STANFORD
UNIVERSITY PRESS
  



Minority Women Entrepreneurs
How Outsider Status Can Lead to Better Business Practices
Mary Godwyn and Donna Stoddard

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Minority Women Entrepreneurs

Introduction: Challenging the Elegant Theories of Economics

Thirty years ago, Muhammad Yunus, a university professor, founded the Grameen Bank. His goal was ambitious, but simple: to eradicate world poverty (Tharoor 2006). Initially, the idea of lending money to desperately poor people was completely out of the question. The very suggestion was outlandish. It went against the fundamental principles of economics; it violated well-established assumptions about human nature, conventions about who should be trusted, who deserved loans, and, most important, who would pay back with interest so that banks would remain competitive and profitable. Convinced that poor people would never repay their loans, conventional bankers said Yunus was hopelessly naive, even crazy, and would not help him. But seeing the deprivation and human suffering in the villages of Bangladesh made Yunus doubt some of the basic assumptions behind “the elegant theories of economics” he was teaching in the university classroom (Yunus 2006).

Yunus would eventually provide a passionate critique encompassing economic theory, free-market capitalism, and conventional banking practices. He would also disrupt the notion, sacred to so many, that classical economic assumptions are necessary for democracy and freedom. Instead of accepting banking policies as rational and responsible, he declared banks discriminatory. By rejecting the idea that credit should only be a “rich man’s prerogative” (Yunus 2007b), he exposed conventional banking policies as “anti-poor” and, less obviously, “anti-women.” He declared the world “so mesmerized by the success of capitalism it does not dare to doubt that system’s underlying theory” (2007a: 18). Not only did Yunus doubt the theory: he challenged it, and by testing some of its basic tenets, he improved capitalism.

The main problem, according to Yunus, was that rather than freeing people, “free-market” capitalism limits freedom and constrains human potential; it creates a “repressive economic milieu” (Yunus 2007b). He writes:

Capitalism takes a narrow view of human nature, assuming that people are one-dimensional beings concerned only with the pursuit of maximum profit … In the conventional theory of business, we’ve created a one-dimensional human being to play the role of business leader, the so-called entrepreneur. We’ve insulated him from the rest of life, the religious, emotional, political and social. He is dedicated to one mission only – maximize profit. (Yunus 2007a: 18)

By refusing to accept this narrow view of human nature and the equally narrow goal of profit maximization for entrepreneurial activity, Yunus successfully changed the paradigm of banking. Ignoring the formidable power of economic and cultural prohibitions against lending money to the poor, especially to poor women, he started Grameen Bank, the village bank. In Yunus’s words, Grameen bank “reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust” (Yunus 2007b).

As it turned out, conventional bankers were wrong about poor people not repaying their loans: the repayment rate for the Grameen Bank has always been about 98%, much higher than for traditional banks. For over three decades, Grameen has served populations of people who had never before had fair access to capital. An entrepreneurial miracle, Grameen has made small loans to almost 100 million of the world’s poorest people, and delivered 50 million from poverty (Fraser 2007). Grameen’s micro-credit is now available in over 40 countries. At the current rate, Yunus predicts that poverty could be eradicated by the year 2050, and he dreams of creating poverty museums documenting this retired social ill.

Minority women: Outsiders Demonstrating Better Entrepreneurship

Early in the development of the lending process, Yunus made another controversial claim: because they use the money primarily to benefit their families and their communities, women are “better” borrowers. He explains:

Money going to the family through the women brought so much more benefit than the same amount of money going to men. In every case, you cannot fail. In the beginning, we had no idea that this kind of thing would emerge. It is so clear, so transparent, you don’t need to be smart researchers to find it, but just by casual observation you see the difference of what happens within the family if the mother is a borrower and if the father is a borrower. You can almost write a book about it, what a difference [it makes]. Children become the immediate beneficiary if the mother is the borrower.

