Special Report: Women Entrepreneurs

By Janice Castro

Mary Farrar never thought of herself as a trailblazer. But with five children to educate, the Kansas City, Kans., homemaker decided to get a job to save money. A high school graduate, Farrar went to work in 1972, once all the children were in school, as a bookkeeper for a local steel contractor. Before long, she was supervising fieldwork as well. In 1978, with just $500 in savings, she started her own steel-contracting firm, Systems Erectors. Result: her children are getting all the education they want. Farrar's company racked up $5 million in sales last year. Says she: "There is nothing special about me. I had no family members in the business, little formal education, no business training, no money, no genius."

But Farrar did have something special: the courage to be in the vanguard of a movement that is transforming the face of American business. Like Farrar, millions of women are setting up their own businesses and pursuing the entrepreneurial pot of gold that used to be mostly a man's dream. While there have always been a few women with the initiative and opportunity to start a company from scratch, they were the exceptions. No longer. At least 3.7 million of the more than 13 million sole proprietorships in America are owned by women, nearly double the 1.9 million such businesses they owned ten years ago. The Small Business Administration expects that one-half of all self- employed people will be women by the end of this century.

Most companies started in the past by women specialized in fashion, food and other areas traditionally viewed as women's work. Examples of early successes: Florence Nightingale Graham co-founded the Elizabeth Arden cosmetics company in 1910, and Margaret Fogarty Rudkin started Pepperidge Farm in 1937. But today women own all kinds of firms. While the majority are service companies (women own nearly half of all retail businesses, for example), female entrepreneurs are also making rapid headway in manufacturing, construction, mining and other industrial fields.

Most of their companies are still relatively small, but some have grown into sizable corporations. Among the largest: Liz Claiborne (1987 revenues: $1 billion), the New York City fashion conglomerate built on Designer Claiborne's clothing for working women; Lillian Vernon (fiscal 1988 sales: $126 million), a mail-order gift company based in Mount Vernon, N.Y., and founded by Lillian Katz; and ASK Computer Systems (1987 sales: $125 million), a California software manufacturer started by Sandra Kurtzig.

One in four of the companies that women launch begin as home-based enterprises. Kurtzig set up ASK in 1972 as a part-time business in a spare bedroom in her apartment but soon had to move to larger office quarters. Katz founded her company at home while she was pregnant with the first of her two children. Said she: "We needed the money."

Whether big or small, enterprises begun by women are having an increasingly significant impact on the U.S. economy. Their revenues are estimated to be more than $100 billion a year. They pay about $37 billion in federal taxes and $13 billion in state and local levies. Female-owned firms tend to be small, and their numbers are rapidly growing. They are expected to be a major source of new jobs in coming years. The Small Business Administration estimates that companies with fewer than 500 employees created about two-thirds of all new jobs in the U.S. from 1980 through 1986.

Last spring the House Small Business Committee held hearings to examine the growing role that women entrepreneurs are playing in the U.S. economy. This week the committee will release a report of its findings. The lawmakers gave TIME an advance copy of the report, which concludes that the increase in the number of companies owned and managed by women may be the "most significant economic development of recent years . . . Women-owned businesses have become a central factor in the American economy and will become even more crucial in the years ahead."

The committee also found, however, that women business owners still face considerable difficulties, especially in gaining access to commercial credit and bidding on government contracts. In addition, contends the committee, women need better technical and managerial training to ensure the growth of their enterprises. Says the report: "Women have had to work harder, wait longer, manage with fewer dollars and be content with smaller operations just to maintain their present levels of independence and business success." For that reason, the committee is recommending that the Government take several steps to help women entrepreneurs, from giving them more loans to making it easier for them to get federal contracts.

Many forces are propelling women into the ranks of business owners. First of all, more women are prepared to run companies than ever before, since millions of them have landed professional jobs in fields that were once male dominated. Yet the most ambitious women, like their male counterparts, are no longer content to work for someone else when the rewards for striking out on their own can be much higher. Says Charlotte Taylor, president of Venture Concepts, a Washington consulting firm: "Women have gotten deadly serious about business ownership, not only as a career option but as a wealth-generating option. They are approaching it with exactly the same reasons and rationale that men do."

But many women have a greater incentive than do men to set up their own shop, because they believe they are still discriminated against in large companies. That view shows up in a survey by Robert Hisrich, professor of business at the University of Tulsa, and Candida Brush, a graduate business student at Boston University, who interviewed 344 women business owners for their 1986 book, The Woman Entrepreneur. Asked why they decided to found their own firms, many of the women said corporations still offer few opportunities for women to advance beyond middle management. Observes Katherine Bulow, Assistant Secretary for Administration at the Department of Commerce: "Women get to a certain point and feel that they are not going any further. They take what they have learned and set up their own firms."

Trying to combine a family life with a career, many women choose entrepreneurship as a way of gaining some control over their schedules. Phyllis Gillis, for example, quit her night job as a waitress in 1982 and started Entrepreneurial Communications, a Princeton public relations firm, so that she could spend more time with her six-year-old son. Says Gillis, author of the 1984 book Entrepreneurial Mothers: "I was willing to spin my wheels for a while and grow my company slowly while my son was small. Now it's full speed ahead."

For many single mothers, starting a company is a way out of poverty. Ninfa Maria Rodriguez Laurenzo, a widow, was looking for a way to support her three youngest children when she opened a tiny Mexican restaurant in Houston in 1973. In that business, she says, "I knew there would at least be food for my family." Last year Ninfa's, her chain of ten Texas restaurants, grossed $20 million.

