JONATHAN COOK: Can entrepreneurship be taught?
Research shows that, on average, training is associated with better outcomes for small businesses
Can entrepreneurship be taught? For decades some have argued that entrepreneurs are born, not made, and others have argued that even the most talented person won’t succeed without the knowledge and skills required for business. As with most nature/nurture debates, there is truth on both sides.
David McKenzie of the World Bank and Christopher Woodruff of Oxford University have for years provided solid data on the question by tracking research findings. Their expert critique cuts through the confusing findings and myths, to establish what we know and still need to find out.
The August issue of the useful newsletter VoxDev publishes their latest review of research findings. They conclude that on average training is indeed associated with better outcomes for small businesses, something that a few years ago was much in doubt.
Using statistical techniques to combine different studies, they have been able to establish that training leads on average to an improvement of about 5.6% in sales and a 12.1% improvement in profits. For a firm earning $100 a month, a 10% increase in profits would cover the average cost ($177) of a training course within 18 months. As these numbers suggest, their focus is mostly on microenterprises — small businesses comprising just the owner and maybe up to five employees.
But that is on average. Some training seems to have no effect at all, which could depend on the quality and nature of the training and sophistication of the entrepreneurs, or on the research methodology. Most studies are too small to register improvements as statistically significant. Their meta-analysis combines many studies to reveal effects that are otherwise hidden.
Training has improved in recent years. A clearer idea has emerged about what business “practices” contribute to productivity and growth, an insight we in the African Management Institute have found helpful over several years in our work across Africa.
McKenzie and Woodruff explain: “In the case of small firms, these [practices] include separating household and business accounts, keeping basic records, monitoring inventory, offering discounts and promotions to attract customers, and budgeting and planning. As firms grow it is also desirable to have human resource practices that reward good employees and improve or remove less productive employees; processes for quality control and basic lean manufacturing; and practices to set and communicate production targets and monitor performance towards these targets.”
Some research suggests personal initiative training may be even more effective than business training, but subsequent findings are mixed on this. It may be that this is effective with smaller firms. But it does support our anecdotal findings that “soft skills” are at least as important as “hard skills” in business success.
Some studies look at specific techniques or approaches, such as kaizen, a method for continuous improvement. This is particularly applicable in manufacturing, an area I think has been relatively neglected in business development initiatives.
McKenzie and Woodruff find that training for single-person microenterprises does not increase employment, suggesting that in the urgent need to create jobs we should be concentrating on businesses that already employ staff and therefore have the capacity to employ more.
Some of the training effects can actually be attributed to screening that results in more selective entry into programmes. That has been our experience too — it is important to select those candidates and businesses that have a realistic chance of success. While this may support the argument that entrepreneurs are born rather than made, it more probably reflects the influence of factors such as education and experience.
This also raises the question of how to help those people who have not already enjoyed exposure to education and business experience to create their own jobs. I don’t think this difficult challenge has yet been cracked.
• Cook chairs the African Management Institute.
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