[So we said] Let’s focus on women because you get so much social impact. Money-wise, it’s the same. Everybody’s paying back – men [were] paying back and women [were] paying back – but the impact is so different. So we changed our minds and quickly we moved from 50/50 to 60 and 70 and so on – 90%. Today we have seven and a half million borrowers – 97% of them are women. (Yunus 2008)

Though Yunus was roundly accused of being unfair to men and of not supporting gender equality, Grameen became one of the first banks to lend almost exclusively to women. (The Mahila SEWA Cooperative Bank, Ltd. was founded in 1974. This bank was started by the members of the Self-Employed Women’s Association, a trade union in India started by Ela Bhatt.)

This unorthodox policy changed the world. Many of these women’s children, once counted among the ranks of the very poorest, have moved through the educational system. Some are now in graduate school becoming doctors, lawyers, and other professionals. This degree of class mobility in Bangladesh was virtually nonexistent before the Grameen Bank and the invention of micro-credit. Putting money in women’s hands has meant the end of generations of unremitting poverty for their families.

In this book, we make our own controversial claim: women, especially minority women, are not just better borrowers: they provide examples of better entrepreneurship. That is to say, because of current, prevailing social definitions of gender and minority status, minority women are more likely to be highly innovative and direct their business practices and profits towards social good. We support this claim by examining ten businesses owned and operated by 12 minority women entrepreneurs. We apply a multi-dimensional analysis that not only addresses the difficulties and opportunities experienced by minority women business owners, but also investigates how gender and minority status pertain to their entrepreneurial decisions. Though our findings are based on a small sample size, they are consistent with Yunus’s observations, the opinions of major economists including Lawrence Summers, Joseph Stiglitz, and Amartya Sen, and considerable empirical evidence that women, as a group, are more likely than are men to direct money to “their children and their communities” (Kristof and WuDunn 2009: xx).

How do gender and minority status shape entrepreneurial decision-making? This question seems long overdue, not only because women are more likely to spend their earnings on social good, but also since minority women in the U.S. start new businesses at four times the rate of nonminority men and women (MBDA 2008). Voluminous quantitative findings from around the world reveal that women contribute a much higher proportion of their earnings and their time to social good than do men (Crittenden 2001: 129). However, theoretical explanations for this behavior are scarce. Quantitative studies are crucial to establishing general patterns of behavior among populations of people, but they do not chronicle the micro-interactions and decision-making processes that provide an understanding of how patterns develop and are enacted on a day-to-day basis. In our study, we employ qualitative methods grounded in social and psychological theories and provide first-hand accounts – narratives – of minority women entrepreneurs, as they talk about and act through their businesses, their communities, and their partnerships. We hope that this qualitative study provides insight into the largely unexplained quantitative data.

By focusing on broad categories such as gender and minority status, our claims reflect patterns and probability. We are, therefore, not claiming that every individual minority woman entrepreneur exhibits the characteristic pattern of being highly innovative and prioritizing her children and community. We readily acknowledge that there are examples of specific minority women who do not, by these standards, provide examples of better entrepreneurship practices. Additionally, we are not claiming that only minority women fit this pattern: Muhammad Yunus and other men fit this pattern as well.

Statistically, women are likely to contribute more of their earnings towards public good than are men. Some explain this behavior as resulting from inherent or essential gender difference. In fact, a key concept in social psychology is the fundamental attribution error: the tendency for people to attribute behavior to an individual’s character or group membership rather than to situational factors such as norms and social expectations (Nkomo 1992: 494). However, we found that this type of generosity that is generally associated with women does not emanate from some essential aspect of gender or minority status, but instead is learned, considered socially more appropriate for women, and has historical precedent within minority communities. The same behavior is available to majority men, but they must contend with the diminishment of masculinity and majority class privilege when they act this way, so it is less likely to be the path they follow. We are therefore not claiming that women and men, or minorities and those in the majority, are essentially or inherently different, but that the social expectations for them are. Social expectations and behavioral norms become the context in which all people make decisions and develop self-identity. In the cases of the minority women we interviewed, innovation bends towards social justice and community benefit. As mentioned, many quantitative studies have established that women are more likely to spend their money on social good than are men (Crittenden 2001: 129). Our study suggests that minority women entrepreneurs, to the degree they demonstrate typical identification with female gender characteristics and with minority status, are also more likely to fit a pattern of directing their innovative practices and their profits to social good. However, since these behaviors are learned and acquired over time, anyone – men and women, minorities and majorities – can consciously adopt these priorities.

