The first two pages of Virginia Sole-Smith’s article about Mary Kay in the current issue of Harper’s are so sexist and classist that I almost stopped reading. Once I got past Sole-Smith’s sneering over what she saw as poor grooming, tawdry business premises, and insufficient feminist credentials among her informants, however, I found a compassionate and critical assessment.
Harper’s charges Mary Kay with being a “pink pyramid scheme,” but actually I think this accusation is probably not warranted. The problems that Sole-Smith identified in the Mary Kay system do not constitute a special case, but, in fact, are endemic to women’s entrepreneurship generally.
There is much interest in entrepreneurship for women among governments, foundations, and even business schools these days. Yet these actors seldom have any experience as entrepreneurs and have no clue about how hard it is for ordinary people to run businesses. I have been thinking it is time for a wake-up call. So here it is.
These heart-rending examples of the Mary Kay ladies who failed to build their businesses provide a compelling case study in why societies should not be looking at entrepreneurship as a panacea. The stories illustrate several issues that crop up repeatedly.
1. The high cost of working capital is the major obstacle. In the Harper’s article, the Mary Kay women are consistently financing their inventory with credit card debt. So, they are paying such a high rate of interest that, even if they could turn over the inventory fairly quickly, they are unlikely, over time, to make enough profit to cover the cost of capital. This problem is exactly the same as the one faced by poor women in the developing world who try to make businesses off microcredit (which tends to have even higher rates than credit card debt in the West). However, it is common among female entrepreneurs to use consumer credit to finance their businesses. Figuring out exactly why they do this and how better financial instruments can be made available to them is a major policy challenge. However, I suspect that most women’s businesses, because they are small and in traditionally feminine industries (like beauty), are unlikely to get bank credit anyway. Women who want to make a business go, whether it is Mary Kay or something else, probably need to have savings to use as capital or must leverage personal assets like homes. Many are uncomfortable with getting loans against family holdings.
2. Women often start businesses in an effort to balance family with work, but find that family pressures constrain their growth. Study after study shows that women are frequently motivated to become entrepreneurs by the prospect of spending more time with children. They are also motivated by a desire to get away from toxic environments in the formal economy: sexism in the workplace, the demand for long work hours, and so on. (Note that men also report more time with family and desire to escape bad workplaces as strong factors in the decision to start their own businesses.) Sole-Smith finds fault with her informants’ desire to spend more time with their children because, in her view, this makes them inadequate as feminists. In the late 20th century, fat, but not family, was a feminist issue. It seems some people have not caught up that family demands in the workplace are the feminist issue in developed economies today. The furor over the Anne-Marie Slaughter article clearly demonstrated the importance of the squeeze between family and work, but many argued that the problem only affected women at the very top. This article shows clearly that the need to reconcile paid work and care work affects women throughout the economy. Unfortunately, family demands persist for female entrepreneurs and the pressure of running your own business is a 24 hour job, so women sometimes purposely keep their business growth under potential, because they are still worried about balancing work and life. In the end, it means that firms owned by women often grow less than those owned by men. The family issue will not go away just by jumping out of the formal sector.
3. Few entrepreneurs succeed. Sole-Smith documents several successful Mary Kay representatives in her story, but she dismisses these as anomalies, documenting that very few women actually reach a six figure income. (One might point out, for starters, that few people reach a six figure income doing anything, but maybe writers for Harper’s travel in special circles.) There is a tendency in the current climate to assume that entrepreneurs are often wildly successful. In truth, most fail, whether they are male or female, whether they are selling software or lipstick, and the ones who succeed are lucky if they can live off their earnings.
4. Entrepreneurship occurs most often at the margins. Sole-Smith emphasizes that her respondents have trouble holding down jobs, that most of them have been in low-end or informal employment anyway, and that Mary Kay experiences an upsurge in recruiting when the economy takes a dive. Again, this is the stuff of entrepreneurship. People are often driven to start businesses by losing formal employment. Especially here in Britain, I am often struck by the number of entrepreneurs who are immigrants and cannot easily find formal work. Entrepreneurs are disproportionately unsuccessful in school, often suffering from learning disabilities like dyslexia and attention deficit disorder, which eventually means the formal economy is hostile to them. In the end, most entrepreneurs are not Facebook billionaires but own hair salons and taxi services. The desire to glamorize entrepreneurship by defining it in a way that excludes these folks only creates a pipe dream for poor policy making.
Given that the cost of working capital is high and thus puts family finances at risk, that home pressures are often only compounded by the stress of running a business, that the chances of failure are greater than those for success, and that many entrepreneurs are coming from a situation of disadvantage in the first place, we should not be surprised to see that women in this category often struggle. Indeed, the daily challenge of running your own business is a big burden, even when you love your work–as many of these Mary Kay ladies did–and are making money.
This way of life is not for everyone. Looking to entrepreneurship to set the tone for the economies of the 21st century carries its own special risks. Government people and academics–who tend to have very stable jobs, even if stressful–should bear these issues in mind.