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FORGING AHEAD: A SURVEY OF PITTSBURGH AREA WOMEN-OWNED BUSINESSES Mary T. McKinney, Duquesne University Michelle Mioff, Duquesne University ABSTRACT The basis of this paper is a survey of women-owned businesses in the Pittsburgh region. The survey focused on obtaining demographic information, business status/growth indicators, financing mechanisms, perceptions of barriers to growth, and government certification. Chi square analysis identified significant relationships related to years in business, business type, and certification. The study results mirrored previous knowledge that the bulk of start-up financing is from personal resources. The study provided insight into women business owners relationships with bankers indicating that women business owners judge their banks positively, but generally have a limited relationship with banks. When comparing Pittsburgh with a national NFWBO sample, the data are similar demographically, but Pittsburgh lags behind the national in gross annual sales, employees and financing. The survey results demonstrated seven major themes concerning women-owned businesses in Allegheny and the surrounding counties. Women-owned businesses impact and contribute positively to the Pittsburgh regional economy. Womenowned businesses are growing and are poised for growth. Women-owned businesses are employers. Women business owners are active participants in government and corporate contracting. Women business owners are creative in financing their businesses. There is a lack of communication between banks and women business owners leading to under-utilization of the banks. Women business owners judge their banks positively, but typically have a limited relationship. INTRODUCTION Women-owned businesses in the Pittsburgh area are forging ahead. The basis of this report is a survey which investigated the status of women-owned businesses in Allegheny and the eight surrounding counties. The survey's goals were an analysis of women-owned businesses, their financing, and their economic contribution to the region. The survey was the result of several months of work. Four preliminary focus groups composed of women-business owners aided in the surveys development. The focus groups included a diverse group of women business owners. The groups were segmented by county location (inside/outside of Allegheny County) and number of years in business (five years and under/more than five years). The Women-Owned Business Survey contained four sections. The first section explored demographic characteristics. Section two covered the amount and

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sources of start-up financing. Current financing and women business owners' relationships with their banks were the topics of the third section. The final section examined the training needs of women business owners, the barriers to future growth, and the use of business plans. The survey results have an accuracy of +/3.25% with a confidence level of 95%. The 757 surveys studied represent a return rate of 19%. The significant relationships identified in the study are at levels of confidence of 95% and higher using the chi-square test. The significant relationships discussed within the text are in italicized type. The Pittsburgh data illuminate a variety of important comparisons with the national data. According to the census statistics released in 1990, there were 34,824 women-owned businesses in Southwestern Pennsylvania, which represented a 57% growth rate from the previous five years.1 According to the National Foundation of Women Business Owners (NFWBO), women own approximately 7.7 million businesses in the United States, and these businesses employ more people in United States than the Fortune 500 companies employ worldwide.2 NFWBO estimates that women-owned businesses generate 1.4 trillion dollars in sales per year. ECONOMIC IMPACT The survey respondents represent a range of women-owned businesses which run the demographic spectrum. Eighty-three percent of the survey respondents' businesses are in Allegheny County, and 17% are from the surrounding counties. Women own a vast array of businesses. Following the national patterns, most are in the service sector (59%), 19% are in the retail sector, 6% are in the construction sector, and 6% are in the manufacturing sector. Sixteen percent of the sample own more than one business. (Graph omitted due to technical difficulties.) The most popular business structure is sole proprietorship (62%). There is a highly significant relationship between business type and business structure. Sole proprietorships are very popular in the retail and service sector where they account for 68% and 65% of the business structures, respectively. Sole ownership is less popular in the construction and manufacturing sectors, representing 30% and 32% of these companies, respectively. Sixty-nine percent of the construction firms are either C corporations or S corporations, and 58% of the manufacturing companies are either C or S corporations. Less than one-third (29%) of the service firms are corporations and 22% of the retail firms have a corporate structure. The vast majority (82%) of women-owned businesses surveyed operate on a fulltime basis. Over fifty percent (53%) have owned their businesses for more than five years. The average number of years in business of a Pittsburgh area womanowned business is 7.9 years. There is a significant relationship between the

