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The Unnatural Selection of Male Entrepreneurs

March 05, 2014

Although entrepreneurship rates vary from country to country, anywhere in the world there are many more male than female entrepreneurs.


First, women are financially more risk averse. The odds of success for start-ups are lower than 15%, so you need a fairly big appetite for risk to launch a new venture, especially when the economy is solid.

Second, women are typically more patient than men. As a consequence, they tend to tolerate incompetent, abusive, and bullish bosses for a longer time, instead of quitting their jobs to launch a business.

Third, there is yet to be a market that is as friendly to female as male entrepreneurs. Indeed, women are universally disadvantaged when it comes to raising capital from VCs, obtaining loans, and impressing shareholders.


However, many typically “feminine” personality characteristics are essential for successful entrepreneurship. For example, risk aversion protects entrepreneurs from failure by highlighting potential threats and anticipating problems. Unsurprisingly, higher risk-taking increases the propensity to launch a business, but does not correlate with greater start-up success. In fact, conscientious and prudent founders tend to do significantly better. Likewise, being more patient and less volatile is beneficial not only when you work for others, but also when you are running your own business.

Importantly, the women who do become start-up founders are overwhelmingly happy with their choice: they report higher levels of job satisfaction and a better work-life balance, even when they work more to earn less. And business ownership is an important avenue through which women can break through the glass ceiling encountered within established organizations: as one would expect, societies that support female entrepreneurship have higher rates of self-employed women and female business owners.



Second, we can bet on competence rather than confidence. Just like a lack of barriers for incompetent (but confident) men explains the under-representation of female leaders, a lack of barriers for overconfident entrepreneurs explains the higher proportion of male-led start-ups. The solution, then, is for investors to bet on actual rather than self-perceived talent: this may not only increase the number of women entrepreneurs, but also the average odds of success for start-ups: firms managed by female CEOs have higher performance than firms managed by male CEOs. In addition, gender diversity in senior management boosts company revenues and profitability. For example, a study of Fortune 500 firms showed that companies with more female executives outperform their sector competitors in terms of profitability and valuation. (And yet, C-level women are still paid less than their male counterparts.)

Finally, we can remove the financial constraints that are holding female entrepreneurs back. Although entrepreneurship is often an antidote to the glass ceiling in corporate management, there remains a financial glass ceiling for female entrepreneurs. Since sex differences in entrepreneurial potential and interests are negligible, merit-based funding should not have an adverse impact on women. However, studies show that female entrepreneurs face tighter credit availability, and sometimes higher interest rates, than men do. Reassuringly, research also shows that although women are substantially less likely than men to seek financial backing from angel investors, they are equally good at obtaining it.

And an important note: gender inequality is not always a result of the battle between men and women. Female lenders and funders are less likely to give credit to female than male entrepreneurs, too.



This article is about ENTREPRENEURSHIP
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