Girl Power - to scale or not to scale that is the question?

Female-led business UK

A new UK Government report published this week shows progress in boosting investment in UK women entrepreneurs. 

The 2019 Rose Review (CEO of NatWest Group) found that the main difference between male and female led Small and Medium sized Enterprises (SMEs) was that male owned SMEs are 5 times more likely to scale up to £1million turnover than female owned SMEs. ​

Is this a deliberate choice that women make, or do women who choose not to scale their business lack ability and/or ambition?

Or are women-led micro business owners fully aware of the demands involved in scaling up a small business, and instead choose to prioritise flexibility, family time and/or personal satisfaction over financial return? 

​Read on to find out. 

UK women-led companies an overview
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The Gender Index (whose headline partner is NatWest Group) is the largest research study into female entrepreneurship ever undertaken.

It found that 16.8% of all active UK companies are women-led and 20% of all new companies incorporated in the UK in 2021 were women-led. 

98% of all UK companies are classified as micro or small.

The largest percentage of women-led companies was in the micro-sized companies category (17.1%) with 0-9 employees. 

The smallest percentage of women-led companies was in the medium-sized companies category (9.8%) with 50 - 249 employees.

How successful are women-led UK companies?
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Latest BEIS figures state UK women-led SMEs contributed £85 billion to economic output (16% of the UK SME approximate Gross Value Added total). ​

According to research conducted by McKinsey & Co in 2019, women-led businesses are only 44% of the size of male-led businesses on average, in terms of their contribution to the economy. 

And, women-led high-growth companies lag significantly behind their male counterparts.

The percentage of women-led high-growth companies that successfully raise capital from investors is even lower. 

The lowest percentage of women-led high-growth companies is reported to be in the North East at 6%.

The Gender Index found that women-led high-growth companies are most frequent in small companies (11.2%) and least frequent in medium-sized companies (6.3%).

Their 2022 report also concluded that there was no conclusive correlation between the size of a company and its leadership, although female leadership does tend to decrease as the size of a company increases.

The Rose Review found that women are just as successful as men in sustaining a business once established.​ With the Gender Index reporting that turnover growth by percentage and company size favoured smaller companies which outperformed their larger counterparts.

The difference in turnover growth between micro-sized women-led and small women-led companies was 0.5%, where the former had a turnover growth of 55.9% in the period 2018-2021 while the latter had a turnover growth of 55.4%.

​Large women-led companies were next in terms of turnover growth (14.2%) while medium-sized women-led companies saw the least turnover growth (11.7%).

What is self employment? 
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Self-employment is defined as the state of working for oneself as a freelancer or the owner of a business rather than working for an employer.

The self employed can run their own limited company, operate as a sole trader or work through a partnership.

​The self employed may or may not have employees. 

​It is estimated there are 5 million self-employed people in the UK. 

Why do people choose self employment?
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A common misconception of self employment is that people choose self employment because they have no other alternative. Although this is true in some cases, it is not true in all cases.

According to the Association of Independent Professionals and the Self-Employed (IPSE) people are moving into self-employment and freelancing for overwhelmingly positive reasons:

• more flexibility,
• the freedom to choose when and where they work, and
• for improved work-life balance. 

The IPSE define freelancers as the sub-section of the self-employed workforce who work in highly skilled managerial, professional and technical occupations. 

It is currently estimated that 2.1 million freelancers operate in the UK, 58 per cent are male and 42 per cent are female. 
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​According to a study by the Institute for Fiscal Studies the self-employed (including freelancers) had higher levels of job satisfaction, were more likely to report being happy and to consider their lives worthwhile, and reported lower levels of anxiety than employees.

​The study concluded that there may be non-pecuniary benefits that compensate for lower earnings, even for those who only became self-employed as a result of poor labour market opportunities.

​2020 BEIS research also found that 3 times as many entrepreneurs are motivated by a desire to do something for themselves rather than for financial reasons.

Does previous experience make a difference to women-led success?
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According to a 2020 UK entrepreneurs BEIS report, not directly.

​But, indirectly BEIS research found that entrepreneurs (both male and female) who had a career prior to starting a business, are well-qualified and sourced their business idea from their job, are more likely to successfully start a business and have higher turnover and higher productivity. 

​​Research conducted by McKinsey & Co in 2019 found that female entrepreneurs were almost as likely as male entrepreneurs to have senior management experience, with 13% of women business owners having run departments and 8% having held top management roles, compared to 13% and 10% of men respectively. 

Does a gender pay gap exist? 
​

IPSE research found that men charge on average 43 per cent a day more than women for their freelance services.

In 2021, the Metro newspaper reported that UK female freelancers are paid 19.5% less than male freelancers. 

IPSE research concluded gender pay disparities reflected an undervaluing of women’s competences and skills on the side of the employer and offering lower pay for female candidates with similar skills, qualifications and experience to men.

​IPSE suggest women are paid less than men because 35% of all self employed female workers (1.46 million women) surveyed do not know how much to charge for their goods and services. ​

Are women more risk averse than men?
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Researchers from Cass Business School and the University of Bristol concluded that yes, women are more risk averse than men.

But this was not the whole story.

Their research also found that optimists and Type A competitive personalities are less risk and loss averse than pessimists and Type B laid-back personalities.

And, Guardian readers are most risk and loss averse, while Financial Times, Times and Telegraph readers are the least risk and loss averse. 

Do women-led micro businesses lack ambition?
​​

No. The evidence suggests the opposite. 

20% of all new companies incorporated in the UK in 2021 were women-led. With the largest percentage of women-led companies in the micro-sized companies category (17.1%) with 0-9 employees. 

The difference in turnover growth between micro-sized women-led and small women-led companies was 0.5%, in the period 2018-2021. ​
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Women leadership decreases as the size of a company increases. Whilst, self employment is associated with higher levels of job satisfaction and lower levels of anxiety.

Women may choose self employment in response to a negative experience as a senior manager e.g. burnout.  

Freelance females can increase their turnover by increasing their ability to know how much to charge their customers. 

Conclusion
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If you want funding to scale your women-led business, now may be the best time to get accepted. 

However, it's worth considering the future of the UK economy, inflation, interest rates and the impact this may have on your business in the short and medium term.

Borrowing a large sum of money now to grow your business may increase the risk of cash flow problems later, especially if you are reliant on just one or two customers for a large percentage of your profits.

Alternatively, reducing your costs will increase your profits, which makes great business sense. 

The opportunity cost is the potential benefits a business misses out on when choosing one alternative over another (funding vs cutting costs).

Understanding the opportunity cost will lead to better decision making.

Author

Naomi Clews is a UK female entrepreneur who started her own procurement consulting business Naomi Clews Consultancy Limited in 2016. 

Naomi works with her clients to help them to save money, secure business and develop skills. Find out more here.