According to the VoxDev report from August 2021 titled Training Entrepreneurs, edited by David McKenzie and Christopher Woodruff, there is a lot of room for improvement. In this second issue, they have reviewed research on entrepreneurship training to evaluate the impact and effectiveness of various entrepreneurship training programmes.
As someone who is an advocate of entrepreneurship development across the African continent, I believe entrepreneurship is teachable and learnable. But so much depends on the quality and motivation of the entrepreneur and the quality of the training programmes.
The report states that at least US$ 1 billion is spent annually on training at least 4-5 million potential and existing entrepreneurs in developing countries. But the returns of this investment are not yielding the economic and social impact. Why is that?
In this article, I want to share some highlights from the report, invite you to share your own experience of entrepreneurship training, and read the full report.
Here are some of the highlights from the report reviewing entrepreneurship training for high growth startups, medium and large-scale enterprises and microenterprises.
Incubators and accelerators for high growth start-ups
Accelerator programmes often begin with a rigorous selection process to identify a small cohort of entrepreneurs and offer selected entrepreneurs seed capital, links to angel finance, workspace, training and mentoring from successful business owners, and networking opportunities.
The report showed that ventures selected to participate in accelerator programmes (compared to those not selected) were more likely to raise subsequent finance and survive.
When additional services provided by accelerator programmes are evaluated (examples provided included monthly meetings with programme staff, peers, and industry experts, opportunities for networking, and advertisement on the programme’s web page), there was a 21% increase in the probability of securing additional financing, with triple the amount of capital and double the number of employees within five years.
Accelerator programmes that provide only non-monetary services can still have a significant impact on start-ups, with a 166% increase in average annual revenue seen in a study of a Colombian business accelerator that provides standardised business training, customised business advice, and visibility.
The key to success here is the strict selection process that accelerator programmes use, as firms with the highest growth potential at application exhibit remarkable growth even after training.
Training for medium-and-large-scale enterprises
The report reviewed the forms of entrepreneurship training used for medium and larger-scale enterprises such as:
· Kaizen: a Japanese-inspired form of training that examines workflow and habit-forming techniques to improve production and quality management widely used in Africa. Evaluation of this method found increased business survival and increased value add, with one study in Tanzania showing a 90% increase in sales after three years for businesses that received classroom and on-site Kaizen training.
· Specialised training: the report examined the effectiveness of specialised entrepreneurship training such as providing an MBA-style financial education to managers or programmes teaching entrepreneurs to access special customers to increase their demand. These forms of training improved returns but had statistically insignificant impact on revenue.
· Consulting: the report examined the effectiveness of consulting for both large and smaller firms and found that consulting has proven effective at growing both small medium and large firms (in the Karlan paper, employment gains are substantially more when they track the firms in Mexico’s tax data 5 years later); and that peer- consulting offers a route to bring down the relatively high cost per firm while maintaining effectiveness.
Consulting usually involved the engagement of a consultant (or team of consultants) to evaluate existing management practices, identify a set of priority areas for improvement, and work directly with management and workers to implement improvements in a sustained and intensive interaction that can often last for six months or more. The cost of consulting programmes varies depending on the number and type of consultants used, and their intensity, and is much larger than the cost of training smaller firms.
However, since it is often offered to firms that are larger and more profitable than SMEs, a small margin of improvement in profits may still be enough for the firm to recoup the cost of training in a short time. Intensive consulting was found to significantly increase output per worker, and reduces quality defect rate, with the firms recouping the costs of consulting within a year and experiencing lasting improvements in management practice. However, despite the gains, firms stop using some of the management practices learnt during consulting over time, especially when key managers leave. Although scaling up consulting training is difficult due to costs, cheaper, group-based training targeting groups of firms at a time were found to yield similar improvements in management practice, and also increase employment, sales and profitability.
Consulting services are also provided to smaller firms, often through government grants that subsidise the cost of such services. However, these have been more difficult to evaluate for impact, with studies showing improvements in business practice but less clear impact on returns and profitability.
The report also evaluated how much of a market exists for consulting services, showing that many firms’ willingness to pay falls below the cost of consulting services. This unwillingness may be due to firms over-estimating how well run they are and how much they know, difficulties in identifying good quality consulting services, and uncertainties about the benefit of consulting to a business. Indeed, experience with consulting services is a driver of further use, and firms that have received subsidised consulting are more likely to spend their own money on further consulting services.
Training for microenterprises
For entrepreneurs at the microenterprise level, the form of training provided is designed to establish firms, help existing firms earn more income by teaching necessary business practices, providing hands-on training, personal initiative training to change mindsets, or content for specific groups such as women and youth. The report examined the different approaches to training for microenterprises:
· Traditional, classroom-based training: The most common approach to this training in basic business practices, often offered for free or for a token. The training is easily scaled up by teaching master trainers who in turn train a network of trainers in various countries, with course material adapted to local contexts.
Aspiring entrepreneurs are taught courses on generating a business idea, developing a business plan, permits, costing, pricing, and budgeting, while business owners are taught record-keeping and accounting, marketing, human resources and hiring, stock control and inventory management, planning, and operations management.
