The “shecession” resulting from the COVID-19 pandemic disproportionately harmed women’s employment and their presence in the workforce. Childcare posed a particularly difficult challenge to working mothers, especially single ones. Additionally, the pandemic had a large impact on industries where women’s employment is concentrated, such as healthcare, restaurants, and hospitality. In recent years, women’s workforce participation has flattened, and the Bureau of Labor Statistics projects that this trend will persist through 2028.
According to the National Bureau of Economic Research, the short-term negative effects of the pandemic on working women could be persistent. After women leave the workforce, it’s even more difficult for them to find another job.
“When you find yourself in the thickness of pursuing a goal or dream, stop only to rest. Momentum builds success.” – Suzy Kassem
Entrepreneurship offers a potential solution to this issue, and there are numerous paths through which one can become an entrepreneurial leader.
“Entrepreneur” is a word of possibility and undefined horizons. It’s a word of ambition unfettered by bureaucracy. It’s a word of autonomy and agency. It’s not reserved for a certain type of person, position, or circumstances. It’s not exclusively for men, the young, those with CS degrees, those who quit their day jobs, or those willing to work 100+ hours to build a unicorn ($1B+ valuation).
The pandemic was hard on women. But women can make their own opportunities going forward as entrepreneurial leaders. Entrepreneurship isn’t confined to the VC-backed founder, or a 20-something guy with an app. It’s not limited to men who toiled for years to become billionaires, or who just want to go to Mars.
Entrepreneurship can be for you, and there are many ways of doing it.
The Case Foundation asked whether the term “entrepreneur” itself is a barrier to both expanding and diversifying entrepreneurship. After all, the default image of an entrepreneur is a young white male who went to a fancy university and lives in Silicon Valley. Entrepreneurship has arguably become a gender-defined activity and a male domain, which can make it less appealing to women. The perception is, “It’s not for you, Jen.”
Stanford professor Joel Peterson wrote, “For those wanting to make a lasting impact, new skills are required. They need to learn to launch new initiatives, inspire others, and champion innovative approaches.” He calls these higher-level leaders “entrepreneurial leaders,” who create durable enterprises that deliver on their promise.
Don’t let the gendered stereotype of the word “entrepreneur” hold you back from exploring your options. Maybe one of these pathways to becoming an entrepreneurial leader will call to you, and help you plan out your own path forward.
Pathway #1: Startup founder
A founder is someone who comes up with a concept for a business, validates and tests their concept, goes through the legal process of incorporating, issues stock to any outside shareholders, and brings their product to market—though the exact steps and sequencing may vary.
The mass media narrative brings certain images of founders to mind immediately: Steve Jobs, Bill Gates, Elon Musk, Mark Zuckerberg… and the founders of companies like Twitter and Uber. It doesn’t tend to bring to mind recent women founders like Sara Blakely of Spanx, Katrina Lake of Stitch Fix, Amanda Hesser of Food52, and many more. Lake, the youngest woman to take a company public, said regarding the Google founders, “I looked at that and didn't see myself in that. I just think it took me a while to think that this was a path that was available to me."
Male founders end up with a huge media profile because there are more of them, so the probability that there will be a huge success is higher for male entrepreneurs. The media is more likely to cover people at the extremes. The result is that the general public thinks only men are successful as founders.
Being aware of this extremely common cultural gender bias toward male entrepreneurs helps you realize that it’s a very narrow conception. It doesn’t mean that there aren’t many examples of women entrepreneurial leaders who have fought hard to achieve success. Ask a man, or anyone, to name a founder. They’ll probably mention a male founder. Then ask him to name a founder who’s a woman, and see they can name any.
Many founders bootstrap, or self-fund, their startup. They do this with small loans from friends and family, and personal and family savings (the primary source of capital for 64.4% of small employer firms). In 2017, 67% of business owners that employed workers were the original founder of their business.
However, founding your own company isn’t the only way to be an entrepreneur. There are many alternate paths, which we cover below.
Pathway #2: Early stage employee
Becoming one of the first few dozen employees at a startup may not pay as well as joining a larger company, but it gives you the opportunity to help grow an emerging business from the ground up.
Early stage employees are often willing to work for a lower-than-market salary coupled with an equity stake. Equity plays a large role in the compensation package. This is the tradeoff for getting to help build a company from the early stages, and the possibility of a greater return down the road.
