Women Entrepreneurs Are Still Paid Less Than Male Peers

Why do self-employed females earn almost one-third less?

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On paper, things have never looked better for female entrepreneurs. In fact, more than 12 million U.S. firms are now owned by women, employing over 9 million people and generating $1.8 trillion in annual sales, according to 2018 data from the National Association of Women Business Owners.

 While this is good news for women entrepreneurs, the bad news is that self-employed women earn about 28% less than their male peers, according to a recent study by accounting software company Freshbooks. Reporting from The Wall Street Journal backs this up, demonstrating the fact that female founders pay themselves significantly less than men do. Why is this the case?

Bias in Venture Funding

 Venture capital firms are partly to blame. In 2018, female-founded companies garnered only 2.3% of the total capital invested in venture-backed startups in the U.S., according to financial data and software company PitchBook. With less capital available to them, women entrepreneurs may look to invest their limited resources in what will make their company grow, like hiring top talent, and may short themselves in the process.

Women entrepreneurs may sometimes pay themselves just enough to make ends meet or forgo a paycheck entirely.

 

Overcoming the bias in venture funding is one of the main challenges faced by women entrepreneurs. Changing that requires a few things. First, women need to be bold about asking for what they want, rather than just what they might need at the time. Statistics from PitchBook show fewer women-led startups solicit venture capital (VC) funding and the number of startups receiving VC funding with female CEOs is less than 3%. Perhaps it is these odds that encourage female founders to focus on what they might need, rather than what they could get and to undersell their own salaries. 

Confidence and Preparation Are Key

Whether you’re applying for a bank loan or trying to round up angel investors, you need a clear vision and should be ready to answer a few questions:

  • What do you want your company to look like in five years?
  • How will it change the landscape of its industry?
  • How big—in revenue terms—does your startup have the potential to become?

 When it comes to the potential for your business, don’t let an honest assessment of risk cause you to sell yourself short. If your company could be a billion-dollar idea, even if it would be a long shot, go into VC meetings prepared to show how you came to the conclusion the investors can make 10 times the returns. If it is a smaller-scale idea, but you think you can make a reasonable return for your angels or pay off a bank loan, approach the meeting with the confidence you can make that happen. If there were no risk, they would not be able to get the kind of returns they ask for, so don’t let the fear of failure stop you from pitching with confidence.

Even if men tend to be more affirmative in their beliefs about themselves and potential results, women entrepreneurs should focus on confidence and preparation when seeking funds for their business. When it comes to fundraising, confidence can make all the difference.

Beyond the bias in funding, women entrepreneurs often simply don’t pay themselves enough because they may not take the time to consider what their time and talents are worth. To overcome the wage gap, female business owners need to start paying themselves what they’re worth.

How to Figure Out the Right Salary

 There are several factors to consider when calculating your salary as an entrepreneur.

  •  Comparable salaries. Find out what other entrepreneurs in your industry are paying themselves, and pay yourself accordingly. Glassdoor is a good resource to see what is fair for many different types of positions. 
  • Your benefits. As the founder/owner you should own a big piece of the “upside” if the business does well, but you are also entitled to have a good job while running your company. Even if your salary is not as high as it could be, consider what other benefits the company can afford to give you—such as life insurance and health benefits. These items can have relatively low upfront costs but big benefits for you and your family, making them a good way to add value to your compensation package. 
  • Cash flow. Look at your startup costs and think about how much starting capital and projected cash flow you need to pay yourself. Give yourself what is fair while still making ends meet. 
  • What your advisors say. Granted, if your advisors are also your investors they may be biased toward cash conservation, but a good advisor will make sure you take care of yourself and your family while also running the company. Share your needs and concerns with them and ask what would be fair.  

 Most important, do pay yourself, and pay yourself what you’re worth. Although there’s no exact salary equation for women entrepreneurs that will help you determine when to start paying yourself or how much, the best way to avoid any emotional hemming and hawing is to think of your compensation strictly in terms of business. If you keep the best interest of your company in mind, you’ll ultimately take home what’s fair for your business—and yourself.

Key Takeaways

  • Despite the phenomenal growth in the number of women entrepreneurs, the wage gap between male and female workers still exists, even at the top.
  • Women founders pay themselves 28% less than men, in part due to bias in the awarding of venture capital funding.
  • Women should be unafraid to ask for the funding that will meet all of their business needs, and to pay themselves what they deserve—and as much as their male peers do.

Article Sources

  1. American Express. "The 2018 State of Women-Owned Businesses Report," Accessed Oct. 28, 2019.

  2. Freshbooks. "New Research from FreshBooks Discovers a 28% Wage Gap Among Self-Employed Women and Men," Accessed Sept. 19, 2019.

  3. The Wall Street Journal. "Even Among Entrepreneurs, There's a Gender Pay Gap," Accessed Sept. 27, 2019.

  4. Pitchbook. "The VC Female Founders Dashboard," Accessed Sept. 19, 2019.

  5. Fortune. "Funding For Female Founders Stalled at 2.2% of VC Dollars in 2018," Accessed Oct. 25, 2019.

  6. Saas Venture Capital. "Explaining VC Math: Is your Idea Big Enough?," Accessed Oct. 28, 2019.

  7. SBA.gov. "Startup Costs Worksheet," Accessed Oct. 25, 2019.