Workers are 7% less likely to work for female founders

It’s not easy being a female entrepreneur. There are well documented obstacles that women face when they are looking to start up; including inequitable access to funding and resources, and widespread discrimination on the part of VCs and investors. 

According to data provider Crunchbase, in 2020 just 2.3% of global venture capital went to female entrepreneurs. And the problems don’t end there. Even when women get their hands on finance, there’s still a systemic gap in performance in the second stage. Crunchbase also reports, for instance, that of the 120 new ventures joining its “Unicorn Board” the same year, only 10 were female-founded. 

So far, so unfair. Sadly, the squeeze on resources available to female founders is nothing new. Research has consistently revealed patterns of inequity in the sharing of venture capital. But what’s behind the performance gap that persists between male and female-led startups? Are there other, less documented challenges for female entrepreneurs that keep comparable success out of reach?

A groundbreaking new study led by Olenka Kacperczyk at London Business School would suggest so. She and colleagues from Copenhagen Business School and the University of Oregon ran a series of online experiments looking at workforce attitudes and behaviours in second-stage male and female-founded ventures and made a key discovery: people are significantly less motivated to work for women. Specifically, employees are 7% less likely to put in overtime – that all-important discretionary effort that can make or break fledging businesses. 

A question of motivation

Professor Kacperczyk’s study and its findings began as a “hunch,” she says. “We know that starting up is challenging in any scenario. Once you’ve secured the finance and the resources, so much of your success going forward hinges on getting your people to put in the extra mile in the early stages. Pay is typically low and it’s the promise of return that tends to motivate startup workers, so discretionary effort is crucial. Our intuition was that the performance gap between male and female-led ventures might be down to women getting less effort for the same pay than men; that people just don’t go the extra distance when the boss is female.”

Testing the hypothesis

Putting this hypothesis to the test wasn’t easy. How do you measure people’s willingness to put in extra effort against gender bias and in a real-world setting? 

Professor Kacperczyk and her colleagues found a solution in the form of publicly available data from Portugal. It took a year to find the data alone, she says. “As it turns out, in Portugal there’s a statutory requirement for new companies to log employee hours, including overtime. We used an employer-employee linked dataset, Quadros de Pessoal, which is maintained by the Portuguese Ministry of Employment, to track labour statistics in more than 231,000 newly founded firms between 2002 and 2012.”

The dataset covered how many regular and overtime hours employees put in over the 10-year window – self-reported discretionary effort – as well as the gender of the founders. Crunching the numbers, the researchers found that people worked substantially less when they were hired by a woman. And this was true for both regular or contractual time and overtime. 

In fact, workers in female-founded ventures worked on average 1.4 fewer hours a month; a gap that translates to a 7% drop in effort for women entrepreneurs. Tellingly, this finding held true for both male and female employees alike.

“It doesn’t sound like much,” says Professor Kacperczyk. “But when you think about the critical importance of labour in early-stage entrepreneurship, a 7% deficit is a pretty big deal for women. Put it another way: if I’m a female founder, I need to pay 7% more for discretionary effort. And that can have huge consequences if my costs rise and my resources are squeezed.”

‘Unfair’ overtime

To dig deeper into what might be behind this gap, she and her co-authors ran a series of online experiments recruiting workers to undertake a simple task for a (fictitious) company. People were asked to collect data from a number of different images. When requested to code a few extra pictures without pay, the response mirrored the same pattern that the researchers had found in the dataset: workers of both genders were significantly less willing to put in the overtime when they thought they were working for a woman. 

“Without being explicit, we used gendered names for our fictitious bosses in the experiments,” Professor Kacperczyk explains. “Participants routinely told us that the task was ‘more difficult’ when it was a woman asking them to do it, even though it was the same. They typically found it ‘unfair’ to put in overtime for a woman as opposed to a man. They were 10% more likely to say no to a woman. And when we analysed the tasks performed at the end we found that, in total, people produced almost 2% more work for bosses they assumed to be a man.”

The study points to a hitherto unsuspected challenge facing women in entrepreneurship – and one that will be tough to address, Professor Kacperczyk believes. While policy efforts can target gender bias in early-stage startups through female-focused incubators and targeted financial resources, closing the effort gap may take more thought.

She says, “Even if we’re able to eliminate initial biases in skills, money and knowledge, post-founding we’ve found there are still obstacles. They might be more subtle and harder to detect, but still critical to survival in the long run. So, there’s a real challenge here and it’s about addressing bias against female bosses in the post-entry phase.” 

To even out the road ahead for female founders and eliminate more of these potholes, Professor Kacperczyk recommends intensifying efforts on the part of educators and others in promoting awareness of often-unconscious discriminatory behaviours, and finding new ways to defeat gender bias in the workplace.

Olenka Kacperczyk is Professor of Strategy and Entrepreneurship at London Business School