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					Entrepreneurial Development in the Informal Economy
In Search of Sustainable Entrepreneurial Development
By Jim Mortensen, Kristie Seawright, Mikenze Bott, Quan Mai, and Jennifer Badger
Brigham Young University, Provo, Utah, USA 84602


INTRODUCTION
Sustainable Economic Development

        In the formal economy, it has long been recognized that entrepreneurship plays a
key role. It stimulates economic growth, provides additional government revenues
through taxes, and creates employment (Belton 2000, Reynolds, et al. 2002). These
benefits have been one of the key drivers behind the surge of microcredit around the
world. If large donors can stimulate the economies from the bottom up, they hope to
accomplish the economic growth that macro policies and projects have failed to do.
        If the first assumption in the microcredit sphere is that micro-entrepreneurship
automatically generates economic growth, then the second assumption is that credit is the
water that will make economic deserts bloom. In fact, these assumptions have become
axiomatic. Therefore, attention in the microcredit field has been focused on the
sustainability of the institution. The belief appears to be that once sustainability of the
microfinance institution has been guaranteed, donors will have created a perpetual motion
machine of economic growth.
        The focus on the institution, and attendant lack of attention on the individual
micro-entrepreneur, is not wholly unwarranted. Some outcome studies indicate increases
in health, nutrition, self-determination and participation in education for micro-credit
borrowers (Ahmed). Additional evidence indicates that microcredit can help move the
poor towards what has been called the “subsistence plateau” (Haynes, Seawright &
Giauque, 2000). However, recent research also finds increases in domestic stress, and the
potential for degraded social networks and debt entrapment (Polakow-Suransky, 2003,
web). The claim has often been made that when the poorest of the poor have nothing to
lose, then any gain is better than nothing. Unfortunately, such a claim obscures the fact
that many, if not most, microcredit programs depend on the capitalization of social
collateral to underlie their lending practices. Therefore, the poorest of the poor do have
something to lose: their social safety net.
        The mixed results found in the impact studies may be a signal that there is a need
to re-examine the underlying assumptions of microcredit. As financial sustainability
became de rigueur, many institutions began reducing or eliminating entrepreneurial
training in their cost reduction efforts. In formal economies, significant percentages of
business ventures fail in the first year, and almost half fail in the first five years. This is
among populations with high percentages of literacy, ready access to credit, functioning
markets, and a social safety net to catch them if they fail. It is likely that many micro-
entrepreneurs operate enterprises without similar foundations. If this is the case, then the
assumption that “micro-entrepreneur + credit = sustainable economic growth” might be
somewhat simplistic.
         If, in fact, the equation has a reasonable possibility of being “micro-entrepreneur
+ credit = failure,” and failure for the micro-entrepreneur is the loss of even the social
network which had been collateralized for the sake of the loan, then donors and
practitioners alike share an ethical burden to mitigate the potential for failure.
         For the dual purposes of reducing potential failure and increasing the possibility
of economic growth, a useful question is “What makes for an emerging entrepreneur?”
Effectively answering this question allows practitioners to invest their lending ability in
those that will create economic growth for all of the poor and not only those that beat the
odds. It also empowers microlenders to reduce the risks to the poorest.
         For the purposes of this research, the working definition of an emerging
entrepreneur is one who establishes or assumes a micro-business and grows it the point
where it generates profits in excess of basic subsistence needs. The business most also
have sufficient revenue to employee for wages workers from outside the immediate
family. This may appear somewhat rigid, but the common commingling of funds within
family micro-businesses makes it difficult to distinguish revenues, costs and profits
created by the business from those resulting from other family activities.
         A growing body of literature identifies traits of successful entrepreneurs in formal
economies, though the determination of which traits are inherent and which can be
trained remains inconclusive (Mitchell, et al, 2000; Mitchell, et al, 2002). There is a
dearth of research examining similar questions among micro-entrepreneurs in the
informal economy. Rather than imposing the constructs of entrepreneurship in formal
economies upon micro-entrepreneurs, we selected a research approach which allowed
micro-entrepreneurs to identify the traits they found to be important. It is recognized that
self-reports have a tendency towards bias, but it is expected that this bias will be less than
that of force-fitting formal sector constructs on informal sector participants.

METHODOLOGY
Due to the paucity of research examining the process of successful microentrepreneurs in
informal economies, we selected a qualitative research approach as the most effective
method to identify emergent themes. The grounded theory methodology allowed the
research subjects themselves to bring forward the key issues in their success.

