Recently, I was in a debate about the contribution of spousal capital to business growth. After spending lots of time on the topic without a satisfactory answer, I ventured off to do some research on the topic.
Before I dive into the findings of my research, I’ll like to share two stories with you that might help you appreciate the problem.
Scenario I:
Tayo is a young man in his early twenties. He got married immediately after his National Youth Corps Service (NYSC) in Jalingo, Taraba State and then launched an Ed-tech startup two years later. He has been unsuccessful in raising venture capital for his business and has decided to focus on revenue first.
His wife is not a co-founder of the business. She works as a contract staff in a tier one bank and she already has one child for him, Uche. Uche celebrated his one-year birthday last month.
1. In your opinion, based on the facts above, how quickly do you think it would take Tayo’s Ed-tech startup to break even?
Read also: How SMEs will drive business growth through nurturing customers’ loyalty
Scenario II:
Ummi is an enterprising young lady. She got married to Joshua, a mid-level manager in a haulage firm last year. Prior to their marriage, Ummi worked at an international NGO but this year, she resigned from her job and started an Ed-tech startup. Ummi wants to be the next Duolingo.
Ummi and Joshua do not have any kids yet. Having had prior experience helping entrepreneurs at the startup incubator run by her former employer, she decided to pursue revenue for the first few years before looking for venture capital.
1. In your opinion, based on the facts presented above, how quickly do you think it would take Ummi’s startup to break even?
Solution:
Before we proceed to answer these questions, it is important to define the following terms: spousal capital, break-even, startup and business growth.
Spousal Capital:
Paraphrasing Matzek and her colleagues whose 2010 publication: The Effect of Spousal Capital on Performance of Family Firms, throws ample light on this subject matter, Spousal Capital is the sum of resources available to entrepreneurs as a result of their association with their spouses. These resources could be human, social or financial.
Read also: Business growth and the internet at this time: What lies ahead?
What is break even?
The Oxford Languages Dictionary defines the break-even point as a point in a business venture when the profits are equal to the costs. Merriam-Webster explains it further by saying it is a point where the business venture is neither making a profit nor a loss. So it is the equilibrium point for income and costs.
What is a startup?
Investopedia describes a startup as a company in the first stages of its operations. This definition is helpful but let us try to appreciate this concept by looking at what a startup is not.
Mary K. Pratt, writing for Techtarget, in a July 2017 article posits that not all young companies should be considered as startups. According to Pratt, companies that are not scalable in terms of customer base, product and revenue should not be considered as startups.
In addition, a significant number of players in the global startup ecosystem also support this notion of startups being scalable businesses. The implication of this is that non-scalable businesses are better referred to as small businesses or non-scalable startups.
What is business growth?
The Oxford Dictionary describes this as the surge in a business venture’s market share, revenues, profits and size over a period.
Now that we have defined these terms let us continue our conversation based on the scenarios presented above.
Solution continued:
So in your opinion, how quickly do you think Tayo will break even? Feel free to make a guess. The objective here is not for you to accurately guess the exact date of the break-even point.
Our objective is simply to establish who will hit this milestone faster. Would it be Tayo or Ummi?
It would also be nice to critically evaluate why you think any of the two aforementioned persons would cross that milestone earlier than the other.
So here is the answer: Tayo is more likely to get to the break-even point earlier than Ummi if both of them started their business on the same day. This is based on the findings of R.J. Boden Jr. and A.R. Nucci in their 2000 publication; On The Survival of Men’s and Women’s New Business Ventures cited by and supported by the research of Amanda E. Matzek, Clinton G. Gudmunson, & Sharon M. Danes in their article Spousal Capital as a Resource for Couples Starting a Business.
To make this clearer, let us consider why Tayo is more at an advantage than Ummi.
Matzek and co. suggest that male founders have more spousal capital during the first year of the business venture’s creation compared to female founders. This came in the form of working in the business to a larger extent than typical male spouses work in female founder’s business ventures. Their conclusion is that the higher degree of injection of female spousal capital into a male entrepreneur’s business was responsible for the quicker break-even times male founders recorded in their business compared to their female colleagues.
This implies that female entrepreneurs have less involved spouses in their business ventures during the creation of the business compared to men and this appears to be injurious to the longevity of the ventures that female entrepreneurs start.
Read also: Getting the right tools for business growth
On the surface, one would think that the only reason Tayo’s venture broke even faster than Ummi’s venture is because, Tayo’s spouse is more likely to assist him in running the business, especially in the first year but that is not the whole picture.
I suppose that some unmarried male entrepreneurs reading this might be tempted to rush into a spousal relationship with the expectation that the marriage would help them hit break-even and profitability faster.
However, there are some preconditions to this result. These and more will be considered in the next instalment of this article.
Meanwhile, let us sum up what we have discussed. We looked at Tayo and Ummi who are both founders in the Ed-Tech space. Both of them got married to different spouses and they started their business ventures recently. They have plans to become global companies but they have decided to focus on funding the company using its revenues first instead of investor funding as a way to validate their business and attract premium venture capital in the future. Tayo has a pre-schooler while Ummi has no children yet. Both have spouses who were employed at another job but the question was who would hit the break-even point faster and why? Based on the work of scholars on the subject, we established that Tayo would hit the startup business growth milestone before Ummi because he is more likely to get more help from his spouse than Ummi would get from her spouse. This dichotomy proves that having a spouse contribute to a business, especially during the first year of the business’s creation can significantly affect the speed at which the business grows.
Okechukwu is the founder of Maca, a sales and business development imprint of Vanquisher Media Group (VMG). He is the author of Sales Mindset: A Sustainable Guide for Salespeople in Higher Education and Financial Services. He can be reached at [email protected]
