The age and gender dynamics behind the small business sector are shifting like never before. This move is critical for the overall United States economy as a whole because small businesses, those with fewer than 500 employees, are a major economic driver.
A report from JPMorgan Chase Institute found that the number of small businesses owned by women has increased from 4.6% in 1972 to 36% in 2014. Small business owners are younger today, too—people aged 35 to 54 own the majority of the firms.
“Understanding their experiences is critical to understanding the financial health of the small business sector,” the report states.
Published in February 2019 by researchers Diana Farrell, Christopher Wheat, and Chi Mac, the study looked at the financial transactions of 1.3 million American small businesses.
“Do women, young people, or older business owners make different decisions about how to finance their businesses and whether to hire employees?” the researchers wondered. “What relationships exist between those decisions and firm growth rates or revenues? Answers to these questions could help advocates develop more effective programs or policies to benefit small business owners as well as determine if existing targeted programs are achieving better business outcomes.”
Though the gender and age demographics of small business owners are changing today, the data suggests that both female and younger business owners face unique challenges when it comes to growing revenue.
The researchers discovered 4 key findings after sifting through all of the information.
1. Young and Female Small Business Owners See Organic Growth
The first key finding from the researchers was that younger and female small business owners are pretty well-represented among firms that grow organically, meaning incoming revenue supports the growth. However, both of these demographic groups are underrepresented among firms that receive external financing from investors or banks.
Still, the researchers said that companies that grow organically are key for driving revenue across an industry.
“One of [the] insights from this analysis was that many firms grow organically rather than through external finance—after 4 years, these organic growth firms generated the majority of the cohort’s aggregate revenues and payroll,” the researchers wrote.
2. Firms Launched by Older Founders Are Most Likely to Survive
An important metric that the researchers looked at was how small businesses survive. They found that companies founded by people over the age of 55 were more likely to survive for more than 3 years, even though the businesses might be smaller.
“Young business owners start 1/3 of new firms, and these firms grow quickly if they survive,” the researchers said. “New firms founded by older business owners are more likely to survive, but they may not be as dynamic: they grow more slowly and are the least likely to hire employees.”
The researchers theorized that older founders might have had savings that could better handle the cash flow crunches that often tank newer small businesses.
3. Female-Owned Firms Start with Lower Revenue
According to the data, revenue issues appear to hamper small businesses started by women from the beginning. The researchers said that women-owned businesses start with 34% lower revenue than those started by men. Additionally, revenue growth for female-fronted businesses is lower.
Even when facing this challenge, though, these women-owned businesses have staying power.
“Women start firms that have 34% lower revenues and grow more slowly than those started by men, but these firms are just as likely to survive,” the researchers said.
4. Revenues Change with Location
The report finds that not only can the age and gender of a small business owner impact the success of that business, but location plays a large role as well. In San Antonio, new women-owned businesses have just 46% of revenues compared to new businesses started by men. In Miami, this figure jumps to 85%.
The 3 authors believe that municipalities can do a better job in supporting businesses started by women and young people. In some ways, local laws might even be more relevant than federal legislation.
“While these findings apply to small businesses nationwide, small business policies are often designed and implemented locally,” the researchers wrote. “Moreover, local policy makers may want to compare outcomes in their city to others and to the nation as a whole.”
Gender and Age Impact Small Business Growth
The researchers found that the gender and the age of a small business owner have an impact on business success, but each demographic factor seems to present different statistical trajectories.
“The effects of gender on small business financial outcomes are fundamentally different than the effects of age,” the researchers conclude. “While firms with younger owners grow rapidly but exit quickly, firms with female owners are stable but grow slowly.”
By knowing this information, young or female small business owners–or soon-to-be small business owners–can better understand the unique challenges they face.