Research Participants: Successful and Less-than-Successful Entrepreneurs

The research process began with the identification of groups of successful and less-
successful micro-entrepreneurs throughout the Philippines. We use the term “less-
successful” in our research, not to be politically correct, but because research has
established that the process of successful entrepreneurship almost invariably includes
periods of failure.

Our selection method was a simple non-random convenience sample of students that had
graduated from a non-profit small-business training academy in Cebu, the Philippines.
These graduated students were divided into three groups: two groups whose participants
had successfully grown their businesses to a point above the subsistence plateau, and one
group consisting of people who had either not grown their businesses and/or were no
longer in business for themselves. This segregation allowed for us to control for success.
For additional comparative purposes, our sample also included one group which was a
mixture of successful and less-successful entrepreneurs who had not graduated from the
academy. This allowed us to control for training.

Research Method: Grounded Theory

The purpose of our research was to discover the emergent themes and patterns found in
the data associated with successful micro-entrepreneurship. The main data collection
activity was a series of focus groups of five to ten participants each.

A single facilitator led the participants through several activities which asked them to
identify and discuss various traits and business principles necessary for entrepreneurial
success in the Philippines. The topics included:
            1. traits of successful entrepreneurs,
            2. motivations for starting a business,
            3. initial business goals,
            4. current business goals,
            5. personal definitions of success,
            6. keys to business success, and
            7. tales of success stories.
The discussions of the focus groups were observed by a team of trained researchers who
focused on both content and process and noted their observations. The transcripts totaled
3,000+ lines and over 90 pages.

For data analysis, the researchers conducted a line-by-line content analysis of the
observers’ notes and open-coded the data for key topics or themes (Priest, 2002: 36). The
open-coding was followed by an axial analysis in which “analysis explicitly compares
each incident in the data with other incidents appearing to belong to the same category,
exploring their similarities and differences” (Spiggle, 1994: 493-4). Throughout the
process, the authors looked for common themes emerging from the data (Goulding,
2002). A concluding step in the data analysis was selective coding, wherein the
researchers focused on a few core categories around which to build the grounded theory
framework (Priest, 2002).

Out of this concluding step, arose a few key concepts to be discussed in the following
section. It is important to note that these results are not statistically generalizable and
may not be representative of the general population of micro-entrepreneurs in the
Philippines; however, the results do exhibit face validity when compared to the existing
research on formal sector entrepreneurs. Thus, this study provides a starting point for
further research.

RESULTS
When analyzing the results, we were looking for the differences in responses between the
successful/emerging entrepreneurs (EE) from the entrepreneurs who had failed to
maintain a thriving business, referred to herein as Subsistence Entrepreneurs (SE). As
part of the coding process, the participants’ responses were labeled and categorized.

Success Traits

The participants in all of the focus groups were asked to identify the traits that lead to
entrepreneurial success. Table 1 enumerates the top traits as identified by the key groups.

Table 1. Success Traits Identified by Focus Groups

    EMERGING ENTREPRENEURS                    SUBSISTENCE ENTREPRENEURS
                                                 Resilient
     Vision
                                                 Agile
     Determination
                                                 Leadership
     Hardworking
                                                 Patience


Emerging entrepreneurs identified vision, determination, and hardworking as the most
important traits that lead the entrepreneurial success in the Philippines. These
respondents found that the ability to see what needs to be done and proactive action to
address those needs are essential for an entrepreneur to establish and grow a business.

The success traits mentioned by the subsistence entrepreneurs were resilient, agile,
leadership, and patience. This group of participants viewed passive traits with repeated
effort as key characteristics of the successful Philippine entrepreneur.

Motivations for Starting a New Business

After identifying success traits, each group was given the opportunity discuss what
motivations they had for starting a new business venture. We were interested to
determine if initial motivations differed between each group. The subsistence
entrepreneurs cited personal fulfillment as the primary motivations for venturing, while
the emerging entrepreneurs exhibited primarily group oriented objectives. Table 2 lists
the reasons given by the EE and SE groups.

Table 2. Reasons for Starting a New Business Venture

    EMERGING ENTREPRENEURS                    SUBSISTENCE ENTREPRENEURS

     Family responsibility
                                                    Self-actualization
     Social responsibility
                                                    Innate drive
     Increased standard of living
Initial and Current Goals

One of the most revealing activities was the listing of goals when each participant
initially started their own business versus their goals currently. In our analysis, the
specific content of the goals was broken down in to key goal types. The initial goals of
the Emerging Entrepreneurs fell into eight goal characteristics which they expressed
more often than the other groups. These goal characteristics were: monetary, business-
focused, personal, long, medium, and short-term, expansion-oriented, or financial
security. The Subsistence Entrepreneurs did not demonstrate an appreciable dominance
in any area of initial goals. Table 3 summarizes these initial goals.

