Navigating the entrepreneurial landscape is a challenging feat for women. The hurdles they face are well-documented, which range from equitable access to funding and other resources, to widespread discrimination from venture capitalists and investors. Crunchbase, a data provider, reveals that in 2020, a mere 2.3% of global venture capital was allocated to female entrepreneurs. But the issues are not limited to the funding stage. Post-entry, a systemic performance gap persists. As an example, Crunchbase also reports that of the 120 new entrants to its “Unicorn Board” that year, only 10 were founded by women.
This inequity is far from new or surprising. Research has consistently highlighted the patterns of unfair distribution of venture capital. However, even after succeeding in raising venture capital, we still observe a persistent performance disparity between startups led by men and women. Why? Are there any other hidden challenges that female entrepreneurs face, hampering their success?
Using archival data and a series of online experiments, we conducted a study to better understand the obstacles that female entrepreneurs face post-entry. Our research, focused on workforce attitudes and behaviors in later-stage startups led by men and women, unveiled a stark discovery: employees are significantly less likely to work overtime for women entrepreneurs. In particular, employees in startup firms contribute 7% less overtime work – a crucial discretionary effort pivotal for growing businesses. These findings indicate that the performance gap between male and female-led ventures might be related to women receiving less effort for the same pay than men; that employees are less willing to go the extra mile when their leader is a woman.
Testing this hypothesis was a complex task. However, our team found a solution in publicly available data from Portugal. The data originated from a statutory requirement for new companies in Portugal to record employee-level information on their work hours, including overtime. We utilized this data to track labor statistics in more than 58,000 newly-founded firms and over 243,000 employees over a decade, from 2002 to 2012.
Upon analyzing the data, we found that startup employees worked significantly less when employed by a woman. This was true for both contractual and overtime work hours. On average, employees in female-founded ventures worked 1.4 fewer extra hours a month, a decrease that translates into a 7% reduction in the overtime work received by female entrepreneurs.
Surprisingly, this trend was consistent among both male and female employees. A 7% deficit might not sound like much. But considering the critical importance of labor in early-stage entrepreneurship, this is a substantial deal for women; it implies that a female founder needs to pay 7% more for discretionary effort. This can lead to significant consequences if startup costs increase and resources are constrained.
To further understand the root cause of this gap, we conducted a series of online experiments. Participants were asked to collect data from various images. When asked to code extra pictures without additional pay, the response mirrored the pattern found in the dataset: employees of both genders were significantly less willing to work overtime if they believed they were working for female, instead of male, entrepreneurs.
Overall, our study uncovers a previously overlooked challenge confronting female entrepreneurs. Addressing this problem won’t be easy. While policy efforts can target gender bias in the initial stages through female-focused incubators or financial resources, bridging the effort gap might require more sophisticated solutions. There are still subtle, yet critical obstacles to overcome in the post-founding stage. Our study suggests that promoting awareness of unconscious discriminatory behaviors and developing new mechanisms to combat bias in the workplace may be the first step to level the playing field for women entrepreneurs.
Olenka Kacperczyk, Peter Younkin, and Vera Rocha. “Do Employees Work Less for Female Leaders? A Multi-Method Study of Entrepreneurial Firms” in Organization Science 2023.
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