Entrepreneurs and Small Businessmen

Micro-finance is a growing movement around the world which suggests that it can solve the poverty issue. One major example is Grameen Bank and its founder Dr. Yunus who received the Nobel Peace Prize recently. In fact, my contribution to the WorldChanging book was on Microfinance.

Reuben Abraham, a friend with whom I worked with in Deeshaa, writes about his view on this. Reuben Abraham is the Director of the Base of the Pyramid learning lab at the Indian School of Business in Hyderabad, India. So he knows what he is talking about.

One of the widely-circulated and key ideas in the international development arena of late is the celebration of entrepreneurship among the poor in developing countries. The assumption seems to be that the poor could successfully run these small micro-businesses, if only the slightest amount of help could be offered, especially financial help. The thinking goes like this: Nagamma would be able to buy two cows if she had access to $200, then she would be able to supply milk to the community, make money, repay the $200 at 25% p.a., and have money left over to scale the business to a point where she can buy more cows, make it a viable business etc. This is the sort of thinking that forms the basis for the current hype for micro-finance and social entrepreneurship, though one most also add that real-world practitioners of micro-finance (some of whom are very good friends of mine) typically are free of any such delusions. I must also confess that I personally flirted with the ideas around micro-entrepreneurship for a while, before thinking through the problem and arriving at a different conclusion.

I think the fundamental problem with the thought process is the conflation of real entrepreneurship with micro-entrepreneurship. Entrepreneurs of the Nagamma variety are forced into entrepreneurship because they have no other alternative. In other words, survival becomes entrepreneurship. That does not mean, however, that Nagamma possesses the skills required to be a real entrepreneur. True entrepreneurship is a specialized skill which requires a very high degree of risk-appetite, and I’d argue that less than 1% of the population have these skill sets and risk appetites. I should know, having been involved in two start-ups in the mid-90’s. I was an entrepreneur because I don’t really like taking orders from others and I have always lived for the thrill of doing something very new. I am also extremely well-networked to knowledge, capital and people with solid management skills. To compare an entrepreneur like me with Nagamma is a bit absurd, isn’t it?

The fundamental problem in developing countries is the creation of employment, self or otherwise. The micro-finance movement revolves around the idea of self employment and as Reuben suggests this is not for everybody.

I think it is important to distinguish between the “entrepreneur” who innovates and the “small businessman” who runs a business.

What India and other developing countries need are programs where skills are provided to individuals which will enable them to secure jobs. One of the biggest learnings for me in coming to Australia was the education levels, skill sets and business ideas working in Australia.

Considering that Australia is a developed country the first impression would be that you would find highly educated people everywhere. But this was not true at all. People did have the basic schooling till 10th or 12th standard. This provided the literacy, numeracy and communication skills necessary in any field. However, after this period there is a very interesting development.

Australia has developed a skill training network of institutes called TAFE across the country. TAFE insititutes provide valuable skills in areas which are demanded by the industry. For example, from the TAFE in Queensland.

We offer over 800 programs covering areas such as business, engineering, construction, management, information technology, e-commerce, arts, media, tourism, hospitality, sport and recreation.

With over 120 years of history, a network of institutes and over 100 campuses, TAFE Queensland is the largest, most experience provider of vocational education, training and adult learning in Australia’s Smart State, Queensland.

You want to become a book keeper, you go to TAFE. An electrician, a cook, and what about a receptionist? TAFE provides a unique set of courses at rock bottom prices (subsidized by the govt.).

TAFE provides a practical way of learning skills which are valuable once you are out in the job market. It is helpful to the individual and the Institution, both. Discussing with people who are studying in TAFE and especially with people who have experienced both TAFE and university education; it is clear that TAFE education is superior in imparting skills. University is more about knowledge and understanding.

The most important part is that employers across Australia respect and value TAFE graduates. In India by contrast even the most menial of jobs require high qualifications. The outsourcing sector where I worked in India had business graduates from good institutions and even MBAs doing finance jobs which were performed by 10th or 12th standard educated individuals in the US. Not all jobs are that bad, but there is a tendency to go for high qualifications in India.

As Reuben provides the example of Cab drivers, a TAFE like institute can do that in India easily.

Reuben suggests in his blog post that real entrepreneurs are only 1% of a population. If you consider this; then the issues with micro-entrepreneurship comes to the fore.

