Why are women- and minority-owned businesses pulling in a smaller-than-average piece of the pie?
Bigger isn’t always better, but the small sizes of women- and minority-owned companies may be a cause for concern.
Minority women might be the fastest-growing group of entrepreneurs in the U.S., yet businesses owned by women and minorities bring in far less revenue than firms with male or non-minority owners, according to the Pew Research Center’s analysis of Census data.
In 2012, when the data was collected, women owned 36.2% of businesses, but earned only 11.3% of the revenue. While there are undoubtedly occupational differences between men and women, the disparity continues when you zero in on female-dominated industries. For example, women owned 64.5% of health care and social assistance companies in 2012, but received just 19.9% of that industry’s $703.5 billion in revenues, according to Pew.
Minority-owned businesses, which include companies owned by blacks, Asians and Hispanics (who can be of any race), made up 28.6% of businesses in the U.S. However, these firms brought in only 10.4% of revenue. Like women-owned companies, minority-owned businesses are heavily concentrated in a few sectors. In 2012, nearly 20% of health care and social assistance firms were owned by blacks, while nearly 19% of accommodation and food services firms were owned by Asians.
Pew Research Center
Female- and minority-owned businesses also tend to be smaller than male- and white-owned companies. Among companies with employees, those owned by women employed an average of 8.5 people in 2012, vs. an average of 13.5 people for those owned by men. Firms owned by minorities had an average of 8.4 employees in 2012, compared to an average of 12.6 employees for non-minority-owned companies.
One likely reason for the size differential? A lack of investors. According to a White House fact sheet, only 3% of venture-capital backed startups are led by women, and only 1% are led by blacks. The Department of Commerce has also found that women are less likely to launch their businesses with the help of outside investors than men are, while the Small Business Administration reports that, on average, women- and minority-owned small business operate with significantly less capital than that of their male- and white-owned counterparts.
Anyone following the research will tell you that investing in diverse companies is good business. Venture capital firm First Round found that, among its portfolio companies, those with at least one female partner performed 63% better than companies with all-male teams. Meanwhile, a McKinsey & Company study found that, for companies ranking in the top quartile of executive-board diversity, returns were 53% higher than they were for those in the bottom.
So what are investors waiting for?
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