literature review on growth-oriented microentrepreneurs

1

BUSINESS DEVELOPMENT SERVICES

WORKING GROUP

Literature Review on Growth-oriented Microenterprises

November 2008

This paper was written by Meldy A. Pelejo for the PinoyME Business Development Services Working Group. Any part of it may be quoted or reproduced provided the source is acknowledged and for non-profit educational purposes only.

Literature Review on Growth-oriented Microentrepreneurs

PinoyME BDS Working Group 2

TAKING MICROENTERPRISES TO THE NEXT LEVEL

The Challenges, Barriers and Factors in Developing

Growth-Oriented Microenterprises

Introduction

Helping the poor build successful or profitable business enterprises so they could become economically self-sufficient is the key to moving them out of poverty,

Datar et al. posited.1 In the past, most microfinance institutions (MFIs) operated on

the assumption that providing microentrepreneurs loans without articulating “how

microfinance would work, for whom it could work, where it would work and when it

would work” would help the poor. Over the years, however, MFIs have realized that

access to credit alone will not move the poor out of poverty. Thus, from being a

single-service provider of credit and nothing more, MFIs have shifted to providing

what is now commonly referred to as business development services (BDS).

From the late nineties to the present, the provision of non-financial services or

business development services to client-borrowers has become a component of the

various MFIs’ range of products and services. Notwithstanding this fact, however,

MFIs admit that only 1 to 2 percent of their client-borrowers with microenterprises

have been able to “graduate” their businesses into small- or medium-scale enterprises.

The rest or some 98 percent of the MFI clients’ businesses remain at the micro level.2

A study by the United Nations Conference on Trade and Development (UNCTAD) study echoes this finding: majority of micro and small enterprises in developing

countries fail to move to higher levels of enterprise activity that would enable them to contribute to economic growth and job creation.3

Given that microenterprises in the Philippines make up the bulk of enterprises

in the country, and have the potential to contribute significantly to employment generation and poverty reduction, MFIs and development organizations (DOs) would

like to find out: What makes the few microentrepreneurs succeed? What factors

facilitate the growth of microenterprises into small- or medium-scale enterprises?

At present, MFIs, DOs, and other BDS providers have yet to find an effective

and efficient business model for providing BDS. As providing BDS is quite expensive

per se, it has become imperative for MFIs and DOs to come up with very strategic

BDS interventions for its client borrowers, strategic especially in terms of cost and

quality.

1 Srikant M. Datar, Marc J. Epstein and Kristi Yuthas, “In Microfinance, Clients Must Come First,”

Standard Social Innovation Review Winter 2008. Leland Stanford Jr. University, 2007 (www.ssireview.org), pp. 38-39. 2 PinoyME, “Taking Microenterprises to the Next Level,” Business Development Workshop, Bacolod

City, May14-16, 2008 3 “Growing Micro and Small Enterprises in LDCs. The ‘missing middle’: Why micro and small enterprises

are not growing.” UNCTAD/ITE/TEB/5 (www.unctad.org/en/docs/poitetebd5.en.pdf)



Through a survey of literature this paper looks into the nature of

microenterprises, the challenges and barriers to successful entrepreneurship, as well

as the key factors behind the microenterprises that have successfully grown to higher

levels of enterprise activity. It focuses on the qualities or traits and skills of successful

entrepreneurs based on a content analysis of documented stories, case studies or

profiles identifying their traits and skills at various stages of the development of their

enterprises.

The results of this literature review are expected to help identify the type or kind of microentrepreneurs who manifest greater potential to grow their businesses

into SMEs. In turn, identifying their type should guide MFIs and DOs in crafting the BDS interventions needed to bring these microentrepreneurs to the next level. The

findings from this paper are also expected to help draw up the variables that will form part of the parameters for the research survey on successful client-borrowers of

participating MFIs.

Entrepreneurship and economic growth

Owing partly to the success of microfinance, great hopes are pinned on their

helping microenterprises grow to become small or medium enterprises. Such hopes

are not without basis. A United Nations study in 2002 declared the existence of

“growing evidence of a significant causal relationship between entrepreneurship,

economic growth and poverty reduction. Small and medium-sized enterprises (SMEs)

are often the backbone of the private sector in the developing world, creating jobs and

providing a tax base for local government.”4 In fact, Morris (2001) asserted that

“higher levels of entrepreneurship in developing countries would significantly

improve economic performance and raise incomes.”5

Micro, small and medium enterprises (MSMEs) make up the vital engine of the Philippine economy. Being largely poor and lower-middle class, the composition

of the Philippine population is vastly reflected in the makeup of the economy.

According to the National Statistics Office (NSO), 99.64 percent of all registered businesses nationwide, which number 783,9236 are classified as micro,

small and medium enterprises. Ninety-one (91.02%) percent of these businesses or

some 713,565 are considered microenterprises. Small enterprises comprise 8.2

percent (64,501), while medium enterprises account for 0.38 percent (2,980). Large

enterprises make up 0.36 percent (2,865) of the total number of businesses in the

country.

The MSMEs’ potential for value addition and employment generation is

considered enormous given that the total number of registered MSMEs account for 32

percent of total value added to the Philippine economy and 60 percent of all exporters.

4 “Supporting Entrepreneurship in Developing Countries: Survey of the Field and Inventory of Initiatives,”

Bridges.org report for the Business Enterprise and Entrepreneurship Working Group of the UN ICT Task Force, May 7, 2002 (as cited in Geoffrey Jones and Alexis Lefort. “Female Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006). 5 Michael H. Morris, “Entrepreneurship is Development is Entrepreneurship (editor’s letter),” Journal of

Developmental Entrepreneurship 6 (3), 2001 (as cited in Geoffrey Jones and Alexis Lefort. “Female Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006). 6 Numbers may not add up due to suppression



Manufacturing 15%

Wholesale & Retail Trade

50.4%

Hotels & Restaurants

12.3%

Real Estate, Renting

& Business Activities 5.6%

Other community,

personal & social service 5.9%

Others 10.8%

MSMEs likewise employ 70 percent of the labor force. Majority of the MSMEs are

located in the national capital region (NCR) and in nearby Region IV-A, while the

remaining are found in the rest of the regions.7 Moreover, according to a study made

by Professor Ronald Chua, almost 60 percent of household incomes are derived from

the microenteprise activities of low-income households.8

A look at the registered SMEs by industry sector (see Figure 1) in 2005

showed that more than half (50.4%) of the total number of registered SMEs was into wholesale and retail trade. Manufacturing made up 15 percent, followed by hotels and

restaurants at 12.3 percent. The community, social and personal service sector

comprised 5.9 percent; real estate, renting and business activities, 5.6 percent; while

others made up the rest (10.8%).

