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Why Scandinavian Women Build Bigger Businesses Than Americans

Call it a calculated risk. Camilla Ley Valentin, the mother of two little girls, earned three times her husband’s salary when she decided six years ago to leave her corporate job in Denmark to start her own business. It was also the start of the Danish financial crisis.

But neither the financial nor familial factors deterred her. “I had the confidence that the business would succeed,” Valentin recalls.

It has. Valentin’s company, Queue-It, which launched in 2010 with software to help websites to deal with heavy user traffic, saw customer growth of 60 percent over the past year – and expects another 60 percent growth in the coming year. It has customers on every continent, and has been cash positive for three years.

Denmark, unlike the United States, provides Valentin with a robust social safety net to catch her if she falls. In this way, her entrepreneurship experience differs from most American female entrepreneurs. Yet the United States still has a larger share of female entrepreneurs than most Scandinavian countries. A new study shows one reason why: The primary motivation of U.S. women business founders is the marriage of work and family. While Danish women can more easily meld both regardless of their profession, American women turn to entrepreneurship for the the flexibility to combine the two.

That’s not necessarily a good thing: While the United States has a greater proportion of women entrepreneurs than many other countries, far fewer of their enterprises are growth-oriented, producing high levels of income and job creation. One of the reasons, according to “Business as Plan B: Institutional Foundations of Gender Inequality in Entrepreneurship across 24 Industrialized Countries” by sociologist Sarah Thébaud of the University of California, Santa Barbara (and author of the aforementioned study), is that U.S. women entrepreneurs often are pushed into self-employment out of necessity: For instance, when they encounter inflexibility in standard wage or salary jobs that makes it impossible for them to balance caregiving and breadwinning responsibilities. In other words, women in the U.S. tend to start businesses not to become the next Steve Jobs but as a fallback employment strategy.

Thébaud’s study, published in November’s Administrative Science Quarterly, examines gender inequalities in entrepreneurship across industrialized countries. She analyzes survey data from 24 countries—including the U.S.—between 2001 and 2008 and finds that the absence of family-friendly work policies pushes many women to start their own businesses to gain more control over their work schedules and locations.

But women who live in other countries that offer more supportive work-family policies, particularly subsidized child care and paid leave, do not feel compelled to exit jobs in the traditional labor force to start what some might call a “mom and pop” shop to gain time with their families or a escape an unforgiving corporate schedule. Instead, Thebaud finds that in countries where governments mandate generous amounts of paid family leave, women who do start businesses tend to build larger, higher-impact, and more scalable enterprises. They employ more workers and express bigger product, service, and growth ambitions. Theirs is a “lean in” entrepreneurship, rather than a “fall back” business.

When we dig into what having more entrepreneurs really tells us about countries with particularly high levels of them, more isn’t necessarily better.

“People start businesses more outside of the U.S. because they don’t have opportunities, and need to create their own,” says Elmira Bayrasli, author of the new book From the Other Side of the World: Extraordinary Entrepreneurs, Unlikely Places, pointing out that only 14 percent of the U.S. population is involved in entrepreneurship. “In places where there are greater challenges, you’ll see a much greater incidence of entrepreneurship. In Scandinavia, where there are good government services and infrastructure, there are fewer opportunities to go out and solve a challenge” the way there might be in Nigeria.

When you see women starting high-growth enterprises, they are pursuing a particular opportunity, Bayrasli notes.”The type of entrepreneurship they are engaged in is much different than the necessity entrepreneurship” you might see in a developing nation. And it’s different from the “necessity entrepreneurship” you see in the U.S. from women struggling in a family-unfriendly business and public policy environment because subsidized childcare and paid leave are nonexistent or minimal.

Sweden further illustrates this gender and entrepreneurship dynamic. It has a higher labor force participation rate by women in part because it offers paid leave and child care. A smaller proportion of women start businesses there than in the United States, but the women-owned startups are more growth-oriented (defined in Thébaud’s study by number of people employed, expected number of additional hires, use of new technologies, and new product/service offerings).

It’s not just family-friendly federal policies that make a difference: Corporate culture can influence entrepreneurs, too. Valentin explains that in Denmark, women are able to work fewer hours and more flexibly than they might be able to in the United States. She notes that, in Denmark, rush hour is between 3:00 and 4:30 p.m., a mass exodus of parents from their offices. What’s more, corporate maternity benefits can be more generous than state ones, a disincentive for women to leave their jobs when they have kids. In short, Danish women aren’t pushed into entrepreneurship by work-family tensions that cannot be achieved in a standard job. They better fit the classic model of entrepreneurship, in which market opportunities, wealth creation, and autonomy drive the person.

When countries enact policies to support workers with caregiving responsibilities, what remains is a “select group of women entrepreneurs motivated by a desire to build larger, more innovative organizations that will have a more substantial impact on the economy and job growth,” says Thébaud. They want to build wealth and products and not be relegated to a lower status type of entrepreneurship just because they are parents.

Nell Derick Debevoise, the CEO and Founder of Inspiring Capital, a consulting and training firm for social-impact businesses and professionals, says that research tracks with what she’s seen working with many American women starting businesses. They’re in it “to generate some income, use their training and talent and keep themselves engaged, but don’t have plans to grow beyond themselves or perhaps an employee or two,” she says.

That doesn’t mean that the women who start small businesses in the U.S. always want them to stay that way. “There are many female entrepreneurs in the U.S. who would like to grow their businesses to create jobs, but there are significant obstacles to them even having this aspiration, much less realizing it,” Debevoise says. Those barriers? The venture capital model often isn’t the right funding model for female business owners, “who tend to grow their businesses more organically while, by the way, having higher profitability margins, lower burn rates and longer survival,” she says. There’s also a lack of venture capital and seed investment allocated to women-led or owned businesses (due in part to predominantly male leaders at VC firms), and stereotypes around female business owners that can keep women thinking small.

Opening a small business because it reflects your dreams and desires is laudable. But many women in the U.S. do so not because they so strongly want to, as Valentin did, but out of an absence of any real choice. They are pushed into it as a fallback plan, with its inherent vulnerability, given the risks of failure and loss of personal financial resources, and with limited resources to help their business grow (in a culture that actually hinders it from doing so). Women and their families are forced to bear the costs. Call it an uncalculated risk.

Authors:

Elizabeth Weingarten is the director of the Global Gender Parity Initiative, a project of the Better Life Lab where she is a senior fellow.

Nanette Fondas is a scholar, educator, and co-author of The Custom-Fit Workplace.