We do not compare specific minority women with a control group of specific majority men. In fact, the broad definition we use for minority status eludes quantifiable and precise definitions of race, ethnicity, and other aspects of minority membership making control groups untenable. Moreover, the preponderance of business case studies feature white, male protagonists, so there is no penury of interviews with this population of entrepreneurs. Instead of comparing our interviewees with other specific entrepreneurs, we compare their narratives with the dominant discourse in entrepreneurial research, case studies, and educational literature. Our intention is not to elevate women at the expense of men, or minority members over members of the majority, but to explore how aspects of the entrepreneur’s identity influence entrepreneurial activity. We hope this study leads to a reconsideration of conventional definitions of successful entrepreneurship and a revision of the assumptions about human nature found in classical economic theory.

Clearly, the one-dimensional, profit-driven definition of human nature is inadequate to explain the well-documented and widespread non-instrumental behavior evident among some entrepreneurs. We found that the methods and goals of entrepreneurship are culturally embedded and socially defined. That is to say, business practices are not inevitable, universal or culturally neutral, and do not follow from a narrow set of human characteristics and economic motivations. Instead, we found that practices arise organically from within populations of people and vary according to cultural values and group affiliations.

Profit in a Social Context

Because economic theory has such a monopoly on the subject areas of business and commerce, social and psychological theories are not typically applied to these areas of study. However, the latter disciplines offer more developed and nuanced understandings of the complexity of human behavior and interaction. Like Yunus, we reject some basic assumptions of economic theory, including the idea that entrepreneurs are one-dimensional people who are primarily interested in profit. We reject this idea because it is not borne out in our data or in the abundance of empirical research on women’s spending habits. In our study, we found varied and complex human values and behavior expressed through and developed in entrepreneurial business activity. These values provide a social context to profit accumulation.

For instance, it was not unusual for the entrepreneurs in our study to use highly emotional language and terms usually associated with intimate relationships to describe their businesses, their products and their employees. One of the entrepreneurs in our study, Judy Henderson-Townsend, remarks, “A business is an organic process like reaching enlightenment. When you look at it this way, you enjoy it more. My business is my baby. I have a six-year-old child right now.” Another entrepreneur, Barbara Manzi, describes her business as “the love of my life,” and says it gives her such energy that she wants to “work all day and all night.” Manzi explains, “My employees are as close to me as my own children. I start every day with a friendly ‘Good morning!’ You have to say something tender and kind because they might not be getting that at home.”

When Yunus claimed that women were better borrowers, he was not saying women were economically better – better because they paid their loans more dependably or because they paid a higher interest rate. He claimed women were better borrowers because they were better managers of resources and directed their money to social goals much more often than did men. Like Yunus, we do not accept the definition of business success as being primarily about measuring economic worth. The entrepreneurs in our study maintain the perspective that profit is situated in the context of personal values and social relationships. Again from Manzi:

It’s not about individual profit. That’s where most entrepreneurs fall through the cracks. Profit will come. But the one thing that entrepreneurs should know is: Don’t be so material. It’s not about buying the latest clothes, the newest cars. It is not about the money or growing the industry. It’s about the passion, the appreciation. Money doesn’t make you happy. My employees and me, we are a family. They give back. They know I am very passionate about their welfare and the welfare of their families. This is their business. When they have a family problem, they can go home and take care of it. Someone else will step in and run their desk. They’ll have their turn. If the company makes money, the wealth is shared. They don’t come here for a job, they come for a career.

