A survey of business practices in small firms across six countries shows that management matters for small businesses as much as it does for larger ones

Management has a large effect on the productivity of large firms. But does management matter in micro and small firms, where the majority of the labor force in developing countries works? To answer this question, McKenzie and Woodruff develop 26 questions that measure business practices in marketing, stock-keeping, recordkeeping, and financial planning. These questions have been administered in surveys in Bangladesh, Chile, Ghana, Kenya, Mexico, Nigeria and Sri Lanka. They show that variation in business practices explains as much of the variation in outcomes – sales, profits and labor productivity and TFP – in microenterprises as in larger enterprises. Panel data from three countries indicate that better business practices predict higher survival rates and faster sales growth. The effect of business practices is robust to including numerous measures of the owner’s human capital. They find that owners with higher human capital, children of entrepreneurs, and firms with employees employ better business practices. Competition has less robust effects.  

David McKenzie and Christopher Woodruff (2015)