As discussed in previous posts, most people engaged in farms and livelihood activities view them as a way to get by rather than get ahead. Lacking scale, they are inefficient. Lacking access to information and markets, they do not have the power to extract profit from market transactions. They pay more for their inputs (including credit) and receive less for their outputs.
Yet some financial inclusion beneficiaries do experience a transformative change from subsistence livelihoods. Blurbs about successful microfinance clients are a mainstay of the industry’s promotional materials, but rarely have they been systematically studied to understand what common factors contributed to business success.
ACCESS Advisory has recently completed a study of 102 successful women entrepreneurs in Vietnam and the Philippines. Our research was intended to shed light on the knowledge, attitudes, skills, and habits that characterize successful micro-entrepreneurs to determine what success factors can be replicated in order to make financial inclusion systematically more impactful.
Our research shows that the key success factor for achieving transformative entrepreneurship is the ability to break out of the closed system that subsistence entrepreneurs rely on for survival but which in many other ways holds them back.
This is an important finding because it suggests that a different approach for promoting entrepreneurship is needed. Traditional business development services attempt to help entrepreneurs gain knowledge (though the development of a business plan, market research, and competitor analysis) or skills (such as bookkeeping). Although the research shows that these inputs are important, they are not practiced widely enough to be an explanatory variable for business success. Most successful entrepreneurs tend to start doing these things after they start growing their business, not before.
The problem with the traditional approach to enterprise development is that it assumes that the business owners already have an entrepreneurial mindset. Often they do not, and therefore they cannot make the best use of the inputs they receive through training. Our research shows that the entrepreneurial mindset is what leads business owners to look outside their social network for information, ideas, and contacts. It is this mindset that fosters business acumen––the ability to identify and respond to new opportunities.
It turns out that the actual business model itself, which is usually the main focus of business development support, is the least important factor in success. In fact, the model is not fixed. If the proprietor is truly entrepreneurial, the model is constantly evolving.
The key implication from the research is that business development service (BDS) programs should focus first and foremost on inculcating an entrepreneurial mindset. Entrepreneurs cannot grow their business unless they see it as something commercial that can be expanded. They need to be able to envision this future before they have the motivation to learn and apply the skills (such as accurate recordkeeping and analysis, conducting market research) and habits (such as working meticulously, seeking new opportunities, reinvesting profits) necessary to transform their businesses.
Read our report here: