A recent Global Entrepreneurship Monitor (GEM) report on entrepreneurship training asks a central question for anyone interested in starting a business: “Does entrepreneurship education make a difference?”
You might think that this question has been resolved. After all, the Ewing Marion Kauffman Foundation reports that more than 2,000 U.S. colleges and universities teach entrepreneurship. How could all those professors teach something that might not matter?
As surprising as it may sound, we don’t know the effect that entrepreneurship training has on start-up company success. Relatively little research has looked directly at the benefits provided by entrepreneurship education; and the results to date are far from conclusive.
Most of the studies on entrepreneurship training look at whether people who have received this education perform better as entrepreneurs than those who have not . Studies by researchers at the University of Arizona, New York University and other institutions have found that people who have received entrepreneurship education perform better at running their own businesses.
However, these studies don’t necessarily show that entrepreneurship education causes better start-up company performance. The same people who are good at running their own businesses might also be the most interested in studying entrepreneurship. As a result, receiving entrepreneurship training and start-up company performance are correlated, but the education doesn’t cause the performance.
The gold standard in research is a controlled experiment. If some people are randomly assigned entrepreneurial education and others are not, then we can see if the training causes the performance.
Researchers have conducted a few randomized experiments to look at the effect of entrepreneurial training. One study by Dean Karlan of Yale University and Martin Valdivia of Grupo de Análisis para el Desarrollo randomly assigned entrepreneurship classes to female micro-entrepreneurs in Peru participating in a micro-credit program.
The researchers found mixed results for the effects of training. The entrepreneurs who received training showed higher sales, but did not have higher profit margins or more employees. The trained entrepreneurs also scored higher on “keeping records of their withdrawals from their business, an index of business knowledge questions, the proportion that report using profits for business growth, and implementation of innovations in the business.” But they were scored no differently on “changes in tax formality, paid fixed salary to self, number of sales locations, level of diversification, allowing sales on credit, keeping records of payments to workers, started new business, proportion of clients who faced problems with business and proportion of clients who planned innovations in their businesses.”
Lars Oppedal Berge Kjetil Bjorvatn and Bertil Tungodden of the Norwegian School of Economics and Business Administration randomly assigned recipients of microcredit in Tanzania to entrepreneurship training. They also found mixed results. They observed no significant effect of training on sales or the number of employees, but found that training increased the entrepreneurs’ record keeping, tendency to use bonuses to incentivize employees, and willingness to change their product mix.
Xavier Gine and Ghazala Mansuri randomly assigned Pakistani microentrepreneurs to receive six hours of training, the chance to participate in a loan lottery, neither, or both. Gine and Mansuri found that, for men, receiving business training reduced business failure, but had no significant effect on sales, business assets, or number of employees. For women, receiving business training had no significant effect on any of the performance measures.
The three studies described above don’t show consistent evidence that entrepreneurship training improves the performance of micro-entrepreneurs. Moreover, experiments with random treatment of the type of entrepreneurship training provided by universities in industrialized countries have not been conducted.
In short, getting some entrepreneurship training might increase your performance as a business owner. Then again it might not.
Scott, Thank you for doing a post about entrepreneurship education.
Although getting a formal education on entrepreneurship may help some, “the school of hard knocks” is probably the best place to learn how to run a business.
Making mistakes as an entrepreneur that directly impact one’s bottom line may speed up the educational process faster than a 2-4 year college course.
The Franchise King
Here are my thoughts on it (and what I do for a living): I think the best teacher is experience. What I mean by this is hearing from entrepreneurs that have walked the walked. Their successes. Their failures. What they learned. And I’m not talking about just the company history, I’m talking about from the horse’s mouth.
I know I’d rather here about that than some jargon-filled “what you need to do”
What do you think?
David and Joel hit the nail on the head; entrepreneurship is most often learned though trial and error. Education may help in certain areas, but the overall success comes as the entrepreneur is out running their business.
I think the programs and the studies may start too late in the process. What might be more important is a young student believing that entrepreneurship is a possible option when compared with an employment career. With more students interested in starting a business, more will start, more will succeed. In Rotherham, England a single person is charged with the responsibility to oversee the entrepreneurship programs in school grades 1 – 12. The primary grade students start a company as a group with 5 pounds for working capital. The older students are independent. These exercises help students to know that entrepreneurship is a viable option for supporting themselves, staying in their local community and even, perhaps, building wealth.
To those who say experience is the best way to learn… What if you simulate this experience in a learning environment that allows feedback and support from experienced entrepreneures. Scott purposefully excludes any definition of what ‘training’ is being given.
I went to school for entrepreneurship, and I can say it has its positives and negatives. On the one hand, I learned how to put together a pro forma, which is great because I can now contribute in and understand financial conversations within the business.
On the other hand, I was never taught how to handle many day-to-day situations I find myself in. Dilemmas such as: how do I make our handful of sales grow into something more, how to identify the best advertising channels, and even how to deal with pissed off customers. I’m not saying these are things that need to be added to the curriculum, but they are real-life examples of things entrepreneurs face every day, that are not talked about in school (at least not in my program).
School seemed to focus on creating a business plan, and getting seed funding, and not much else. Don’t get me wrong, I appreciate my education, but I would not advise someone against gaining a bit of experience first.
