My purpose in assembling these pages is to consider some of the critical lessons learned over a long career of assisting small business men and women and farmers in more than 40 countries of Africa, Latin America, S.E. Asia, the Middle East and Eastern Europe. These lessons have been reinforced by my own forays into the world of (ad)venture capitalism and small business development in the United States. More surprising to me than any of the individual lessons is the degree to which they form a common thread throughout the many projects in which I have played a part. From the altiplano of Bolivia to the humid tropical forests of Guinea Bissau to occupied Palestine and the collapsed economy of Armenia, the lessons remain valid – always with a slightly different twist, but always valid.
This consistency is much less the product of divine insight or the relentless pursuit of some grand strategy on my part than it is the result of a conscious effort to understand each situation, and its context, as I look for ways to respond to it. I hope the reader might recognize in these experiences a persistent desire to be a part of the solution, even if a very small and incomplete part at times, and to avoid either making false promises or, worse, becoming part of the problem for people whose problems are quite big enough already. I have focused on helping the people I work with put themselves in a better place from which to go forward and tried to be creative in my analyses and advice. I remind myself continually that, like Tip O’Neil once said of politics in America, all “development” is first of all local. It starts with people – real men, women and children with hopes, dreams, plans, problems and needs. Valid generalizations and “big” conclusions can only be made on the basis of how people are affected individually.
I read William Easterly’s book, The White Man’s Burden as I began assembling these pages a few years ago. I hope that he would include me among the “searchers” in his dichotomy of development professionals – one who looks for local solutions to local problems, focusing on making things a little bit better for the people we know.
These lessons are not presented as an academic treatise contradicting, confirming or building on (or even referring much at all to) the writings of the great thinkers of my profession. Many of the celebrated gurus of economic development would quite likely consider some of these thoughts somewhat simplistic, if not downright heretical. Jeffrey Sachs and Michael Porter will find them wanting I am sure. But then I don’t buy into everything they have to say either. These are simply the recollections of a long-term “field guy” who has been out there long enough to see many sincere efforts fail and a few succeed – and tried to learn from both. Translation: You won’t find a lot of footnotes, and even fewer diamonds, pyramids, boxes, circles, arrows or other geometric attempts to explain what works and what does not. I hope that these lessons will contribute to improving the success rate in the future of my own efforts and those of others who find something of value in them.
My intention here is neither to offer an apologia for a miss-spent life as a development professional like some of my colleagues, who will not be cited, have felt compelled to do. Nor is it to condemn the efforts of others, institutions or individuals, who have sincerely taken different tracks to accomplishing worthy objectives. It is true that I am often impatient, perhaps even intolerant, of the institutions and individuals that I often see as becoming more a part of the development problem than the solution as they succumb to political agendas, bureaucratic lethargy, intellectual faddism, individual greed or cynicism. Some folks probably really should be doing other things in other places but they seem intent on making their own decisions so I will refrain from further comment. Who knows? They just might be right.
I do not feel that my efforts have been misguided or wasted though they have certainly not always been successful. We always risk failure when we take on difficult challenges in creative ways. I am proud of my career and profoundly respect the many other good men and women with whom I have shared it. We have sometimes battled mightily, but mostly over principles, strategies and tactics in the search for better solutions to the problems of real people. We have also come across the kinds of unnecessary obstacles that sometimes make us question the worth of it all. But in the end, the real development cowboys (and girls) saddle up again and ride out to do the best they can.
I will do my best to make these pages a reader-friendly bit of prose but I would ask the readers’ kind indulgence if a bit of professional jargon does slip in here and there. Sometimes “special” words convey a specific meaning that is difficult to convey otherwise. At other times it may simply indicate the effect of long years reading the literature produced by those with a higher jargon tolerance threshold. I find that most of the successful things we do are pretty common-sensical. The problem is I suppose, to distort an old saw, that “Common sense just ain’t as common as it ought to be.” I hope that the reader will find some familiar experiences along the way and recognize that the mission that has absorbed me for so long is one of immense interest and stimulation as well as joy along with the inevitable hair-pulling frustration of dealing with Third (and First) World bureaucrats and others who just don’t “get it”.