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number of years in operation and whether the business operates on a full-time basis. Three-fourths (75%) of the companies that existed less than five years function full-time, but 92% of the companies that existed over sixteen years operate full-time. NUMBER OF YEARS IN BUSINESS (Graph omitted due to technical difficulties.) There is also a significant relationship between the number of years of a business' existence and its office location. The locations of women-owned businesses vary: 43% are leased, 19% are owned, and an additional 38% are homebased. The businesses existing over sixteen years are the most likely to own commercial space (46%), as compared to the businesses existing less than five years which are the least likely to own commercial space (11 %). (Graph omitted due to technical difficulties.) 1994 saw an increase in revenues for most women-owned businesses, with 60% of business' revenues increasing, 22% remaining stable, and 18% decreasing. Fourteen percent increased by 51 % or more. The companies with gross annual sales over one million dollars were the most likely to ncrease or remain stable. (Graph omitted due to technical difficulties.) Annual gross sales of half (50%) of the businesses ranged between $50,000 and $249,999, and 14% grossed over $250,000. The data revealed a significant relationship between number of years owned and gross annual sales. The percentage of companies grossing less than $50,000 drops precipitously as the years owned increases. The companies that existed less than five years are the most likely to be grossing less than $50,000; 52% of the companies in operation for less than five years gross less than $50,000. Whereas, only 16% of the companies in operation over sixteen years gross less than $50,000. The greater the annual sales, the more likely a business has multiple locations. Fifteen percent of the total sample were businesses with more than one location. (Graph omitted due to technical difficulties.) In the upcoming year, 41% of the women-owned businesses in the sample plan to acquire capital. Most (69%) of those who plan to acquire capital want to use it for facility expansion and equipment purchases. The most important reason to borrow money was for growth and expansion according to 49% of the respondents. These responses illustrate that women business owners see growth and expansion as issues of primary importance to the future of their businesses. The writing and use of a business plan are important to women business owners. Over half (57%) of the women-owned businesses have business plans. The

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overwhelming majority of women-owned businesses with business plans use them (96%) with varying degrees of frequency: 56% use them consistently and 40% use them occasionally. Most of the women business owners consider business plans to be extremely important (35%) or very important (27%), and only 3% consider business plans to be unimportant. EMPLOYEES AND BENEFITS Women-owned businesses in the Pittsburgh area are employers. The majority of the women-owned businesses surveyed (59%) employ at least one person in addition to the owner. Nearly one-half (46%) have full-time employees and 47% have part-time employees. There is a significant relationship between the number of years of a business' existence and its status as an employer. Among companies that are less than five years old, less than one-third (31%) have full-time employees, but the percentage with employees rises dramatically to 59% among six to fifteen year old companies, and to 69% among the companies that are over sixteen years old. In addition, 42% plan to hire new part-time or full-time employees this year. (Graph omitted due to technical difficulties.) Of those companies with employees, 44% had payrolls over $50,000 for the fiscal year of 1994, and 7% had payrolls for 1994 totaling over $500,000. There is a significant relationship between payroll size and business type. The most frequent payroll range for service and retail firms is less than $25,000; the payrolls of construction firms are nearly evenly split between the six categories; the most frequent range for construction is in the $250,000 to $499,999 range; and the highest percentage of manufacturing payrolls range between $100,000 and $249,999. (Graph omitted due to technical difficulties.) Women-owned businesses offer a variety of benefits. The three most popular are flexible hours, training, and paid vacation leave. Stock ownership and employee assistance programs are the two least popular benefits. The number and the type of employees, the type of business, and the size of the payroll all have a significant effect upon the type of benefits that women-owned businesses offer. For example, companies with more than twenty-five full-time employees are more likely to offer paid sick leave, medical benefits, and training, whereas, companies with less than ten full-time employees are the most likely to offer flexible hours and job sharing. Two examples of the effect of business type on benefits are medical benefits and flexible hours. Over one-third (37%) of retail, 32% of service, 29% of manufacturing, and 25% of construction firms offer flexible hours. Medical benefits demonstrate the opposite relationship: 43% of the construction companies, 42% of manufacturers, 22% of service firms, and 9% of retail businesses offer medical benefits.

