There is still a lot we do not know about the best ways to improve business skills and know-how among new entrepreneurs. A recent study conducted by Brooks, Donovan and Johnson compares mentorship and formal business training through a randomized control trial of three groups of microbusinesses in a densely populated, low-income urban area.
The first group attended classes on marketing, accounting, cost control and business planning. These classes came from a small and medium sized business training program offered by a leading university in Kenya and were taught by experienced faculty members.
The second group was paired with mentors to meet with on a weekly basis. These were founders of the most profitable businesses in the same region and the same strictly defined sub-industry, who had been in business for at least 5 years and were over 40 years old. The third group received neither type of support.
Here are some key findings:
- The business courses had no tangible effect on business performance.
The entrepreneurs showed short-term changes in some of their business practices, but these did not seem to translate into increases in profit or performance.
- Mentorship led to a significant improvement in profits, driven primarily by reducing costs.
Entrepreneurs who were mentored saw an increase in weekly profits by about 20 percent, mostly due to changes in business practices that lowered costs without affecting sales or revenue. This was mostly due to industry and market specific knowledge offered by mentors, rather than general business skills. For example, mentees were much more likely to switch to cheaper suppliers in order to lower their costs.
- The effects of mentorship did not last beyond the duration of the mentoring relationship.
Mentorship was very effective at addressing the challenges faced by the mentees at the time. However, the study shows that these challenges changed rapidly. Once a mentee faced a challenge the mentor had not previously discussed, they were no better off at addressing it than founders who had not been mentored.
- Mentoring relationships were significantly cheaper to set up than offering business courses.
The latter requires costly research into the challenges faced by entrepreneurs and designing a study accordingly, where challenges may vary drastically across companies and over time. By contrast, it was much cheaper to incentivize the mentors to participate in this study.
The full report can be accessed here.
Contributed by Maha AbdelAzim