Figure 1 Philippine SMEs by Industry Sector

Source: National Statistics Office, 2005

The bulk or 47 percent of SMEs in manufacturing were into the production of

food products and beverages, followed by other commodities at 18 percent.

Meanwhile, wearing apparel and fabricated metal products, excluding machinery and

equipment, comprised 14 percent and 11 percent of the manufacturing sector, respectively. The manufacture and repair of furniture followed at 6 percent, while the

manufacture of non-metallic mineral and other products took up 4 percent.9

Strategies in microenterprise development would do well to take note of this composition.

7 National Statistics Office, 2005

8 Prof. Ronald Chua, Asian Institute of Management. PinoyME: Year 2, 2007 9 National Statistics Office, 2005



Meanwhile, the Global Entrepreneur Monitor Philippine Report estimated that

4 out of every 10 adult Filipinos aged 18 to 64 years or about 19 million, were

engaged in business, thereby placing the country second among those countries with

the most number of individuals owning a business. About 10 million of these

enterprises in the Philippines were in the early stage of entrepreneurial (TEA) activity,

while the remaining 9.5 million were established businesses (EB) as of 2006.10

Filipino women owned 44 percent of the microenterprises, over 80 percent of which were in the rural areas.11

Given the discrepancies in the numbers owing to the fact that most

microenterprises were not registered plus the fact that official statistics on unregistered microenterprises was lacking, it is possible that the MSME sector could

contribute much more to generating the needed jobs, increasing incomes and reducing poverty. A number of obstacles have to be battled with in the process, however, and

in order to understand these obstacles it is necessary to have an appreciation of the

nature of microenterprises and why most remain at the micro level.

Understanding microenterprises: Their nature

Chua12

(2004) defines microenterprises as activities in which the poor are

engaged. Most of these activities are small in scale--hence, “micro”--in terms of

inputs, processes, outputs and markets. The non-crop production activities of the poor

require few inputs in terms of labor, capital and equipment or assets. The processes

for the poor’s enterprise are also normally simple in terms of technology, skill and

manpower. The volume of goods and services they produce are similarly small.

Since microenterprises serve low-income markets the number of customers they have and their geographical scope are limited. Few microenterprises serve

markets beyond their immediate barangay and rely mainly on a network of loyal buyers or suki [loyal customers]. The neighborhood sari-sari store, the fish and other

food vendors or repair shop are some examples.

Chua categorized the focus of microenterprise activities as follows:

• Trading – refers to buy and sell activities; stationary vending (such as

that done in sari-stores) or ambulant vending activities such as market

vending, street vending of fish ball, taho, etc.

• Basic processing – e.g., food processing resulting to such products as smoked fish, baked goods, tocino and ham, fruit preserves. Other

examples include sewing, repacking of rice, spices, etc. and handicraft making.

• Service – includes home service activities like manicure, pedicure, hairdressing, vulcanizing, shoe and electronic repair shops, tailors,

small eateries

• Transport – examples include tricycles, FX taxis or private cars, boats

10

Imelda Madarang and Cielito Habito, Global Entrepreneurship Monitor Philippine Report 2006-2007. 11

“Unleashing Entrepreneurship, Making Business Work for the Poor,” Report to the Secretary General of the United Nations, March 1, 2004. (as cited in Geoffrey Jones and Alexis Lefort. “Female Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006). 12

Ronald R. Chua, “Micro-enterprise Development: A Primer for Provincial Planners”. Unpublished material developed for the Utilization-Workshop on Enhancing Capabilities of Provinces for Effective Planning funded by GTZ. October 2004



• Agri-based microenterprises – These do not refer to crop production

but to business activities arising out of the trade, sale and processing of

agricultural products.

The aforementioned are the most common focuses of microenterprises in the

rural and urban areas.

Microenterprises possess other dominant characteristics. First, most

microentrepreneurs operate their microenterprises in their residences (e.g., sewers

and other home-based craft manufacturers, sari-sari storeowners) while others do not

have fixed locations (e.g., ambulant fish or food vendors).

Second, most microenterprise activities are seasonal due mainly to the fact that the supply of raw materials or the demand for their products is also seasonal, e.g.,

smoked and dried fish. When fresh fish are scarce, the demand for smoked or dried fish goes up.

Third, microenterprises “have short cash cycles (from sourcing of money, to

sale of goods or services, to collection and to paying back of the money), [ranging]

from one day to several weeks.”

Fourth, “microenterprise activities are relatively easy to engage [in] and also to exit from.” This is because the enterprise activity, as Chua pointed out and which

one could easily validate, is simply the poor’s attempt to utilize the resources available, for them to earn an income.

Fifth, microenterprises, in general, show very high rates of return vis-à-vis the

low level of investment needed. A fish vendor, for instance, could realize a return of 25 percent per day, like if he buys five kilos of fish at Php80/kilo then sells this at

Php100/kilo. From such the vendor would earn Php100. Such high rates of return may

be the underlying reason for the microentrepreneurs’ choosing informal moneylenders

to be their source of capital despite the high interest rate charged by the latter.

Although microenterprises require little in terms of capital, skills, and assets,

and thus permit the poor to enter or exit the sector easily, microentrepreneurs actually

generate only small value added for each business activity. These same features tend

not just to foster intense competition due to the proliferation of microenterprises but

also limit the microenterprises’ potential for growth, Chua explained.13

Microenterprises in the Philippines are sometimes referred to as the “informal sector.” The two terms differ only in terms of the perspective by which economic

activities are viewed. Most microenterprises lack the aspect of “formality” in terms of registration, organization, work and management arrangements within the enterprise.