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GOVERNMENT AND CORPORATE CONTRACTING AND WBE CERTIFICATION Women business owners are active participants in government and corporate contracting. One-fourth of the businesses are Women Business Enterprise (WBE) certified at some level: local, state, federal or some combination of the three. The construction industry has the highest concentration of WBE certified businesses: 86% of the construction companies are certified. (Graph omitted due to technical difficulties.) To become WBE certified, a business must be owned, operated, and controlled by a woman/women. This means that for a sole proprietorship or a partnership, a woman/women must own at least 51% of the company's assets. For corporate entities, a woman/ women must own 51 % of the stock, and have primary power over day to day operations. The main advantage of WBE certification is that it identifies women-owned businesses for contracting opportunities. (Graph omitted due to technical difficulties.) Over one-third (36%) of the certified businesses obtained a government contract within the past two years (this is 11% of the total survey respondents.) There is a significant relationship between satisfaction with WBE certification and receiving contracts: women business owners who received contracts based upon their WBE certification had more positive reactions to certification than those who did not have receive contracts. The majority of those certified do not think WBE certification has any effect on their businesses, but 42% of the certified respondents believe that WBE has a positive effect. Of those that received contracts, 69% felt that certification has a positive effect on their business, and among those that did not receive contracts, 80% felt that certification either has no effect or a negative effect upon their business. There is a significant relationship between gross annual sales and WBE contracts: companies that received contracts based WBE certification have higher gross annual sales than the sample as a whole. Nearly one-third (30%) of the companies that won WBE contracts grossed over $250,000 last year and only 12% grossed less than $50,000. The annual sales of WBE certified companies that did not receive contracts were only slightly higher than the entire sample which illustrates that WBE contracts are usually awarded to the larger women-owned businesses. Sales to major corporations are significantly related to WBE certification; companies that are WBE certified are more likely to sell to major corporations. Forty-four percent of the WBE certified businesses made sales to major corporations, compared to 29% of the non-certified businesses. Although 34% of the women-owned businesses sold to major corporations, 69% found it difficult to develop corporate contacts. FINANCING

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The resourcefulness of women business owners is evident through the popularity of self-financing and the small amount of start-up capital for many women-owned businesses. Generally, women business owners do not use large amounts of start-up capital. Nearly one-half (49%) invested less than $5,000 to begin their businesses, and 80% used less than $25,000. Yet, in most cases, the greater the amount of startup capital, the greater the current gross annual sales. (Graph omitted due to technical difficulties.) The relationship between start-up capital and gross annual sales dramatically illustrates the relationship between financing and growth. Over one-half (56%) of the women-owned businesses that began with less than $5,000 are grossing less than $50,000 per year, but among the companies that began with over $75,000, less than 5% are grossing less than $50,000. Two percent of the companies that began with less than $5,000 gross over one million dollars annually while 10% of the companies that began with over $75,000 generate over one million dollars in sales per year. The most common source of start-up funds was personal savings. The vast majority (84%) of the respondents used personal savings for some portion of the start-up costs. One-half (50%) used personal savings as the only source of startup funds. Business loans from banks provided 13% of the respondents with startup funds. Venture capital provided funding for less than .5% of the women-owned businesses. Government agencies provided less than 2% of women owned businesses with funding for start-up or current financing. START-UP FINANCING Personal Savings

84%

Family and Friends

21%

Bank-Business Loan

13%

Bank-Personal Loan

9%

Bank Line of Credit

9%

Government Agency

2%

The percentages total over 100% because respondents used varying amounts of financing from these sources. For their current financing needs, women continue to be resourceful by reinvesting profits (46%) and using personal savings (41%). Thirteen percent of the sample have business loans. Less than 1% of the women-owned businesses currently finance their businesses through the sale of stock. Self-reliant funding methods are the most common among women business owners.

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CURRENT FINANCING Personal Savings

84%

Family and Friends

21%

Bank-Business Loan

13%

Bank-Personal Loan

9%

Bank Line of Credit

9%

Government Agency

2%

The percentages total over 100% because respondents used varying amounts of financing from these sources. Most women judge their relationships with their banks positively. Over one-half, (56%) believe their relationships with their bankers is either excellent or very good, and an additional 22% describe their bank relationship as good. Only 2% of the respondents consider their relationship with the bank to be poor. Among the 36% of the women that elaborated upon their relationship with their bank, the most frequent write-in response was that they had little or no relationship with a bank. Forty-five percent chose their bankers through a previous relationship, and this choice was generally a continuation of their personal accounts. Referrals accounted for 14%, and networking accounted for 3% of the women business owners' choice of a banker. Most women business owners (84%) have a single bank for business purposes. Among the women that elaborated upon the reasons for preferring a single bank, nearly one-third (30%) expressed satisfaction with their bank. Nearly three-quarters (71%) believe they are familiar with the services that their bank has to offer. Seventy-five percent of women business owners in the Pittsburgh sample also think that it is important for banks to offer training and information on other resources for small businesses. Most women business owners are under-utilizing their banks. Women business owners plan to grow and they have positive feelings about their banks, but they continue to use bank instruments that are traditionally viewed as personal. Checking accounts and credit cards are at the top of the list. Very few women business owners use payroll services, borrowing on invoice or electronic funds transfers. Women business owners do not see banks as an active ingredient in their growth. There are several indicators that highlight the fact that women entrepreneurs do not see their banks as active partners in their growth. A high percentage use traditional bank services. Most women business owners fuel their growth through reinvestment of profits and personal savings. Only 26% of women business owners use financial ratios. In addition, statements within the focus groups

