women entrepreneurs receiving a small fraction of venture capital investments. Companies by solo women founders received less than three percent of all venture capital investments and women accounting for less than 15 percent of check-writers.

To address this disparity, efforts have been made to increase women’s participation in venture financing. While studies have shown that female investors are more likely to invest in female-led startups, recent research indicates that relying exclusively on female investors can actually make it harder for female founders to secure subsequent rounds of funding.

A study of over 2,000 US venture-backed firms found that women-led firms that raised their first round of VC funding exclusively from female investors were two times less likely to raise a second round of funding, regardless of the initial funding size, industry, location, or investor reputation.

In contrast, the gender of the first-round investors had no impact on male-led firms’ ability to attract future investment. While female investors may better understand the potential of female founders, relying solely on them could be a risky and costly strategy for long-term startup success.

Amid an uncertain, post-crisis environment, female entrepreneurs in Australia and the US must recall the sage encouragement that in the midst of every crisis, lies great opportunity. The best entrepreneurs will move towards continuous learning and development, building long-term relationships, and investing in capabilities which will enable the long-term success of the company.

For Australia, women entrepreneurs can still be considered outliers in a male world, precisely because the structures of investment are still limited by hierarchical and cultural barriers. The Albanese government has an opportunity to promote the linkages for venture capital investment among women entrepreneurs.

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