In Australia, in terms of businesses, I have read that Australia has the highest franchises per capita. The franchising system creates a well oiled, successful system of business management created by one of those 1% entrepreneurs and anybody who is willing to learn and follow the system can run his own small business. This can actually generate self employment.

The international development community needs to look at Australia and other similar countries to create new systems in developing countries.

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6 thoughts on “Entrepreneurs and Small Businessmen

  1. Hi Suhit,
    Don’t you think you’re mixing oranges and apples here? From what you explain TAFE isn’t about entrepreneurship at all. It is what used to be called “vocational training”, but seems now to have been repackaged as something more trendy sounding.

    Nor is microentrepenruship entrepreneurship. For far too long, everybody – including BOP proponents like NextBillion – have been advocating microfinance to “raise people out of poverty”. But there’s a host of skeptical views on the subject – that are now gaining ground.

    In essence, while entrepreneurship is important, its existence in the public is widely overstated, including here. Thomas Dichter put it best in the context of microfinance: “If the large majority of us in the advanced economies are not entrepreneurs, and have had in our past little sophisticated contact with financial services, and if most of us use credit, when we do, for consumption, why do we make the assumption that in the developing countries, the poor are all budding entrepreneurs”

  2. Dweep:

    I am mixing orange and apples, but there is reason. I guess I have not made my point clear.

    The idea of micro credit was to create a way of out of poverty or earning income for poor people. The suggested way was entrepreneurship.

    The point I was trying to make was “vocational training” is another way of creating skills which would provide employment and hence, income. If TAFE sounds trendy, that is better. This is exactly what is required in India.

    The point of the entire micro credit was that poor people lack credit. However, that is not the only thing. They also lack skill sets, education etc.

    If TAFE like institutes provides skill sets then that bring them out of poverty.

    So yes, TAFE is “vocational training” and not about entrepreneurship at all. It is all about providing a way to earn income and come out of poverty.

    Cheers,
    Suhit

  3. i think comparing australia and india is not comparatable at all,these are very different countries having nothing of social,economic,political or anything to compare or contrast. i for one believes that microfinance can lift us out of poverty but the social background of individuals is the most important factor in all, how displined they are financially matter alot and to be honest few are thats why only 10% of the worlds popolation are rich, i tend to think that having a bussiness acumen is a God given gift, its not something learned at school.

    vocational training is the way to go because it provides practical solutions to various issues unlike theoratical work that most people get while studying MBAs.practically hadcapping someone with such skills that TAFE offers i reckon is the best solution to povert because such people will go out in the field and practise what they have been taught while needing a few materials and require low loans that the average bussinessman who thinks that the more the money he aquires in loan terms the more profit he’ll make.
    cheers

  4. Traditional view: well-networked individual starts an enterprise that rapidly grows, generating some wealth for many, but lots of wealth for the chaps starting it. Can it sustain? Perhaps not, it closes or morphs into something else. In a great majority of cases, except those based on technology, enterprise life-cycles are short.

    Other extreme: There are many entrepreneurs at the bottom of the pyramid – over-whelmingly forced entrepreneurship rather than by choice. Microfinance figures in it somehow, but the number of people times the “wealth” of each person doesn’t (and won’t) amount to a significant fraction of the world’s capital markets’ value.

    My view: Is becoming main-stream in the sense that many are using it to bypass traditional “employment” – there are some tax advantages. Individual desires (such as taking time off etc.) are also accommodated by this method. It also creates more ownership – in terms of both responsibility and rewards. In many cases, these entrepreneurs bypass the estimated $20,000 per capita in the world’s capital markets (perhaps total wealth is 10-50 times, as much as $1,000,000 per capita) by financing the enterprise themselves. The capital market is doomed to service lower-grade enterprises (be they at the MNC or microfinance extremes). Why would not one finance a high-grade operation by oneself or from one’s coterie? It cuts the “overhead” of securing finance and lets the entrepreneur focus on one’s core activity.

    It is still true that technology-based enterprises sustain longer (there are a litany of reasons, but the chief causes are value created and entry barriers). Unfortunately, in Indian business schools, technology management is a much neglected subject. More sustainable enterprises may (not necessarily, unless regulated) also lead to “greening” and higher-quality employment.

    Public policy must support the proliferation of such enterprises (perhaps by greater fiscal measures).

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