National governments, non-profit organizations, and international development agencies have invested considerable resources in programs to train developing country entrepreneurs in the hope that these efforts will improve small business performance in these nations.
An article (PDF) published last year in the World Bank Research Observer by two excellent development economists – Chris Woodruff of the University of Warwick and David McKenzie of the World Bank — indicates that these efforts are not as successful as policy makers have hoped.
The authors reviewed 16 randomized experiments – the gold standard for research designs — that they found have been conducted to examine the effect of business training on the performance of entrepreneurs in developing countries.
Most of this training was conducted by banks or microfinance organizations to borrowers or would-be borrowers, though the providers varied across studies, as did the format, content, and length of training.
The authors found that training:
- Increases the probability that people will start companies, though the effect might be to accelerate the formation of businesses by entrepreneurs who would have started their companies anyway.
- Boosts the use of business practices – such as keeping financial records – that are thought to improve business performance.
- Does not improve the survival of women-owned businesses, and has a limited effect on the survival of men-owned companies.
- Does little to increase the sales, profitability, or employment of the businesses.
Why does careful scholarly research find so little evidence that business training improves the performance of developing country entrepreneurs and would-be entrepreneurs?
Being academics, the authors’ explanation is largely focused on the limitations of the research itself. Small samples, high rates of attrition, limited time horizons, and great variation in kinds of training conducted, entrepreneurs participating and outcomes measured, make it difficult to find evidence of the benefits of business training, the authors explain.
As an academic myself, I am sympathetic to the authors’ need to be cautious in a scholarly publication. It’s difficult to conclude that something does not work from null findings because errors in measurement can always be the reason.
However, in a blog post, I can ask the question: Is the reason that business training has so little effect on the performance of developing country entrepreneurs because small business training doesn’t work? What do you think?
Training Seminar Photo via Shutterstock
I wouldn’t rule out training per se but I wonder if results, especially among first time business owners, might be better with local incubator groups and mentoring programs. I think if you try to use a top down “we know best” model you’ll miss the mark.
Here are a couple of humble responses to your question from someone who spent over 30 years in his own businesses. And in retirement I have been volunteering as a counselor and teacher for small business owners.
One, you mentioned that much of the training was done by banks and or micro lenders. Unless these teachers had owned their own companies, all they know how to teach is financial literacy. While interesting, that is only one small aspect to running a company. The numbers show you where your business has been. The question is what do you do with the information they provide?
Two, all people who say they want to start a business are not equipped emotionally or experientially, to do so. You need more than an idea to start a business, you need a MARKET! And this reality is something most startups fail to prove.
Owning and running a business is complex. A good number of the necessary ingredients are outside of the owners control. However, diligence seems to go along way.
One element of a possible solution is to be more keen and careful about the information given to those who really want to do this.
There are a lot of moving parts in the study and thus the conclusions. Would the results have been different if the training were uniform? Even if uniform, what if the training sucked? I don’t have a problem with the variability of the entrepreneurs, each one is unique and getting consistency there will always be nearly impossible.
I like that it increased the number of people forming businesses because we need that, here in the US and in developing countries. The next Google or Tesla isn’t going to be a wholly-owned subsidiary of a giant corporation that gets spun off.
Dr. Sara Amodio
Having worked in the women’s entrepreneurship world for some time now, I would agree with what Mr. Brady says with regard to the quality of the education. Having performed some extensive surveys of the training programs out there, I have concluded that (1) much like Mr. Duthler states, the essentials of small business trainings such as financial literacy are sometimes lacking; (2) many do not take into account the reality on the ground or the realities of the participants (similar to Mr. Duthler’s comment about the market), and (3) are not written with the adult learner in mind.
On this last point, as an educational psychologist and former international development program manager, it troubles me to the core that many of the programs out there are more focused on the “teaching of content” but not the “learning”. The question of “How will the trainees retain this material and what methods do we use to convey this material in ways that will useful to the student in the future?” is never really asked. We gave the students the material; they did not use it effectively; ergo, the training programs are pointless. Full stop. This seems to be the prevailing wisdom.
I have read too many lessons created within these training programs and I either thought that there was no way I’d remember this because I was bored just reading it (couldn’t imagine sitting through a lesson on it) or I thought, “Now, how on earth would I use this if I actually stated a business?”
The educator in me gets hives reading these training program lessons…
So, in short, perhaps a methodological issue…is it the content? or how it is taught?