The National Statistics Coordination Board (NSCB) officially defines the

informal sector as consisting of “units engaged in the production of goods and services with the primary objective of generating employment and incomes to the

persons concerned in order to earn a living. These units typically operate at a low

13

Ibid.



level of organization, with little or no division between labor and capital as factors of

production. It consists of household unincorporated enterprises that are market and

non-market producers of goods as well as market producers or services.

Microenterprises are identified on the basis of their size---assets, income, or

employment. There is a huge overlap between informal sector enterprises and

microenterprises. Most microenterprises are informal and most informal sector

enterprises operate at a very small scale and are therefore, microenterprises.”14

Microenterprises in the Philippines are officially defined in the Barangay Micro Business Enterprises (BMBEs) Act of 2002 or Republic Act (R.A.) No. 9178

as:

• Any business enterprise engaged in production, processing or manufacture of

products or commodities, including agro-processing, trading, and services15

• With total assets of not more than P3.0 million (‘Assets’ include all kinds of

properties, real or personal, owned and/or used by the BMBE and used for the

conduct of its business. Such assets shall include those arising from loans but

not the land on which the plant and equipment are located.)

• May be single proprietorship, partnership, corporation, cooperative, or

association

Types of microenterprises

In his study of microenterprises in the Philippines, Chua (1996) cited the need to differentiate microenterprise development approaches according to the two types of

microenterprises determined by Ghate, et al. (1993).16

The first type is simply a livelihood activity, directed mainly towards meeting consumption needs; the second

type is the growth-oriented microenterprise, one with aims for expansion.

Each type of enterprise has a role to play. Livelihood enterprises add to the

family income and lessen the poor household’s vulnerability to crises such as

accidents, loss of job or income by a family member, and so on. Overall, livelihood

activities contribute to alleviating poverty. Microenterprises, on the other hand,

augment family income and help generate jobs outside for non-family members.

The two types of enterprises could also be differentiated in terms of their

objectives. Livelihood activities aim at providing more employment for family

members or increasing income sources through additional income-generating activities (IGAs). In contrast, microenterprises aim at growth or expansion and the

formalization of the business. The enterprise’s activities are focus on increasing the value added as well as increasing jobs generated through business expansion.

14

Ronald T. Chua. Learning material on Micro-enterprise Development developed for the Utilization-Workshop on Enhancing Capabilities of Provinces for Effective Planning with funding from GTZ. October 2004. 15

Per R.A .9178 “services” shall exclude those rendered by any one, who is duly licensed by the government after having passed a government licensure examination, in connection with the exercise of one's profession. 16

Ronald T. Chua, “Microenterprises in the Philippines” (Asian Institute of Management, 1996).



The table (see Table 1) below summarizes the characteristics of the two types

of microenterprises.

Table 1 Microenterprises: A Classification by Growth Potential

Enterprise Type

Characteristics

Livelihood

Microenterprise

Reason for entry Pushed into it for

lack of

alternatives

Pulled by profit

potential and

choice

Activities Multiple, one of

many Main activity

Importance of

income from

activity

Supplements family

income Main source of

family income

Skills

requirements Low, rudimentary Require more

experience and

skills

Capital

requirements Low Higher

Use of net

earnings Sustenance,

survival Savings for

expansion

Potential for

growth Little/none High

Source: Ronald T. Chua (2004)

This same classification provides a clue to why many microentrepreneurs do

not progress to become small- or medium-scale entrepreneurs. Microfinance

practitioners observe that majority of their client borrowers tend to prioritize food

security, the schooling of children, medical expenses followed by home improvement,

and lastly, asset acquisition as they progress from one loan cycle to the next (see

Figure 2).17

The survey results of an impact study of an MFI on its client-borrowers

attest to this.18

Figure 2 Microentrepreneurs’ Ladder of Progress

17

PinoyME, Workshop on Successful Microentrepreneurs, Seameo-Innotech, Diliman, Quezon City, October 10, 2008 18

Antoinette Bolaños, People’s Alternative Livelihood Impact Assessment Project, September 2005

Food consumption

Education, health

Home improvement

Asset acquisition



While most microentrepreneurs are content once they are able to provide for

their children’s education and the family’s health needs, there are some client-

borrowers who do not follow the ladder of progress model and tend to prioritize asset

acquisition over education and health. These microentrepreneurs, microfinance

practitioners concur, are the growth-oriented ones.19

Thus, the above classification could serve as an initial guide for BDS

providers and MFIs in identifying the microentrepreneurs with greater potential to

grow their enterprises, thereby benefiting more through the provision of BDS.

What further distinguishes a livelihood activity from a growth-oriented

microenterprise is the nature of the market they serve since the market and its demands are what determine the potential for growth. Chua contends that the

characteristics of microenterprises and livelihood activities result from the situation

and constraints of the enterprise operators’ household. What characterize the

enterprise operators also characterize the enterprise. In other words, enterprise

activities reflect the attempts of the microenterprise or livelihood operators to

optimize their limited resources in order to meet the demands of the market and

thereby earn in the process. A fish vendor, for instance, has access to only a small

amount of capital with which to buy the fish he or she could sell. Whether the vendor

sells in the market or goes around his or her village selling, this enterprise requires

little in terms of skills and assets.

“There is a match or fit made between what the business requires or the

chosen livelihood activity requires and the resources available to the household and

the capability of the operator.”20

Chua (1996) arrived at this conclusion after studying

several microentrepreneurs: smoked fish vendor, shell craft manufacturer and seller,

feather duster maker and bakery operator. An examination of some profiles of

successful clients of an MFI revealed the same trend.

Chua’s other significant finding was that microenterprise operators whose

enterprises showed greater profitability, though over a longer payback period, were those who knew how to shift to value-adding activities and had learned to build their

assets over time.

