Why Low-Income Entrepreneurs Cannot Keep New Businesses Sustainable

Recent research from the University of Toronto covers the issue concerning low-income communities that can provide strong entrepreneurship but do not have the necessary time and financial resources to make a new business sustainable.The research will soon be published in Sociology of Development.

Research by the University of Toronto

According to Laura Doering, an assistant professor of strategic management at Rotman School of Management, University of Toronto, poverty can contribute to market creativity and can also do just the opposite. She notes that people experiencing personal financial crises or being in need to migrate elsewhere can have the power to create new business ideas, but lack the ability to raise profit.

Doering thinks it would be ideal to support entrepreneurs with low income to develop ideas, as there are many businesses that just cannot get started because of the economic situation. She suggests that entrepreneurs, who are able to develop businesses that are both novel and strong, should be provided with cash grants instead of loans.

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Research Analysis

Doering interviewed 41 low-income entrepreneurs and compared the research with a survey of 2.000 Panamanian adults. The survey was conducted by the Global Entrepreneurship Monitor, the world’s foremost study of entrepreneurship, in 2009. She interviewed people who owned Internet cafes, organic agriculture consultancies, and businesses of other types.

Doering saw that individuals with low income were regularly able to start new a business, but did not always have the power to follow through and provide long-term success. Particularly, she found out:

  1. The urgency to earn profit makes it difficult to profit
  2. Consumers, especially poor ones, need a long time to try something different.

Based on figures provided by Global Entrepreneurship Monitor,entrepreneurs make up 17% of low-income persons in developing countries. In the developed world, the number is 8%.

Doering believes people who can show they have the initial seeds to create a good idea, should get the necessary capital to start a new venture. They should be given the opportunity to work with mentors and business development experts who can help them make their ideas better.