Because of their popularity, traditional entrepreneurship training has been most evaluated – the report estimates a 5.6% improvement in sales and 12.1% improvement in profits for enterprises, with the costs of training being recouped in about two years. It is suggested that these modest effects are because entrepreneurs often implement only a few of the business practices they are taught.
Training programmes that are more intensive and those with more selective screening methods have shown larger effects on business practices and enterprise performance. However, more work is needed to both measure the quality of training delivery, and to test different approaches to improving the effectiveness of this delivery.
· Heuristics and rule-of-thumb training, a simpler approach that focuses on a basic, rule-of-thumb practice for an entrepreneur to implement. This form of training is usually limited to financing practices and is especially useful for less-educated entrepreneurs running subsistence enterprises. The effectiveness of this method is mixed – studies show impact ranging from statistically insignificant to an 8.1% increase in profits and sales. Additionally, there are few relevant heuristic trainings available for other forms of business practice such as marketing or inventory control, limiting the use of this form of training.
· Personal initiative training programmes that target entrepreneurs’ attitudes, mindset and aspirations. The report found average improvements of 14% and 10% respectively for entrepreneurs’ profits and sales following this type of training, although this varied widely within the various studies surveyed. The report also evaluated the effectiveness of programmes targeted at specific groups such as women and youth.
· Programmes for women entrepreneurs that combined traditional programme topics with topics on gender showed improved business practices, profits and sales for participating entrepreneurs, but it is not clear the extent to which content around gender helped. Some studies showed no significant impacts on gender attitudes, self-efficacy, or collaborating with other women, and women did not report the gender component as especially useful.
· Programmes for youth aim to increase employment and encourage youth to start businesses. They may be targeted at out-of-school youth to help them start or grow a business, provided for secondary school students through training on business concepts and soft skills, or offered at the tertiary level to teach entrepreneurial skills. It is difficult to measure the effectiveness and impact of such training programmes because many youths do not choose self-employment early in their lives or careers, so that examining employment over the longer-term is more useful in evaluating impact.
Although generating employment is usually a motivator for organising and subsiding entrepreneurship training programmes, the typical microenterprise taking part in business training has either no or only one additional worker. The modest increase in profits created by training programmes is usually not sufficient to support new employment. Businesses that undergo training are more likely to impact employment by providing employment for the firm owner, who may be more likely to start a new business, and to have that business survive after taking part in training.
Alternative approaches to entrepreneurship training
Business training programmes may be limited in content adaptability due to their classroom-based structure, and alternative approaches for teaching entrepreneurship have become more popular. The report examines peer interactions and mentoring, entrepreneurial edutainment, SMS messages, and online training.
· Peer interactions and mentoring: entrepreneurs may make use of formal mentors or use programmes that match them with other peers to facilitate interactions.
The report showed improved business practices but mixed impacts on profit among enterprises that used assigned mentors. However, mentoring is most effective while the mentor-mentee relationship is most active and disappears as the incentives provided to the mentors are removed. The report suggests that mentors may be more effective for more advanced firms looking to innovate or expand into new markets, where their local knowledge network may not be able to provide sufficient expertise.
Firms that employ peer interactions to learn from each other can improve business and management practices, although the quality of peers influences the impact of this form of training.
Peer interactions seem most effective when firms are matched with similar, but slightly better peers who are not close competitors. Additionally, entrepreneurs may need to be first taught how to communicate and better interact with their peers for greater information exchange.
Also, producing reports where successful firms share their best practices or providing firms with data comparing their sales to those of their competitors in the same sector can be effective means of training without direct interactions.
· Entrepreneurial edutainment: entrepreneurial reality show competitions were evaluated to see if they could teach entrepreneurial skills or inspire entrepreneurial attitudes among youth in Egypt and Tanzania. It was found that such shows make viewers slightly more interested in entrepreneurship, but did not find any impact on business knowledge, or on decisive actions towards starting businesses.
· SMS messages: SMS messages sharing simple business practices and information were found to have modest improvements in business practices for SMEs, but no meaningful change in business performance and an overall low impact.
· Online training: fully online training modules have become more common following the COVID-19 pandemic, as they provide platforms to cover as much content as traditional classroom-based training. This new form of entrepreneurship training is still being evaluated, but is limited by technological literacy, limited access to internet connectivity, low uptake, and high drop-out rates.
In conclusion, this VoxDev Training Entrepreneurship Report shows mixed impact of various approaches to entrepreneurship training and highlights the need to explore newer approaches to entrepreneurship training and evaluate their effectiveness for enterprises in developing countries. Please share your experiences of entrepreneurship training. Do you agree with the report’s findings? What is your solution to improving entrepreneurship training for economic and social impact?
About Parminder Vir OBE
In a professional career spanning 40 years, Parminder Vir OBE has dedicated her life to telling untold stories, resourcing the skills and imagination of under-served communities. She is an expert on African entrepreneurship, an award-winning film and television producer and advocate for arts and culture. She currently serves as Executive Director of Wazima Health, Advisory Board Member of Mamamoni Limited, and Narrative Advisor at Mustard Venture Agency. She served as the CEO of the Tony Elumelu Foundation where she designed and implemented a holistic entrepreneurship programme, impacting over 10,000 African entrepreneurs across 54 African countries from 2014–2019. She continues to advocate for entrepreneurship as the best path for the social and economic development of Africa.