High impact entrepreneurship is a critical engine for job creation. Select enterprises are responsible for a disproportionate contribution to employment. Unfortunately, most firms in developing countries are not achieving the scale of their counterparts from developed states. The vast majority of them employ fewer than ten people, and most commonly only no more than one person. Without larger companies, these economies are unlikely to progress towards greater wage employment.
One potential explanation for this shortage of companies at scale is a shortage of funding in the right hands. The Youth Enterprise with Innovation in Nigeria (YouWin) program offered the opportunity to assess one potential policy solution to the above challenge. This business plan competition offered both business training and a significant cash award to successful applicants. Participation was open to business plans from both new entrepreneurs and existing enterprises. Each winner was ultimately eligible for four payments totalling up to USD 64,000. A randomised experiment was incorporated into the program to assess the true impact of this program.
Winning the competition was proven to positively impact the ability of entrepreneurs to establish, maintain, and grow their ventures in comparison with other finalists.
These select enterprises not only generated greater employment but also produced higher sales and profits.
New entrepreneur recipients were:
- 37 percentage points more likely to be operating a business; and
- 23 percentage points more like to reach a scale of over 10 employees.
Existing business recipients were:
- 20 percentage points more likely to have survived; and
- 21 percentage points more likely to achieve a scale of over 10 employees.
It seems that additional funding benefited entrepreneurs through allowing additional hiring and capital purchases.
Both employment and capital stocks significantly increased at the winning companies beyond the required levels. However, the impact of the competition cannot be attributed simply additional cash. Rigorous selection processes identified entrepreneurs with capability and capacity to effectively use the resource. In this context, the business plan competition was effective at facilitating successful entrepreneurism. Importantly, the program produced the desired effect of more firms with at least ten employees. These results may not be applicable to other countries, markets or entrepreneurs. Nonetheless, this experimental evidence supports a potential policy solution for effectively promoting firm growth.
Contributed by Cornelius Saunders.
To access the full paper, Identifying and Spurring High-Growth Entrepreneurship: Experimental Evidence from a Business Plan, by David McKenzie, please click here.