Entrepreneurship Policies through a Gender Lens

Canada

By Barbara Orser, University of Ottawa

Background

In 2017, women held a degree of ownership in 46.7% of employer SMEs, and majority ownership in 15.6% of SMEs (Statistics Canada, 2019). Women-owned businesses are significantly more prevalent among enterprises with fewer than 20 employees. Compared to men-owned start-ups, women-owned start-ups have a slightly lower survival rate and a significantly lower rate of growth of net income, labour productivity and investment in research and development (Statistics Canada, 2019).1

The need for policies and programming to support women-owned SMEs is well documented. A 2017 OECD review of SME and entrepreneurship policy in Canada identified challenges with respect to scaling-up, supporting high growth SMEs, and gaps in programmes for under-represented groups, including women-owned enterprises. In addition, at least 17 gender-based assessments of SME and entrepreneurship policies have been authored by academics, government and not-for-profits in Canada between 1986 and 2019.2 Frequently cited recommendations include increased access to financial capital, and funding for networking, mentoring, training and advisory supports.

Support to SMEs and entrepreneurship are policy priorities in Canada (OECD, 2017). In 2018, the Government introduced Canada’s first Women Entrepreneurship Strategy (WES) with an initial investment of CAD 2 billion. The WES seeks to double the number of women-owned businesses by 2025 and add CAD 150 billion to GDP. In 2020, investment in WES increased to CAD 5 billion (ISED, 2020). The WES strategy includes: funding to support programming for women-owned or led businesses and organisations that support them; capital targeted at women-owned and led businesses; improved access to federal contracting; and a women entrepreneurship knowledge hub. While the strategy reflects commitment to supporting women entrepreneurs, it could be strengthened by: (i) clarifying definitional criteria of “women-owned” businesses, (ii) bolstering federal contracting as a mechanism to support women-owned SMEs, and (iii) including demonstrated engagement of women entrepreneurs as proposal assessment criteria to mainstream small businesses and innovation support organisations.

Policy issue: Operationalising the Women Entrepreneurship Strategy

Definitional criteria

The WES strategy incorporates definitions for both women-led businesses (defined as one or more women in the leadership team) and women-owned businesses (where women are majority owners). These criteria are not without consequence. If entrepreneurial women are to become greater participants in the economy, it is crucial that women-owned businesses be prioritised with access to the full suite of WES federally-funded programmes. In doing so, the federal government should adopt the criterion advanced by UN Women:

At least 51 percent unconditional ownership by one or more women; unconditional control by one or more women over the long-term decision-making and the day-to-day management and administration of the business operations; and independence from non-women-owned businesses.

More precise definitional criteria will avoid the facade of inclusion and diversity, and improve transparency of policy impacts. Certification of women-owned businesses is recommended. To support the ecosystem, the federal government could fund certification organisations and provide certification tax credits to foster transparent and impact-oriented investments.

The challenges facing women-led enterprises typically differ from those facing women-owned businesses. Within the WES strategy, the federal (2018) government has invested CAD 200 million in a fund promoted as: “the world’s largest venture capital fund dedicated solely to investing in women-led technology companies across sectors.”3 The objective is to “Foster the creation of the next generation of millionaire Canadian women technology entrepreneurs.” Eligibility includes “a woman founder, CEO, CTO, CFO or key C-suite position.” As such, one woman promoted into the executive team qualifies, regardless of the number of men or the woman’s degree of responsibility. Furthermore, in addition to a (broad) definition of women-led businesses, firm performance criteria for inclusion are onerous. Specified, as “[a] large, definable and defensible market opportunity; minimum viable product and initial market traction; early revenues and an ability to scale; first customer adoption or with revenues and accelerating sales growth quickly; a coachable team; raising a minimum of CAD 1 million in equity at the seed stage and up to CAD10 million at the growth stage.” Very few women-owned businesses meet such criteria, criteria which appear to conflict with the spirit of The Government of Canada 2018 budget commitment: “…reform to federal innovation programs will include a universal goal to improve the participation of underrepresented groups, including women entrepreneurs, in the innovation economy” (p. 256).

