By Rebecca Harrison, CEO and Co-Founder of the African Management Initiative.
Entrepreneurship is often touted as the silver bullet for Africa’s youth employment challenge. If we can strengthen small businesses, they will create jobs, and more young people will find dignified work. Simple, right? The problem is that most entrepreneurship training is failing. That doesn’t mean we should give up on small and medium sized enterprises (SMEs). But it does mean a different approach is required.
At African Management Initiative (AMI), we are passionate about empowering entrepreneurs to build their businesses and create jobs. We are equally passionate about disrupting the current “training workshop” paradigm. SMEs have the potential to lift millions in Africa out of poverty and are central to the growth and development of the continent. Over the past few years, entrepreneurship training programmes have mushroomed across Africa to help SMEs address challenges such as financial education, business training, and access to finance. The problem is that many of these programmes simply don’t work. Evaluations have shown that classroom-based training has very limited impact on actual business outcomes—entrepreneurs who take traditional training programmes don’t seem to perform any better in terms of revenue growth, productivity, profitability, business survival, or job creation, than those who don’t. Given the cost of delivery, and the opportunity cost for entrepreneurs spending time in class instead of running their businesses, this is not good enough.
But where does that leave us? Is there a model that can deliver impact for entrepreneurs in terms of business growth and job creation at a price point that is viable at scale? We think so.
Recent academic research suggests that business growth stems not from improving the individual competencies of entrepreneurs, but from embedding good management practices into the business itself. Academics from Stanford and MIT have found strong correlations between a list of core management practices and firm productivity, profitability, sales growth and survival. They have tested this thesis with a range of organizations—from large companies in Western countries to micro, small, and medium enterprises (MSMEs) in Kenya, Nigeria, Ghana and others.
This insight has powerful implications for the way we support emerging market SMEs. At AMI, we have responded by flipping the traditional entrepreneurship training model on its head to provide a new practice-based approach that delivers real results. In collaboration with researchers from MIT, AMI has identified 24 simple but effective business practices that are based on the research cited above, and adjusted for local relevance, and are centred around five core business pillars—Strategy, Customers, Money, Operations and People. We then help entrepreneurs identify which management practices they are currently missing and help them to plug those gaps by providing simple, practical tools, along with the right support and accountability. For example, we still help entrepreneurs manage their cash flow, but instead of teaching them how to manage cashflow through a series of workshop presentations, we provide them with a simple cash-flow management tool and hold them accountable for using it in their business every month, with support from their peers. It’s a small shift in approach, but a powerful one. It is also relatively light touch and cost-effective at scale.
 Much of the empirical evidence around management practice is based on an instrument developed by Bloom and Van Reenen in 2007, and used in multiple studies since. They found in a sample of 8,000 firms in 20 countries showing that “management (by which they are referring to implementation of management practices) is associated with improved firm performance, and from experimental evidence, this seems to be causal.” (Bloom, Sadun & Van Reenen, 2013).
How does a practice-based approach work for entrepreneurs?
We have identified four key components for implementing a practice-based approach that works.
- Business diagnostic: Instead of forcing all entrepreneurs through the same one-size-fits–all curriculum, we invite each entrepreneur to create their own roadmap for success. We do this through a structured diagnostic survey, which helps teams select four core practices that they believe are most critical to the success of their business. This creates buy-in from the start and increases the likelihood that business owners will adopt new habits.
- Tools: Instead of content-heavy, theory-based learning, we focus on providing entrepreneurs and their teams with the simple tools they need to develop good business habits. These tools can be accessed, downloaded and used online (web or mobile) anytime, anywhere from our easy-to-use platform and are adaptable to any business. They focus on basic business habits such as tracking stock, keeping good financial records, regularly surveying customers, and planning for the future.
- Peers: Adults learn best when interacting with peers, and entrepreneurs tend to be particularly social. So, we have embedded peer learning into the heart of our programming. Participants are grouped into small support groups called ‘pods’, where they hold each other accountable for implementing their chosen practices. Well-structured peer learning drives down the cost of programme delivery without sacrificing impact, while also helping entrepreneurs expand their networks.
- Metrics: Many SMEs simply do not know what is happening in their businesses, and so don’t know where to focus their energies. It is compulsory for participants of our programmes to track core business metrics every month. Not only does this help us monitor our own impact, but it gives entrepreneurs visibility into core business drivers, and introduces them to the critical habit of measuring success and making data-based decisions.
The good news is that the practice-based approach is working. Our sample size is still small, but on average, revenue in 2018 increased as much as 60% and profit increased 45%, with slight variations depending on the specific cohort. Participants in all programmes using the practice-based approach are reporting tangible business improvements, with 75% of businesses of one programme securing seed financing. The approach has been tested with both urban and rural SMEs and has yielded results in both settings and across multiple sectors. We are conducting a Randomised Control Trial with a team at MIT in 2019-20 to more rigorously test the impact and deepen our understanding of why and how this approach works.
Entrepreneurship will continue to be a way out of poverty for millions of people in Africa, both for business owners themselves and those they employ. We need solutions for supporting them that are scalable and have tangible business impact. The practice-based approach provides a promising way forward.