Some may recognize themselves and the projects with which they have been involved in the examples I draw from. I hope that none will take offense since none is intended. Any interpretation of the facts presented in the examples I offer that may differ from the way others might see them is my own. I am immensely grateful to all of those people who have contributed to my learning – especially to those true entrepreneurs I have worked with around the world who have dared to dream the “BIG” dream and bet their lives on the outcome. It is to them that these lessons are dedicated.
Every economic development project I have been associated with since 1968 has had the same fundamental objective: to increase the opportunity of low-income people to improve the quality of life for themselves, their families and succeeding generations on a sustainable basis. In one way or another, all of those projects have worked to achieve this goal through the development of small and medium scale enterprises (SMEs) owned and operated by the women and men who would benefit most from their success and suffer most from their failure. Most of those projects have focused on various aspects of agriculture and agribusiness but I have also been involved in micro-finance, animal health, low-cost housing, various types of manufacturing and other areas as well and always found that the basic principles presented in the pages to follow hold true.
Defining the Enterprise:
I find it helpful to distinguish the “entrepreneurial” enterprises I have been most involved with from the “subsistence” enterprises that engage many of my friends working in the “micro-enterprise” development field. Many programs, and most governments, find it necessary to make some statistical distinction between micro-enterprises and SMEs, usually in terms of the number of “workers” employed by each along with some other factors like capital employed, sales generated, form of legal registration or others. I do not find these distinctions very useful, however, especially since we can’t agree on the definition of a “worker”. A “worker” is a highly abstract concept given the many different factors by which he or she is defined: full-time/part-time (How “full” is “full”?); permanent/temporary (How long is “permanent?” At what point does “temporary” become “intermittent”?); physical work places/full-time equivalent workplace. (What is the formula?)
Even those professionals who seem to find utility in these distinctions often hedge their bets by building in a conceptual overlap between MSEs (micro and small enterprises) and SMEs (small and medium enterprises). Papers are written on these distinctions and conferences, workshops and seminars are held involving numerous “experts” being flown in from around the world to share their wisdom. Intellectually stimulating as these discussions may sometimes be, I find that they usually cast little light on the subject of how to help individual businesses be more successful.
These definitions assume that there is a “continuum” of private enterprises where the major distinction between them is scale. I maintain that this is not the most important defining characteristic with which to distinguish them. For me, the much more useful distinction is between “entrepreneurial” enterprises and “subsistence” enterprises. The qualitative difference is clear, or at least I know it when I see it, and can serve as the basis for targeted assistance efforts.
Entrepreneurial enterprises are defined by the dream of the prime mover of the business – the entrepreneur. He or she (or sometimes even “they”) have a dream and a plan that they think will put them in a better place than they find themselves in and they are willing to invest their time, talents, treasure and social position in the realization of that dream. At the heart of things, the one big difference between entrepreneurs and the rest of us is the ability to take a risk; to face huge uncertainties and potential loss of funds and “face” in the hope that the result will be positive and change lives in a positive way. Entrepreneurs often make lousy managers and most good managers (defined by their reliable adherence to rules and systems established by others) would not be successful entrepreneurs. Managers can be trained. Entrepreneurs are just born that way, like artists – they can’t help it.
Subsistence enterprises are more likely to be concerned with providing for the basic needs of the operator and his or her family — often only until something “better” comes along. Many (if not most) subsistence enterprise operators would prefer to have a regular job in a regular business with a regular pay packet if that opportunity were available. Many, though by no means al,l subsistence enterprises are involved in trading on a day-to-day basis. At the most basic level, these traders will borrow money (or product) from a supplier in the morning and repay it with interest at the end of the trading day hoping to retain enough margin to provide necessary sustenance for him/herself and the family.
Small-scale farmers, craftsmen and service people may also be considered subsistence enterprise operators on the same basis. The goal is to provide for their daily needs and not to create a bigger business and longer term wealth accumulation. The oft-stated goal of helping micro-enterprises “graduate” to the next level of private enterprise simply does not often work out. Liedholm and Mead, reporting on research done in 1999, said that, “The process of graduation whereby enterprises start out very small (micro) and subsequently move into the upper end of the small enterprise size range is a transition that is managed by only about 1% of those that start out very small.”
