“Did you know that a given absolute increase in a number will show a higher percentage growth rate if the starting value is small than if the starting value is big?”
With that insight, Tim conveyed the Universal Truth About Small Numbers and Big Percentages. Or, as Samuel Clemens once opined, “There are lies, damn lies, and statistics.” If you begin with a base number of 2 and progress to 3, the absolute increase is 1, while the percentage change or growth rate is 50%. If you begin with a base number of 29 and progress to 30, the increase also will be 1, but the percentage change or growth rate will be a measly 3.4%. So, Tim and Twain’s lesson is this: to impress the be-jeebers out of everyone, when you are a small fish in a big pond, use percentage growth rates rather than real numbers. The percentage growth rates will always hide the reality of an increase over a small base.
This is what often happens with the conversation about the data on women-owned businesses. The latest example is the 56.6% increase, between 2002 and 2012, in the number of women-owned businesses earning $10 M or more per year. That 56.6% rate of growth described an increase of just 4,590 actual women owned businesses to the ranks of $10 M or more revenue-earning firms, out of a total of 8.3 MILLION women-owned businesses, 13.2 MILLION equally male/female-owned firms, and 27.7 MILLION total privately-owned firms.
There were other much more valuable statistics and insights to be found in the 2012 The State of Women-Owned Businesses Report commissioned by American Express OPEN with Womenable.
Most telling was the fact that just 1.8% of all women-owned businesses earned $1 million a year or more. By 2012, American Express OPEN and Womenable estimated that number to include:
12,700 women-owned businesses earning $10 million a year or more
15,100 women-owned businesses earning $5 to 9.9 million a year
125,100 women-owned businesses earning $1 to 4.9 million a year
152.900 women-owned businesses earning $1 million or more a year.
No matter how you slice it, that total of 152,900 is still just a tiny sliver of a share of the total of 8.3 M women entrepreneurs – a percentage that has been unchanged since 1997.
The 2012 Census has other insights that go a long way toward explaining the whys and wherefores of these persistent patterns. It is these insights that deserve our closer scrutiny. The 2012 Census has charts describing two important phenomena.
First is the “dip” that occurs among WOBs at the $250,000–$499,999 revenue mark. (See the graphic, left.)
The second trend, probably related to the first, is the dip that occurs among WOBs at the 5 to 9 employee per firm mark. (See the graphic below.)
The researchers suggest that both of these points are possibly the levels at which WOBs “are more likely to struggle as they put more management systems in place and transition from owner/operator to CEO.” They are two trends very likely linked together by causative factors.
Another interesting observation about the firms earning revenues of $10 M or more is that, at that stage in their evolution, WOBs are very likely to transition into mixed-gender firms, tapping the diverse talent available to them in the investment community. Thus, they would disappear from the ranks of women-only firms and enter the ranks of co-owned or simply privately-owned firms. Consistently, jointly-owned firms outperform WOBs across many metrics. Diversity works both ways.
Even though only 4% of all women-owned firms exceeded the $500,000 revenue per year mark, those in just three industry sectors surpassed that threshold: wholesale trade (19%), accommodation and food services (11%), and construction (13%).
Wholesale trade includes the sale of merchandise to other businesses and normally involves operating from a warehouse or office. Customers are generally reached initially via telephone, in-person marketing, or by specialized advertising that may include Internet and other electronic means.
The accommodation and food services sector includes establishments providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption.
The construction sector is especially interesting because it is one of the lowest concentrations – only 8% of firms are women-owned, yet a higher than average revenue potential (13% of firms earn over $500,000), possibly due to federal, state, and local diversity contracting requirements.
The reasons women-owned businesses have not surpassed the revenue threshold of 1.8% earning $1 M or more are threefold:
1. WOBs still self-select low income industry sectors. Industries with the highest concentration of women-owned firms are: health care and social assistance (53% of firms in this sector are women-owned), educational services (45%), other services (40%), and administrative and waste services (37%).
2. WOBs overall have a lower than average propensity to hire employees.
3. When they do build teams, WOBS have a propensity to hire fewer employees per firm on average.
A separate survey of women-owned businesses by the National Association of Women Business Owners (NAWBO) in 2012 found that WOBs opt not to pursue capital beyond friends, family, and credit cards.
"Financing Options to Meet Business Capital Needs: More than three quarters (78 percent) of WBOs did not seek a new or extended line of credit in the past year. Of these 78 percent, more than half (68 percent) indicated they did not want additional credit in the first place, and the others (32 percent) did not think they could get credit if they tried. Most WBOs financed their businesses through credit cards (45 percent), business earnings (40 percent), or private sources such as personal savings or contributions from family or friends (37 percent)."
Source: 2013 State of Women-Owned Businesses Survey Finds Optimism Pervasive (NAWBO).
Some may argue that, by highlighting these facts and statistics, that I am not “supportive enough” of women entrepreneurs. Recalling my days in Business School, I distinctly remember the times that the 40 or even 340 other students (all male) in the class, deliberating upon the same material that I was presenting in the class, would insist that we all “look at the numbers” in order to understand the case study being presented. We were not afraid of what the data was presenting. We used the data to tell us what we needed to know in order to make appropriate choices, decisions, and craft effective strategies. I learned that valuable lesson from Tim and the other economists in
. Business School
I believe women-owned businesses have the potential to perform at exemplary and outstanding competitive levels. But, if women entrepreneurs choose to avoid reality by relying on bad data or poor analysis of good data, then they are only fooling themselves.