As an early-stage employee, you typically take on a greater variety of work that’s core to the business and its survival. For example, a startup might hire their first employees to work on the product to get it ready for market. Or they might start doing some hiring when they take their product to market and the founders realize they can’t shoulder everything anymore. Either way, founders need early employees to help the business scale.
Bootstrapped companies will typically wait until it’s too painful not to hire, and when it becomes absolutely necessary to add a new position. This could be on the development or product support side, but also in areas like sales. As the founders of Basecamp put it in their book Rework, “don’t hire for pleasure: hire to kill pain.” You could be one of those early employees intended to kill pain.
However, it’s risky for a startup to hire for two main reasons: first, it takes a lot of time and hassle to find and onboard an employee, and second, the wrong employee can be a huge drag on a small startup team.
Someone hired to work on a product may also have to work on internal systems. It’s unlikely you would be hired as a software engineer and also be expected to work in accounting. But you could start by working on a customer-facing product, and then be asked to assist with internal tool development.
Alums of fast-growing startups often can raise their own funds. The “PayPal Mafia” and the Fairview Semiconductor “traitorous eight” go on to start companies. These groups comprise only men. There haven't been any similar women groups like that, and maybe now is the time for that to happen.
Pathway #3: Venture capital investor
A venture capital investor is a professional money manager who raises funds from investors such as high-net-worth individuals, family offices, foundations, fund-of-funds, and pension funds, and invests on their behalf. These institutions are referred to as limited partners, or LPs.
Why venture capital is important
VCs provide risk capital to companies that may be very early in their growth trajectory, and with expert guidance, help them grow to a point that brings people valuable products and services, stimulates innovation, and creates employment. The NVCA says that “many venture-backed companies have scaled, gone public, and become household names, and at the same time have generated high-skilled jobs and trillions of dollars of benefit for the U.S. economy.”
What venture capital firms do
VC firms make long-term investments of risk capital in early-stage to later-stage companies. Funding rounds are typically between $2M and $10M, though some firms invest much larger sums. VCs are rarely going to be a founder’s first money in. In 2020, firms invested more than $130B in startups for the third consecutive year.
After what can be a long fundraising process, VCs begin deploying the capital raised. The most important metric is the internal rate of return, or IRR. There’s Gross IRR and Net IRR, and net is what the returns look like after all fees have been factored in. Another important metric is Multiple on Invested Capital (MOIC), which refers to how much the investor got back relative to what they put in.
Even though venture capital plays the long game, LPs want to see exits. All else equal, the less time it takes to get to an exit, the higher the IRR. According to Mahendra Ramsinghani in The Business of Venture Capital, exit horizons are six to eight years or longer, with very few occurring in three to four years. If you’re a VC investing at the seed stage, an exit could easily take six to eight years—possibly 10+ years. And the average firm makes only a handful of investments each year.
According to a 2016 study, “How Do Venture Capitalists Make Decisions?,” about a quarter of portfolio exits are through IPO, while half are through M&A.
How to become a VC
Becoming a venture capitalist is notoriously difficult, although there are some excellent resources online—such as John Gannon’s website—that detail a number of options for breaking into the industry. One of these routes is to begin investing yourself as an angel investor, which we cover in the next section.
Pathway #4: Angel investor
An angel investor is a high-net-worth individual who invests primarily in pre-seed and seed startups using their own funds in exchange for equity. Although there’s no formal definition for pre-seed vs seed, pre-seed typically means pre-revenue, pre-customer, and pre-product, whereas seed confers some meaningful traction in terms of revenue and product. Pre-seed usually includes some amount of friends and family funding.
Angel investments are typically between $5,000 and $100,000. Even though you may see headlines about angel investors funding large rounds for companies, these are the exceptions and not the rule.
While angel investors must meet the requirements to be considered an accredited investor in their region, the majority of angels actually write small checks. Since the average check is $25,000, many are actually below this number, and founders would likely have to string together multiple angels to fund a round. So-called “super angels” do exist, but their investment criteria may be as or more stringent than VC firms.
Because angels and VCs invest in startups at different stages of development, with angels more at seed stages and VCs in later stages, they mostly serve complementary rather than competitive functions.
