Several recent studies examine business training of microentrepreneurs. Many of them find no significant positive effects of training on business performance (Karlan and Valdivia, 2011; Drexler et al., 2014; Fiala, 2018). But others find that business training increases profits, survival, or growth in the long- (Blattman et al., 2016; McKenzie and Puerto, 2017) or short-term (Mano et al., 2012; de Mel et al., 2014; Field et al., 2016).
As one example, Karlan and Valdivia (2011) study the impact of including business training in mandatory group-lending meetings for women-only village banks, working with FINCA in Peru. As in several other studies, the training material was based on the non-profit Freedom from Hunger’s business training material. Despite high attendance, there is limited evidence of any positive impacts of the training.
McKenzie and Woodruff (2014) summarize the literature on business training in developing countries and cite small sample sizes and sample attrition as limitations of the literature. McKenzie and Puerto (2017) conduct a study in rural Kenya with market-level randomization, which improves on power. The key study aim is to measure whether gains from training just constitute zero-sum business stealing from the un-trained microentrepreneurs. Detecting spillover effects requires a large sample size: they offer four days of training to a subset of female-owned businesses (1,172 women) in 93 treated markets, and conduct no interventions in 64 control markets. An additional benefit of the large sample size is that the study is more powered to detect smaller effects on profits than much of the literature.
The study finds that, three years after the training, firms whose owners were offered business training were 3 percentage points more likely to survive than control firms (which had an 85% survival rate), and they had 18% higher sales and 15% higher profits. Moreover, the treated women reported better mental health and subjective living standards. A subset of those assigned to receive training were also offered personalized mentoring and follow-up training, which appeared to have no impact.
The study finds more positive and persistent impacts of standard business training than much of the literature. The training cost about $200 per person, so given the increase in profits of about $2.60 a day, the costs would be recouped after about 1.5 years. The study detects some negative spillover effects on untreated firms in treated markets at the one year mark, but three years after treatment, the spillovers are negligible. Thus, the gains for the treated women appear to be net gains for the market.
Klinger and Sch¨undeln (2011) examine the impacts of the non-profit TechnoServe’s business trainingactivities in El Salvador, Guatemala, and Nicaragua using a quasi-experimental design. TechnoServe holds business plan competitions and provides training to entrants throughout the several rounds of the competition. Those who make it past an initial screening are invited to training, and then they submit a business plan. Judges rate the business plan and select a subset to advance to the next round; these individuals are given further business development support to complete a final business plan. The top plans among these final versions are awarded 6,000 to 15,000 USD to invest in their business.
The study uses data from four years of the competition and a regression discontinuity design around the cutoff scores for different years and phases of the competition. For the first phase, those who make the cutoff – and thus receive training – have a 16 to 18 percentage point higher likelihood of starting or expanding a business. The treatment effects for the first round are particularly large in El Salvador, which is the only country among the three to do an additional 7-day training on technical skills. Being above the second phase cut-off (and thus being offered the second round of training) is associated with a 40 percentage point increase in the likelihood of starting a business or expanding one’s current business. The study also examines the final round, in which the winners receive a grant rather than further training: winning the competition and receiving a monetary prize increases the likelihood of starting a business by 34 percentage points.
Related to the the business training literature are studies on the impacts of management consulting. Management consulting has been found to increase the return to capital, labor employed, and entrepreneurial spirit, primarily through improvements in marketing, financial accounting, and longer-term planning (Bruhn et al., 2018). Similarly, Lafortune et al. (2018) find some positive impacts of personalized advice for microentrepreneurs in Chile. At odds with these results is a study in Peru (Valdivia, 2015), which found that technical assistance tailored to business needs was not more effective than basic business training (marketing strategies, self-esteem and social skills).
Brooks et al. (2018) study a different approach to training, which is mentorship from experienced entrepreneurs from one’s own community. They do so in rural Kenya, pairing a mentor with inexperienced female entrepreneurs. The study also has a treatment arm with business classes, as a benchmark. A very important caveat is that the study has high attrition, which appears to be differential between the treatment groups and the control group. Take-up was high for mentorship; all mentees met with their mentor at least once during treatment; 85% reported meeting their mentor during the previous week. However, for the business classes, only 40% attended all four classes. Thus, the mentorship has higher dosage once one takes into account take-up. Mentorship seems to increase profits, whereas the business classes do not. The main channel for improved profits seems to be reductions in supply costs due to changing suppliers. In contrast, the experiment analyzed in McKenzie and Puerto (2017) found that personalized mentoring had no additional benefits over standard business training.
Besides transferring knowledge, a mentor might provide moral support and inspiration, and boost participants’ confidence. The psychological determinants of success is an emerging theme in the literature on training. In some cases, psychological attributes are studied as a mechanism through which standard business training has impacts. For example, in the Field et al. (2016) and Lafortune et al. (2018) studies described in the subsection on gender below, higher aspirations seems to be a mechanism through which women improved their business outcomes.
Recent studies have also examined psychological training. Campos et al. (2017) evaluate “personal initiative” training for microentrepreneurs in Togo. The curriculum, taught through 12 half-day sessions, covers topics such as how to have the mindset of a successful entrepreneur, proactiveness, goal setting, overcoming obstacles, and finding opportunities. The study also included a treatment arm offering standard business training. The personal initiative training led to 30% higher profits, averaged over the two and a half years following the intervention. The program seems to have been equally beneficial for female and male participants. The authors calculate that the training cost about 760 USD per participant and raised profits by 60 USD per month on average; thus the training costs would be recouped through higher profits within about a year. In contrast, traditional business training did not increase profits or sales in this setting.
