Discontinuance among new firms in retail: The influence of initial resources, strategy, and gender

Abstract Women-owned businesses represent one of the fastest growing segments of the U.S. economy. Their rate has increased more than six-fold since 1970. Despite this growth rate, the number of firms owned by women still lags behind that of men, and the sales and income of women-owned firms are significantly lower than those of men-owned firms. The discrepancy between the number of businesses owned by women and men and their economic success has been a popular theme among researchers. Some have suggested that performance differentials result from disparate structural positions women and men occupy in work and society, whereas others attribute the differences to deep rooted interpersonal orientations. This study examines whether the performance differences can be explained by variations in initial resources and founding strategy. We test whether women have fewer start-up resources, and if they do, whether they can compensate for these deficiencies through their founding strategy. Recent work in social psychology argues that strategic choice is shaped by experiences to which individuals have been subjected, and that women and men have fundamentally different socialization experiences. We test the assumption that if the strategy that women-owners adopt exploits the unique capabilities they derive from their socialization, they can improve the performance of their firms and ward off discontinuance. We examine the discontinuance pattern of 203 new firms in the retail industry. This industry was selected because women entrepreneurs often choose to operate in this industry, giving us a basis for comparing women-owned and men-owned firms. We classify the firms into six strategy archetypes. The arche-types range from a broad focus where founders emphasize multiple strategic foci simultaneously to narrowly targeted differentiation strategies. We assume that the experiential base of women entrepreneurs limits their successfully executing pricing strategies. We hypothesize that women-led firms decrease the odds of discontinuing by adopting one of two strategy types: (1) narrow differentiation strategies that seek to satisfy a narrow segment of the market and that do not rely on “pricing,” or (2) broad “generalists” strategies that emphasize service and quality but not pricing, and take advantage of women's capability for handling multiple stakeholders simultaneously. The results offer support for using an integrative model to explain the performance of women-owned firms. Women-owned firms have higher odds of discontinuing than men-owned firms, and women appear to have fewer resources to start their businesses. Women owners were less likely to have instrumental experience from working in the retail industry and start their businesses on a smaller scale then men but were no less likely then their male counterparts to have access to credit from formal financial institutions, or to be disadvantaged by starting fewer other new businesses. Despite some apparent situational disadvantage, resource deficiencies do not appear to affect the odds of women-owned businesses discontinuing as much as they do men-owned initiatives. The findings indicate support for the supposition that women owners can use founding strategy to decrease the odds of discontinuing business. A broad generalists strategy that represents a multi-focused approach was found to benefit women-owned businesses most. Overall, the results suggest that men use prior business experience and human capital to affect the survival status of their businesses. Women appear to find strategic choice more beneficial. Future research is recommended to further elaborate the integrative model. Special attention should be given to developing alternatives to measures traditionally used in gender research. Many researchers charge that those typically used reflect male derived measures. Similarly, greater attention should be given to understanding why the scale of women-owned businesses at start-up is substantially smaller than that of men, since scale has been shown to be related to subsequent growth and survival.