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illustrated that women do not view banks as partners in their growth. The comments from the write-in sections of the survey further illustrate the distance that many women perceive between themselves and their banks. For example, "I have a good relationship with my bank, because I have good credit and pay my bills on time;" or "I have never bounced a check, so I have a good relationship with my bank." This contrasts with a lack of discussion of meeting with banks to discuss growth, expand credit lines, use innovative bank practices, etc. Others expressed an unwillingness to use banks at all: "I have nothing bad to say about the bank, but I have no cause to know a banker."; "I am personally financing my business so I do not need a banker." Ten percent of the women that responded to the bank relationship question do not have a bank. Over one-fourth (27%) of the sample was turned down for financing by banks. Of that 27%, there was a nearly even split between those who thought the bank was helpful in the explanation for rejecting the financing (52%) and those who felt the bank was not helpful (48%). Among the women business owners who grossed between $250, 000 and $1,000,000, 83% of the women who were turned down for financing thought the bank was not helpful. The women business owners with revenues from $250,000 to $1,000,000 were the most likely to consider their bank relationship to be poor. There is a significant relationship between women business owners' attitudes toward banks, and being turned down for financing. Among the women with excellent relationships with their banks, 17% were turned down for financing; among those with fair relationships, 45% were turned down; and among those with poor relationships, 64% were turned down for financing. These statistical relationships illustrate that a negative experience with a bank can scar the relationship, but women business owners can also overcome unpleasant experiences. The majority of the women business owners did not pinpoint financial issues as major barriers to their expansion; 63% did not state any financial barriers to their expansion. Among women that encountered barriers with financial institutions, there were a number of different types of obstructions. The top five are chauvinism and negative attitudes toward women, followed by high interest rates and expensive services, problems with capital and collateral, the need for a cosigner, and perceived discrimination against small businesses. The majority of women business owners (68%) foresee non-financial barriers to their growth. The broad categories of non-financial barriers include marketing and internal issues within their company, the economy, expansion and training, health care issues, and employee concerns. Specific responses included: "Selfmotivation," 'Taxes," "Finding qualified employees," and "Economics of the region." The range of non-financial barriers illustrates the extent of concerns experienced by women business owners.

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FOCUS GROUPS The four focus groups composed of women business owners included a diverse group of entrepreneurs. The groups were segmented by county location (inside/outside Allegheny County) and number of years in businesses (five years and under/more than five years). The primary purpose of the focus groups was to aid in the development of the survey, but much of the information foreshadowed and reinforced the survey's findings. The self-financing of the women-owned businesses in the initial stages and self-reliant as opposed to bank-reliant financing for current needs were themes which permeated the focus groups, as well as the survey results. The problems and barriers mentioned in the write-in section were also discussed in the focus groups including the negative side of forcing a spouse who is uninvolved with the business to co-sign business loans, the high cost of bank services for small businesses, and the banks' attitudes toward small businesses. Non-financial obstacles highlighted in the focus group and the survey results included: employee issues, the economy, and personal issues. The focus groups were extremely helpful in the development of the survey. The responses and issues raised within the groups were repeated in the survey data. Although the women business owners in the focus groups from outside Allegheny County articulated greater hardships in working with banks than those inside Allegheny County, the survey results showed that there were no statistically significant differences between women-owned businesses inside and outside Allegheny County. The survey sponsors greatly appreciate the involvement and candor of the women business owners who volunteered their time to participate in the focus groups. PITTSBURGH IN A NATIONAL FRAMEWORK The National Foundation of Women Business Owners (NFWBO) conducted a national survey of the membership of the National Association of Women Business Owners (NAWBO) in December of 1994. Although the compatibility of the Pittsburgh Area Women-Owned Businesses and NFWBO populations are not statistically proven, some comparisons are useful. Data on women-owned businesses in the United States are limited and the NFWBO data illustrate some interesting national trends. The Pittsburgh sample from this report included a cross-section of women-owned businesses while the NFWBO survey polled the national NAWBO members. Demographically, many of the characteristics of the women business owners in the two samples are similar. For example, the percentage of married respondents are nearly identical with 64% of the Pittsburgh sample married compared to 65% of the NFWBO respondents. Educationally, 86% of the Pittsburgh sample attended some college in comparison with 70% of NFWBO respondents; 23% of the national respondents had a Master's degree, compared to 17% of the Pittsburgh sample. In both samples, 7% had doctoral degrees.