By tabulating the estimated incomes of the different livelihood operators---one was into smoked fish processing and vending, while another was only engaged in

smoked fish/dried fish production; one was a bakery operator while the other was in

the feather duster business---Chua showed the wide variations in their incomes per

day. Consider the case of the two smoked fish processors. The main disparity between

them was that the first had invested in a stove and a big cooking kettle that allowed

her to produce bigger volumes of smoked fish and thus, to sell to other vendors. The

second was satisfied with processing only as much smoked fish as she could sell.

Moreover, the latter used an ordinary stove since she could not accommodate a bigger

one in her house. “These operational differences,” Chua pointed out, “spelled the

difference in their incomes and rates of return. These characteristically high rates of

return and short payback but at times low absolute returns are common among most

livelihood activities with low capital requirements and short gestation periods.”21

19

PinoyME, Workshop on Successful Microentrepreneurs, October 10, 2008 20

Ronald Chua, Microenterprises in the Philippines. 21

Ibid.



Growth-oriented microentrepreneurs

Documented profiles of successful clients of an MFI affirmed that value

adding and asset building were among the characteristics exhibited by growth-

oriented microentrepreneurs. Chita Yalong, Lolita Agnote and Cynthia Relato were

microfinance clients engaged in fish vending but at different enterprise levels.22

These entrepreneurs knew how to diversify and make effective use of assets.

They could quickly spot business opportunities. They were ready to take risks and knew how to generate surplus. The profiles of these successful client-borrowers

showed that they utilized their loans to grow their business (building up their assets such as buying fishing boats, motors, etc.) and took advantage of the business support

offered by the MFI (e.g., access to capital, values formation).23

These successful client-borrowers shared other common characteristics. First,

they gained early exposure to business from helping out their families in a livelihood

enterprise during their childhood. Second, even without the benefit of higher

education, these microentrepreneurs showed mastery of the logic of their chosen businesses, though not without the costs of trial and error. To illustrate, Chita had to

endure losses when she started shipping the fish catch that she could not sell in Mamburao to other trading centers. But she persevered despite her initial failure.

Further, by using short message services (SMS), she was able to check on the market situation, i.e., the market prices of fish, before shipping the excess catch to Batangas.

In so doing, she avoided losses.24

Being technology capable is likewise a desirable entrepreneurial trait.

So far, several features that differentiate growth-oriented microentrepreneurs from

those simply engaged in livelihood enterprises had been identified. The more

significant ones were: having the know-how to shift to value-adding activities and to

invest in building their enterprise’s assets, and being technologically capable. How

else can growth-oriented microentrepreneurs be identified?

Growth-oriented entrepreneurship

Autio (2007) and Fabe (2002) offer two other possible indicators of growth-

oriented entrepreneurs: growth-expectations and entrepreneurial behavior.

A study by the Global Entrepreneurship Monitor25 (GEM) revealed an

interesting relationship between high-expectations and high-growth entrepreneurship.

22

Antonette Bolaños, “Chita Yalong: Fish Trader and Vendor. Profile of a Microentrepreneur” (Asian Institute of Management, 2007); Antonette Bolaños, and Meldy Pelejo, “Cynthia Relato: Amassing Assets Bit by Bit” (Asian Institute of Management, 2007). Meldy Pelejo, “Lolita Agnote: Financing the Family’s Fishing Business” (Asian Institute of Management, 2007). 23

Meldy Pelejo, “Lolita Agnote: Financing the Family’s Fishing Business”.. 24

Antonette Bolaños, “Chita Yalong: Fish Trader and Vendor.” 25

Spearheaded by Babson College and by the London Business School, GEM is a global research initiative aimed at analyzing the levels of entrepreneurial processes across different countries. Its major activities have been to create a large data set and construct harmonized measures of entrepreneurial activity using adult population surveys, national expert interviews and standardized cross national data sourced from the World Bank (WB), the International Monetary Fund (IMF) and from the United Nations (UN).



The study by Autio (2007) related high-growth expectations to the level of expected

job creation. Autio found that, “as many as 70 percent did not expect any job creation

at all. And only some 32 percent of all start-up attempts expected to generate 50 or

more jobs.”26

Moreover, only a few nascent and new27

firms or about 7.4 percent expected

to create 20 or more jobs. However, the expected jobs these new firms were projected to create represented 73 percent of the total jobs to be created by the whole group. In

contrast, early stage entrepreneurs (92.6%) contributed only 27.4 percent of the jobs whose creation was expected. Meanwhile, early stage entrepreneurs expecting more

than 100 jobs represented only 1.75 percent, although they did expect to create nearly half of the total jobs within the cohort. Meanwhile, those expecting to generate 50 or

more jobs, or about 3.4 percent of the respondents expected to create 60 percent of the total expected jobs.

Even if high-expectation entrepreneurship is not usual, the expected job

creation is significant, Autio pointed out. “Even though growth expectation does not

necessarily lead to growth, growth very rarely occurs by accident, or without

aspiration… Even though aspiration is an important precondition of growth, it needs

to be complemented by data on realized growth to provide a more accurate picture of

growth potential.”28 High expectations, in fact, could be considered an important

indicator or trait of a growth-oriented microentrepreneur.

The decision to start a business is normally affected by contextual factors (i.e.,

the budding entrepreneur’s environment) and an entrepreneur’s personal skills and

characteristics.29

Moreover, “growth expectations and realized growth may be

influenced by individual’s characteristics and it may be possible, at least to some extent, to identify characteristics associated with high-growth expectations and

realized entrepreneurial growth.”30

Usually, Autio explained, “the size and shape of an ‘opportunity’ and the related growth expectation [are] not defined by the environment alone, but rather by

the match between opportunity and the personal characteristics of the individual considering it.”31 In other words, a given opportunity would represent a big growth

potential to those entrepreneurs with the right skills and social capital to effectively

exploit it. Zenaida Aludino-Cagayan is a case in point. Over the years, Zenaida had

built her reputation as a supplier of live lobsters. Starting as a seaweed vendor at the

public market, she moved on to buying and selling fish prior to becoming a boat

owner. While selling in the public market, she made it a point to ask her customers

what else she could provide. Unlike her other co-vendors, Zenaida was persistent in

seeking information about her market. She became a wholesaler of fish, crabs and

lobsters, distributing these to Laoag or Aparri, or Malabon.