Angels aren’t always financially motivated like VCs—they can have personal motivations ranging from the desire to be involved with a venture without having to do it themselves, or to engage in “for-profit philanthropy.”
Why angels are important
Angels serve an important role in providing very early-stage funding, particularly in the first year of a company’s operation. They support founders at an earlier stage of development, providing a financial bridge between friends and family funding and venture financing.
Their funding allows a founder to get some traction and social proof, and position themselves to secure a larger round of angel funding or funding from a VC firm. Moreover, they support regional innovation and job creation.
The Center for Venture Research reports that total US angel investments in 2020 were $25.3B across 70,000+ companies. CVR estimates that there are about 300,000+ active investors.
Angels and diversity
Angels are somewhat more diverse than VCs. According to the Center for Venture Research, women angels represent 29.5% of the angel market, which is basically unchanged from the 2019 share of 29%. For the past three years, women have consistently represented a 25-30% share of the market, indicating stability, but not growth.
Some angels may invest through angel groups and crowdfunding platforms. According to the American Angel study, the largest dataset available on individual angels, more angels are investing alongside other funding vehicles. One of the ways they find deals is through online and crowdfunding platforms, with 17% of angels doing so.
The Angel Capital Association (ACA)’s 2020 Angel Funders Report found that the typical angel group invests about $2.5M each year across 10-20 new ventures, fueling innovation and job growth. The median valuation in these angel rounds was $6M.
Angel groups theoretically provide a way for angels who write smaller checks to join together and make more meaningful investments in a company. In some angel groups, members invest on an individual basis. In others, members pool their funds and invest from that pool, though they can also make individual investments.
Pathway #5: Mentor or advisor
Although there’s often no real functional distinction between advisors and mentors in the entrepreneurial ecosystem, we’ll look at each one.
Advisors have experience in industry, often as entrepreneurs, and help founders address particular challenges or questions. Professional advisors such as lawyers, accountants, engineers, marketing execs, and others that serve startups.
There are three levels at which an advisor could interact with a company:
- Helping the company without compensation
- Helping the company and receiving cash or equity compensation
- Sitting on the board of directors, which is a governance role and usually compensated through equity or a cash stipend
Advisors typically have experience with the specific challenge the founder is working through. Some may be industry-specific, like fintech, food and beverage, or business services. Others are specific to functional areas, such as operations, fundraising, or customer acquisition.
An advisor may become a mentor, which is a more broad and often more impactful role. Looking at the graduate school ecosystem by comparison, an advisor is there to discuss courses and university policies with the student. A mentor acts as a trusted sounding board for the student, is in the same field of study, and is involved in networking circles that are of interest to the student.
It’s worth noting that “adviser” (different spelling) is a term used in financial regulation. For example, it appears in the Investment Advisers Act of 1940, which regulates investment advisers, and in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which reorganized the financial regulatory system. Some investors might use this spelling in the context of an adviser with assets under management (AUM).
Mentors guide founders through challenges. A mentor could start out as an advisor, giving specific advice on specific challenges. But if the advisor and advisee have a good rapport, the advisor could turn into an ongoing mentor.
Mentors might not have experience as founders themselves. Instead, they could be an employee at a large company, a service provider in a profession like law or accounting, or bring expertise in an area such as branding—but overall, they have an interest in helping entrepreneurs grow their businesses.
Some advisors and mentors may later become investors or employees at the company.
The Founder Institute, which is a global pre-seed accelerator program, provides an easy to use framework for deciding how to engage with and compensate early advisors and mentors.
Where you can serve as a mentor
Although you can always serve as a mentor informally by connecting with someone in your network, there are a number of situations where you can serve as a mentor more formally. You can also look at AngelList and Lunch Clubfor finding people to mentor.
Founders typically need to learn how to effectively engage with a mentor (or advisor, for that matter). They need some direction on how to make the most of their time and how to take feedback. Mentors also need some experience and tips to learn how to be a good mentor.
One of the biggest benefits of an accelerator is the quality of its mentors, who help a pre-seed or early stage company launch and get some traction. Founders can ask mentors if they’re willing to continue the engagement after the program. That advisor would then be functioning independently and guiding the founder for a longer period. Sort of like a spy handler.
