Opinion: Is entrepreneurship training worthless?

Originally posted on the Devex Website,November,16,2022

In the development sector, we’ve spent decades training youth and women in entrepreneurship with the goal of getting the tens of millions of owner-operated microenterprises to blossom into entrepreneurial engines that can drive economic productivity and employment. Unfortunately, the impact of most of that training is basically nil.

As an industry, we tend to insulate ourselves from that reality by counting the number of people trained instead of investigating any meaningful measure of whether the enterprises grow, increase their productivity or profitability, or hire more people. When studies do take a deeper look, the conclusion quickly follows that the impact is generally not deep or lasting.

Taken together, the research suggests that we are spending a ridiculous amount of time and money training people to use bookkeeping techniques, create business plans, and understand finances in their microenterprises only for them to stop using the knowledge and tools within months, if not weeks, of the training.

Even when training improves knowledge and practices, these changes help with firm survival but rarely translate into real improvements in business income or growth. Programs that are combined with financing are more likely to deliver growth, but those impacts also dissipate quickly.

In terms of bottom-line growth, a meta-analysis of 37 training programs found that entrepreneurship training programs increased business knowledge, but had no effect on income or business growth except among entrepreneurs with higher education. Elsewhere it has been noted that these programs lead only to small improvements in sales, capital stock, and other business indicators. Leading microenterprise expert David Mckenzie stated that “most of the studies find small, and statistically insignificant, effects on sales and profits because they find small effects of the training programs on business practices.”

Given all this, I was pretty tempted to write off entrepreneurship training altogether, but three projects at BFA Global, the development firm I lead, have led me to wonder whether the real problem is how we’re doing training.

The first program, the Catalyst Fund, our pre-seed fund and startup accelerator for inclusive tech, outperforms most entrepreneurship programs in terms of how long a business survives after participating: 86% survive six years after participating in the program, compared to the vast majority of tech startups that fail. It also does well on metrics such as additional capital raised — an average of $11 million per startup across the portfolio, while the average accelerated venture has inflows of $470,000 — and net promoter scores above nine.

The second, HerHustle, an entrepreneurship support program in Kenya that BFA Global advises, has helped entrepreneurs earning about $100 a month to grow their earnings to $1,000 a month only 10 weeks later. Some of them have grown further and are now earning $10,000 a month a year later.

The third, Strive Mexico, studied micro and small enterprises in Mexico and found that those with digital skills and access were better able to withstand the pandemic. Those findings are now serving as the foundation for a new program supported by Mastercard to build resilience among micro-enterprises by improving digital products for underserved entrepreneurs.

Based on these experiences, I am starting to believe that training entrepreneurs can succeed — but that it generally does not because we are approaching it wrong.

These programs are unlike traditional entrepreneurship programs that involve training microentrepreneurs in bookkeeping, invoice management, and sales strategies via time-bound educational interventions. Although the Catalyst Fund and HerHustle programs target enterprises along the entire spectrum — one works with tech startups and another with small e-commerce ventures earning around $100 a month — they share some characteristics. They handpick promising entrepreneurs and business models, offer tailored coaching and technical assistance, and situate businesses in an ecosystem that can support growth.

Their approach is dramatically distinct from traditional programs that offer a generalized training curriculum to a large number of business owners, irrespective of the entrepreneur and the business in question. Cherry-picking the entrepreneurs that participate in a program sets them up to succeed in ways that make causality very difficult to prove but also focuses entrepreneurship support on businesses that have growth potential.

This means that programs choose entrepreneurs with growth ambitions, which is not a given since most entrepreneurs — particularly women — report they do not want to take on employees or open additional branches. The programs also pick businesses that have growth potential; for example, they choose novel product areas or production methodologies and rarely corner shops or small food preparation outfits.

This selection reflects an unspoken reality about the vast majority of owner-operated microenterprises: Their pathways to growth are difficult at best, and nonexistent at worst. It may be that entrepreneurial support programs only succeed when they are directed to a select group of growth-oriented businesses and entrepreneurs.

Once selected, the programs offer participants both tailored assistance and support based on an in-depth diagnostic of the business and the entrepreneur/team. The support doesn’t take the form of content-driven learning in which entrepreneurs must master skills or knowledge, but rather in tailored problem solving that accounts for gaps in the entrepreneur’s own skills base.

For example, Catalyst Fund offers tech, data, marketing, and research support focused more on value provision than on skills transfer. HerHustle takes a similar approach, in which coaches guide entrepreneurs in selling online, directing them toward better sales, logistics, and payment strategies.

Finally, each of these programs recognizes that entrepreneurs need to be surrounded by a set of partners and services to grow. Entrepreneurs need to be connected with logistics providers, financial services, and even legal support. We’ve found that services such as digital finance can meaningfully alter firm survival. These programs recognize that a few months of training, even when that training results in behavior change, is not enough to secure growth; entrepreneurs need services, support, and partnerships.

The Strive Mexico experience points to another critical ecosystem element: access to opportunity. When training is directly and immediately connected to opportunities to sell and grow, then it has a better chance of creating benefits.

While these programs point to a more promising approach to entrepreneurship training, the implications are not so straightforward. They are different from classroom learning. They are expensive and they are not scalable, or so far we haven’t found a way to scale them. To date, each incremental success story still costs the same amount as the first. Technology can provide no fix.

Where does that leave us, the development community that would like to see micro and small businesses succeed? I have no clear answers, but I believe that everything we’ve been doing all these years is not without some success.

We are going to continue with these programs and others like them and continue to push the approach to see if there’s a way to support intermediate enterprises that are a little bigger and need better financial products, accounting, and HR, but aren’t candidates for investor capital.

I believe there’s a sweet spot for all the business services and practices we’ve been preaching all the years. And meanwhile, for the microenterprises, I’m still hoping to find a way to deliver coaching that really works — and that scales.