Janet Wells took over the Sistersville Tank Works in West Virginia to save her job. Wells, a bookkeeper, bought the company in 1984 in partnership with her daughter Darlene just as the firm was about to fold. Says Wells: "The men didn't think we would last for six weeks. But there weren't any other jobs around, so they stuck with us." The company, which builds storage tanks and provides field services for Amoco, DuPont, Union Carbide and other clients, has more than tripled its sales under the ownership of the two women, from $1 million in 1984 to $3.5 million in 1987.

To build companies, entrepreneurs need capital. But financing remains a major problem for women, whether they are founding new businesses or trying to expand successful ventures. The majority of companies currently owned by women were started with less than $5,000. One reason: because many of the companies are service firms, their founders usually have few hard assets to pledge as collateral for loans. In 1979, when Kathleen Fay Jensen and Angela Franklin were raising money to set up the Professional Reliable Nursing Service in Modesto, Calif., they had nothing but a 1936 Pontiac and a silver tea set for collateral. They managed to get a $9,000 loan, but most women entrepreneurs are not so fortunate. A surprising number of bankers remain skeptical that women can successfully run any kind of company, regardless of experience or credit history. Christine Bierman owns three companies, including Colt Safety, a distributor of hard hats and other equipment. But she told the House committee, "I have been turned down for a loan by every bank in St. Louis."

Many banks will not extend commercial loans to women unless their husbands or other men in the family cosign the application. "Everyone thought it was funny that I wanted to start my own asphalt-paving company," says Carolyn Stradley, 42, who founded C&S Paving, an Atlanta firm (1987 revenues: $2.5 million) after helping run a similar company. "Bankers would tell me, 'Honey, you can't make a living in that business.' " Stradley finally got a loan after her brother, who was unemployed and had once been bankrupt, cosigned for it.

To help improve commercial credit for women entrepreneurs, the House Small Business Committee has included new lending incentives for banks in an authorization bill for the Small Business Administration. Under the bill, the banks would earn a small fee for granting SBA-guaranteed loans of up to $50,000. While the plan, which must still pass the full House and Senate, would be open to all small businesses, it would be especially helpful to service companies. Reason: in some cases, creditworthiness could be based on cash flow rather than assets.

Small Business Committee Chairman John LaFalce, a New York Democrat, is set to introduce the Women's Business Ownership bill, which will include the recommendations in his committee's report. Among other things, the bill would require the Federal Reserve to limit the circumstances under which bankers could question women entrepreneurs about their marital status. When banks turn down commercial-loan applicants, the institutions would be required to notify the companies of their right to obtain in writing the bank's reasons for doing so.

In addition, the legislation would help women entrepreneurs win a bigger slice of the Government procurement pie. Of the $177 billion in prime federal contracts awarded to companies last year, firms owned by women won 1% of the business. The LaFalce bill would require federal agencies to set numerical goals for awarding contracts to women. Prime contractors would have to set similar goals in awarding work to subcontractors. But LaFalce's bill would have no effect on state government procurement, where conditions are also rough. Mildred Green, 55, founder of Accounting Data Systems of Caro, Mich. (1987 revenues: $2.5 million), recalls one of her bids being spurned by a state contracting officer with the remark, "We don't do women."

LaFalce also wants the Government to match private contributions for the purpose of setting up new management-training programs for women entrepreneurs in several U.S. cities. The leading operation of this type: the American Woman's Economic Development Corp. (AWED). A nonprofit Manhattan center, AWED offers courses in marketing, finance and other business basics. Says Beatrice Fitzpatrick, founder and president of AWED: "We're teaching women the rules of the game." Since 1977, 1,267 entrepreneurs have graduated from AWED's 18- month program. Only seven of the AWED-guided start-ups (0.6%) have declared bankruptcy. Bootstrap programs for would-be entrepreneurs have also sprung up in Illinois, Pennsylvania, Minnesota and other states.

As more and more women set up companies, female versions of the old-boy network are developing. The 3,000-member National Association of Women Business Owners, for example, successfully lobbied the House committee to hold its hearings on female entrepreneurs. Businesswomen who belong to the Committee of 200, an elite Chicago-based group of top executives from 70 different industries, discuss everything at their meetings, from where to find the best office computer system to how to balance a demanding career with a marriage. Says Member Joan Helpern, chief executive of the manufacturer of Joan and David shoes (1987 revenues: $100 million), located in Everett, Mass.: "We're trying to learn from each other."

Women entrepreneurs are helping one another expand their businesses as well. Sue Ling Gin, 47, a self-made real estate millionaire who runs an airline-food company in Chicago, discovered that a group of ambitious single mothers and other tenants in the city's LeClaire Courts housing project had formed a small company that prepares meals, mostly for local day-care centers. When Gin decided to bid on a $38 million food-and-beverage contract for fast-growing Midway airport, she offered the LeClaire group a 15% interest in the venture. If Gin wins the contract, the LeClaire operation will own three of Midway's 22 new food concessions, while Gin will provide financing and insurance.

Whether they are rising from the bottom of the economic scale or struggling to pursue careers while raising their children or have simply grown restless working for others, women entrepreneurs have become, in the words of the Small Business Committee report, a "gold mine of human capital." That mine has already tapped into a rich lode, and if the Government leads the way in - reducing discrimination against women in business, the gold rush will keep on gathering momentum.

With reporting by Gisela Bolte/Washington and Leslie Whitaker/New York, with other bureaus