Aside from reaching out to local or virtual startup accelerator programs, those looking at becoming a mentor could also explore mentoring opportunities at the internal business accelerators within larger organizations.
In an incubator, you typically find advisors or mentors who work at the company that sponsors the incubator, or who work for the sponsor’s partners. An incubator typically provides highly specialized equipment for fields such as life sciences, so some of the mentors will work directly in that field, and others may be available to help with more business-related aspects.
A co-working space generally has office hours that member founders can book with mentors. Founders can see which areas mentors are willing to help with, and then meet with those mentors one-on-one. They say a person’s friends tell you a lot about them as an individual; the same goes for co-working spaces and their tenants. Before signing a contract, find out who the current tenants are, so you know who else will be working there and what type of environment it is.
Pathway #6: Intrapreneur
An intrapreneur is an employee at a large company, government agency, or nonprofit who starts a venture that yields new products or services within that organization.
What do intrapreneurs do?
Intrapreneurs develop new concepts outside the traditional innovation or R&D centers of the organization.
Like a founder, the intrapreneur goes through a creating, prototyping, testing, and validating process. It’s the same lean startup method that entrepreneurs use, with the intermediate goal of using their MVP to secure internal funding, and the ultimate goal of taking their product to market for the organization they work for.
Intrapreneurs are curious, self-confident doers who are open to ideas and opportunities within the organization. They have a higher tolerance for risk and are good at connecting across divisions.
In addition, they have to be adept at navigating the slower processes and entrenched bureaucracy of the large organization, and determined to get the resources and internal funding they need.
How are intrapreneurs and entrepreneurs different?
An intrapreneur and entrepreneur differ in a number of ways. The intrapreneur has the safety net of their salary, isn’t incurring any opportunity cost or as much risk as an entrepreneur does, lacks the control that an entrepreneur has, and doesn’t have the same kind of equity stake.
The benefits of being an intrapreneur include promotions and bonuses if the new venture succeeds, and even a percentage of equity. Additionally, it can propel your career in new directions, and make you more excited and fulfilled about your work.
Some well-known intrapreneurs include Linda Gooden of Lockheed Martin Information Technology, and Karen Thomas of Dafina Books.
Pathway #7: Franchise owner
A franchise is a distribution and growth model where a person licenses the use of a brand name to sell that company’s goods or services. With a franchise, you can be independent, but benefit from the advantages and resources of a regional or national chain.
From the beginning of commercial franchising in the early 1800s, to Martha Matilda Harper, and the expansion of chains in the 1950s and 60s, franchising has provided an attractive option for people who want to run a business. In 2016, about one in 20 firms with employees were Franchises, and industries with the highest share of franchises are Accommodation and Food Services at 20%, and Management of Companies and Enterprises at 14%.
With franchising, you don’t start the business in a traditional sense—you operate the business and pay for the right to sell a franchisor’s goods in a particular area. In exchange for the right to use the brand name and operate a franchise, you pay a franchise fee and get the right to use the franchisor’s name for a specific number of years.
You also receive support with aspects of running your franchise, including finding a location, training, business plans, marketing, and PR.
A franchise requires major commitments of both money and time, but you can potentially hire a general manager who can handle most of the day-to-day operations, as long as the franchisor approves the manager. In that case, you would both go through training.
Costs and restrictions
The main consideration for whether a franchise is the right choice for you is your level of comfort with the upfront costs and with the restrictions that come with the business model.
Since you’re operating a franchise within a company’s system, you have to adhere to their standards of operation, branding and decor, products, and other aspects of the program.
That said, you do have some freedom within these restrictions, including setting your own schedule (which may include hiring people to help you operate the business), choosing whom to hire, controlling the advertising budget, and determining your community involvement level—franchisors encourage community support to promote brand recognition and goodwill.
Franchise fee and other expenses
Franchise startup costs and annual fees, as well as the support you receive as a franchisee, vary significantly depending on the franchise. Big-name brands will cost the most, although it’s certainly possible to find lower-priced franchises with growth potential.
Your initial franchise fee can range from tens of thousands of dollars to several hundred thousand dollars. It’s worth noting that franchises are more likely to rely on bank loans for financing than independent businesses are.
If there’s a physical location, you may have to pay additional costs to rent, build, and equip the location. Some franchises don’t involve a physical location, like SuperGlass Windshield Repair and JAN-PRO. Other costs could include operating licenses, insurance, and a “grand opening” fee to the franchisor to promote your new outlet.
