Is Entrepreneurship Bad for the Poor?

One reader of my previous post “Job Description: Superhero Entrepreneur-cum-Managers” asked whether I am saying that rural entrepreneurship is a bad idea.

Not at all.  In fact, entrepreneurship can be a powerful developmental force – reinvigorating the local economy, creating new products and services, creating employment and wealth.  However, if pursued improperly, entrepreneurship can also result in losses and failure.  And thrusting entrepreneurship on people who least understand it or can afford the risk is a bad idea.

With due apologies to Shakespeare: “Some are born entrepreneurs, some become entrepreneurs and some have entrepreneurship thrust upon them.”  It that last group that I worry about the most.

In initiative after initiative, NGOs and well-intentioned government agencies are convincing the poor that the best path to economic progress is to become entrepreneurs.  Certainly, entrepreneurship is a good means of achieving economic mobility but it is not the most successful (statistically speaking).

The Indian IT services industry created wealth for thousands of individuals – all through employment and investments in the stock market.  Only the very few at the top and those who joined early were truly entrepreneurs. They turned down lucrative and stable jobs with other established companies to pursue the creation of a new entity without any guarantee of success.

From a statistical perspective, there are at least 10x as many failed IT services companies as successful ones.

So my question to all these NGOs, government agencies and other well-intentioned individuals is still the same – why are we encouraging the rural poor to start businesses which have 90%+ probability of failure, purely from a statistical perspective?  The odds against them are even worse, if we add in their handicaps – access to sufficient capital, lack of knowledge of business operations, financial management, etc.

Increasingly I am coming to the conclusion that many of the NGOs promoting entrepreneurship may inadvertently be doing a disservice – by convincing the most economically-vulnerable sections of society to take up ventures which are inherently risky by their very nature.

The NGO leaders are certainly not fools and neither are they malicious; they tend to be well educated, highly dedicated individuals who passionately believe in the path they are pursuing.  But often they have no real business experience, and especially no managerial experience that would have exposed them to the intricacies of running a successful business or the learnings from running a failed one.

What we need to do is to re-direct their effort and capital.  Convince the NGOs that starting a successful business requires more than an idea and startup capital.  Steer them away from seeding sub-scale businesses with no preparatory customer research (“if we make it, they will buy” mentality) towards businesses producing customer-oriented products in a scalable manner.

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One Response to Is Entrepreneurship Bad for the Poor?

  1. Jaya says:

    I so totally agree with the quote – we used to say that about most rural businesses promoted among SHGs when we were working in Orissa. The middle class conspicuously demonstrates the ‘follower’, ‘low risk’, ‘regular income (preferably salaried)’ attitude and we routinely expect the poor to have a different genetic orientation and have almost inborn business acumen. The other skew is that most self-help groups routinely charge interest rates between 12-60% and sometimes even higher, while the Tatas, Birlas and Ambanis, geared with their MBA-brigade, get tax and interest waivers and rebates.

    Clearly there is need for employment and income assurance in rural areas and all the ways to it have to be explored, instead of settling for ‘business promotion’ for the heck of it.

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