Policymakers in countries dominated by small and medium-sized firms face challenges in spurring them to grow and hire more workers. In particular, it has been difficult to distinguish entrepreneurs with potential for growth from their “subsistence entrepreneur” peers. Researchers used a national business plan competition in Nigeria to test if selecting winners and offering them $50,000 cash could encourage their firms to grow. Results showed that the program was very successful, and that it spurred job creation more cost-effectively than large-scale government efforts in the United States. It also appears that the growth was primarily due to the capital injection, rather than being a winner of the competition or having participated in the business training component.
Previous research has shown that small firms with less than ten employees vastly outnumber large enterprises in developing countries, prompting the question of whether some of these smaller business are constrained to grow into larger enterprises. The “transformational entrepreneurs,” who do grow, can hire new employees providing incomes and jobs for more people. But for decision-makers working in the developing world, identifying these transformational entrepreneurs remains a challenge. One increasingly popular method to identify them is through business plan competitions, but their effectiveness has not been rigorously measured at a large scale, and their impact on job creation is unknown. Another reason high-potential firms may not grow is that they lack the capital to invest, in which case capital injections could help meet that potential, and ultimately boost employment. An effective and economical way to tackle the identity and capital challenges of transformational entrepreneurship could go a long way in increasing employment and opportunities for millions.