Franchise versus founding your own business or buying an existing business
Buying a franchise allows you to bypass a lot of the trial and error of product and market validation that you have to perform with a brand-new concept. And you don’t have to go through all the steps necessary to create a business—you can step into one that already has brand recognition, and then be an entrepreneurial leader in your community.
If you like the thought of something with built-in stability, brand recognition, and support, then this business model may be something to strongly consider. Being a franchisee means that you receive support to a varying extent. Like everything else, some franchises are better run than others, but there should be training, other resources, and a community of franchise owners to participate in.
On the other hand, if you chafe against limitations and want to exercise your own judgement with every aspect of the business, then franchising is probably not a good choice for you.
How successful are franchises compared to other types of small businesses?
One 2017 study found that franchised businesses have higher survival rates and faster initial growth relative to independent businesses, but that those differences “basically disappear” after the first year of operation. The authors didn’t find any evidence of an advantage over independent businesses once the company had been in operation for a year or two. In other words, franchises are not necessarily a less risky way of becoming an entrepreneur compared to founding your own business.
How do you get started with a franchise?
Decide on your industry
If you want to explore the various types of businesses you can operate with a franchise, use a franchise directory tool to narrow down the industries you’re interested in. Since franchises vary when it comes to upfront costs, you can use the tool to filter franchises by how much you can afford or want to invest. You will generally need to show a franchisor a net worth of $500,000 to $1M+, and liquidity in the $150,000 to $500,000 range.
Look over the FDDs
Once you have your short list, you can get started on due diligence. Get all the reports you can about the franchise, starting with the Franchise Disclosure Document (FDD). The FDD is required by the FTC and will give you a comprehensive overview of the franchise. It usually includes startup costs, financial and litigation history, competitive advantages, financial statements, advertising, training, renewal, termination, rules and regulations, and more. The FDD Research Hub allows you to search for FDDs by category.
Check statutory law
How do you exit a franchise?
Franchise term lengths are often 10 to 20 years, but you can generally sell your franchise to another franchisee before then, subject to market conditions and the franchisor’s rules about changes of ownership.
For those thinking about a franchise as an entrepreneurial pathway, there are certainly a lot of things to consider and evaluate. If this is something that interests you, you can make a list of franchises you’d like to explore further, and start doing research to narrow down that list, including talking to current and former franchisees and evaluating tax considerations.
Pathway #8: Entrepreneurship through acquisition (ETA) as a business buyer
Entrepreneurship through acquisition (ETA) encompasses buying an existing business with or without investors. You can engage in ETA by buying an existing business directly, without investors, or by raising capital to fund your search and purchase.
What’s a search fund?
A search fund is a specialized and rather obscure private equity investment vehicle that a Stanford Business School professor, H. Irving Grousbeck, developed in the 1980s. With search funds, investors fund an entrepreneur’s efforts to find, acquire, operate, and grow a privately held company.
IESE defines a search fund as “an investment vehicle for financing the discovery, negotiation and acquisition of a company considered to have strong growth potential.”
IESE’s biannual study defines search funds as a way to “offer entrepreneurs the opportunity to become equity-owning business operators before they have accumulated the capital or experience often required to buy or lead a company.”
From an investor’s perspective, the search fund is a very temporary vehicle; investors tend to buy units of an LLC which in turn funds the search process.
What kind of background do you need as a search fund principal?
The IESE survey (which, it should be noted, has a small sample size of 83 respondents) shows that an investment banking or private equity background represents 42% of search fund principals who formed funds in 2016-2017. Management consulting represented the next most common professional background of these aspiring entrepreneurs.
But that doesn’t mean that highly motivated principals with other backgrounds shouldn’t explore search funds as a possibility, especially because the very nature of search funds means that each search and ultimate target will be unique.
Almost all funded searchers are newly-minted MBAs. And while many search fund operators may lack experience in a senior operating role, the best recipe for success is arguably a combination of an MBA, plus a number of years of relevant work experience.
Jim Sharpe wrote about searching as a woman, and has a lot of resources for ETA and searching on his blog, which is a great rabbit hole for learning more about search funds in a very approachable way. Sharpe said that the number of female searchers has grown rapidly—and that many women see searching as a compelling path to independence and autonomy either right after getting their MBA, or several years later.
