Whenever you're looking at statistics, you need reference points. Here are three:
The total number of employer companies -- businesses with employees -- in the United States increased about 12% from 1987 to 1997.
The labor force as a whole grew 14% during the same period.
The number of self-employed individuals rose 9% between 1987 and 1997; it increased until 1994 and has declined slightly since then.
Keep those benchmarks in mind as you look at the story these numbers tell about minorities and their businesses:
Number of employer companies: 1987: 82,908 1997: 202,037 Increase: 144%
Number of self-employed: 1987: 455,000 1997: 674,000 Increase: 48%
Number of employer companies: 1987: 70,815 1997: 89,686 Increase: 27%
Number of self-employed: 1987: 403,000 1997: 507,000 Increase: 26%
Number of employer companies: 1987: 96,457 1997: 248,163 Increase: 157%
Number of self-employed: 1987: 265,000 1997: 456,000 Increase: 72%
Sources: U.S. Small Business Administration, Office of Advocacy, Minorities In Business, 1999; SBA, Office of Advocacy, The Facts About Small Business 1999.
And what about women? The situation of women is a little different -- women are not a minority, after all, and the category of female business owners includes women of all races and ethnic groups. The latest numbers from the National Foundation for Women Business Owners: as of 1999, women owned 38% of all companies in the United States, employer and nonemployer ventures alike. Those businesses employed more than 27.5 million people, or roughly one in every five civilian workers. According to 1996 figures, some 13% of female-owned companies -- about one in eight -- were owned by minority women.
According to a study by the Federal Reserve Bank of St. Louis, as a group self-employed women differ from self-employed men in significant ways. Women and men go into different industrial sectors and, within the same sectors, they go into different businesses. (Male retailers go into motor-vehicle dealerships and home-furnishing stores, for instance, whereas female retailers run floral shops and apparel and accessory stores.) And a Labor Department study points out an earnings anomaly: while self-employed men earn as much as or more than similar workers paid a wage or a salary, self-employed women earn substantially less than their wage and salary counterparts.
At any rate, the figures for women's businesses for the period of 1987 to 1997 resemble those for minority businesses during the same time period.
Number of employer companies: 1987: 940,749 1997: 1,376,366 Increase: 46%
Number of self-employed: 1987: 2,778,000 1997: 3,550,000 Increase: 28%
Source: U.S. Small Business Administration, Office of Advocacy, Women in Business, 1998.
Why Women Hold onto Equity
According to a recent study by the National Foundation for Women Business Owners (NFWBO), only 28% of female owners of fast-growth companies financed their businesses using equity capital. The rest of the female entrepreneurs relied on credit cards and personal loans. By contrast, 49% of their male counterparts traded equity for funding. Nina McLemore, chair of NFWBO and president of Regent Capital Partners, a private-equity firm based in New York City, talked with Inc. about the implications of the study.
Inc.: NFWBO's study showed that women were less likely to give up equity for funding compared with men. Why do you think that is?
McLemore: One reason is a lack of knowledge about private-equity funding in general. Another reason is that women tend to be more conservative in running their businesses, so you see generally stronger balance sheets with more personal equity and less debt than in businesses owned by men. If you look at the reasons why people in general start businesses, one is that they want more control. Giving up equity can lead to a lack of control. Also, in the past, women saw their businesses more as providing careers and opportunities to make money rather than as opportunities to cash out.
Inc.: Are women's businesses today more likely to attract venture capital?
McLemore: Yes. There are many more women in technology, biotech, and software. Women are starting more companies that might go public or be acquired, whereas before there were more women in retail or service businesses.
Inc.: What's the impact of the decision not to give up equity?
McLemore: The businesses could grow faster than they do. The owners also aren't able to avail themselves of the expertise and connections that some VCs can bring.