I have seen no evidence that this basic conclusion has either changed or been proven incorrect in the intervening years since this research was done and a great deal of confirmation in recent World Bank blog posts. It is nevertheless important that the folks involved in those subsistence enterprises operate as efficiently as possible and have access to the micro-finance, training and effective business networks that will make it possible for them to be as profitable as possible – and move on to bigger things if and when they are ready to do so.
The presence of subsistence micro-enterprises in developing economies is nothing new. They have played a major role in economies that are making the transition from a traditional (usually agrarian) base to an industrial one. It wasn’t so long ago that independent pushcart vendors selling everything from ice to apples plied the streets of major US cities and newsboys worked the intersections to meet their customers on their way to work.
I do not assert that one type of enterprise is more important or interesting or noble than the other. My time has been spent primarily, though not exclusively, with entrepreneurs, including small and medium scale commercial farmers. It is mostly from that experience that these lessons have been drawn. These entrepreneurs have included big city professionals with a dream of starting a rabbit breeding project in Ghana to change the way urban families can add protein to their families’ diet in a time of famine, successful family owned enterprises in Palestine looking for effective ways of transferring the leadership of their businesses to a new generation, representatives of the “poorest of the poor” in Guinea Bissau whose dream is to be able to transport their own crop to market at the best time to get the optimum price, scientists in the former Soviet Union with a vision of applying their no longer marketable scientific knowledge to the creation of new products for sale at home and abroad, Indonesian craftsmen seeking to open new markets for their products, and a host of others. These and other heroes, too numerous to name, will be represented in the posts that follow. Throughout these lessons, I have included small and medium scale commercial farmers among the ranks of SMEs and any reference to entrepreneurs of SMEs should be assumed to include these farmers who are producing for a commercial market and not those who are producing primarily food for direct consumption by their families or very local informal trading.
The Central Theme
The major unifying premise of these lessons is that the development of viable small scale and large scale private enterprises is essential to the growth of strong national economies able to improve the lives of all citizens. It is my view that, In most developing economies, economic growth is a more fundamental concern than efforts to define equitable systems for distributing economic benefits among the citizens. In the short run, especially when the size of the “pie” is very small, inequity and unfairness have been the rule more than the exception. This can be seen clearly in the poorest of nations around the world where the lion’s share of the “goodies” are captured by those with the military and political power to monopolize them. As economies grow and develop, however, more transparency somehow creeps into the system, more jobs are created, more people are educated, the middle class grows, etc. etc. and the distribution of political and economic power becomes more equitable. It is not always a pretty process, nor does it proceed steadily forward without potholes, bumps and detours or the occasional coup d’etat. I have, however, seen it work in varying degrees in diverse settings throughout the developing world.
My experience has demonstrated that capital-led (preferably local capital) economic growth, with abuse controlled by a combination of local political will and international organizations, is more effective at both creating and distributing economic “goodies” than a planned or managed system whether run by dictators, techno-bureaucrats, or do-gooders and idealists. The system is not perfect and it is certainly subject to all manner of abuse. It is, however, like Winston Churchill said of Democracy: “the worst form of government, except for all those others that have been tried from time to time”.
Life is not fair! It is axiomatic that, as the population of Third World countries continues to increase, the average income of people in those countries must continue to fall unless steps are taken to dramatically increase the total amount of wealth (goods and services) available for those people to share. The “Pie” must be grown. I myself learned this lesson well many years ago in Central Java, Indonesia where the vast majority of rural people were rice farmers. The amount of farm land available for them to work is finite, however, and as each new generation comes along farms are divided and re-divided to the point that everyone has a piece of land to farm but no one has a big enough piece of land to produce the rice required to sustain a family or to sell for needed cash. They obviously must have some other way of supplementing their meager income from farming if they are to avoid a steady deterioration of their standard of living.