Because a large part of a successful search is convincing the seller that your team is the right fit, interpersonal skills and respect for the seller’s industry and business legacy are likely to weigh heavily here.
What kind of company are search funds looking for?
Typically, the type of company a search fund is looking for is an established middle-market business with revenues in the $5-40M range, EBITDA in the $1-5M range, and the potential for growth. Because many search fund acquisitions include a significant debt load, search funds will typically seek out acquisition targets that have an attractive cash flow profile to cover the debt service.
Judging from the IESE survey results of 83 international first-time search funds, it’s not a slam-dunk as a model. Three of the funds failed outright. Being able to raise the funds and finding a suitable acquisition target may be more challenging than one thinks.
The acquisition targets are frequently family businesses that are owned by one or two principals and sell a B2B product or service. In recent years, search funds have also targeted healthcare, manufacturing, transportation and logistics, IT, and finance.
With a search fund, you’re not looking for a turnaround opportunity—you want a stable company with strong margins and recurring revenue. A company Warren Buffet would theoretically want to acquire. A company that’s “enduringly profitable.”
Search fund principals usually scour their networks to find companies. Taking the time to define some reasonably specific criteria for the kind of company you want will shorten and streamline your search. There will almost always be a geographic constraint, for one thing, because you’ll likely need to spend at least some time at the company’s headquarters. But being too selective or specific could also work against you.
Is a search fund the right option?
After you raise the capital from investors to form the search fund, then make a second call for capital to close on the business—a journey that often takes a couple of years—the entrepreneur is generally expected to run the company as CEO for about 10 years. That’s a big commitment.
With the search fund structure, what it comes down to is whether you actually want to raise capital from investors to fund your search and then do another round for the acquisition. If you instead prefer to keep all the equity in the company you buy, and don’t want the hassle and pressure of investors, then directly buying a business and financing the search and acquisition yourself may be a better choice.
If you’re interested in learning more about search funds, there are a few conferences that cover them. One is the Booth Entrepreneurship through Acquisition (ETA) Conference. There’s also a Search Fund Accelerator, which is kicking off its seventh cohort of searchers in 2021.
Buying an existing business (without a search fund)
If you want more freedom to build a business your way, consider buying an existing business without the aid of a search fund. In 2017, 22% of business owners that employed workers had purchased their business, versus 67% who had founded their business. (The remaining portion received their business through a gift or inheritance.)
Depending on the skill and efforts of the previous owner, and what you’re comfortable with, stepping into an existing business could be be plug-and-play—or it could be a mess. Either way, you’ll probably have a customer base, some employees, and defined operating expenses.
You should have an idea of whether you want the challenge of turning a business around and growing it from there, or if you want something that was already well-run. Buying an existing business requires market research and rigorous due diligence so you can clearly understand what you’re getting into.
Where to start with buying a business?
Start searching in your network, asking strong and weak connections if they know of anyone in your area who’s looking to sell their business. You could also apply for an Axial account as a buyer, search for relevant targets, and connect with sellers.
Once you find a company you’re interested in, you’ll want to look at all contracts, leases, existing cash flow, and inventory. You’ll also want to closely examine the last three years of financial statements.
In addition, you want a clear understanding of the owner’s day-to-day role and whether you’ll need to hire someone to take over those responsibilities. You’ll need to understand the customer and supplier relationships—are these stakeholders going to be happy to do business with you as the new owner?
But once you find it and purchase it, you have control, and can immediately start making decisions to operate and grow the business.
According to Richard Ruback and Royce Yudkoff, professors at Harvard Business School, the option of purchasing an existing business is often overlooked. In an HBR podcast interview, Yudkoff said “Rick and I feel like this space has been overlooked by many people who thought of their choices as being, I can go work in someone else’s company, or I need to come up with an idea and rub two sticks together to make fire.”
Finding the entrepreneurial leadership path that’s right for you
We hope that this article has given you a better sense of the many different ways you can become an entrepreneurial leader. However you choose to go about it, it’s important to build your network and have a circle of support (PDF), which may include exploring programs like Women’s Entrepreneurial Leadership and Project Ascendance.
Author: Nina Post