It's True! Women Led Businesses Outperform Their Peers

Do Women-Led Businesses Outperform Their Peers? | Is it true that women-led businesses outperform their peers, and if so why is this? Click through to discover the answer.

Do Women-Led Businesses Outperform Their Peers? | Is it true that women-led businesses outperform their peers, and if so why is this? Click through to discover the answer.

Last week I had two conversations about the representation of women in the leadership roles of a business group I’m part of. One person fully agreed that more women should be better represented on the leadership team. The second person disagreed, stating that appointments should be made ‘on merit,’ and take account of the number of women in the group.

As a result of these conversations, I decided to remind myself of the evidence that women-led businesses outperform their peers. But first some facts about female entrepreneurship to set this evidence in context.

THE FACTS ABOUT FEMALE ENTREPRENEURSHIP

The fact is, that while the number of women-led businesses is on an upward trend globally, men outnumber women in entrepreneurship by around 2:1 and even fewer women run mature businesses. This incidentally is why I’ve made a point of writing about the success of women like Anita Roddick, Chrissie Rucker and Liz Earle, and companies like Neptune where the owners are 50% women. (See below for links to these articles).

While the highest participation in female entrepreneurship can be seen between 25-34 and 35-44 year olds, it will take years, if not decades, before the number of women-led businesses achieves parity with the number of led by male entrepreneurs. This is because female entrepreneurs encounter greater challenges which include:

  • Starting their business from a position of economic inactivity (men are likely to move from employment to self-employment) which can mean a difference in skills and networks from the outset.

  • Difficulties accessing finance, with men 86% more likely than women to receive venture capital funding, and 56% more likely to secure angel investment.

  • Greater responsibility for looking after the family and home.

You can read more about female entrepreneurship in this report for Global Entrepreneurship Monitor.

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IS THIS SIMPLY AN ISSUE OF FAIRNESS AND EQUALITY?

For decades, women's advancement has been seen simply as an issue of fairness and equality. But a wealth of research has also established that supporting women-led businesses is profitable: businesses with greater numbers of women in positions of leadership outperform their peers. Here are just three examples:

  • One of the earliest such studies examined companies on the Fortune 500 list over a four-year period. Researchers for Catalyst found that the group of companies with the highest representation of women on their senior management teams made a 35% higher return on equity and a 34% higher total return to shareholders than the companies with the lowest women’s representation.

  • Quantopian, a Boston-based trading platform, looked at 80 Fortune 1000 companies that had women CEOs between 2002 and 2014. Those companies produced equity returns 226% higher than the S&P 500during that same 12-year period.

  • The McKinsey & Co. study, “Women as a Valuable Asset,”concluded that “companies where governing positions are held both by men and by women have higher operating margin and market capitalization in the respective industry.”

Why should this be? One explanation is that women typically work differently to men in the way they approach problem-solving and relationship building. Put simply, group dynamics are more likely to show significant improvement where women are in leadership roles. Competition gives way to cooperation. Teams become genuinely collaborative, with shared objectives and mutual trust. And it’s this trust which drives team better performance.

Research has also substantiated that businesses characterised by a high degree of trust outperform their peers. High-trust organisations have higher productivity, greater knowledge sharing, increased innovation, lower employee turnover, lower costs, and less fraud and wrong doing.

Researchers at Cornell University’s School of Hotel Administration uncovered a stunning correlation between trust and profit. Those U.S. and Canadian Holiday Inn hotels where employees strongly believed their managers kept promises and practiced the values they preached were more profitable than those where managers were deemed to be less trustworthy. Just a one-eighth-point improvement in a hotel’s trust score (on a five-point scale) increased that hotel’s profitability by 2.5% (of revenues).

And who is generally better at building trust relationships? Research says women.

WOMEN-LED BUSINESSES DO OUTPERFORM THEIR PEERS

A thorough review of academic papers regarding gender differences in trust and reciprocity determined, however unpalatable that conclusion, that men “are less trustworthy than women.” This may be a difficult outcome to accept, but the data seems to support this conclusion. Data gathered from thousands of managers from across all industry sectors operating across 40 countries indicates that men are “consistently more arrogant, manipulative and risk-prone than women.”

The unavoidable conclusion is that women-led businesses do outperform their peers, and this is at least in part because women are better at collaboration and at engendering trust, the business value of which has only recently been acknowledged.

Question: What are your thoughts about these conclusions? In your experience, do women-led businesses outperform their peers? I love reading your feedback so please do take a moment to share let me know in the comments box below.

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