Almost 1 in 5 people in the world live in poverty. Even in many developed countries, akin to the US, poverty rates exceed 12%In an age of breathtaking technological progress and dynamic social change, poverty stays stubbornly persistent.
As Professor of EntrepreneurshipI’m interested in the critical query: Can people living in poverty create their own path to prosperity? In other words, is creating businesses a viable tool for alleviating poverty?
My job has shown that it may possibly be – with the right support. But that support is often lacking.
A giant a part of the problem is ignorance: Most people simply don’t know much about poverty and entrepreneurship. There are many myths about entrepreneurship among the poor, partly because of the lack of hard data about businesses run by people living in poverty.
These misconceptions have influenced public policy officials, economic development professionals, and academics. As a result, they have an inclination to underestimate the vital economic and social role that these enterprises play.
To dispel this myth, here are six facts people should know about poverty and entrepreneurship.
Fact 1: Poor People Start Businesses – Lots of Businesses
It’s a myth that entrepreneurship is only for the wealthy. In fact, many businesses around the world are began by disadvantaged people – most of them, in fact. While hard data is hard to come back by, the evidence we do have is telling. For example, in some high-poverty countries in sub-Saharan Africa, as many as two in three adults are running or are in the technique of starting their own business.
Such small firms are you would say that the spine many developing economies where over 50% of the population may live in poverty. Even in developed economies, such ventures can account for a major factor of gross domestic product.
Fact 2: Businesses run by poor people create value
Although people living in poverty are disproportionately prone to create “survival enterprises” that generate small profits, it is mistaken to assume that this makes these enterprises less priceless. Such enterprises provide jobs hundreds of thousands of poor peopleacting as an economic lifeline. They create value in the marketfilling niches that are not attractive to existing firms.
And they create greater than just economic value: these businesses are embedded in the fabric of communities, providing a source of social stability. They pay taxes and can bring side advantages akin to reduced crime, increased graduation rates, and community pride.
Fact 3: Entrepreneurship will help alleviate poverty
More and more research indicates that a higher level of entrepreneurship is associated with greater reduction in povertyFor example, one evaluation found that areas with the highest rates of entrepreneurship among the poor showed best reductions in poverty over a period of six years.
This shouldn’t come as a huge surprise. After all, while people living in poverty often create survival enterprises that generate small profits, enterprise creation is a key means for development of human capitalPeople who start businesses learn easy methods to organize production, manage money, serve customers, set prices and coordinate logistics.
Moreover, entrepreneurial experience can enable self-sufficiency, Identity developmenta sense of pride and purpose and the ability to offer back.
Fact 4: Off-the-books businesses have value to society
Poor entrepreneurs often start what economists call “informal” enterprises – firms that are not registered with the government and operate in secret. They are often criticized.
Although off-the-books economic activity could also be illegal, the informal sector makes up 50% or more of the economy in many developing countries, and as much as 20% in some developed countries. It is a huge incubator that sustains the poor as they experiment with business and learn. I think this hidden culture of entrepreneurship needs to be nurtured.
Fact 5: The biggest challenge is not all the time the lack of cash
People often assume that the key to helping poor businesses is to supply more capital. However, despite the clear need for financing, some entrepreneurs is probably not prepared to make use of the more money effectively. No matter how motivated or hardworking they are, the key issue for entrepreneurs is the ability to show resources into goals.
Research suggests that when entrepreneurs lack key skills akin to accounting, sales, or inventory management, financing needs to be combined with other types of support. The investment is prone to be more productive when it is linked to participation in training and mentoring programs. Access to incubators, participation in networking events and related development activities are also vital.
Fact 6: There is greater than one path to success
People in the entrepreneurial world love big success stories. It’s about picking winners. This mindset works against bad entrepreneurs, who are inclined to start basic businesses that don’t use recent technology and often have very limited resources.
To realize the potential of entrepreneurship, it is price considering the definition of success. For the poor, success could also be starting a business and making sales, earning a profit. It could also be changing the economic situation of the entrepreneur, hiring employees – especially those living in poverty – or adding one other location.
This could possibly be sustaining the business for a few years, providing some sort of legacy. Other indicators of success could include reduced dependence on one’s own work, customer satisfaction, and the ability to offer back to the community.
Ultimately, success is about living higher. And research shows how entrepreneurship can make that possible.
Creating a enterprise is not a panacea. Poverty is complex, and building a sustainable business is hard. To realize the promise of entrepreneurship, we must move beyond these myths and create supportive environments that level the playing field.