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What is Aidtrepreneurship?
I've coined this term to describe the use of development aid to encourage and support entrepreneurship as a means of economic growth in developing countries. It can take many forms, such as training, mentorship, donations, business incubation, loans, grants, or any other assistance. It can also mean any form of assistance from individuals, companies, governments, foundations, NGOs, universities, groups, or organizations.
The problem is that there isn’t enough of it, and much of what’s being done is ineffective.
As Steven Koltai points out in the Harvard Business Review, foreign aid is only 1% of the US federal budget, and only “1% of that 1% goes toward promoting entrepreneurship.” And who knows how much of that puny amount is effective? The topic is only now being studied.
Developed countries got that way in large part by enabling small business. Why don’t we leverage the enormous potential of entrepreneurship in the developing world? Well, it’s complicated, and not so easy. And governments mostly don’t get it—they’re governments, not businesses.
It’s well known that small businesses create the vast majority of jobs in both developed and developing countries. The difference is that prosperous nations have a business enabling environment, what Koltai calls in his book Peace through Entrepreneurship a "strong entrepreneurship ecosystem". That helps support successful startups, and along with training, mentoring, and access to capital and other resources, is what will lift people out of poverty.
If you think entrepreneurship is hard, try doing it in a developing country. Why is it so difficult? For one thing, it’s different
They are entrepreneurs of necessity
At the poorest level (the “base of the pyramid”), those who operate the innumerable “informal” businesses are rarely savvy upstarts who identify unmet needs and come up with innovative solutions. There are few jobs available; the only way they can meet their living needs is to figure out how to sell something. Worse, the “business owners” are often children selling food and trinkets on the street.
There’s little help and lots they don’t know
It’s lonely at the bottom. There are no Small Business Administrations to provide support. Unstable, under-resourced governments’ lack of regulation and unwieldy red tape don’t provide the necessary infrastructure. Aid agencies, NGOs, and social businesses do provide financial/resource aid and technical training; there's just too little of it.
The most overlooked aspect of the problem is that the vast majority of business owners simply do not know how to run a business. No one ever taught them to record what they spend, produce, or take in. They mix their household funds with business income and expenses. They don’t know about productivity. They’re unable to plan the business or manage the day-to-day ups and downs. It’s a recipe for failure.
Entrepreneurship is no one’s dream
In developed countries we tend to glorify entrepreneurship (and rightly so!), but in many cultures owning a business doesn’t come with bragging rights. It means the person doesn’t have the education or means to get a “real job”. Plus the work itself can be onerous and not exactly gratifying.
Hunger and poverty make for short time horizons
These entrepreneurs live day-to-day and hand-to-mouth. That makes for a continuous cycle of never-ending subsistence living and the inability to consider future needs.
There isn’t nearly enough attention paid to entrepreneurship as a tool for aid - aidtrepreneurship. Young enterprises need access to funding, skills training, and an enabling business environment. They especially need longer term mentoring and coaching. Let’s establish programs that let the poor make an honest living.