26 Erkko Autio, 2007 Global Report on High-Growth Entrepreneurship, p.10. 27

GEM defines Nascent entrepreneur - adults (18-64 yrs) who in the past 12 months tried to start a new business; personally owns or is part of the new firm; actively engages in the day-to-day management of the new firm and has not paid salaries to anyone for more than three months; and New entrepreneur - currently manages a new firm; personally owns all or part of the new firm which should not be more than 42 months old 28

Shane in Erikko Autio, 2007 Global Report on High Growth Entrepreneurship, p. 19. 29

Ibid., p. 29. 30

Ibid. 31

Ibid.



Entrepreneurial behavior and essential characteristics

Meanwhile, Fabe in her book,32 which depicted the entrepreneurial journey of

12 of Cebu’s successful businessmen, offered not only actual business insights on

wealth creation but she also summed up what comprise entrepreneurial behavior.

Among the common traits she noted in the 12 successful Cebuano businessmen were

the following:

• They all had small beginnings, that is, they had limited means but had

good business sense.

• They were enthusiastic despite the political and economic crises and were

always on the lookout for new business opportunities

• They worked hard to make their ideas work

• They did not give up despite business failures

• They strove to make their products or services meet market needs

• They created jobs for the community

• They tried to generate new jobs for their community

• They were upright and applied moral values in developing their businesses

• They innovated to remain the leaders in their business

• They understood their target market

• They made time for personal reflection and spiritual enrichment

• Their parents were their role models

Besides these common traits, Fabe pointed out the essential characteristics33

of a successful entrepreneur.

a) Discipline, diligence and self-confidence. A keen perception of a market

opportunity and the drive to mobilize resources to meet it. An entrepreneur is

courageous enough to explore a new product and offer it to the market, and is

ready to work untiringly and consistently, from the conceptualization to the

distribution phase.

b) Good knowledge of the product, the market and the technology.

c) Conviction that one’s product or service is unique.

d) Intelligence, innovation and creativity. To remain viable and successful, one

must carve a niche, which is often unperceived by the consumer as well as by

competitors, for the product or service offered.

e) Optimism and the ability to take calculated risks. Taking measured risks is

part of the business. One needs to be strong in the face of difficulties and

discouraging circumstances.

f) Total commitment and having clearly defined goals. Entrepreneurs should

channel all of their time, resources, and talents to the initial stages of the

business. Hard work, energy and single-mindedness are important elements of

an entrepreneur’s profile because one must set specific and time-bound goals

and learn to assess why these goals are not met.

32

Amparo Pamela Fabe, Cebu’s Successful Entrepreneurs: Smiling through the Recession (Cebu, 2002). 33

Ibid.



g) Honesty and integrity. A good entrepreneur is law-abiding and well known in

the community.

h) Open-mindedness. The ability to adapt and to make quick decisions. An

entrepreneur is aware of the changes in the environment. Sometimes, these

changes could be foreseen. A skillful entrepreneur readily adjusts and plans

his next moves with confidence.

i) A talent for personal marketing. Best results come from personally selling

one’s own product or idea.

j) A global attitude. An entrepreneur is exposed to the advancements in business

in other countries. One can do this by reading, traveling, and by interacting

with others.

k) Perseverance, perceptiveness and the ability to learn from mistakes. An

entrepreneur tackles failures immediately and derives insights from it.

The above-mentioned traits, while not exhaustive, summarize the contributing

factors that facilitate enterprise growth. But for MFIs and BDS providers to be more

strategic in their interventions, it may be more useful to provide them with the

entrepreneurial traits and skills essential for an entrepreneur at each stage of the

enterprise cycle. So far, the sketchy survey of growth-oriented microentrepreneurs has

shown that it is possible to identify those needed traits and skills and directly relate

these characteristics to the level of growth that their particular enterprises have

achieved.

Indeed, Autio was not alone in his observation of the vital role of the

individual entrepreneur’s qualities or traits and their relation to high growth

expectations and realized enterprise growth. Chua34

related growth or enterprise

success not only to individual traits and skills, but also to the market or industry to which the chosen enterprise belongs and to the entrepreneur’s access to support

services.

He hypothesized that “given a favorable market condition, microentrepreneurs who are highly skilled, who possess desirable entrepreneurial traits and have high

access to support services will likely succeed” (see Figure 3).

34

PinoyME Focus Group Discussion on Microenterprise Research, Q Bistro, Pasig City, August 7, 2008

Figure 3



To validate Chua’s hypothesis, a qualitative analysis of profiles of successful

entrepreneurs was undertaken. The analysis identified the traits and skills they

exhibited at various stages of the development of their enterprises. Since this paper set

out only to review the literature available on what makes for successful

microentrepreneurs, the information gathered was not correlated with the services---

financial products and BDS or non-financial services----that these successful

microentrepreneurs accessed, the extent to which they accessed these services and the market conditions or the state of the industry to which their microenterprises belong.

Validating the conceptual framework would require running a statistical analysis of the content analyzed. Moreover, the profiles of successful entrepreneurs available do

not provide enough information on the market or industries to which their businesses belong.

The profiles of 100 “successful” microentrepreneurs were documented stories

contained in “The Micros That Roared,” published by the University of the

Philippines’ Institute of Small Scale Industries (UP-ISSI), in Fabe’s “Cebu’s

Successful Entrepreneurs: Smiling through the Recession” and in the collection of

featured stories of successful microentrepreneurs from different MFIs, rural banks and

other organizations. “Introduction to Entrepreneurship” published by Anvil

Publishing also narrates the stories of successful Filipino entrepreneurs belonging to

the Association of Filipino Franchisers Inc. (AFFI)

The aim of the analysis was to identify the traits and skills exhibited by

successful microentrepreneurs at various stages of the development of their

enterprises that may have contributed to growing their microenterprises to the next

level.

