Poor communities a 'hotbed' of entrepreneurial creativity, but need help to grow long-term

May 25, 2016

Toronto - Necessity can be the mother of invention, but without financial and business development support, many impoverished entrepreneurs can't get past the start-up phase of establishing a unique new business.

Using a national survey on entrepreneurship, researcher Laura Doering showed in a recent study that low-income entrepreneurs in Panama were just as likely as wealthier people to start early-stage businesses selling new products. But they had lower rates of sustaining those businesses into long-term profitability.

When Prof. Doering interviewed low-income entrepreneurs in the Central American country, she found that their frequent urgency to quickly turn a profit so they could support themselves, as well as the longer time required for their often equally poor customers to adopt the new product, contributed to the low long-term success rate.

"Poorer entrepreneurs often don't get the chance to profit from the creativity that they're bringing to market," says Prof. Doering, who is an assistant professor of strategic management at the University of Toronto's Rotman School of Management.

"It helps us understand why entrepreneurship generally doesn't serve as an avenue for economic mobility for the poor."

That doesn't mean it can't. Prof. Doering met many entrepreneurs with promising novel business ideas, such as a woman who opened an internet café in a rural community without one and another who bought used "American" clothing in bulk in the city to sell in her rural community where it had previously been unavailable.

In another example, a former government agriculturalist who had been laid off returned to his home village and started a business educating rural coffee growers about organic farming practices he had learned about in his job in the city. The farmers valued the training -- the method would eliminate the purchase of costly pesticides and fertilizers -- but could not afford to pay for it initially.

The paper suggests that these entrepreneurs can be helped over the start-up hurdle through the creation of business incubation centres in which entrepreneurs can develop and refine their novel business ideas. Cash grants for the most promising ideas, rather than loans, could also ease the pressure to quickly turn a profit while also allowing the ability to give consumers discounts while they get acquainted with a new service or product.

The paper's focus on the dynamics behind self-employment among the poor highlights an area that has received scant attention by sociologists studying why poor people have difficulty breaking out of poverty.

"Most of the existing literature assumes that poor entrepreneurs aren't engaged in this kind of novel entrepreneurial process," said Prof. Doering. "I was surprised to see the extent to which they were."

The paper is forthcoming in Sociology of Development.
-end-
For the latest thinking on business, management and economics from the Rotman School of Management, visit http://www.rotman.utoronto.ca/FacultyAndResearch/NewThinking.aspx.

The Rotman School of Management is located in the heart of Canada's commercial and cultural capital and is part of the University of Toronto, one of the world's top 20 research universities. The Rotman School fosters a new way to think that enables our graduates to tackle today's global business challenges. For more information, visit http://www.rotman.utoronto.ca.

For more information:

Ken McGuffin
Manager, Media Relations
Rotman School of Management
University of Toronto
Voice 416.946.3818
E-mail mcguffin@rotman.utoronto.ca
Follow Rotman on Twitter @rotmanschool
Watch Rotman on You Tube http://www.youtube.com/rotmanschool

University of Toronto, Rotman School of Management

Related Entrepreneurs Articles from Brightsurf:

Study: Women entrepreneurs are more motivated by social impact than money
A new study from researchers at Carnegie Mellon University and Columbia sheds light on the attributes that drive different types of entrepreneurs.

Creating buzz with potential end-users helps entrepreneurs with crowdfunding campaigns
Entrepreneurs launching a crowdfunding campaign to fund new product development benefit by reaching out early to engage with potential end-users, say business researchers from three universities.

Older entrepreneurs as successful as their younger counterparts, study reveals
From Steve Jobs to Mark Zuckerberg, the stories of prosperous, young innovators drive the American economic narrative.

Crowdfunding -- entrepreneurs should resist the urge to promise to save the Earth
Entrepreneurs seeking funds on business-oriented crowdfunding platforms should avoid over-emphasizing the social or environmental benefits of their start-ups or products if they are to maximize potential investment.

Entrepreneurs have different storytelling styles for presenting business
New pioneering research shows that entrepreneurs communicate to strengthen their professional image and stakeholder relationships -- and avoid blaming others.

Tech startups gravitate toward cities with strong social networks, study finds
The presence of technology startups can drive economic growth for their home cities.

Entrepreneurs: Get the trademark to succeed, research says
Startups and entrepreneurs should spend the effort and money to obtain trademarks, because trademarks help them succeed in both product and financial markets, researchers say.

Study: Want more investors to your startup? Better make an impassioned pitch
The brains of potential investors are wired to pay closer attention to entrepreneurs who pitch with passion, according to new research from Case Western Reserve University.

Location matters for home-based female entrepreneurs says new study
A study of 1800 working-aged residents in a public apartment complex in Colombia found that women were more likely to run a home-based business when their randomly-assigned unit was on the ground floor.

Friendships factor into start-up success (and failure)
New research co-authored by Cass Business School academics has found entrepreneurial groups with strong friendship bonds are more likely to persist with a failing venture and escalate financial commitment to it.

Read More: Entrepreneurs News and Entrepreneurs Current Events
Brightsurf.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.