John Seiffer at http://www.BetterCEO.com
First of all I strongly disagree with the folks who say experience is a great teacher of entrepreneurship. It is how I learned and I think I’ve done well by many objective measures – but it was a very frustrating way to learn. Many of the resources I use with my clients were not available 30 years ago when I was starting out – I would have done much better sooner had they been.
My other argument against “experience is a good teacher” is my client base. For the last 15 years I’ve consulted to entrepreneurs who for the most part have had lots of experience and still range from lousy to mediocre when it comes to running their companies. Obviously it’s a skewed sample – but one that balances out the skew of people who speak from personal experience to the opposite point.
Secondly, I think it’s significant that the studies mentioned in the piece are about the effects of training on people running micro-companies. I suspect training would have a different effect on people running more complex companies, but I doubt you’ll be able to get them in a controlled experiment – the commitment to running such a company is too high.
The issue is with the term “entrepreneur”…isn’t it? The dictionary says “entrepreneur” is: a person who organizes and manages any enterprise, esp. a business, usually with considerable initiative and risk.
This means EVERYONE in business is an entrepreneur. (what business venture isn’t a risk?) Is that what we mean when we use the term? I don’t think so. We think of entrepreneurs as those running start ups. Once you pass a certain mark, the world ceases to look at you as an entrepreneur.
For those in start-ups, the school of hard knocks is a necessary part of being in business, regardless of your education or training. Some people excel at learning in the trenches, others don’t. Some people find the education more helpful, others do not. Smart people use all the available resources.
In the end, if you take all of your experiences and learning, and apply them – you have a better chance of success. There is a certain measure of passion, persistence, and the ability to move mountains, that plays into the successful business launch. Serious entrepreneurs will use both their instincts and life experiences, and the learning they’ve received or sought out, in B-schools or through peer learning groups.
One must always be in learning mode. One must take their learning where it’s available and/or being offered. One must be aware of learning situations. Perhaps mentoring is a better use of one’s time, than sitting in a lecture hall listening to a professor tell you how to be an entrepreneur.
Professor Harry Matlay
I have been involved with entrepreneurship education and training since 1982, when my research and practice commenced in this important area of entrepreneurship. Depending on the quality, quantity and context within which it is experienced, I can assure all of you that entrepreneurship education and training can, and often does have some very positive outcomes
Entrepreneurship training must start at an early age (11-15) to be effective. College to too late! Our research shows that many succesful entrepreneurs first demonstrated entrepreneurial thinking at a very young age, and learned the skills to bring a concept to market in spite of formal education. CampBizSmart.org is designed to give kids the experience and practice they need to try out, adopt or reject skills that fit their ideas and personal style.
An interesting and scientific review, Scott.
From an anecdotal standpoint, I have no personal doubts that key skill sets necessary for entrepreneurial success can be taught. Time and again in the past 15 years in the field, I have seen entrepreneurs gain traction by absorbing – in either an “academic” or experiential setting – critical processes for building an enterprise. Entrepreneurship is part art, part inspiration and part science. The methodological (science) component can be learned and replicated.
However, I recognize the difference between anecdote and experiment (particularly a controlled experiment). Even were my anecdotal experience relevant, it may simply be a function of encountering a self-selected data set – entrepreneurs that were actively interested in (and therefore more able to absorb and utilize) the entrepreneurship lessons made available.
This relates directly to your point that “The same people who are good at running their own businesses might also be the most interested in studying entrepreneurship. As a result, receiving entrepreneurship training and start-up company performance are correlated, but the education doesn
From my observations, the effectiveness of entrepreneurship training depends most on the student and what that student wants to get out of the training. Another good indicator is if the person has paid for the training out of his/her own pocket.
I’m basing these observations on teaching the following
– Entrepreneurship training to high school students with exceptional math & science skills at IMSA (Illinois Math & Science Academy)
– Sales training to sales people & business owners
– Leadership coaching to sales managers & business owners
– Member of the board of advisors for the Illinois SBDC (Small Business Development Center)
Babson College and the Business Innovation Factory (BIF) are collaborating to create a real world laboratory to design, develop and test new entrepreneurship support solutions and systems.
I know plenty of successful business owners who have never been to a school to be an entreprenuer. If was a lot of trial and error. Having said that any education whether on the go or in a class room is useful.
Professor Harry Matlay
I tend to agree with Carl Saxon. I also know a lot of successful entrepreneurs who graduated from the ‘University of Life’, Department of Hard Knocks: I was one of them. I also know even more individuals who used entrepreneurship education to build upon their success or become successful after they had failed a few times.
Based on my long experience on both sides of the fence, I genuinely believe that the entrepreneurs that Carl mentions would have been more successful, in every aspect, if they would have attended some of my classes. But than, I am biased towards countinuous learning and knowledge transfer: I have learnt a great deal from my students and I can only hope that I reciprocated in kind…!!!
there are lots of successful business persons do not have bachelors degree of any of the business courses but they succeed because of their innate talents in entrepreneurship. whoever wants to venture business can freely do it anytime, anywhere…how ever, entrepreneurship education could help an entrepreneur in many ways,it could give more schematic and more clear theories and more knowledge about the business.therefore, education and entrepreneurial abilities are both essential for a good and futuristic entrepreneur.