It’s the Psychology, Stupid!

This(1) is one of most clear-cut studies about entrepreneurship I’ve read lately. A simple experiment shows how a psychological mindset training approach can lead to innovation and improved entrepreneurial success, thereby providing support for a middle ground between entrepreneurship being “born” versus “made.”

We tested whether a psychology-based personal initiative training approach, which teaches a proactive mindset and focuses on entrepreneurial behaviors, could have more success [than standard business training programs]. A randomized controlled trial in Togo assigned microenterprise owners to a control group (n = 500), a leading business training program (n = 500), or a personal initiative training program (n = 500). Four follow-up surveys tracked outcomes for firms over 2 years and showed that personal initiative training increased firm profits by 30%, compared with a statistically insignificant 11% for traditional training. The training is cost-effective, paying for itself within 1 year.

The personal initiative training cost US$756 per invited participant (similar to the cost of the traditional training) and yielded a $60-per-month increase in monthly profits over the first 2 years. Thus, it was extremely cost-effective, paying back the cost within ~1 year. A lower bound on the return on investment (ROI) is 82%; using different assumptions on how quickly the benefits might disappear beyond our sample period, we estimate ROIs ranging from 140 to 393% over a 10-year period (section 6 of the supplementary materials).

The return on investment is clear, among small-business owners in Togo, at least.

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(1) Campos, Francisco, Michael Frese, Markus Goldstein, Leonardo Iacovone, Hillary C. Johnson, David McKenzie, and Mona Mensmann. 2017. ‘Teaching Personal Initiative Beats Traditional Training in Boosting Small Business in West Africa’. Science 357 (6357): 1287–90. doi:10.1126/science.aan5329.

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