Table 3. Characteristics of Initial Goals

         EMERGING ENTREPRENEURS                SUBSISTENCE ENTREPRENEURS
      Monetary goals
      Business-focused goals
      Personal goals
      Long-term goals
                                            No emergent themes
      Medium-term goals
      Short-term goals
      Expansion-oriented goals
      Financial security goals



This changed significantly when the groups were given the opportunity to provide their
current goals. The list of EE goal characteristics narrowed significantly as support for
some types of goals dropped greatly. Table 4 summarizes the major classifications of
goals that entrepreneurs expressed as current concerns.

Notable is the evaporation of support for medium- and long-term goals by the EEs.
However, the SEs adopted these types of goals as their own. The emerging entrepreneurs
conveyed current objectives; however, their expressions of current goals embodied an
unarticulated awareness of how these current actions supported medium- and long-term
goals. In contrast, the subsistence entrepreneurs explained medium- and long-term goals,
but lacked an understanding of current actions needed to achieve those goals.

Table 4. Characteristics of Current Goals

         EMERGING ENTREPRENEURS                SUBSISTENCE ENTREPRENEURS
      Short-term                                Monetary
      Business-oriented                         Medium-term
      Expansion                                 Long-term
      Achievement-oriented                      Increased standard of living
We realize that participant expressions of perceptions in another time period are not as
valid as expressions of current perceptions. But, the comparison does establish constructs
that may be helpful if measured appropriately in future research.


Personal Definitions of Success

In an effort to avoid imposing the biases of Western industrialized nations on these
groups of entrepreneurs, each group was invited to provide their own definition of
success. The EE participants identified financial and personal freedom, as well as an
increased standard of living as being the key indicators of having achieved success. This
economic orientation of the EE group reflects a drive toward business success. On the
other hand, the SE respondents focused on self-actualization and fulfillment of their need
to use their innate skills as they defined success. This personal fulfillment focus
concentrates on personal rather than economic needs. These themes are presented in
Table 5.

Table 5. Definitions of Success

         EMERGING ENTREPRENEURS                 SUBSISTENCE ENTREPRENEURS
      Financial freedom                         Self-actualization
      Personal freedom                          Fulfillment of need to use
      Increased standard of living               innate skills


Keys to Business Success

After being asked to define success, each of the participants then had the opportunity to
identify the keys necessary for making success happen. The Emerging Entrepreneurs
responded with outward, forward looking characteristics. The SEs showed a tendency
towards more inner-focused, tactical-operations type issues. See Table 6 for a list of
themes that emerged from the participant responses.

Table 6. Keys to Business Success

         EMERGING ENTREPRENEURS                 SUBSISTENCE ENTREPRENEURS
      Opportunity Seeking
                                                 Business Operation
      Vision
                                                 Strategy
      Education
                                                 Marketing Oriented
      Business Oriented
                                                 Personal Attributes
      Skill Acquisition


There were a total of 20 different responses given in this activity of the focus groups.
However, no one in any of the groups identified money or credit as one of the keys for
creating a successful business.
Success Stories

In the final activity of each of the focus groups, participants were encouraged to tell a
success story in their own words. They could share their own story or that of someone
they knew. As researchers, we focused on identifying common threads throughout the
stories. These themes are presented in Table 7.

At least half of the stories told by the Emerging Entrepreneurs contained elements of
recognizing existing opportunities and networking to create opportunities or acquire
resources. Other common threads included the use of technology, moving out of poverty,
and business expansion.

Subsistence Entrepreneurs had fewer themes, with almost all of the stories mentioning
the idea of starting small. Additional topics included persistence, vision, using the skills
they possessed, and seeking for opportunities.

Table 7. Success Story Themes

        EMERGING ENTREPRENEURS                    SUBSISTENCE ENTREPRENEURS
     Opportunity recognition                      Start small
     Networking                                   Persistence
     Use of technology                            Vision
     Moving out of poverty                        Using skills they possess
     Business expansion                           Seek for opportunities



Overview Observations

As part of the analysis, we also looked at the level of participation of each group to see if
any group contributed more to a particular activity. When the data was reviewed it
revealed that the EEs surfaced as the dominant group in almost 40 percent more
categories or themes than the group of SEs. The activities where the EEs were most
dominant is telling. They surpassed the other groups in the themes they generated in both
the processes of identifying initial business goals and the telling of success stories. They
were weakest in identifying specific success traits.