A more commercial version of the same story was illustrated for me in the Kenyan highlands rural trading center of Mwega in 1980 where six small general goods shops were lined up in a neat row selling the same merchandise to a finite community of very low-income people. It was clear that increased competition among these six shop owners would result in one or the other gaining market share over the others since there was only so much “market” to go around. If the program I was working with helped one shop owner manage better or compete more effectively, his or her gain (increased market share) would come only at the expense of the others. If one more trader entered the market successfully, the average income for each shop would become smaller to the extent that the newcomer was successful in attracting customers. Increasing competition among the shop owners could drive prices down to the point that none of them would be able to make a profit. This, of course would be a short-term benefit to their customers but, eventually, they too would suffer as all the weaker shops go out of business leaving the field to the stronger, better-financed ones usually owned by a foreign trader who could then raise prices to increase his or her own profits.
There are, of course, various ways to counteract this force. I contend that, in the end, something drastic has to come along that will make a basic change in the way people make a living and that the result of this change must be an increase in the total amount of product resulting from a given amount of effort provided that a market for that product can be found. Marginal increases in productivity by improving agriculture practices can make a difference for a time by increasing yields of rice or maize but eventually there is, or will be, a limit as to how much rice or maize can be taken from a piece of land – or absorbed in the market without depressing prices. Small shop owners can be helped to “add value” to the service they offer their customers by introducing new products or services but, in the end, they cannot take more out of the market than is in it and the result will be continual market fragmentation with decreasing returns.
Very many economic development programs have foundered on these rocks. There are at least two basic types of credible projects that aim to develop “poverty” economies. There are those foundation-building activities that seek to develop the basis on which economic growth can take place and there are those that work directly at increasing the value of economic activity in a community. Note that the “value” of economic activity is more important than the “amount” of economic activity which could be the result of an increasing number of ever-smaller transactions. One is not more important than the other because all of us have basic needs that must be satisfied. It is, however, important to know and understand the differing roles they play.
Among the foundation activities I would include basic education, health care, communications and “good” government (defined as reasonably open and responsive to the needs of all its citizens). Others would, with varying degrees of justification, make a case to include potable water and sanitation, literacy training, improved housing, family planning services and micro-finance in this list. All are certainly important but it is the first four that are crucial for creating an environment in which the others can develop. Together they form the foundation of a culture in which increased production and productivity can become the norm.
The second set of development activities includes entrepreneurial training, cooperative/association development, technology adaptation and adoption, management training, market development, one-on-one consulting activities (firm level assistance) and finance. Some activities are group oriented while others are aimed more at individual entrepreneurs whether large or small – risk takers who see a chance and are willing to put in the extra effort and/or investment required to make it work.
The Gender Issue
Gender matters with respect to both types of enterprises, largely as a result of the roles assigned by various cultures to men and women. Women are more likely to be found among the subsistence enterprises since most cultures have assigned women the role of home-makers and caregivers, with basic responsibility for maintaining the family. They are most often less likely to participate in the founding of management of entrepreneurial enterprises, though they certainly are to be found there as well. I will present a post later on discussing some of my experiences dealing with the “gender issue” in enterprise development projects.
Some programs can best be offered to all interested parties in a community while others would most effectively focus on the special needs of women, or youth or other disadvantaged groups. I acknowledge placing perhaps less emphasis on gender-specific programs as a general rule since I think that generally the distinction between entrepreneur and non-entrepreneur is more important. I specifically do not buy into the current fad of forcing a “gender component” into any and all economic development projects regardless of the specifics of the situation. There are clearly cases where women especially need to have programs designed and delivered specifically to their needs in order to help level the field on which they must play. There are other cases where I think we can do just as well to encourage their participation. Trying to force rapid and fundamental cultural change with our development dollars seems to me like a fool’s game. Providing an opportunity for all to participate, and thereby encouraging that change, does not. I devote a post later on to a discussion of this issue.
