World Bank research finds entrepreneurs boost profits faster by doing “psychology-based” training
Thursday, March 15, 2018/
The nature versus nurture debate has been argued across many fronts. When it comes to entrepreneurship, a recent research suggests an entrepreneur doesn’t necessarily need to be born with innate business stills.
A World Bank study, jointly released with the National University of Singapore Business School and Leuphana University, points to the value of psychology-based entrepreneur training programs.
Published in the journal Science, the World Bank states that the results “establish a fresh middle ground in a long-standing debate between whether an entrepreneur is ‘born or made’”, because they demonstrate it is possible to cultivate attributes associated with strong entrepreneurship.
The study, focused on micro-entrepreneurs in West Africa, showed that psychology-based entrepreneur training programs are outperforming traditional business trainings, with firm profits increasing by 30% compared to 11%.
“Traditional business training focusing on accounting, marketing and other basic business skills are widely used globally, but have shown limited impacts in a number of studies around the world,” said David McKenzie, World Bank Development Research Group lead economist and study co-author.
“It is important and noteworthy to find an alternative that works better.”
A randomised controlled trial was conducted by researchers, with a sample of 1,500 micro-entrepreneurs in Lomé, Togo. The study compared the impacts of standard business training to personal initiative training.
“This psychology-based training aims at developing key behaviours associated with a proactive entrepreneurial mindset, such as self-starting behaviour, innovation, identifying and exploiting new opportunities, goal-setting, planning and feedback cycles, and overcoming obstacles,” explained Michael Frese, National University of Singapore Business School and Leuphana University professor.
Made up of the two training methods, both costing around $756 per participant, and four rounds of follow-up surveys, the World Bank states that the trial “yielded surprising results”.
The personal initiative training saw entrepreneurs earn higher profits than those in the traditional training or control groups at every percentile.
Markus Goldstein, World Bank Africa Gender Innovation Lab head and co-author of the study, noted that for female-owned businesses, for whom traditional training often has been ineffective, the personal initiative training was particularly effective, with profits increasing by 40% compared to five percent after traditional methods were used.
“Going forward, the study’s findings make a strong case for the role of psychology in better influencing how small business training programs are taught in West Africa and beyond, and the importance of developing an entrepreneurial mindset in addition to learning the business practices of successful entrepreneurs,” the World Bank states.