While the initial study on personal initiative (PI) training in Togo had very encouraging findings, follow-on work has found more disappointing impacts. Alibhai et al. (2019) evaluate the same PI curriculum in Ethiopia, focused on female microentrepreneurs. Their study also evaluates a second variant of psychological training, focused on self-esteem and entrepreneurial spirit. Neither the PI training nor the alternative psychological curriculum improved business outcomes or had lasting effects on psychological outcomes. According to the authors, the null results for PI training might have been due to poor implementation. Ubfal et al. (2019) evaluate the PI program in Jamaica. The study design includes two treatment arms in which standard PI curriculum is bundled with one of two add-ons: five additional days of PI/soft skills training or five days of standard business skills training. These treatment arms are compared to a control group. The study finds that in the short run, the high-dosage PI training leads to higher sales and profits, but just for male-run businesses. The regular-dosage PI training paired with business training has no impact on business outcomes. In addition, even for the high-dosage PI training, the impacts on business outcomes fade out within a year, although there are persistent impacts on soft skills.
Gender
Business training is a particularly popular intervention for female microentrepreneurs, based on the view that one disadvantage women have in running a business is less access to formal education.
However, providing business know-how might not be sufficient to improve business success, especially for women whose opportunities are constrained by restrictive social norms (Jayachandran, 2019). In a study in Pakistan, Gin´e and Mansuri (2019) find that both male and female participants gain knowledge from business training, but women do not then enjoy the same improvements in business outcomes as men do. The authors’ interpretation is that women lack the agency to put the knowledge into practice because their husbands often de facto run the businesses. In such a setting, in order to be effective, interventions might need to be designed to address women’s limited agency.
Field et al. (2010) and Field et al. (2016) report on a business training experiment in Ahmedabad, India, a setting in which women have limited agency and freedom of movement. The study aimed to unpack why women are disadvantaged as entrepreneurs and also to explore the importance of psychological factors in mediating the impacts of business training. The study offered a two-day business counseling program that taught basic financial literacy and business skills, and showed participants a film showcasing successful role models in their community. The participants, trained in groups of about 12 women, were female microentrepreneurs who were members of the Self-Employed Women’s Association (SEWA) Bank. Participants ran small businesses such as vegetable stands or did home-based piecework such as embroidery and making incense sticks.
The new twist in this study is that in the study arm that offered training, half of the women were randomly selected to be able to name a female friend or family member to be invited to the training too. The hypotheses were that having the ability to invite a friend might increase take-up, lead to more engagement during training, and facilitate reinforcement of the learnings after the training was over.
Women invited to training were more likely to take out loans than women in the control group, and what women did with the loans differed significantly based on whether they came with a friend. Those invited without a friend mostly used their loans for home repairs unrelated to their businesses. Women who were asked to bring a friend along, in contrast, were more likely to use their loans for business purposes. Moreover, the women who brought friends reported having a higher volume of business, as well as higher household income, four months after the program ended, compared to the control group. They were also less likely to report their occupation as housewife, suggesting that being a microentrepreneur became a stronger part of their identity. Those invited to training without a friend saw no such gains.
Being invited with a friend did not increase attendance at the training or knowledge gained. What then was the mechanism? Some suggestive evidence comes from the fact that women invited to the sessions with a friend set more ambitious goals for themselves during a class activity in which participants set concrete business goals. Having a friend around seemed to raise women’s aspirations for their businesses.
The improvement in business outcomes was especially large for women belonging to castes or religious groups that impose more restrictions on whether women can move about the community and interact with others unaccompanied. Socially restricted women who attended the training with a friend were four times as likely to take out a loan than similar women in the control group. Highly restricted women face barriers to building strong professional networks with other female entrepreneurs. Thus, attending training with a friend or acquaintance may have helped build up this peer network. One direction for further research is to explore this idea that limited interactions with others in business contributes to the gap in entrepreneurship between men and women. Moreover, some of the gap may be in aspirations, so interventions that encourage women to set more ambitious goals might be useful complements to those that provide them with the skills to reach their goals.
In a similar vein, Lafortune et al. (2018) test the impacts of two separate add-ons to business training in Chile — either a one-hour visit by a previous participant of the program who became successful in her business or tailored consulting — and find that only the visit by the role model increases business profits. Another related study is the one by Brooks et al. (2018) described above, which found that being mentored improved women’s business outcomes in Kenya.
Recap
Business training is a widely used intervention to help microentrepreneurs in developing countries. The evidence on its impacts is mixed. Many studies fail to find significant impacts on revenues or profits. However, McKenzie and Woodruff (2014) argue that weak statistical power hamstrings this literature. If the effect size that would render a training cost-effective is too small to be detectable, then a null result does not imply the intervention was unsuccessful. Conducting larger studies and meta-analyses is one way forward. Another is to improve the measurement of profits and revenues. These outcomes are volatile and also challenging to measure with precision. Methodological studies that find innovative ways to improve data quality or validate best practices for measurement of revenues and profits (see Garlick et al. (2019), for example) would have high returns for all studies focused on microenterprises, including those on business training.
A growing focus in the business training literature is on the psychological determinants of success. Add-ons to traditional training that offer mentorship, provide exposure to role models, or strengthen ties among self-employed individuals have shown promising results. In addition, trainings designed to instill personal initiative or other soft skills are an intriguing approach for which more work is needed. While psychologically-focused interventions have been found to be valuable for both men and women, this line of research might shed light on the gender profit gap, given that in many societies girls grow up expecting fewer career opportunities than boys.
