This project is motivated by the need for better understanding of ‘demand-side factors’ related to why some small firms succeed and scale-up, while others do not. For instance, how can Firm A differentiate its offerings and do so in a way that appeals to a large share of the market? The extant literature on small firm growth has typically focused on supply-side factors. In this project, the authors therefore aim to develop a new measurement tool and leverage a recently completed intervention that encourages entrepreneurs to iterate their offering based on market feedback (and scale up only after validating demand). In particular, their objective is to rigorously measure whether Firm A has achieved “product-market fit” and if this outcome was stimulated by “product-market experimentation”.
The researchers are conducting a randomized control trial of around 1,000 entrepreneurs to examine the impact of a ‘demand focused’ entrepreneurship program in eight locations across Kenya and Uganda. After a baseline survey, participants were randomly assigned into two experimental groups: 500 entrepreneurs were offered the product-market experimentation intervention for eight weeks; and 500 entrepreneurs formed a counter-factual group that did not receive any intervention. A follow-up survey will be completed with all firms in the study sample roughly 24 months after the baseline survey to test the impact of this lean start-up intervention on firm sales and survival, as well as examining whether “outgoing/extraverted” entrepreneur types tend to do better. In order to better understand the role of ‘demand-side factors’ in helping or hurting firm success and scale-up, the authors will identify the mechanism of change driving the performance effects, which requires the development of a new measurement tool and implementation via a midline survey.
This research is important to policy makers who wish to stimulate more vibrant private sectors in low-income countries that, in turn, lead to greater formal employment and income generation among the poor. If shown to be effective, the lean start-up intervention tested through this project could represent a cost-effective and scalable way of stimulating growth among smaller, less formal firms in developing economies. Similarly, while benefiting entrepreneurs, these interventions can also be used by researchers and policy makers to fill the gaps in existing knowledge and tools/approaches for scaling up small firms in these contexts. Obtaining rigorous data is essential for understanding the dynamics of these small firms, as well as designing effective policies to stimulate private enterprise development in low-income countries. Further, measuring whether and how firms experiment with customers during their product development efforts, as well as linking these lean start-up approaches to the achievement of product-market fit, can improve understanding of the importance of customer demand in the successful scale-up of developing economy firms.
