Despite earning less revenue in their first year, experiencing slower growth in subsequent years, and being far less likely to receive external funding, female-owned small businesses are just as resilient as their male-owned counterparts.
Small businesses founded by women earn an average of 34% less revenue in their first year, according to a recent report by the JP Morgan Chase Institute. Four years later, they have a median revenue of $68,000, compared to the $104,000 earned by male-owned firms. And only 18% of small businesses that receive external financing are owned by women. Despite these challenges, the study found that male and female-owned businesses have nearly identical survival rates.
The study also found that small businesses founded by entrepreneurs over the age of 55 are the most likely to survive, and least likely to have employees.
Cash is King
The study. which analyzed the transaction data of 1.3 million small business customers over a more than five-year period, also found that female entrepreneurs tend to have more cash on hand, despite earning less revenue.
“Maybe they’re starting smaller, but they’re holding more cash, which is counterbalancing their ability to survive,” explained Chris Wheat, the director of business research at JP Morgan Chase Institute and one of the report’s co-authors. Other studies have found that 82% of small businesses fail as a result of poor cash management, making cash flow a strong indicator of potential longevity.
Wentworth explains that small business owners can improve their cash flow management–and their likelihood of survival–by waiting as long as possible to pay their bills and using business credit cards to further extend their payment timelines.
“If that bill is due in 30 days, you don’t need to pay it any sooner,” he says. “Wait until day 29 to pay it, and you can hold onto your cash for those 29 days.”
Wentworth adds that entrepreneurs can also improve their cash flow by finding ways to collect payments faster, such as accepting electronic payments rather than waiting for a check to arrive by mail.
Wentworth says he’s not surprised by the study’s findings because men and women approach small business management differently.
“Guys are ready-shoot-aim, whereas females, in my experience at least, are much more methodical about it,” he says. “They’re better at knowing what they don’t know and seeking professional help.”
Like the clichéd story of a man refusing to stop and ask for directions, Wentworth believes it’s the same ego that pushes them to take bigger risks as small business owners, resulting in the same business survival rate as women despite enjoying higher revenues and receiving more external financing.
Chinwe Onyeagoro, the CEO of mobile small business scheduling, payment and management platform PocketSuite, suggests those discrepancies impact everything from pricing to marketing to customer service.
“Women are actually more competitive in their pricing, and are therefore able to get longer, more recurring business from the same clients,” she says. “Considering the cost to acquire a customer, if you can amortize that over a longer period of time you can actually make much more money from a lifetime value perspective.”
Onyeagoro adds that female entrepreneurs are also more likely to ask family and friends for assistance, while men are typically quicker to hire staff or pay for contractors. In fact, the JP Morgan Chase Institute study confirms that by year three only 6.3% of female small business owners employ any staff, compared with 7.5% of their male counterparts.
“The third and most important is that women-owned businesses are obsessed with building loyalty,” says Onyeagoro, who suggests they’re more likely to send birthday cards to customers and keep notes on their personal preferences. “They really build that sense of loyalty that makes it difficult to leave even if the pricing over time is better or the marketing is more pronounced elsewhere. Those three things allow women to be more cash efficient as they’re running their businesses.”
Older the Most Resilient
The study also found that when it comes to stability, no entrepreneur is more likely to stay in business year-after-year than those over the age of 55, who are also the least likely to employ staff.
“It makes sense to me that they wouldn’t be hiring, because they’re more about leveraging their existing skillsets than trying to build a large business,” says Onyeagoro. “Many also have a pension or a 401(k) they’re drawing from, so they can support the business through lean times.”
Onyeagoro explains that the average business owner over the age of 55 is likely offering a professional service that aligns with their previous job experience, typically as a contractor or consultant. As a result, they’re rarely able to hire, rarely have significant operating expenses, and often have other income sources that can help keep the business afloat over a longer period.
These findings, according to the study’s co-author, demonstrate how most American entrepreneurs don’t fit the mold of how they’re often depicted in popular media. Wheat explains that many imagine entrepreneurs as young males running a technology startup from a garage, surviving on ramen and fast food, and working 18 hours a day with the goal of building a major, disruptive corporation. Family, children and dependents often don’t factor into that perception.
“There is a casual view of the small business owner as a young person who is in a particular household situation that doesn’t have those features, but our research and other research brings to life the reality that many small business owners in fact are at an age where they’re thinking about that household family balance,” he says.
Wheat adds that for most small business owners, the financial outcomes of the business are the financial outcomes of the household, not just the individual. In fact, research has found that small business owners are more likely to be married and have children than the general population, and their average age is 50.3.
Wheat hopes the study will help challenge that perception and ultimately encourage support for a wider swath of the small business community.
“We’re trying to help people connect those two conversations; one about making households and families work, and a separate conversation about small businesses and its contribution to the dynamism and growth of the economy,” he says. “We want to bring those two conversations together and shine a light on the ways in which policies that may have been thought of as affecting one set of outcomes can also impact the outcomes in the small business sector.”