On the other hand, the SEs, as a group, they to coalesce sufficiently in the following
activities to register much impact in the analysis: identifying 1) initial business goals, 2)
keys to success, 3) reasons for starting a business, and 4) defining success.

DISCUSSION

The review of the results of this first round of research leads to a series of fairly broad
conclusions. There is clearly a difference between the groups of Emerging Entrepreneurs
and the Subsistence Entrepreneurs. From the data we can infer a number of
characteristics for each group.
Most telling about the Emerging Entrepreneurs is that – not content to march in place –
they continually returned to the theme of business expansion. This is symbolic of their
outward-facing, business-growth orientation. EEs turn to social networks for resource
support and marketing. They tend to demonstrate a pro-active, forward looking
perspective which is focused on leveraging short-term opportunities. An initial balance
of short-, medium-, and long-term goals gives way to an emphasis on the here and now.
The EEs’ comments and contributions indicate a lack of introspection on personal issues
and traits.

The Subsistence Entrepreneurs present an entirely different set of qualities. They can be
described by three basic commonalities. First, the SEs are pulled towards internal
business operations. Second, this internal focus is reflected in their continual reference to
innate traits and the drive to fulfill internal needs. And finally, their passive approach to
obstacles reflects regional cultural artifacts, such as patience, resilience and persistence.
These characteristics lend themselves to good management, and indeed, with the training
the SEs received at the business training academy, they have a grasp of the basic concepts
necessary to manage the operations of many small businesses.

Next Steps

The next steps for this research will be to validate the constructs identified in the
grounded theory process. This requires the development of a quantitative survey
instrument. Once the questionnaire is created, it will be tested in a number of locations.
Further research will focus on identifying universal principles and commonalities across
cultures and geographies. Targeted geographies include several countries in Southeast
Asia, as well a location in South America and Polynesia.

If these constructs demonstrate reliable validity, the goal is to create a filtering instrument
that will empower microlenders to target appropriate interventions for each type of
entrepreneur. Making more effective use of the limited resources available to
microfinance institutions will take advantage of the multiplier effect engendered by
growth-oriented emerging entrepreneurs – expanding the economic pie for all and
creating employment opportunities for those who would otherwise be trapped on the
subsistence plateau.

REFERENCES
Ahmed, Kaniz Fahmida, (k.f.ahmed@lse.ac.uk), “Microcredit as a Tool for Women
Empowerment: The Case of Bangladesh”, Development Studies, London School of
Economics

Belton, C. (2000). Loan Scheme to Help Small Business. The MoscowTimes.com,
Tuesday, June 27, 2000.
Haynes, C.B., Seawright, K.K., & Giaque, W.C. (2000). Moving microenterprises
beyond a subsistence plateau. Journal of Microfinance, 2 (2), 135-152.

Goulding, C. (2002). Grounded Theory: A Practical Guide for Management, Business
and Market Researchers. Sage. Thousand Oaks, CA.
Mitchell, R. K., B. Smith, K. W. Seawright, and E. A. Morse (2000). “Cross-cultural
Cognitions and the Venture Creation Decision. Academy of Management Journal, 43(5):
974-993.

Mitchell, R.K., J.B. Smith, E.A. Morse, K.W. Seawright, A-M. Peredo, and B. McKenzie
(2002). “Are Entrepreneurial Cognitions Universal? Assessing Entrepreneurial
Cognitions Across Cultures,” Entrepreneurship Theory & Practice Summer 2002: 9-32.

Priest, H, Roberts, T, & Woods, L. (2002). An overview of three different approaches to
interpretation of qualitative data. Part 1: theoretical issues. Nurse Researcher 10 (1), 30-
42.

Polakow-Suransky, S. (2003, May). Giving the poor some credit; microloans are in
      vogue. Are they a sound idea? The American Prospect, A19.

Reynolds, Paul D., William D. Bygrave, Erkko Autio, Larry W. Cox, and Michael Hay
(2002). Global Entrepreneurship Monitor: 2002 Executive Report,
www.kaufman.org/GEM2002.pdf.

Spiggle, S. (1994). Analysis and interpretation of qualitative data
in consumer research. Journal of Consumer Research, 21 (3), 491-503.

				
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