Sociologists are interested in the relationship between group affiliations and behavior, and therefore it is not the size of the business or how much money it makes that matters here, but rather how minority and gender status influence entrepreneurial activity. We apply sociological, and to a lesser degree, psychological, theories to explain our qualitative data, to recognize and study the phenomenon of non-instrumental entrepreneurial activity more generally and to suggest new paradigmatic standards that might be applied to business and entrepreneurship research.

Paradigms

People rely on broad theoretical frameworks, also called worldviews or paradigms, to explore, understand and explain the empirical world. There are many ways to interpret data; sometimes these ways are discretely contained within disciplinary lenses, and at other times these lenses overlap. The sociologist William Levin provides a fine description of different disciplinary interpretations of a simple act: arriving in a college classroom. For instance, Levin observes that a physicist would focus on the way gravity and friction work to allow human ambulation; a biologist might focus on the degree of physical health and well-being necessary to enroll and attend classes; an architect might address how the design and structure of the classroom influences attendance; a psychologist might be interested in why some people are motivated to attend college, and how rewards and punishments are associated with various types of performance (Levin 1994: 10). Depending on the theoretical lens, or paradigm, different aspects of empirical data are emphasized. In this way, interpretations, even of common phenomena, are paradigmatically dependent.

In addition, the process of study and examination – that is, the initial questions that direct exploration, experimentation, and data gathering – can also be paradigmatically dependent. Some paradigms are more likely to be applied to certain subjects and questions of inquiry than are others. For instance, biologists and chemists might be more likely to explore the processes involved in cell structure development and mutation, while theories and paradigms in political science or history would less likely be employed. Even within disciplines or types of disciplines there are competing theories and paradigms that are more or less applicable depending on the subject matter and inquiry. For example, though many consider that psychology, sociology, and economics fall under the general category of social science, these disciplines have wide variability with regard to their assumptions about human nature and the goals of research. Further, there are many competing theoretical areas within each social science. As will be discussed later, sociologists generally recognize at least three basic paradigms, or theoretical perspectives: functionalism, conflict theory, and symbolic interaction.

So far, there is no unifying theory, no one universal way to organize inquiry and data, and different theoretical perspectives have strengths and weaknesses. They also have biases and ramifications; content and interpretation of data are paradigmatically dependent, as are the outcome and findings of any inquiry.

For instance, though management and sociology both have theories of organization, one important difference between these disciplinary lenses is that management theorists study organizations – mainly formal, for-profit organizations such as companies – from an instrumental point of view. The beginning assumption in management and economic theories is that an organization is a means to an end to achieve its goals. The goals for companies are most commonly to increase profits and thereby create economic value for shareholders. If managers do not prioritize economic value above all else, they are doing something wrong, something “irresponsible” (Yunus 2007a: 17) that must, according to the initial assumption, be fixed.

Sociology on the other hand is engaged in the study of both formal, structured organizations – such as corporations, the military, and government bureaucracies – as well as informal, spontaneously formed organizations, such as student activists, online communities, and romantic couplings. Unlike management, or those disciplines that use management and economic theoretical assumptions as their basis, sociological research primarily employs a non-instrumental or non-utilitarian perspective. That is to say, as a social science, sociology is concerned with the study of organizations because such study yields knowledge that is worthwhile in itself, whether any utility is discovered or any instrumental goal is met. Similarly, the study of chemistry is predicated on the assumption that understanding chemical compounds and reactions is valuable in itself, even if there is no other evidence of use or need. That is not to say that some chemists are not motivated by the idea of achieving chemical reactions that would produce low-cost energy or eradicate disease. However, the study of chemistry, like that of sociology, transcends instrumentality by assuming worth based on knowledge alone.

In the investigation of a group of managers who, despite the dominant economic mandate, do not prioritize profit above all else, a sociological study would differ from an economically based one. A sociologist would try to understand what such behavior explains about human social interactions, about patterns of relationships among individuals, and how such behavior is shaped by group membership. Additionally, rather than treating profit as an ahistorical, culturally neutral goal, a sociologist would likely examine profit within the context of the social norms and cultural practices that reward profit-driven behavior.