The methodology used was basic content analysis. The information or data

provided in the microentrepreneurs’ profiles were categorized into traits, skills, and access to support services, and market or industry. Based on Chua’s hypothesis, these

factors helped microentrepreneurs succeed. Family background was added to these categories to provide a classification for the other data provided in the profiles and to

validate the observation in the preliminary findings that prior exposure to business in childhood or in a previous job contributed to the entrepreneur’s success.

Following the deductive category development in content analysis, the

categories were defined as follows:

A trait35 is a distinguishing quality (as of personal character); an inherited

characteristic that is stable or relatively permanent.

A skill, on the other hand, is “a learned capacity or talent to carry out pre-

determined results often with the minimum outlay of time, energy, or both. Skills can

often be divided into domain-general and domain-specific skills. For example, in the

domain of work, some general skills would include time management, teamwork,

leadership, self-motivation, and others; whereas domain specific skills would be

useful only for a certain job.”36

35

Merriam Webster’s definition (http://aolsvc.merriam-webster.aol.com/dictionary/traits). 36

http://en.wikipedia.org/wiki/skill



From the quick survey of the profiles of microentrepreneurs who have

succeeded in moving their enterprises from a livelihood activity to a growth-oriented

one, it is possible to identify certain traits and skills that characterize

microentrepreneurs with potentials for growth and to directly relate these

characteristics to the particular enterprise life-stage or to the level of growth their

enterprises had attained. Chua identified the four cycles undergone by an enterprise. At each enterprise

cycle, the role of the entrepreneur changes, along with the skills and other requirements.37

Enterprise Life Cycle &

the Role(s) of the Entrepreneur

Stage of Growth

Start Up

Growth

Maturity

Stability

Crucial Transitions

0-3 yrs

3-4 yrs

10 yrs 15 yrs

No. of Employees 0 0 to 20-25 25-75 75-100+

Core Management Mode Doing Doing Managing Managing

Based on Chua’s enterprise life cycle, three enterprise life stages were used in

the analysis: Start-up, Growing and the Stable stages. Given that the profiles of

successful microentrepreneurs did not provide sufficient information to distinguish

clearly each stage, especially the mature and stable stage, these two were merged into

one.

Findings

At the start-up stage of an enterprise, the microentrepreneurs exhibited the following traits:

o Confidence (Daring/Courage) o Hard working attitude (Industriousness)

o Resilience/Persistence (Committment) o Patience

o Flexibility o Open-mindedness

o Humility

o Trustworthiness

o Love of family

When starting a business enterprise, it is vital to have a perspective of the

whole business or path that one wants to take, or a clearly defined business model.

Even at the basic level, the various business functions have been considered:

production/operations, marketing, organization and finance.38

37

Ronald Chua, Pearl Project (Canadian International Development Agency 2004). 38

Ronald Chua, Knowledge Forum on Canada Microenterprise Project. March 2004



An entrepreneur needs courage and mastery of self in order to start an

enterprise. Thus, confidence, which could be used synonymously with daring, is

essential at the start-up stage. At the beginning, too, the start-up entrepreneur is

usually a “jack-of-all-trades,” doing everything from conceptualizing to buying the

raw materials, cutting, pasting or manufacturing the actual product, then marketing,

selling, delivering the finished product, to doing the accounting, etc. The early-stage

entrepreneur has no choice but to work long hours. He or she must also be persistent, that is, ready to keep going despite failure or setbacks in the business.

Patience is the trait that is related to foresight. Patience must be combined

with biding one’s time, waiting for the opportune moment while preparing for the future by building one’s business assets such as buying the lot for a future factory,

investing in research, and so on, in order to take advantage of a business opportunity. It also means delaying gratification, which requires ploughing back the profits into the

business as opposed to spending on consumption or personal needs. Open-mindedness

means the willingness to listen and accept suggestions, advice or help from one’s

business partner/s, to explore and try out new things if something does not work.

In terms of general skills, microentrepreneurs at this particular enterprise life

cycle showed:

o Mastery of product and technology/process

o Strictness with standards and goals

o Marketing skills

o Interpersonal skills

Depending on the particular enterprise in which one is engaged, the entrepreneur should have mastery of the technology/or process related to the

manufacture of a product. This aspect is very much related to maintaining strict product standards, which in turn will affect the marketing of the products. At the start-

up stage, interpersonal skills are vital not only to employee relations, but also to establishing initial business contacts and penetrating markets, and sourcing the needed

financing as well as support from relatives and friends.

Marivic Cordavez of Lumban, Laguna who owns Burda de Filipinas, a small

company involved in the production of intricate embroidery and embroidered

products for which Lumban is famous, demonstrated how vital these general skills

are. As a young girl, she learned to embroider swatches in her aunt’s embroidery

shop. She also became a part-time salesperson for her aunt’s shop when she grew up.

Her previous exposure to the business made it easy for her to attain mastery of the

enterprise once she decided to resign from government work. As soon as she revived

her aunt’s embroidery business, she personally supervised the whole operation—from

design, sewing, marketing and selling---even after the business grew and she was able

to hire two supervisors.39

39

Nimfa Derige-Montes, “A True Child of Lumban” in The Micros That Roared. Dreamers, Doers Risktakers 3. (Quezon City: Small Enterprises Research and Development Foundation Inc., 2006).