Business as a Development Tool
The idea that business could be used as an instrument of “good” was heresy to many of the donors and practitioners who were concerned with improving the lot of the “poorest of the poor” when I entered the field in the late 1960s. They had concluded long before that, the objective of business being to earn profits for capitalist owners, business could only succeed by unfairly exploiting the suppliers and workers on which they relied. It was a tough sell indeed to convince those folks, representing religious organizations, government agencies and the “little old ladies in tennis shoes” who were the financial backbone of many non-governmental relief and development programs at the time, that what we were trying to do was not only helping people (entrepreneurs, workers and suppliers) by helping them develop their own small businesses, but that they should also contribute financially to that effort.
Nearly ten years later I was asked to lead a small team to undertake the design of one of USAID’s first enterprise development programs – in Indonesia. They were so nervous about the idea, and the criticism they might take from Congress and other fonts of deep philosophical judgment that we were asked to spend two years in the research and design process. The process was very intense involving field surveys, workshops, pilot projects and impact analyses with many long, hard discussions of various points of research “fact” and design “judgment” among the members of the contracted design team, including highly respected Indonesian professionals, and between the team and our USAID masters. The result, however, was an innovative program of mostly firm level assistance supported by targeted work on certain aspects of the regulatory environment that was successfully implemented for the next five years – by someone else.
I have since concentrated most of my attention on the provision of direct assistance to individual firms and farms that have the potential to demonstrate valuable lessons or clear the way for others to follow. This firm level assistance is coupled with seeking opportunities to help them move from that level through more generalized activities (e.g. association or cluster development or improving the policy environment). Some are critical of the focus on firm level assistance on the basis of cost per enterprise assisted or job created. I believe, however, that it is often the secondary benefits of such programs that deliver the real impact as success breeds success, new opportunities are created and benefits continue to rollout long after the project assistance is concluded. Snodgrass and Winkler, in their survey and analysis of enterprise development programs in 2004, supported this view stating that: “Firm level technical assistance, although more costly than other interventions, can be the right choice in high risk environments such as conflict and post-conflict situations, and for positioning higher impact activities that require strong partnerships between the public and private sectors.”
Now would be a good time for those dear readers who feel a compelling need to abuse the running dog of capitalism (or milk sop of a soft-headed socialist, depending on your perspective) who is presenting these ideas by cursing, jumping up and down, kicking the dog, or drafting a spike-filled diatribe to the publisher to do so. The rest are invited to proceed with consideration of the simple lessons that will be put forward in this space in the next several weeks. These are lessons that I have learned and applied over a long career, if they offer food for thought to others engaged in this marvelous work, I will be gratified.
Please offer your comments below at the bottom of this page to support, oppose, clarify, enlighten or just provoke a constructive dialog.
 William Easterly, The White Man’s Burden, The Penguin Press, New York, 2006
 Liedholm, Carl and Donald Mead, Small Enterprises and Economic Development: The Dynamic Role of Micro and Small Enterprises, London, Routledge, 1999, p. 103.
 A speech in the House of Commons in November 1947.
 Snodgrass, Donald R. and Winkler, James Packard, “Enterprise Growth Initiatives: Strategic Directions and Options,” Research paper conducted by Development Alternatives, on behalf of USAID, Feb. 2004, page xii.
Thanks for sharing your blog, Gary. It’s clear your thoughts on paper are just as insightful and sincere as that day we shared in the Jordan Valley, seeking respite from the Middle East sun underneath the shade of an Olive tree, talking to fresh herb farmers. Looking forward to reading more.
Welcome to the website world. We need more authenticate voices in discussions of what really happens in our line of work.
My own effort is at jonthiele.com, and I hope we and others can cross pollinate, so to speak, and broaden the audience.
Jon: Thanks for joining us. I look forward to exploring your website as well.
Good for you, Gary! This sounds like a worthwhile endeavor. I hope to contribute some of my thoughts on the process.
go for it, Gary! look forward to further posts…come look at my website to see how we’re trying to pry out the differences when dealing with SMEs from the finance side (from microfinance)…
sorry, should have given website details in the message — http://www.smefinanceforum.org , and LinkedIn discussion group SME Finance Forum (picked up over 1800 members in our first year).
Gary, thanks for launching the blog. I look forward to the future “reveals” on your lessons learned and and the trails on which you learned them.