Sometimes, to the detriment of generating new perspectives and fruitful solutions, areas of knowledge and inquiry become bound by stagnant understandings and theories that are incompatible with empirical evidence. In such cases, rather than useful organizational tools, paradigms can prove to be impediments to interpreting data and evidence.

Early signs of the inadequacy of established paradigms are often dismissed as mistakes in observation, miscalculations in measurement or some other misperception. Ruling paradigms can be so powerful and pervasive that they pass for objective truth, common sense or even sacred understanding. Therefore, there can be overwhelming loyalty to particular paradigms and strong, even violent, resistance to change, especially to changing paradigms that define conventional wisdom (what people have come to take for granted) and advance the interests of those in power. A common example of loyalty to a faulty paradigm was the initial refusal of the Catholic Church to recognize that the earth revolves around the sun. In this case, resistance to the new heliocentric paradigm was manifest in the persecution of Galileo and others who rejected the popular geocentricism of the day.

In Western society, we use a foundational paradigm or worldview that Riane Eisler calls a “domination system.” This paradigm always uses a hierarchy to understand empirical data about relationships. In the domination system, there are only two alternatives: dominating someone else or being dominated by someone else (Eisler 2007: 30). Those who accept this paradigm use it to interpret empirical events, sometimes without regard to its accuracy or applicability.

For example, Temple Grandin, the author of several books about animal behavior, notes there is a long-standing but inaccurate belief that alpha males dominate and control packs of wild dogs and wolves. There has long been strong evidence that dogs and wolves live in families, not in packs, and are organized by a single mating pair of adults rather than an alpha male. Dog and wolf families do not use a dominance hierarchy to keep the peace. Yet the alpha dog myth persists. This persistence is an example of misapplying a well-established paradigm by trying to force empirical evidence into a familiar theory. Writing with Catherine Johnson, Grandin remarks:

The crazy thing about all this is that Dr. Mech wasn’t the first person to say that wolves live in families, not packs. His oldest citation of a publication with this observation goes clear back to 1944, to a man named Adolph Murie, who wrote a book called The Wolves of Mount McKinley. I think it’s a really interesting question why Adolph Murie’s observations didn’t catch on with the public, and the captive wolf research did, especially since the wolf family idea makes so much more sense. (Grandin and Johnson 2010: 28)

People sometimes use established paradigms to disguise or ignore evidence to the contrary; by emphasizing certain aspects of data and neglecting others, our understanding of the empirical world can be manipulated. Although Dr. Mech did modify the ruling principle of the domination system enough to recognize that wolves live in families, he did not change his personal view, despite the lack of evidence, that males dominate females. Grandin writes, “Dr. Mech thinks the mom probably is subordinate to the dad, although the mom’s subordination wasn’t obvious in the pack he observed” (Grandin 2010: 27). Though it can be a long and conflict –ridden process, when theories are repeatedly found inadequate to explain evidence and predict trends, paradigms are modified – they shift.

Yunus noticed that devotion to the assumptions of capitalism and conventional economics, like the lingering misperception of the alpha dog, resulted in forcing “reality to imitate theory” (Yunus 2007a: 18). He not only claimed that economic and management paradigms were inadequate to explain human nature and the characteristics of entrepreneurial activities, but that despite their inadequacies, these theories went unchallenged and unchanged largely because they protected the interests of the powerful few at the cost of the many. In other words, widespread acceptance of economic and management theories does not necessarily come from their descriptive or predictive accuracy, but because these theories privilege members of the economic and social elite. Yunus saw clear evidence that the routine acceptance and application of these theories caused enormous human misery. He therefore came to reject the assumption that human nature and the nature of entrepreneurial activity are primarily instrumental and profit-driven. Moreover, Yunus began to hold business activity accountable to social standards, not just economic goals.

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