Female Start-ups in Germany - Women Continue to Lag Behind Men as Entrepreneurs

Start-ups are important for keeping economies innovative and competitive. Yet there is much potential for more start-ups by women, who continue to be underrepresented among the self-employed. ZEW researchers Dr. Sandra Gottschalk and Dr. Michaela Niefert explain why.

Dr. Michaela Niefertworks at ZEW’s Research Department of Industrial Economics and International Management. She studies start-ups and small- to medium-sized businesses with a focus on the determinants of start-up activity and the performance of young companies. She specializes in start-ups by women, start-ups by the unemployed, and spinoffs from existing companies.

Dr. Sandra Gottschalk works at ZEW’s Research Department of Industrial Economics and International Management. She studies topics relating to business start-ups and closures. In particular, she investigates how the human capital of company founders affects performance, the likelihood of closure, and the development of young companies. Her research also focuses on anonymization methods for company data.

Based on the data of Germany’s microcensus, the number of female self-employed individuals has increased constantly over the past 20 years. The share of women among the self-employed increased from 26 per cent in 1991 to 32 per cent in 2011. Are women on course to catch up with male company founders?

Niefert: At first glance, this appears true. But a closer look shows that the women who become self-employed usually don’t have employees and their self-employment is often only part time, sometimes supplemented by dependent employment. Only into these forms of self-employment have entered more women in the past ten years. By contrast, the number of female-founded start-ups with employees and the number of women who became self-employed full time have hardly changed.

Those who are self-employed without employees or self-employed part time are not likely to have companies that make large-scale investments and assume entrepreneurial risks. The majority of the entries into self-employment recorded by the microcensus are not start-ups in the proper sense. This is different for the start-ups registered in the Mannheim Enterprise Panel (MUP) which is based on a narrower definition of “company”. According to these data, the share of German companies started by women since 2003 has even declined. Therefore, we can’t speak of women “catching up” to men.

How does the performance of companies founded by women measure up to those founded by men?

Gottschalk: By all performance metrics used in our analysis, companies founded by women do worse on average. Employment growth, revenue, and profitability are less, and the share of companies that shut down within the first ten years is higher. What’s more, companies started by women undertake less research and development, and are hence less innovative.

In the past ten years, start-ups by men and start-ups by women have converged in certain respects. This mainly concerns the number of employees and employment growth at new companies. For the most part, this convergence can be attributed to the general movement to more solo start-ups, and in which the number of companies founded by men without employees and without employee growth is large. In other words, start-ups by men and start-ups by women have converged because the situation of companies founded by men has worsened on average.

Why do women perform worse than men?

Gottschalk: There are significant differences between the sexes with many of the observed characteristics of company founders and their companies. In comparison with male founders, female founders have a lower level of education. This is astonishing because the number of employed women in Germany who have a university degree hardly differs from that of men. Moreover, female founders have less professional experience, especially as managers. Women tend to start companies in small teams and invest less start capital. They are more likely to start a company out of necessity, which is to say, due to a shortage of employment alternatives, while men tend to pursue a specific business idea.

Are women more likely to start companies in specific sectors, and if so, which?

Gottschalk: The share of women start-up founders is around 22–24 per cent. It is above average in retail (26–30 per cent) and in consumer oriented service sectors (30–34 per cent), which is to say, in economic branches that are not technology intensive, less innovative, and ultimately less growth oriented. In the high-tech branches, by contrast, the share of start-ups by women is very low. This is due of course to women’s choice of profession. Women continue to be interested to a lesser degree in technology educations and decide far less than men for courses of study in engineering or computer science. Hence, the number of women who can gain a footing in new technology based industries which offer a large growth potential is small.

What does the development you discuss mean for Germany’s economy?

Niefert: The number of start-ups in Germany has been declining since the end of the 1990s. In view of the large importance that start-ups have for economic innovation and competitiveness, this is a problematic development. The hope that women could help reverse the downward trend with more start-ups has yet to be fulfilled, as our studies have shown. In addition, the rate at which women start companies in technology oriented industries important for competitiveness continues to be low. A hopeful sign comes from recent developments in the high-tech manufacturing sector. The number of companies started by women since 2006 has increased markedly, with the share of women start-ups going from 11 to 15 per cent. This may be an indication that women are gradually penetrating the high-tech sector and are increasing their contribution to the economy’s innovativeness.

What kind of policies should be introduced to motivate women to start their own companies – especially in sectors that have been less attractive so far?

Niefert: One goal should be to increase the number of women who are qualified to start companies in technology oriented industries. Measures that encourage women to choose a technological profession or a MINT field of study are on the right track. The extent to which policy measures can activate the potential of female founders and persuade more women to found start-ups is unclear, however. There are a number of measures to promote and assist start-up founders (men and women both), starting already at the university. But in many cases their effectivity is not conclusive. Whether measures directed specially to women have their intended effect is likewise not certain. A more comprehensive change in mentality leading to a greater share of women in management positions and to the assumption of greater responsibility by women would also have a major effect on start-up activity.