Miguelito Diestro of SANRAM Agricultural and Farm Machinery believed

that an entrepreneur should start a business that focused on his/her hobby and main

interest, and then nurture this into a business based on expertise. So this was exactly

what he did. The first business he put up was MG Metal Craft that made and installed

automotive mufflers. When he realized that the business needed constant financing,

he closed it and sought employment in two major companies involved in trading,

engineering and motor works so as to gain experience in running a flourishing business. He also worked for a rice research institute, which exposed him to

agricultural and farm machinery. After this exposure, Miguelito started the manufacture of power tillers, which were machines used to prepare the land before

planting.40

At the growing stage of an enterprise, the entrepreneurs exhibited the following traits:

o Keenly observant

o Innovative

o Friendly/Outgoing

o Open (to learning/improving continuously)

o Dedication/passion

o Risk-taker

To keep pace with her growing market and as a result of repeat orders,

Marivic invested in new machines, used the Internet to keep in touch with customers, negotiate sales contracts and used computers to help monitor and control production

and manage the company’s finances. She innovated on materials, designs and production methods, and studied design books and magazines, participated in trade

fairs and exhibits to be on top of new product designs and development.41

With regard to skills, entrepreneurs at the growing stage focused on:

o Managing productivity

o Managing quality (product)

o Managing efficiency

o Organizational development

o Financial management

o Budgeting

o Strategic management

o Human resource management

40

Nimfa Derige-Montes, “SANRAM Commits Itself to Agro-Industries” in The Micros That Roared. Dreamers, Doers Risktakers 3 (Quezon City: Small Enterprises Research and Development Foundation Inc. 2006). 41

Derige-Montes “A True Child of Lumban”.



At the growing stage, Miguelito believed that one should invest in training and

exposure, not only to new technologies but also to new business management

practices to support business growth. One should also learn how to look for new

financing sources, budget one’s capital especially when one decides to diversify

business operations. When Miguelito increased his workforce, he made sure to train

his unskilled workers (e.g. helpers) or improve the training of those already skilled

through courses offered by government agencies such as the Technical Education and Skills Development Authority (TESDA) or the Department of Trade and Industry

(DTI). He ensured that product standards were followed by inspecting the outputs and supervising the work process daily.42

At the stable stage of an enterprise, the entrepreneurs exhibited the following

traits:

o Creativity

o Openness (to learning/improving continuously)

o Dedication/passion

o Sensitive to opportunities

o Risk-taker

o Magnanimous

Entrepreneurs at the stable enterprise level illustrated they need general skills

similar to those in the growing stage but at a deeper level:

o Organizational strengthening

o Financial management

o Human resource management o Marketing/Market analysis

o Human resource management o Mastery of core business

o Product research and development o Networking

o Diversification/Expansion

The entrepreneurial traits and skills at the stable stage are similar to the

previous stages, but the need for continuous training or education should be

highlighted. Even if it may be true that one continues learning new things that would

help the business outside of the classroom, successful businessmen advised getting a

good education from a good school to shorten the learning curve and have a

competitive edge in the market.43

With growth or expansion, the need for greater

management skills becomes more acute to keep the business on an even keel toward

its direction. Magnanimity or desiring, setting high goals remain a crucial trait. One

must aim for higher goals each time otherwise, the business would stagnate.

The traits identified at each stage of the enterprise cycle are by no means

exclusive to that enterprise stage. The categories simply serve to highlight the

contributing factors essential for entrepreneurs to succeed.

42

Derige-Montes, “SANRAM Commits Itself to Agro-Industries”.. 43

Fabe, 2002, p. 122.



What other studies say

Let’s Go Foundation44 carried out a survey among 100 growing women

entrepreneurs who have been engaged in business for at least two years. The top three

lines of businesses of these respondents were as follows:

distribution/trading/forwarding, commercial services and retailing, from which most

of them earned between Php1 and Php30 million.

The objective of the research survey was to gain insights into the experiences, problems, successes and attitudes of women entrepreneurs. The survey results

identified key factors influencing success and failure in business.

Highly trained researchers guided by market research guru, Dr. Ned Roberto, conducted one-on-one interviews. Since the interviews were face-to-face, researchers

had the opportunity to probe and ask follow-up questions. The respondents were

asked 29 questions about their experiences as entrepreneurs.

Majority of the respondents (83%) came from the broad and upper middle

classes, 14 percent from the upper class and 3 percent from the borderline poor. The

survey results showed that 64 percent of the respondents had worked previously in

private corporations before they went into business. In fact, 47 percent had finished a

business-related course. They found their previous work experience very useful in

terms of the training or experience they got on systems and procedures and human

resources management.

When asked in what sense they thought the trainings or seminars on business

to be effective, 43 percent of the women entrepreneurs cited the professors’ teaching, while 26 percent mentioned the teaching materials used.

The women entrepreneurs also considered the influence of their families a big

factor in their decision to launch a business. Among the respondents, 22 percent had one parent who was a business entrepreneur, while 53 percent had two parents who

were entrepreneurs. Sixty-one percent attributed their motivation to go into business to their families.

The top three aspects that respondents found most useful in growing their

businesses were financial management, strategic planning, and market/micro market

analysis.

Among the aspects of running a business that respondents found most difficult

were the following: human resource management, financial planning and budgeting,

industry and competitive analysis and financial management.

Most useful to growing their enterprises were finance (31%), marketing

(26%), and strategic management (23%). The respondents also highlighted the

usefulness of networking skills and considered it a capability to be fostered.

44

Women Entrepreneurship Survey Results Report (www.womentrepreneurship.org/19).



The results of the above study underlined how possessing the foundation in

the basics of running a business is important to success. In addition, it revealed that

women entrepreneurs who are financially literate, who know their market and have

acquired skills in marketing and strategic management will fare better in managing

their businesses.

Barriers to Entrepreneurship

The Philippine study by GEM confirmed what had been pointed out earlier with regard to non-growing microenterprises. Many of them remained small (or

micro) since they were put up mainly because of necessity as opposed to the drive to take advantage of business opportunities. The lack of financial access and formal and

informal training on entrepreneurship also limited the entrepreneurial activity of women entrepreneurs.45

Among the major challenges faced by entrepreneurs in developing countries

are the following: inadequate infrastructure, shortage of capital, the inability to access

financial services, and weak institutions. Electrical service is sometimes unpredictable

and transport costs are high due to the lack of farm to market roads. Reliable transport

or logistics services are expensive, just as the basic mechanics for starting a business

can also be costly. 46

Even though men worldwide are twice likely to engage in business as women,

there are disparities across countries. In developing countries, female

entrepreneurship is higher than in developed countries. As previously mentioned

compelling factors in the decision to become entrepreneurs are poverty and the need

to augment family income. Thus, women entrepreneurs could be said to have been “forced” into entrepreneurship as opposed to being “chance” entrepreneurs who start

up an enterprise to keep busy or to engage in a hobby.47

Among the top hurdles women entrepreneurs face are funding or financing, family support, lack of access to networks of knowledge and business information,

having to play dual roles in the home---as wife/mother and entrepreneur---and the lack of education.48

Some of the other constraints faced by the MSMEs in the conduct of their

businesses (from profiles and from a study by a microfinance institution of its female

clients engaged in microenterprises) were marketing, product quality (including

packaging design) and development, access to capital and technology as well human

resource management. Often, their products were rejected due to

transportation/handling damage, problems in preservation, product quality, and poor

packaging designs. Most women microentrepreneurs were into manufacturing and

retail trade.

