Francisco Campos and his fellow researchers chose to monitor 1,500 people running small businesses in Togo in West Africa and gave them two different sorts of training:
The typical firm had three employees and profits of 94,512 CFA francs ($173) a month. Only about a third kept books, and less than one in 20 had a written budget.
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As they report in Science, the researchers split the businesses into three groups of 500. One group served as the control. Another received a conventional business training in subjects such as accounting and financial management, marketing and human resources. They were also given tips on how to formalise a business. The syllabus came from a course called Business Edge, developed by the International Finance Corporation.
The final group was given a course inspired by psychological research, designed to teach personal initiative — things like setting goals, dealing with feedback and persistence in the face of setbacks, all of which are thought to be useful traits in a business owner. The researchers then followed their subjects’ fortunes for the next two-and-a-half years (the experiment began in 2014).
An earlier, smaller trial in Uganda had suggested that the psychological training was likely to work well. It did: monthly sales rose by 17% compared with the control group, while profits were up by 30%. It also boosted innovation: recipients came up with more new products than the control group. That suggests that entrepreneurship, or at least some mental habits useful for it, can indeed be taught. More surprising was how poorly the conventional training performed: as far as the researchers could tell, it had no effect at all.
Not surprising. The difference between minimal book-keeping accounting skill and fluent skill doesn’t start making a big difference until you get to what is usually called medium sized businesses — ten or more employees and say if in retail around 3 million a year in gross sales. The difference between an average and highly-skilled accountant can make a big difference then, but as you go up to larger businesses it can increasingly make a huge difference. The surprising thing in my experience was how much even in companies in the tens and hundreds of millions of dollars in sales most of the accountants are mostly just crunching numbers with very little initiative in working the accounting systems to yield the most amount of useful information. It’s probably because the people with really high math ability generally tend to go into engineering and similar professions.