Personal initiative training outperforms traditional business training in boosting micro firms’ innovation, access to credit and performance.
Micro firms that apply for direct support as part of a government programme are offered either 36 hours of traditional business training or 36 hours of personal initiative training, complemented by on-site monthly mentoring sessions over four months.
- To develop entrepreneurs’ skills
- To improve business performance
World Bank and International Finance Corporation (IFC)
These interventions were tested as part of a government project aimed at providing direct support to non-agricultural and non-formally registered businesses with fewer than 50 employees and that have been operating for at least 12 months.
Microbusiness owners. Participants’ average age is 41 years, 53 per cent are women and average schooling is nine years. Their initial level of personal initiative is already reasonably high (4.2 points on a five-point Likert scale).
All businesses have been operating for at least 12 months, aren’t formally registered and on average have three employees. Mean monthly profits are about US$199, and half of the micro firms make less than US$84 a month. They operate in a broad mix of sectors (27 per cent manufacturing, 48 per cent commerce and 25 per cent in services). Participant businesses have significant scope for improvement in terms of business practices.
- In-class training: A four-week training programme with three half-day sessions per week for a total of 36 hours of classroom instruction.
- On-site sessions: In-class training is complemented by three-hour on-site visits by the trainer to answer any follow-up questions that business owners might have and assist with the implementation of the concepts learned during training. These visits take place once a month for four months.
Participants are required to pay a highly subsidised fee of approximately US$10 (the full cost of the training is approximately US$756 per participant).
Firms are offered either:
- Traditional training: An internationally accredited programme (Business Edge) developed by the International Finance Corporation that focuses on four core topics: accounting and financial management, marketing, human resource management and formalisation.
- Personal initiative training: A new training programme focusing on teaching a mindset of self-starting behaviour, innovation, identifying and exploiting new opportunities, goal setting, planning and feedback cycles, and overcoming obstacles.
A third group is not offered any training.
- Both training programmes increased adoption of business practices by about 6 percentage points despite the personal initiative training not explicitly focusing on teaching those.
- Both training programmes increased personal initiative despite the traditional business training not focusing on that. However, the impact was almost twice as large for the personal initiative training.
- Both training programmes led to firms using more inputs, engaging more in innovation activities and having improved access to credit. However, these impacts were significantly larger for firms accessing the personal initiative training.
- In particular, the personal initiative training led firms to introduce more new products and increased the likelihood that these new products were their own ideas and new for the neighbourhood (rather than just copied from others).
- Neither training approach had an impact on firm survival.
- The personal initiative training had large positive effects on monthly sales (17 per cent increase) and profits (30 per cent increase) compared to the sales of firms not receiving any training. The traditional training had no effect on sales.
- The positive effects of the personal initiative training on sales and profits occurred across businesses of all sizes, and for both women and men.
- Given its large and sustained effects on profits, the personal initiative training repaid its cost within approximately one year. Return on investment was estimated to range from 140 per cent to 393 per cent over a 10-year period.
- Attributes like proactiveness that are often assumed to be innate can be taught through psychology-based mindset training.
- Business training programmes should aim to develop business owners’ entrepreneurial mindset, as this can lead to innovation and improved firm performance.