November 19th is Women’s Entrepreneurship Day. Sam Berg speaks with Marina Linhart, CEO of Next Street, a mission-driven advisory firm focused on small business and Wendy Cai-Lee, Founder and CEO of Piermont Bank, a newly chartered commercial bank, who share how today’s female entrepreneurs are making a difference for the next generation of women business owners.
Sam: Why now, more than ever, is it a good time for women entrepreneurs?
Marina: It’s always a good time for women to start and run businesses. But today women are the fastest-growing segment of small business. Today, markets are taking notice and responding to that trajectory. New programs are being designed for women-owned businesses, for example, Key4Women (Key Bank’s initiative focused on the financial progress of businesswomen). And new banks like Piermont, founded by a woman, are being built with support for women entrepreneurs.
Pair that with the $30T wealth transfer expected in the next three decades. A sizable share of that wealth has been/ will be transferred to women. We’re already seeing new angel and VC networks, led by women for women entrepreneurs, cropping up. We expect that to accelerate with the wealth transfer. And, those women-owned businesses, armed with funding, provide products and services that benefit other women-owned businesses, creating a virtuous cycle. It doesn’t get better than that!
Sam: Why start Piermont, considering there are thousands of banks in the U.S?
Wendy: This is my second time launching a business. I’ve learned that it’s better to build a business when there is a market need versus build something based on ‘just a good idea.’ A demand-driven new business is much more likely to be successful.
The idea of a bank is not new. In financial services, especially in the last decade, there has been a reduction of banks. Before the financial crisis, there were over 12,000 banks in the U.S. Today, there are 5,200. The lack of new banks being approved by regulators, along with consolidations, has created a market void for lower middle-market businesses. These businesses are primarily the privately-owned, multi-generational businesses, that are entrepreneur-led. Many of these are high growth and have outgrown the products and services of the truly local banks but get a wholesale approach from larger banks due to size. Yet, these businesses need the most one-on-one support.
I saw a market need for a bank to serve these lower middle-market businesses. Couple that with having worked in financial services for many years. I saw the pain points that other banks could not solve. And, with the surge of women-owned businesses (according to the State of Women-Owned Business Report the number of women-owned businesses grew 58% from 2007 to 2018), I felt there was an opportunity for a new kind of bank that focuses on making banking easy, relevant and purposeful for these entrepreneurs.
Sam: How are women challenging the status quo by running businesses?
Marina: Everything about women running businesses is challenging the status quo because the status quo is male. Most businesses today are run by men and that has informed our business practices.
How we talk about business, the choices we make, the cultures we create in business have been male-oriented. Women leaders are chipping away at deeply embedded biases and language that most of us don’t even realize we have. For example, changing the default dress code from “suit and tie” to “business attire.” In bigger ways, too, women-run businesses are forcing structural changes. Take governance. California recently passed a law to require publicly traded companies to have at least one woman on their board of directors. This change in law was spearheaded by two women who have run businesses.
Wendy: On governance and challenging the status quo, at Piermont, there wasn’t an initiative to create a majority-woman board. It came naturally. There were plenty of qualified female executives to serve on the board. Piermont is the only bank with a female-majority board, female chair, and female CEO.
Sam: What innovation is happening to support women in business?
Wendy: If I compare today to when I first started my business in 1997, the innovation of the internet and social media has changed the landscape for all entrepreneurs. The ability to easily research, identify who can be helpful, and quickly get in touch with those people, is tremendously beneficial.
Specifically for women, the internet and social media have leveled the playing field in terms of access to financing. With an abundance of information being shared, there has been an awakening, both on the equity and debt side, that supporting women-owned businesses makes good business sense. It’s an awakening to the reality of the marketplace.
Sam: Why is financing such a big deal for women?