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Women own all types of business across the economic spectrum. The most popular type of woman-owned business is in the service sector; 59% of the Pittsburgh respondents are in this sector and 62% of the NFWBO respondents. Retail follows representing 19% of Pittsburgh area respondents and 12% of the national respondents. Nine percent of the national sample is in goods- producing industries, whereas 6% of the Pittsburgh sample is in manufacturing and an additional 6% is in construction. Number of years in business for the two samples is also similar. The average number of years in business for the national sample is 8.2 and for the Pittsburgh sample, it is 7.9. The Pittsburgh area women-owned businesses are not at the national levels for sales or employees. Less than one-half (47%) of the NFWBO respondents grossed less than $250,000 in 1994, whereas, 86% of the Pittsburgh area respondents' 1994 gross earnings were less than $250,000. Eighty-four percent of NFWBO sample are employers but of the Pittsburgh sample, 59% are employers. From a financing standpoint, Pittsburgh lingers behind the national average. Fiftyfive percent of national NFWBO respondents have bank financing. Only 37% of Pittsburgh area women business owners utilize any type of bank financing combining bank business loans, bank personal loans, and bank lines of credit. Nearly one-third (32%) of NFWBO respondents obtained business loans compared to less than one-sixth (13%) of Pittsburgh women business owners. SUMMARY AND RECOMMENDATIONS This report contains seven central themes about Southwestern Pennsylvania's women-owned businesses. Women-owned businesses significantly affect the Pittsburgh regional economy. Women-owned businesses are growing, and expanding. Women-owned businesses create jobs, provide income, and offer benefits to the Pittsburgh region. Women business owners are active participants in corporate and government contracting. Women business owners finance their businesses resourcefully and with self-reliance. Lack of communication impedes the relationship between banks and women business owners and leads to underutilization of the range of bank services. In spite of the limited banking relationships of most women business owners, they are positive about their banks. Pittsburgh area women-owned businesses have and will continue to forge ahead, and they are a key element in our business community. Unfortunately, womenowned businesses have been a largely untapped asset by our financial institutions and strategic policy makers. Women-owned businesses offer a great opportunity to fuel Pittsburgh's growth, which cannot be overlooked. Women-owned businesses are growing, and they are reliable. Their impact on our economy is significant. They should be targeted as the prospect they are for capital investment by the financial community and given attention by key policy makers. Neither the financial community nor the women business owners themselves, have seen the potential that additional capital and innovative financing can reap. This pent-up demand of female business owners provides an opportunity for banks to

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secure new clients and cement deeper relationships with women business owners who are already using their services. Women business owners are community assets that should be tapped as strategic partners in the region's development. The following agenda for action addresses target areas for change to generate further growth for women-owned businesses and the region's economy. AGENDA FOR ACTION The survey results and recommendations support the following agenda for action which have been presented to Pittsburgh community and business leaders. Bankers should recognize and target women business owners as a strong customer base with growth potential. Community leaders and policy makers should recognize the importance and contributions of women-owned businesses. Women business owners should be more active in vigorously pursuing bank financing. If one bank is not interested, then the woman business owner should switch banks. Business training and seminars should focus on the relationship between financing and growth. Women business owners should become certified and actively seek contracts with government agencies and corporate entities. Neither the financial community nor the women business owners themselves, have seen the potential that additional capital and innovative financing can reap. This pent-up demand of female business owners provides an opportunity for banks to secure new clients and cement deeper relationships with women business owners. REFERENCES 1

United States Economic Census 1987 and 1982. These were the last available Census statistics. 2

All of the national data are based on Summary and Highlights: 1994 Membership Survey of the National Association of Women Business Owners, by The National Association of Women Business Owners, The National Foundation for Women Business Owners, and IBM. Contact: NFWBO 1100 Wayne A ve., Ste 830, Silver Spring, MD 20910-5603.

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