The United States Office of Government Accountability (GAO, 2014) and Canadian Women Chamber of Commerce (Wilson, 2019) cite the need to define and validate “women-owned” businesses to avoid programme abuse, such as opportunistic placement of women in roles for the purpose of meeting programme eligibility criteria.

A rationale to employ women-led and minority women-owned SMEs is to include businesses that have diluted women’s share of ownership because of provision of equity financing (Simpson, 2019). Potential equity dilution – which affects less than one in a thousand Canadian SMEs (Statistics Canada, 2017) – could be included on an ad-hoc basis, for example through review by third-party certification agencies that review firm history to avoid programme abuse.

Federal contracting as a mechanism to support women-owned businesses

The Prime Minister of Canada has mandated the Minister responsible for Public Services and Procurement Canada, the federal procurement agency, to develop initiatives to increase the diversity of bidders on public contracts and the proportion of women-owned SME contractors from 10% in 2017 to 15% (Riding et al., 2018). Constructing inclusive procurement criteria and policies are not straightforward. Trade agreements can limit the ability of governments to favour under-represented SMEs. Procurement officers are typically assessed on the ability to adhere to established adjudication protocols and cost efficiencies, and not supplier diversity. While some reports have lauded the U.S. Women-owned Business Program (WOBP) or set-asides, defined as a percentage of spending allotted to under-represented small businesses, as good practice, robust evaluations – including that of the U.S. Office of Government Accountability (OGA, 2014) – have found little impact on bid frequency or success rates of women-owned businesses when firm size and sector are accounted for. Evaluation of the programme found weak oversight and a high percentage of self-certified contractors that did not meet criteria as women-owned businesses (OGA, 2014).4 The latter bears witness to the need for third-party certification. Currently, the government does not report on the gender ownership of SME suppliers. Data collection and reporting should include the percentage of women-owned businesses that are successful in winning government contracts, as well as the percentage of first-time bidders and bids submitted.

Provision of women-focused marketing, process and service innovation procurement programmes has also been recommended (Orser et al., 2018). These programmes will complement military and technology procurement programmes, and balance procurement programmes that implicitly prioritise men-dominated sectors (e.g. digital technology, Artificial Intelligence, protein, and manufacturing sectors supported by CAD 19 billion Innovation Super Cluster Investment). Support should also focus on assisting women business owners in navigating procurement “gateway” barriers, such as identifying contracting opportunities, bid or proposal writing and submission processes, and understanding pre-qualification documentation and processes (e.g. obtaining security clearances).

There is a need to weigh assessment criteria (scoring) to reward Tier 1 suppliers that sub-contract with under-represented groups of SMEs via sub-contracts. The government should clarify for industry stakeholders why and how policy options, such as set asides, conflict with trade agreements and other policy priorities. This will help inform stakeholders about viable policy options and address perceptions about an absence of substantive women-owned business procurement programming.

Include demonstrated engagement of women-owned business in funding assessments

Engagement of women or women-owned businesses is not a standard indicator for federal funding of small business and innovation support organisations. Bid or request for proposal (RFP) assessment criteria typically weigh economic outcomes indicators, such as job creation and increase in revenue. These performance indicators systemically exclude many women – who are more likely to operate smaller and newer businesses – to be self-employed without employees, and be engaged in social and services enterprises. Bidder assessment criteria for all federal-funded small business support organisations should include demonstrated inclusion of diverse women entrepreneurs, provision of gender and gender-disaggregated client data (e.g. take-up, retention, impacts), track record of hiring under-represented employees, and tangible evidence of gender-sensitive entrepreneurship education and training programmes and services. Illustrative content incorporates the types and models of businesses that women are more likely to operate, (e.g. non-profits, social enterprises and service-based firms), confidence building activities, financial literacy and setting business goals. Finally, staff, mentors and trainers should receive mandated training on equity, diversity and inclusion (EDI) – in the context of small business, entrepreneurship and innovation.