45 Imelda Madarang and Cielito Habito, Global Entrepreneurship Monitor Philippine Report 2006-2007. 46

Geoffrey Jones and Alexis Lefort, “Female Entrepreneurship in Developing Countries,” Harvard Business School, 9-807-018, November 9, 2006. 47

Ibid. 48

Ibid.



These same women microentrepreneurs tend not to enter potential markets

because their production capacity is low; they have insufficient capital and lack

marketing support. In the meantime, those who have who have tried penetrating

potential markets stop because of insufficient capital, competition, low production

capacity, poor collection and problems in manpower. In other words, there is a need

to improve product quality, packaging and design; to increase capital for production

and manpower, and to come up with good marketing strategies.49

The above findings matched the gaps outlined by the National Council for the Role of the Filipino Women.50 Among these were:

� Women fare worse than men in industrial-skill competency

assessment and accreditation. Hence, a big potential would be

to enhance their small business management or

entrepreneurial skills and competencies, as they are the ones

generally pushed to start self-employment activities at home.

� For the women who managed to build their own enterprises,

the need was to provide more business management skills,

improve value creation capacities…

� While some credit programs reached over a million women in

urban and rural areas, including microenterprises and SMEs,

there was little evidence that the loans extended to women were

enough, even for sustainable livelihood activities.

To scale up their enterprises and succeed to the next level, beside specific

skills related to their chosen enterprise, women entrepreneurs need more business

management and entrepreneurship skills, access to capital and technology as well as marketing support.

Summing up

This paper set out simply to survey the literature available on growth-oriented

microenterprises. Starting with a discussion on the nature of microenterprises the paper then moved onto distinguish the two types of microenterprises: those that are

focused on livelihood activities and those that have expansion aims and are properly

called microenterprises. Livelihood activities are aimed at meeting the consumption

needs of the low-income household or adding to the household income. In contrast,

microenterprises have increasing family income and generating jobs for non-family

members among its objectives. Based on this differentiation, MFIs and DOs could

start identifying growth-oriented microenterprises.

The literature review also enumerated the other features that characterize

growth-oriented microentrepreneurs. They know how to shift to value-adding

activities. They prioritize asset building or acquisition. They have high expectations,

know how to diversify, are technologically capable and have mastery of the logic of

their chosen enterprise.

49

Marketing Constraints and Opportunities for Women Client-Producers of Taytay sa Kauswagan, Inc. (TSKI), a microfinance institution based in Iloilo City. It is the the second biggest MFI in the Philippines. 50

Center for Women Entrepreneurship



The paper also analyzed the traits and skills that growth-oriented

microentrepreneurs possess based on the documented stories or profiles of successful

entrepreneurs. The essential traits and skills were categorized or related to the

enterprise cycle that the entrepreneurs had attained. Statistical analysis was not

employed. Future studies could try to do a rigorous content analysis and validate what

makes for a growth-oriented entrepreneur.

What the paper tried to do was sketch the individual traits and skills growth-

oriented entrepreneurs exhibit. This preliminary sketch could serve as a basis for screening whom the delivery of BDS should target or who should benefit more from

BDS and other interventions. The sketch of traits and skills could also serve as a foundation in the development of appropriate entrepreneurial training programs in

order to address the lack of traits and skills, as shown by the results of the research survey of the Let’s Go Foundation.

Taking off from the findings of the literature review, the Workshop on

Successful Microentrepreneurs51

identified the key drivers or components of

microentrepreneurial growth as follows:

a) Mastery of business as shown in the match the entrepreneur makes between

market demand and personal skills

b) Shift to value-adding activities so that the accruing higher income is translated

to asset accumulation and/or diversification

c) Broader mindset as manifested in risk-taking behavior

d) External assistance or access to support services such as MFIs, government

agencies, BDS providers, etc.

Nonetheless, the challenges remain. These continue to revolve around coming

to an agreement on how to spot the growth-oriented microentrepreneurs and the sustainability issue.

Among the key questions that MFIs and BDS providers continued to ask were:

a) Given the traits and skills of growth-oriented microentrepreneurs, do loan

officers/account officers or the microfinance staff have the capacity to identify

them in their client-borrowers?

b) Is there a match between BDS providers and the key drivers of

microentrepreneurial growth?

c) How should BDS be sustained?

51

Organized by PinoyME, Seameo Innotech, October 10, 2008



On the issue of spotting the motivating potential in microentrepreneurs, some

MFIs and BDS providers simply use the loan amount as a screening tool for

extending BDS to their clients, while others use the willingness to pay for BDS as a

sign of growth-mindset. Such entrepreneurs tend to be willing to undergo training

because they are in search of new information or skills, and thus, have a commitment

to grow their enterprise. The search for new information or skills can be taken as an

indicator that the entrepreneur is not satisfied with how the business is being managed.

With regard to sustaining the provision of BDS, most MFIs and BDS

providers rely on subsidy schemes or on donors, while others outsource. Fees for BDS are either embedded in some products or services while others charge service fees.

Three things that MFIs and BDS providers agreed on was that it was crucial to

gather client information, adopt or draw up a diagnostic tool for identifying growth-

oriented microentrepreneurs and come up with a tool for tracking the growth of an

enterprise.

literature review on growth-oriented microentrepreneurs

Documents