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Poor communities a “hotbed” of entrepreneurial creativity, but need help to grow long-term, shows Rotman research

May 25, 2016

Toron­to, ON – 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.

For the lat­est think­ing on busi­ness, man­age­ment and eco­nom­ics from the Rot­man School of Man­age­ment, vis­it

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


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Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
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