Conclusions and recommendations

Canadian federal funding and RFP evaluation criteria (grids or protocols) are designed to identify investments that tend to benefit men-owned or dominated firms and sectors. Inclusive programmes remain ad hoc, add-ons or pilots (Coleman et al., 2018). Robust analytics are needed to select and validate objectively the beneficiaries and conditions of policy interventions. The following recommendations could help address these limitations and support the achievement of the 2018/2020 WES objectives.

Recommendations for Canada

• Employ clear definitional criteria of women-owned businesses.

• Operationalise public procurement contracting as a mechanism for supporting women-owned businesses.

• Include demonstrated engagement of women entrepreneurs and inclusive programme impacts within requests for funding proposals from entrepreneurship support organisations, and not just economic indicators, such as job creation and revenue growth.

References

Coleman, S., C. Henry, B. Orser, L. Foss, and F. Welter (2018), “Policy Support for Women Entrepreneurs’ Access to Financial Capital: Evidence from Canada, Germany, Ireland, Norway, and the United States”, Journal of Small Business Management, Vol. 57, No. 5, doi: 10.1111/jsbm.12473.

Government of Canada (2018), Women Entrepreneurs Strategy, Innovation, Science, Economic Development Canada, Ottawa, https://www.ic.gc.ca/eic/site/107.nsf/eng/home.

Innovation, Science and Economic Development Canada (2020), “Supporting Women Entrepreneurs in Canada during the COVID 19 Crisis”, presentation by Etienne René Massie, Director General, Small Business Branch to OECD webinar, June 9, 2020.

OECD (2017), SME and Entrepreneurship Policy in Canada, OECD Studies on SMEs and Entrepreneurship, OECD Publishing, Paris, https://doi.org/10.1787/9789264273467-en.

Office of Government Accountability (OGA, 2014), Request to Congressional Requesters, Women-owned Small Business Program, Certifier Oversight and Additional Eligibility Controls are Needed. United States Government Accountability Office, Report to Congressional Requesters, Washington. https://www.gao.gov/assets/670/666431.pdf.

Orser, B., (2017), “Strategies to Redress Entrepreneurship Gender Gap in Canada”, in Routledge Companion to Global Female Entrepreneurship, Henry, C., T. Nelson and K. Lewis (eds.), Routledge, London and New York, pp. 95-115.

Orser, B., C. Elliott and W. Cukier (2019), Strengthening Ecosystem Support for Women Entrepreneurs. Telfer School of Management, University of Ottawa in collaboration with The Diversity Institute, Ted Rogers School of Management, Ryerson University, http://sites.telfer.uottawa.ca/were/.

Orser, B., A. Riding and J. Weeks (2018), “The Efficacy of Gender-Based Federal Procurement Policies in the United States”, Small Business Economics, doi: 10.1007/s11187-018-9997-4.

Riding, A., B. Orser and D. Li (2018), “Benchmarking Small and Medium Enterprises as Suppliers to the Government of Canada. Inclusion, Innovation and International Trade”, Telfer School of Management, University of Ottawa, Ottawa, http://sites.telfer.uottawa.ca/were/.

Simpson, M., (2019), “Innerspace Closes $3.2 Million Seed Round Lead by BDC’s Women in Tech Fund”, Canadian Startup News, https://betakit.com/innerspace-closes-3-2-million-seed-round-led-by-bdcs-women-in-tech-fund.

Statistics Canada (2019), “Women-owned businesses in Canada”, April 3, 2019. Statistics Canada, Ottawa, https://www.statcan.gc.ca/eng/blog/cs/wob.

Statistics Canada (2017), “Survey of Financing and Growth of SMEs”, https://www.ic.gc.ca/eic/site/061.nsf/eng/h_02774.html.

Wilson, N. (2019), “What’s a ‘women-led’ company? We need a standard definition”, Globe & Mail, May 2 2019, https://www.theglobeandmail.com/business/commentary/article-whats-a-women-led-company-we-need-a-standard-definition/.