Public Policy Forum Blog

Worth the risk for some female small business owners

The Women’s Initiative for Self-Employment, a nonprofit program in California that helps low-income women start their own businesses, presented findings at this month's Summit on Economic Justice for Women in Atlanta showing microenterprise to be a successful strategy for increasing household income and wealth.

It seems that starting a small business would be even riskier for low-income women with no prior business experience, but some evidence shows the growth in business equity could be a worthwhile strategy to break the cycle of intergenerational poverty.

While many anti-poverty efforts focus on increasing income, emphasis on building asset ownership and wealth could prevent "asset poverty" and provide a safety net for long-term self-sufficiency. Business ownerhip is an important route to increasing assets: as a share of overall household wealth, business equity ranks second to homeownership.

Research cited by the Small Business Association is grim, showing that over half of new small businesses do not survive four years. Despite the risky environment, Women’s Initiative clients, all of whom are low-income at program entry and 78% of whom are women of color, are doing well. Seventy percent of program graduates are in business within a year of training, and 133 graduates report businesses grossing a combined $2.9 million, with net profits of $1.3 million. Annual household income for participants entering the business training program is just $14,000, but two years after training, average income is $37,000.

One key to the Women’s Initiative’s success may be cultural competency. Training is available in Spanish, and with microenterprise, it may be easier than in a traditional corporation to maximize cultural ties as an asset rather than a barrier. For instance, women of color may choose to start businesses that relate to their cultural backgrounds or feature their non-English language skills (46 percent of Women's Initiative clients are Spanish-speaking).

Minority groups in the U.S. have larger shares of women business owners, including 31 percent of Asian American and 46 percent of African American business owners. The Women’s Initiative organization found the greatest gains from their intervention for women of color, especially from Latina clients whom, as a group, tended to begin the program in debt with an average net worth of -$5,684. African American clients reported the greatest average absolute growth in business equity, while Latinas saw the largest relative gains in business equity, growing over 300%, and the largest gains in average overall household wealth. Rates of home ownership (a key marker of asset wealth) increased most rapidly for Latina clients as well, growing from 11 percent before training to 32 percent after participation.

Nationally, women own 28 percent of non-farm U.S. firms. Only 14 percent of these firms employ workers, and almost 80 percent had receipts totaling less than $50,000 in 2002. While those dollar figures are small, Wisconsin's 104,200 women-owned small businesses generated a substantial $17.6 billion in revenue in 2002, the latest year available. A 2004 study showed that Wisconsin is a good place for African American women entrepreneurs. Wisconsin ranked among the top states in survival and employment of businesses owned by African American women. Female business owners in Wisconsin receive support from the Wisconsin Women's Business Initiative Corporation.

Some skepticism about microenterprise as a route to wealth may still be warranted, given that many Women’s Initiative clients created their ventures in fields with traditionally low profits, such as child care, housekeeping, and food service. The fact remains that female-dominated professions like child care and housekeeping tend to be less lucrative than, say, defense contracting, or financial trading. Following Women’s Initiative training, nearly 17 percent of clients still lacked health insurance, though that share is fairly low for a recently-low-income group.

While microenterprise efforts might not lead women to head firms in traditionally male-dominated, highest-net-worth arenas, low-income women can make impressive leaps in assets in the risky small business ownership environment.