Marina: Recent data from the JPMorgan Chase Institute (JPM’s global think tank) found that on average a woman-owned business grows slower, but ultimately achieves the same survival rate as a male-owned business. This is directly related to financing. Across industries, women-owned businesses are not financed as aggressively upfront and are less leveraged than male-owned businesses. Why does this gender discrepancy exist? Is it because women can’t get financing or is it that they are not asking for what they need? It’s a little bit of both.
To understand why women get less financing upfront, we need to go back in time. Prior to 1988 (just 31 years ago) women were required to have a male relative co-sign a business loan. Isn’t that mind-boggling?
Even today, women receive smaller loan amounts at higher interest rates. That’s why dismantling the biases, systems, and behaviors that have been in place until so recently is a huge challenge and makes financing women-owned businesses a very big deal.
Sam: Does the lack of female leadership representation at banks affect women’s access to capital?
Wendy: It’s less about the representation of female bankers, and more around the lack of understanding of how women run their businesses and what’s their risk appetite. There’s a material difference in how women manage risk, how women envision growth and the steps women take to grow their businesses.
From a lender standpoint, women-owned businesses are better borrowers because they are conservative in nature. Women are typically not the ones to say their business is going to be the Amazon of tomorrow. Women just don’t proclaim a big vision. Women may think about it and may have a plan to get there, but we take things step-by-step.
When I went to capital raise for the bank, I took a conservative approach to my forecasts (what I felt I could deliver to investors) compared to other entrepreneurs who share loftier projections. Some investors took a pass because they took a discount off the number. When I went back to these investors for feedback, they said to me, “Nobody takes a conservative approach. I always get the most aggressive numbers.” Later, in speaking with my CFO and my board chair, we agreed this is who we are, we like our business model, we believe in it and we like to over-deliver. Even I as a banker who has conducted numerous business transactions, put forward the most conservative estimates.
Sam: What advice would you give women entrepreneurs looking for capital?
Marina: Women tend to be over-prepared. Women agonize over the research, do their homework and worry about checking every single box before they ask for anything. That makes women attractive borrowers. So I would say, believe in yourself, and lean in with confidence and conviction.
Wendy: Be bold in your vision. Be confident in what you are pitching. And stay the course if you believe in your business. In my first business, I kept a spreadsheet of all the investors that told me no. It was 141 of them before I raised my first dollar.
Fortunately, today there are many more institutions on the equity and debt side that focus on women. Use your research skills to find them. For banks, look for institutions that have the expertise, the bankers and the products that support women-owned businesses. At Piermont, for example, we’re about to launch a subscription program to help MWBEs reduce their banking fees. We also have a loan decisioning program for women-owned businesses that delivers financing in three days.
Sam: How are women creating opportunities for the next generation of women entrepreneurs?
Wendy: First, by hiring women and championing them equally. Championing is different from mentoring. Mentoring means being a sounding board and giving advice. Championing means giving opportunities for women to rise to the occasion.
Second, for those in the financing field like Piermont, being the financing accelerator to support women entrepreneurs is critical.
Third, creating an environment that is female-friendly. At Piermont, we not only have a nursing room that’s required by law, but this room is also kid-friendly. So, if an employee is in a bind and needs to take their child to work, they have a fun place to drop them off.
Marina: First, women are serving as role models for other aspiring leaders. Both Wendy and I have gone into traditionally male roles as CEOs of an advisory firm and bank. Women executives help pave the way for other women who have dreams of leading a business.
Second, by ensuring inclusive and safe environments for other women so that they can lean into their choices, including starting a business. At Next Street, for example, our leadership is primarily female (3/4 partners are women and 3/4 managing associates are women). Beyond that, Next Street has policies that are female friendly – from maternity to flexible work arrangements for parents.
Third, delivering programs that address the unique challenges of women entrepreneurs. At Next Street, we’ve developed a leadership curriculum for WE NYC, an initiative based out of the New York City Department of Small Business Services that is dedicated to support the 360,000 women entrepreneurs of NYC with programming and resources to help them start and grow their businesses.”