In certain parts of the country, entrepreneurship is booming. A well-educated creative class clusters in tight networks that easily attract bank loans, birth new businesses and create exciting jobs. But this opportunity paradise is far too concentrated, and even within these areas a whole segment of the population seems forgotten, namely women and women of color.
A new Third Way report from economists Susan Coleman and Alicia Robb found that less than 20% of all businesses with paid employees are owned by women.
This statistic is not only shocking — it helps explain the nation’s economic unease. New businesses are often the engines for future job growth. While some of these minnows quickly perish, many others survive, expand and hire.
When entrepreneurship becomes so concentrated, it means that economies in many areas lack key drivers of growth. Of the 3,142 counties in the United States, according to the non-partisan Economic Innovation Group, just 20 are home to half of all new businesses. Furthermore, in 2014 only 8% of all businesses were new, compared to 13% in 1980. Something is missing.
We refuse to believe the problem is a lack of entrepreneurial potential or great ideas. Instead, it is places and people who are overlooked. Just two out of every 100 businesses with paid employees are owned by a Hispanic or African-American woman. Female entrepreneurship is also geographically concentrated in large metropolitan areas. American Express last year found New York City, Los Angeles, Miami and Chicago led in the number of women-owned ventures. We must replicate this success in other parts of the country, so women of all backgrounds can pursue dreams of business ownership.
If women of all backgrounds were to start businesses at the same rate as men, there would be 1.7 million more businesses in the U.S. today employing millions more, the Kauffman Foundation’s State of Entrepreneurship says. Think of the abounding economic opportunities if these businesses were growing and hiring.
So why are women behind in entrepreneurship? Coleman and Robb say women-owned firms face an array of unique cultural and financial challenges, starting with education. Certain scientific fields produce entrepreneurs at a higher rate but have male-dominated cultures not always welcoming for women.
Access to capital, like bank loans and investors, also looms large. Women startup owners typically launch their businesses with 25% less capital than men. Once they get off the ground, female entrepreneurs struggle to get noticed in the world of venture capital, which takes small companies with big ideas and transforms them into multibillion-dollar operations like Facebook and Airbnb. Venture capitalists funded one women-owned startup for every eight men-owned startups in 2014. Hispanic-owned and black-owned businesses of any gender were only 6% and 2% of VC-funded startups, respectively.
Entrepreneurship isn’t just about finding the next tech superstar. It is a proven pathway out of poverty. For countless women, starting a small business has transformed their earnings potential, lifting their families to brighter futures. Their success creates jobs, often in economically distressed areas .
Reasonable members of Congress ought to agree that fostering entrepreneurship and economic empowerment is a bipartisan priority. If there’s any problem that can motivate both parties to work together, it is a shortfall of nearly two million American businesses.
It’s time for policymakers to act. We must set higher goals for women’s business ownership, government contracting and raising capital; expand low-cost, government-guaranteed small business loans; strengthen technical assistance and counseling for budding entrepreneurs, and incentivize the private sector to be part of the solution. We must also reject the Trump Administration’s proposals to cut 5% of the U.S. Small Business Administration’s funding, eliminate funding for community development financial Institutions and abolish the Minority Business Development Agency.
Women are increasingly leaders in our economy. Their resilience, persistence and creativity often make them a natural fit for entrepreneurship. Washington should provide tools for more of them to succeed.
Velázquez is the top Democrat on the House Small Business Committee. Cowan is President of Third Way.
